In The Second Circuit, Uncertainty Remains Over The Triggering Event For The Statute Of Repose Applicable To Federal Securities Fraud Claims

Federal securities fraud claims brought under § 10(b) of the Securities Exchange Act and S.E.C. Rule 10b-5 must be brought not later than the earlier of two years after the discovery of the facts constituting the violation, or five years "after such violation."1 The two-year period is typically referred to as a statute of limitations, and the five-year period as a statute of repose. Although the law in the Second Circuit regarding accrual of the two-year statute of limitations is fairly well-settled, recent decisions have highlighted the absence of any clear guidance as to when the five-year statute of repose is triggered.

A Primer on the Statute of Repose

The distinction between statutes of limitations and repose is important, and the two are often confused. Statutes of limitation impact the remedies available to plaintiffs, and they are subject to equitable considerations (such as tolling or discovery rules). But statutes of repose impact the underlying right, and the clock on them will start ticking without interruption once the necessary triggering event occurs - regardless of whether a plaintiff knows or should know that she has a claim. Statutes of repose are subject only to legislatively created exceptions, and not to equitable considerations, and act to extinguish a plaintiff's claim after the passage of a fixed period of time. They create a substantive right in those protected by them to be free from liability after a defined period of time, and thus allow potential defendants to rest assured that a particular claim cannot be asserted against them once that time has passed.

The five-year statute of repose applicable to claims under § 10(b) and Rule 10b-5 is set forth in 28 U.S.C. § 1658(b). 28 U.S.C. § 1658(b) was not, however, enacted specifically for § 10(b) and Rule 10b-5 claims. It applies generally to federal civil causes of action involving claims of "fraud, deceit, manipulation, or contrivance in contravention of a regulatory requirement concerning the securities laws." Nevertheless, it is settled law that the time limitations set forth in the statute apply to § 10(b) and Rule 10b-5 claims, and that the five-year statute of repose is triggered by a "violation" of § 10(b) and Rule 10b-5. The question is what "violation" means, as it is not defined in 28 U.S.C. § 1658(b) itself.

When Does The Five-Year Statute of Repose Begin To Run for § 10(b) Claims?

Generally stated, § 10(b) and Rule 10b-5 make it unlawful to employ any...