Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson et al.
501 U.S. 350 (1991)
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Rule of Law:
Litigation instituted pursuant to § 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 must be commenced within one year after the discovery of the facts constituting the violation and within three years after such violation. This uniform federal limitations period is derived from analogous express causes of action within the Securities Acts and is not subject to the doctrine of equitable tolling.
Facts:
- Between 1979 and 1981, several investors purchased units in one or more of seven limited partnerships formed to acquire and lease computer hardware and software.
- The law firm Lampf, Pleva, Lipkind, Prupis & Petigrow aided in organizing the partnerships and prepared opinion letters on the tax consequences of the investments.
- The offering memoranda for the partnerships allegedly contained misrepresentations, including assurances of substantial tax benefits, profitability, and the accuracy of equipment appraisals.
- The partnerships ultimately failed, due in part to the obsolescence of their computer equipment.
- In late 1982 and early 1983, the investors received notice that the Internal Revenue Service (IRS) was investigating the partnerships.
- The IRS subsequently disallowed the investors' claimed tax benefits, citing overvaluation of partnership assets and a lack of profit motive.
- The investors asserted that they only became aware of the alleged misrepresentations in 1985 after the IRS officially disallowed their tax benefits.
Procedural Posture:
- Plaintiff-investors filed complaints in the U.S. District Court for the District of Oregon in 1986 and 1987 against petitioner Lampf, Pleva and others.
- The District Court, a court of first instance, granted summary judgment for the defendants, finding the complaints were untimely.
- The District Court applied Oregon's 2-year statute of limitations for fraud and concluded that the investors were on 'inquiry notice' of the fraud as early as 1982.
- The plaintiff-investors, as appellants, appealed the decision to the U.S. Court of Appeals for the Ninth Circuit.
- The Court of Appeals, an intermediate appellate court, reversed the summary judgment and remanded the case.
- The appellate court held that unresolved factual issues regarding when the plaintiffs should have discovered the fraud precluded summary judgment, while agreeing with the trial court that Oregon's 2-year statute of limitations was the appropriate standard.
- The U.S. Supreme Court granted certiorari to resolve the circuit split on the proper limitations period for Rule 10b-5 claims.
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Issue:
Does a uniform federal statute of limitations, derived from other sections of the Securities Exchange Act of 1934, apply to private civil actions brought under § 10(b) and Rule 10b-5, rather than a statute of limitations borrowed from analogous state law?
Opinions:
Majority - Justice Blackmun
Yes, a uniform federal statute of limitations applies to private actions under § 10(b) and Rule 10b-5. When a federal statute creating an implied cause of action also contains express causes of action with their own time limitations, courts should look to the statute of origin to ascertain the proper limitations period. The traditional practice of borrowing state statutes of limitations is inappropriate here because federal interests in uniformity and predictability are paramount in securities litigation, and the Securities Acts of 1933 and 1934 provide a closer analogy than any state law. The 1-and-3-year structure found in other sections of the Acts represents Congress's considered judgment on the proper balance between protecting investors and preventing stale claims. Furthermore, the 3-year period is a statute of repose, meaning the doctrine of equitable tolling does not apply to extend it.
Concurring - Justice Scalia
Yes, the Court reaches the correct judgment. While state limitations periods should generally govern federal causes of action where Congress is silent, judicially implied causes of action like § 10(b) present a unique problem. Since the courts created the cause of action, it is most responsible for courts to also derive the limitations period from the same statute. The most analogous provisions are the express causes of action Congress created in the Securities Exchange Act of 1934, making the 1-and-3-year limitations period the most appropriate choice.
Dissenting - Justice Stevens
No, the Court should adhere to the traditional practice of borrowing state statutes of limitations. For over four decades, federal courts consistently applied analogous state limitations periods to § 10(b) claims, a practice rooted in the Rules of Decision Act. The Court's decision to fashion a new, uniform federal rule is a lawmaking task that properly belongs to Congress, not the judiciary. Overruling this long-established precedent ventures into judicial policymaking and creates difficult questions of retroactivity that Congress is better equipped to handle.
Dissenting - Justice Kennedy
Yes, a uniform federal statute of limitations is appropriate, but the Court's adoption of an absolute 3-year period of repose is incorrect. While the 1-year-from-discovery rule is proper, the 3-year cutoff will frustrate the protective purpose of § 10(b). Securities fraud is often complex and inherently concealed, and a rigid 3-year bar makes it nearly impossible for victims of sophisticated schemes to seek recovery. This conflicts with the traditional approach for fraud claims, which typically run from the date of discovery without such a short, absolute limit.
Dissenting - Justice O'Connor
This opinion dissents from the retroactive application of the new rule. Applying a new limitations period to bar a suit that was timely filed under well-established circuit precedent is a drastic and unjust departure from established practice. Under the principles of Chevron Oil Co. v. Huson, the new rule should be applied only prospectively. The respondents reasonably relied on existing Ninth Circuit law, and it is manifestly inequitable to dismiss their suit by retroactively applying a rule they could not have foreseen.
Analysis:
This landmark decision established a single, nationwide statute of limitations for private securities fraud claims under Rule 10b-5, promoting uniformity and predictability in federal securities litigation. It ended the widespread practice of borrowing disparate state limitations periods, which had encouraged forum shopping and generated extensive satellite litigation. However, by adopting a relatively short 1-and-3-year period and precluding equitable tolling for the outer limit, the ruling also made it more difficult for plaintiffs to bring claims, particularly in complex cases where fraud may take years to uncover.
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