Tello v. Dean Witter Reynolds, Inc.

• Decision Date: 01 June 2005
• Docket Number: No. 03-12545.,03-12545.
• Citation: 410 F.3d 1275
• Parties: Mark TELLO, on behalf of himself and all others similarly situated, Plaintiff-Appellee, v. DEAN WITTER REYNOLDS, INC., n.k.a. Morgan Stanley DW, Inc., Paul Grande, Defendants-Appellants, Mark Rodgers, Defendant.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1275

410 F.3d 1275

Mark TELLO, on behalf of himself and all others similarly situated, Plaintiff-Appellee, v. DEAN WITTER REYNOLDS, INC., n.k.a. Morgan Stanley DW, Inc., Paul Grande, Defendants-Appellants Mark Rodgers, Defendant.

No. 03-12545.

United States Court of Appeals, Eleventh Circuit.

June 1, 2005.

William H. Pratt, Katherine J. Alprin, Eric F. Leon, Kirkland & Ellis, LLP, New York City, Katherine Claire Lake, Fowler, White, Gillen Boggs, et al, Tampa, FL, Stanley T. Padgett, Padgett & Mierzwinski, P.A., Tampa, FL, Luther M. Dorr, Jr., A. Inge Selden, III, Maynard, Cooper, Frierson & Gale, Birmingham, AL, for Defendants-Appellants

Conor R. Crowley, Mich, Shelist, Freed, Denenberg, Ament & Rubenstein, Chicago, IL, Shannon P. Keniry, Finkelstein, Thompson & Loughran, for Defendants-Appellants.

Appeal from the United States District Court for the Middle District of Florida.

Before EDMONDSON, Chief Judge, and BIRCH and FARRIS^*, Circuit Judges.

BIRCH, Circuit Judge:

This interlocutory appeal presents the issue of whether the amended statute of limitations in the Public Company Accounting Reform and Investor Protection Act of 2002, known as the Sarbanes-Oxley Act ("SOA"), 28 U.S.C. § 1658(b), revives securities fraud actions that were time-barred before the effective date of the SOA. Determining that the new limitations period revives actions that previously were time-barred, the district judge denied the motion to dismiss. We VACATE the district court's order and REMAND for further proceedings consistent with this opinion.

I. BACKGROUND

On November 15, 2002, E. Paul Roberts filed a class-action complaint for securities fraud and alleged that Mark Rodgers,¹ a former broker for defendant-appellant Dean Witter Reynolds, Inc., currently known as Morgan Stanley DW, Inc., manipulated the price of e-Net² stock by engaging in a short squeeze.³ The conduct allegedly began on January 1, 1998, and ended on August 19, 1998. Dean Witter, Rodgers, and defendant-appellant Paul Grande (collectively, "Dean Witter") purportedly manipulated the stock by deceptively contriving the market prices of e-Net stock for the purpose of creating and maintaining artificially high market prices. Dean Witter allegedly accomplished this manipulation by engaging in unauthorized trading in the accounts of specific Dean Witter customers to stabilize the price of e-Net stock. Dean Witter purportedly furthered the success of the scheme by creating and promoting a plan to withhold stock from short sellers to effect a short squeeze and by making false statements to discourage clients from selling e-Net stock.

On October 1, 2002, the Securities and Exchange Commission ("SEC") issued an Order Instituting Public Administrative and Cease-and-Desist Proceedings Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions ("SEC Order"). The SEC Order censured and fined Dean Witter, suspended and fined Grande, and fined and barred Rodgers from association with any broker or dealer. Alleging violations of Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78j(b); Rule 10b-5 promulgated thereunder and codified at 17 C.F.R. § 240.10b-5; and Section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a), Roberts filed his complaint on behalf of himself and class members similarly situated on November 15, 2002.

The SOA, which establishes the applicable statute of limitations for securities fraud as two years from the date of discovery or five years from the date of the violation, became effective on July 30, 2002. 28 U.S.C. § 1658(b). On January 23, 2003, Dean Witter moved to dismiss the complaint based on statute-of-limitations grounds and argued that the new limitations period under the SOA does not revive claims that expired before its effective date. The district judge in the Middle District of Florida determined that the new limitations period revives previously time-barred claims and denied Dean Witter's motion to dismiss.⁴

In an amended order, the original district judge determined that the complaint, filed after the effective date of the SOA, was timely and overcame Dean Witter's motion to dismiss: "The effective date, which is July 30, 2002, hinges on the date that `proceedings' commence or commenced rather than on the date the violation occurred. This language, standing alone, seems to presume that the [Sarbanes-Oxley] Act affords redress for violations that had already occurred before July 30, 2002." R1-31 at 6. The district judge further found that the legislative history supported this conclusion.

Nevertheless, the district judge also decided that "[t]he controlling question of law is whether time-barred claims are revived by the Sarbanes-Oxley Act," and that legal interpretation of the new statutory language warranted an interlocutory appeal to our court. Id. at 8. Consequently, the judge permitted Dean Witter to seek appellate review in this court. We granted Dean Witter's petition for interlocutory appeal. Prior to addressing the statute-of-limitations issue presented, we explain the necessity for additional factfinding by the district court.

II. DISCUSSION

A. Review Standards

"We review the district court's interpretation and application of statutes of limitations de novo." United States v. Clarke, 312 F.3d 1343, 1345 n. 1 (11th Cir.2002) (per curiam). Because we have been asked to decide whether the revised statute of limitations under the SOA revives time-barred claims, we must interpret § 1658(b). With securities laws, "as in other contexts, the starting point in construing a statute is the language of the statute itself." Randall v. Loftsgaarden, 478 U.S. 647, 656, 106 S.Ct. 3143, 3149, 92 L.Ed.2d 525 (1986). The "cardinal canon" of statutory interpretation is "that courts must presume that a legislature says in a statute what it means and means in a statute what it says there." Connecticut Nat'l Bank v. Germain, 503 U.S. 249, 253-54, 112 S.Ct. 1146, 1149, 117 L.Ed.2d 391 (1992). In addition to the "particular statutory language at issue," federal courts also must consider "the language and design of the statute as a whole" to determine "the plain meaning of the statute." K Mart Corp. v. Cartier, Inc., 486 U.S. 281, 291, 108 S.Ct. 1811, 1818, 100 L.Ed.2d 313 (1988).

At the threshold point of our analysis, the statutory language, there is a telling wording distinction between the formerly used statute of limitations and the statute of limitations under the SOA. Prior to the effective date of the SOA statute of limitations, July 30, 2002, the formerly used statute of limitations for federal securities claims under Section 10(b) and Rule 10b-5 of the Exchange Act provides that "[n]o action shall be maintained to enforce any liability created under this section, unless brought within one year after the discovery of the facts constituting the violation and within three years after such violation." 15 U.S.C. § 78i(e) (emphasis added). 15 U.S.C. § 78i(e); Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 364 & n. 9, 111 S.Ct. 2773, 2782 & n. 9, 115 L.Ed.2d 321 (1991); Theoharous v. Fong, 256 F.3d 1219, 1228 (11th Cir.2001). This statute of limitations is stated conjunctively. Under the plain terms of that statute of limitations, the complaint must be filed within one year from discovery of the facts that caused the securities violation and within three years of that violation. Because the class-action complaint, filed on November 15, 2002, alleges applicable securities fraud violations that occurred from January through August 19, 1998, the two-part conjunctive test for that statute of limitations was not met, and the class action would have been untimely under the formerly applicable statute. This would be true even if discovery of the facts evidencing the securities violation occurred outside the three-year period from occurrence of the violative conduct.

In contrast, the subject statute of limitations for applicable securities actions under the SOA, which we have been asked to interpret, provides:

[A] private right of action that involves a claim of fraud, deceit, manipulation, or contrivance in contravention of a regulatory requirement concerning the securities laws, as defined in section 3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47)), may be brought not later than the earlier of —

(1) 2 years after the discovery of the facts constituting the violation; or

(2) 5 years after such violation.

28 U.S.C. § 1658(b) (emphasis added). Since the SOA statute of limitations is stated disjunctively, a complaint filed after July 30, 2002, the effective date, would be timely if it was filed two years after discovery of the facts evidencing the securities fraud, inquiry notice, or five years after the fraudulent conduct, a procedural statute of repose,⁵ whichever event occurs first. By its explicit terms, the SOA statute of limitations applies solely to cases concerning securities fraud. The Historical and Statutory Notes to this section clarify that this "limitations period ... shall apply to all proceedings addressed by this section that are commenced on or after the date of enactment of this Act [July 30, 2002]." 28 U.S.C. § 1658 (Historical & Statutory Notes) (emphasis added). They further specify: "Nothing in this section ... shall create a new, private right of action." Id. Therefore, the SOA lengthens the statute of limitations for federal securities fraud cases prospectively from a one-year/three-year scheme to a two-year/five-year scheme.

B. Plain Meaning

By its plain terms, the purpose of § 1658(b) is to state the two points in time that a private action for securities fraud may be brought. Under a plain, facial reading of the SOA statute of limitations, there is built-in, limited retroactive application for the earlier of two years after discovery of the facts constituting the...