In 2007, Plaintiff Vanessa Simmonds brought suit under Section 16(b) to recoup profits allegedly realized by various underwriters including our clients JP Morgan Securities, Inc. and Bear Stearns & Co. through purported “short-swing” trades between 1999 and 2000 made in connection with the initial public offerings by fifty-four issuing companies. The district court granted the underwriters’ motions to dismiss the complaints because “all of the facts giving rise to Ms. Simmond’s complaints against the [u]nderwriter [d]efendants were known to the shareholders of the [i]ssuer [d]efendants for at least five years before these cases were filed.” In re Section 16(b) Litig., 602 F. Supp. 2d 1202, 1217 (W.D. Wash. 2009). The district court based its decision on the fact that the Section 16(b) claims asserted in the Simmonds lawsuits, which were commenced in 2007, were based on the same allegations that had formed the basis for the highly publicized claims in In re Initial Public Offering Securities Litigation, 241 F. Supp. 2d 281 (S.D.N.Y. 2003), and Credit Suisse Securities (USA) LLC v. Billing, 551 U.S. 264 (2007), which had been filed in 2001 and actively litigated thereafter. The Ninth Circuit reversed the statute of limitations dismissals, based on that Circuit’s prior precedent in Whittaker v. Whittaker, 639 F.2d 516 (9th Cir. 1981), which held that the 2-year statute of limitations is tolled until a Section 16 (a) report is filed by the defendant (which the Underwriters have never filed because of the good faith underwriting exception to the filing requirements). The Underwriters successfully petitioned for a writ of certiorari.
The Supreme Court unanimously reversed the Ninth circuit, categorically rejecting the Ninth Circuit’s Whittakker rule and a similar 2004 Second Circuit decision in Litzler v. CC Investments, which had held that the Section 16 (b) statute of limitations is tolled until the plaintiff gets actual notice of the specific profits upon which his or her Section 16 (b) case is based . The Supreme Court , with Justice Roberts having recused himself, divided equally 4-4 on whether the 2-year statute is a statute of repose, which would have allowed no equitable tolling, but held 8-0 that even if equitable tolling applies, the usual constructive notice rule should apply that if the Simmonds plaintiff could have through due diligence been aware of her claims for more than two years after the alleged wrongful profits were taken and failed to bring suit within the two years from such constructive notice, then the plaintiff’s case is time barred. Because the Simmonds plaintiff’s Section 16 (b) claims are based on essentially the same alleged conduct addressed in the highly publicized IPO Securities and IPO Antitrust litigations brought in 2001, the district court had found that all the material facts upon which the plaintiff had based her allegations were well known to the shareholders of the issuers at least 5 years before the plaintiff brought her suit. The Supreme Court remanded the case to the Ninth Circuit to consider those findings under the equitable tolling doctrine.
This is actually the second time one of the IPO cases went to the Supreme Court, as we obtained the dismissal of the IPO Antitrust cases there as well.
David Ichel, Joseph McLaughlin, Jeffrey Coviello and Susannah Geltman represented JP Morgan and Bear Stearns, and many other present and former STB litigators in addition to them have worked on the prior IPO cases for JP Morgan.