Supreme Court Rejects Argument That Section 16(b) Claims Based on “Short Swing” Trades Are Tolled Until Filing of a Section 16(a) Statement
Yesterday, in Credit Suisse Securities (USA) LLC v. Simmonds, No. 10-1261, the United States Supreme Court unanimously reversed a Ninth Circuit decision which had held that the statutory two-year limitations period to file suits seeking disgorgement of “short-swing” profits from statutory corporate insiders under Section 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78p(b), is tolled until the disclosure statement required by Section 16(a) is filed. The Court also rejected the Second Circuit’s rule that Section 16(b)’s limitations period is tolled until the plaintiff has actual notice that a corporate insider has realized specific short-swing profits. The Court was equally divided 4-4, however, as to whether Section 16(b) establishes a period of repose that is not subject to any tolling. Assuming, without deciding, that some form of tolling may apply to Section 16(b) claims, the Court remanded the case for consideration of whether traditional rules of equitable tolling would allow tolling of the limitations period in this case. The district court had already ruled that under traditional equitable tolling principles, “all of the facts giving rise to [plaintiff’s] complaints . . . were known to the shareholders . . . 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).