On April 29, 2016, the United States Court of Appeals for the Second Circuit affirmed a dismissal by the United States District Court for the Southern District of New York, holding that the Oxley Act of 2002 (“SOX”) extended the statute of repose from three years to five years for claims brought under Sections 9(f) and 18(a) of the U.S. Securities Exchange Act of 1934 (the “Exchange Act”), it did not change the three-year statute of repose for Section 14(a) claims.
Bricklayers and Masons Local Union No. 5 Ohio Pension Fund v. Transocean Ltd. et. al., No. 14 Civ. 0894, 2016 WL 1055363 (2d Cir. April 29, 2016). The Court reached this result despite a prior decision that applied the repose period under Sections 9(f) and 18(a) to Section 14(a), based on the principle that assumes that Congress accounts for existing law when it passes legislation.
Plaintiffs’ Section 14(a) claim arose from the merger of GlobalSantaFe Corp. (“GSF”), an offshore oil and gas drilling contractor, and Transocean Inc. (“Transocean”), which owned the Deepwater Horizon, an offshore oil rig in the Gulf of Mexico that exploded on April 20, 2010, causing the worst oil spill in U.S. history. The joint proxy statement in support of the merger, released on October 2, 2007, included representations regarding Transocean’s compliance with training and safety programs and equipment maintenance. GSF shareholders alleged material misrepresentations and omissions concerning Transocean’s safety protocols. When the original plaintiff was dismissed for lack of standing, the only remaining lead plaintiff was a party that did not seek to be appointed lead plaintiff until December 3, 2010. The District Court thus dismissed the case as time barred under Section 14(a)’s three-year statute of repose. This appeal followed.
In the 1990 case of
Ceres Partners v. GEL Associates, 918 F. 2d 348 (2d Cir. 1990), the Second Circuit applied the three-year statute of repose applicable to Sections 9(f) and 18(a) to Section 14(a). But even though the court here concluded that SOX’s five-year statute of repose applies to Sections 9(f) and 18(a) because both statutes met SOX’s requirement of claims dealing with “fraud, deceit, manipulation, or contrivance,” it still held that this period does not apply to Section 14(a). The Court reached this conclusion based on the principle of statutory interpretation that “assume[s] that Congress is aware of existing law when it passes legislation.” When Congress chose to make SOX’s five-year statute of repose apply only to claims of “fraud, deceit, manipulation, or contrivance,” it therefore must have intended to leave intact the three-year statute of repose under Section 14(a), which can give rise to liability for mere negligence.
Lastly, the court held that because a statute of repose is meant to impose a firm cutoff on when claims can be brought, the statute of repose under Section 14(a) begins to run at the time of the defendant’s alleged violation—in this case, when the merger proxy statement was issued—rather than the more “fluid” standard of when plaintiff could have (or did) discover the claim.
For additional information about this case, please see our client note:
http://www.shearman.com/en/newsinsights/publications/2016/05/second-circuit-holds-sarbanes-oxley-s-five-year
