Supreme Court Action Today: Statutes of Limitation in Securities Cases, and Congressional Power in Foreign Relations

The fact that the Court is just beginning three days of hearings on the constitutionality of the Affordable Care Act did not stop it from releasing two opinions this morning.  The first of these is Credit Suisse Securities (USA) LLC v. Simmonds (10-1261).  The case involves tolling of the statute of limitations for suits against corporate insiders who realize profits from the purchase and sale, or sale and purchase, of the corporation’s securities within any 5-month period.  The limitations period is two years under §16(b) of the Securities and Exchange Act of 1934.

Simmonds filed various actions against multiple corporate defendants which were consolidated in one case in the Western District of Washington.  These were based on underwritings for IPOs that were offered in the 1990s and 2000s.  That court dismissed 24 of the 55 complaints.  The Ninth Circuit reversed under its own case law which held that the §16b action was tolled until the defendants filed a disclosure statement under §16(a) of the act. 

The Supreme Court reversed the Ninth Circuit, holding that §16(b) by its terms starts the clock running at “the date such profit was realized.”  The Ninth Circuit’s tolling rule has no basis in the statute.  Moreover, the Ninth Circuit rule does not follow established equitable tolling principles which hold that the tolling ends when the fraud was discovered or should have been discovered.  Otherwise defendants could be sued for activities which took place decades before.  The opinion was delivered by Justice Scalia, and joined by all other Justices except Chief Justice Roberts who did not participate in the case.

The second case is Zivotofsky v. Clinton (10-699).  The facts in the case create a conflict between the power of the Executive in light of a Congressional enactment which may or may not intrude on that power.  Zivotofsky was born to American parents in Jerusalem in 2002.  The State Department practice was to stamp passports for those born in Jerusalem specifically with the word “JERUSALEM” and not Israel or Jordan. 

Congress passed Foreign Relations Authorization Act, Fiscal Year 2003 which made several policy decisions as to the official treatment of Israel by the United States.  One of these was included a provision that would stamp passports in these circumstances with Israel as the birthplace.  The Act was signed by President Bush with a signing statement that said the provision “impermissibly interferes with the President’s constitutional authority to conduct the Nation’s foreign affairs and to supervise the unitary executive branch.”  Zivotofsky’s parents brought suit to have the passport stamped “Jerusalem, Isreal.”

The lower courts held that the suit was based on a political question and dismissed the case.  The Supreme Court reversed, holding that this is not a political question.  Rather, it is a question as to whether the Act does intrude on the President’s authority to conduct foreign affairs.  If so, it is unconstitutional.  The case was returned to the lower court to create a record.  As the Court noted, it is a court of last resort, not the first resort.  As such it declined to decide the constitutional question at hand.  Chief Justice Roberts delivered the opinion of the Court, joined by Justices Scalia, Kennedy, Thomas, Ginsburg, and Kagan.  Justice Sotomayor filed an opinion concurring in part and concurring in the judgment.  Justice Alito filed an opinion concurring in the judgment.  Justice Breyer dissented.  From my perspective, the validity of the rationale contained in a signing statement gets litigated at last.  [MG]