GABELLI v. SECURITIES AND EXCHANGE COMMISSION
Defendant Mark Gabelli was the portfolio manager for the Gabelli Global Growth Fund (GGGF), as well as several affiliated funds, from 1997 until 2004. Defendant Bruce Alpert had been the Chief Operating Officer of Gabelli Funds, a company that advises GGGF, since 1988. Beginning in 1999, Gabelli permitted another company, Headstart, to engage in “market-time” trading with GGGF. “Market-time” trading is premised on the fact that price movements during the New York trading day can cause corresponding movements in the international markets that will not be incorporated into new stock prices until the following day. Traders can then buy and sell at artificially low and high prices, respectively. By early 2002, Alpert became concerned about the effects of market-timing and instructed Headstart to reduce the number of those transactions. On August 7, 2002, Gabelli announced that all market-timing must stop, and Headstart pulled its money from GGGF.
On September 3, 2003, the New York Attorney General announced an inquiry into market-timing. On April 24, 2008, the SEC sued the defendants and alleged that Gabelli and Alpert knew of Headstart’s market-timing but deliberately mislead GGGF’s Board and shareholders in violation of the Securities and Exchange Act of 1934. The district court dismissed the SEC’s claims for failure to bring the suit within the five-year statute of limitations, and the SEC appealed. The United States Court of Appeals for the Second Circuit reversed.
Does the five-year statute of limitations begin when the SEC can first bring an action, or when the alleged violation is committed?
Legal provision: 28 U.S.C. §2462
When the alleged violation is committed. Chief Justice John G. Roberts, Jr., writing for a unanimous Court, reversed the Second Circuit and remanded. Starting the limitations period at the time of the violation is the most natural reading of the statute. This reading is supported by past precedent and dictionary definitions. In the past, the "discovery rule", which pauses the statute of limitations until fraud is discovered, has been applied when the victims of the fraud would be denied relief. The protection that the rule provides for the injured is not relevant to a Government enforcement action such as this one. It would also be nearly impossible to determine when the Government "knows" of a violation and Congress did not require that determination.
NOTICE: This opinion is subject to formal revision before publication in the preliminary print of the United States Reports. Readers are requested to notify the Reporter of Decisions, Supreme Court of the United States, Washington, D. C. 20543, of any typographical or other formal errors, in order that corrections may be made before the preliminary print goes to press.
SUPREME COURT OF THE UNITED STATES
MARC J. GABELLI and BRUCE ALPERT, PETITIONERS v. SECURITIES AND EXCHANGE COMMISSION
on writ of certiorari to the united states court of appeals for the second circuit
[February 27, 2013]
Chief Justice Roberts delivered the opinion of the Court.
The Investment Advisers Act makes it illegal for investment advisers to defraud their clients, and authorizes the Securities and Exchange Commission to seek civil penalties from advisers who do so. Under the general statute of limitations for civil penalty actions, the SEC has five years to seek such penalties. The question is whether the five-year clock begins to tick when the fraud is complete or when the fraud is discovered.I A
Under the Investment Advisers Act of 1940, it is unlawful for an investment adviser “to employ any device, scheme, or artifice to defraud any client or prospective client” or “to engage in any transaction, practice, or course of business which operates as a fraud or deceit upon any client or prospective client.” 54Stat. 852, as amended, 15 U. S. C. §§80b–6(1), (2). The Securities and Exchange Commission is authorized to bring enforcement actions against investment advisers who violate the Act, or individuals who aid and abet such violations. §80b–9(d).
As part of such enforcement actions, the SEC may seek civil penalties, §§80b–9(e), (f) (2006 ed. and Supp. V), in which case a five-year statute of limitations applies:
“Except as otherwise provided by Act of Congress, an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be entertained unless commenced within five years from the date when the claim first accrued if, within the same period, the offender or the property is found within the United States in order that proper service may be made thereon.” 28 U. S. C. §2462.
This statute of limitations is not specific to the Investment Advisers Act, or even to securities law; it governs many penalty provisions throughout the U. S. Code. Its origins date back to at least 1839, and it took on its current form in 1948. See Act of Feb. 28, 1839, ch. 36, §4, 5Stat. 322.B
Gabelli Funds, LLC, is an investment adviser to a mutual fund formerly known as Gabelli Global Growth Fund (GGGF). Petitioner Bruce Alpert is Gabelli Funds’ chief operating officer, and petitioner Marc Gabelli used to be GGGF’s portfolio manager.
In 2008, the SEC brought a civil enforcement action against Alpert and Gabelli. According to the complaint, from 1999 until 2002 Alpert and Gabelli allowed one GGGF investor—Headstart Advisers, Ltd.—to engage in “market timing” in the fund.
As this Court has explained, “[m]arket timing is a trading strategy that exploits time delay in mutual funds’ daily valuation system.” Janus Capital Group, Inc. v. First Derivative Traders, 564 U. S. ___, ___, n. 1 (2011) (slip op., at 2, n. 1). Mutual funds are typically valued once a day, at the close of the New York Stock Exchange. Because funds often hold securities traded on different exchanges around the world, their reported valuation may be based on stale information. If a mutual fund’s reported valuation is artificially low compared to its real value, market timers will buy that day and sell the next to realize quick profits. Market timing is not illegal but can harm long-term investors in a fund. See id., at ___–___, and n. 1 (slip op., at 2–3, and n. 1).
The SEC’s complaint alleged that Alpert and Gabelli permitted Headstart to engage in market timing in exchange for Headstart’s investment in a hedge fund run by Gabelli. According to the SEC, petitioners did not disclose Headstart’s market timing or the quid pro quo agreement, and instead banned others from engaging in market timing and made statements indicating that the practice would not be tolerated. The complaint stated that during the relevant period, Headstart earned rates of return of up to 185%, while “the rate of return for long-term investors in GGGF was no more than negative 24.1 percent.” App. 73.
The SEC alleged that Alpert and Gabelli aided and abetted violations of §§80b–6(1) and (2), and it sought civil penalties under §80b–9. Petitioners moved to dismiss, arguing in part that the claim for civil penalties was untimely. They invoked the five-year statute of limitations in §2462, pointing out that the complaint alleged market timing up until August 2002 but was not filed until April 2008. The District Court agreed and dismissed the SEC’s civil penalty claim as time barred. 1
The Second Circuit reversed. It acknowledged that §2462 required an action for civil penalties to be brought within five years “from the date when the claim first accrued,” but accepted the SEC’s argument that because the underlying violations sounded in fraud, the “discovery rule” applied to the statute of limitations. As explained by the Second Circuit, “[u]nder the discovery rule, the statute of limitations for a particular claim does not accrue until that claim is discovered, or could have been discovered with reasonable diligence, by the plaintiff.” 653 F. 3d 49, 59 (2011). The court concluded that while “this rule does not govern the accrual of most claims,” it does govern the claims at issue here. Ibid. As the court explained, “for claims that sound in fraud a discovery rule is read into the relevant statute of limitation.” Id., at 60. 2
We granted certiorari. 567 U. S. ___ (2012).II A
This case centers around the meaning of 28 U. S. C. §2462: “an action . . . for the enforcement of any civil fine, penalty, or forfeiture . . . shall not be entertained unless commenced within five years from the date when the claim first accrued.” Petitioners argue that a claim based on fraud accrues—and the five-year clock begins to tick—when a defendant’s allegedly fraudulent conduct occurs.
That is the most natural reading of the statute. “In common parlance a right accrues when it comes into existence . . . .” United States v. Lindsay, 346 U. S. 568, 569 (1954) . Thus the “standard rule” is that a claim accrues “when the plaintiff has a complete and present cause of action.” Wallace v. Kato, 549 U. S. 384, 388 (2007) (internal quotation marks omitted); see also, e.g., Bay Area Laundry and Dry Cleaning Pension Trust Fund v. Ferbar Corp. of Cal., 522 U. S. 192, 201 (1997) ; Clark v. Iowa City, 20 Wall. 583, 589 (1875). That rule has governed since the 1830s when the predecessor to §2462 was enacted. See, e.g., Bank of United States v. Daniel, 12 Pet. 32, 56 (1838); Evans v. Gee, 11 Pet. 80, 84 (1837). And that definition appears in dictionaries from the 19th century up until today. See, e.g., 1 A. Burrill, A Law Dictionary and Glossary 17 (1850) (“an action accrues when the plaintiff has a right to commence it”); Black’s Law Dictionary 23 (9th ed. 2009) (defining “accrue” as “[t]o come into existence as an enforceable claim or right”).
This reading sets a fixed date when exposure to the specified Government enforcement efforts ends, advancing “the basic policies of all limitations provisions: repose, elimination of stale claims, and certainty about a plaintiff’s opportunity for recovery and a defendant’s potential liabilities.” Rotella v. Wood, 528 U. S. 549, 555 (2000) . Statutes of limitations are intended to “promote justice by preventing surprises through the revival of claims that have been allowed to slumber until evidence has been lost, memories have faded, and witnesses have disappeared.” Railroad Telegraphers v. Railway Express Agency, Inc., 321 U. S. 342 –349 (1944). They provide “security and stability to human affairs.” Wood v. Carpenter, 101 U. S. 135, 139 (1879) . We have deemed them “vital to the welfare of society,” ibid., and concluded that “even wrongdoers are entitled to assume that their sins may be forgotten,” Wilson v. Garcia, 471 U. S. 261, 271 (1985) .B
Notwithstanding these considerations, the Government argues that the discovery rule should apply instead. Under this rule, accrual is delayed “until the plaintiff has ‘discovered’ ” his cause of action. Merck & Co. v. Reynolds, 559 U. S. ___, ___ (2010) (slip op., at 8). The doctrine arose in 18th-century fraud cases as an “exception” to the standard rule, based on the recognition that “something different was needed in the case of fraud, where a defendant’s deceptive conduct may prevent a plaintiff from even knowing that he or she has been defrauded.” Ibid. This Court has held that “where a plaintiff has been injured by fraud and ‘remains in ignorance of it without any fault or want of diligence or care on his part, the bar of the statute does not begin to run until the fraud is discovered.’ ” Holmberg v. Armbrecht, 327 U. S. 392, 397 (1946) (quoting Bailey v. Glover, 21 Wall. 342, 348 (1875)). And we have explained that “fraud is deemed to be discovered when, in the exercise of reasonable diligence, it could have been discovered.” Merck & Co., supra, at ___ (slip op., at 9) (internal quotation marks and alterations omitted).
But we have never applied the discovery rule in this context, where the plaintiff is not a defrauded victim seeking recompense, but is instead the Government bringing an enforcement action for civil penalties. Despite the discovery rule’s centuries-old roots, the Government cites no lower court case before 2008 employing a fraud-based discovery rule in a Government enforcement action for civil penalties. See Brief for Respondent 23 (citing SEC v. Tambone, 550 F. 3d 106, 148–149 (CA1 2008); SEC v. Koenig, 557 F. 3d 736, 739 (CA7 2009)). When pressed at oral argument, the Government conceded that it was aware of no such case. Tr. of Oral Arg. 25. The Government was also unable to point to any example from the first 160 years after enactment of this statute of limitations where it had even asserted that the fraud discovery rule applied in such a context. Id., at 26–27 (citing only United States v. Maillard, 26 F. Cas. 1140, 1142 (No. 15,709) (SDNY 1871), a “fraudulent concealment” case, see n. 2, supra).
Instead the Government relies heavily on Exploration Co. v. United States, 247 U. S. 435 (1918) , in an attempt to show that the discovery rule should benefit the Government to the same extent as private parties. See, e.g., Brief for Respondent 10–11, 16, 17, 33–34, 41–45. In that case, a company had fraudulently procured land from the United States, and the United States sued to undo the transaction. The company raised the statute of limitations as a defense, but this Court allowed the case to proceed, concluding that the rule “that statutes of limitations upon suits to set aside fraudulent transactions shall not begin to run until the discovery of the fraud” applied “in favor of the Government as well as a private individual.” Exploration Co., supra, at 449. But in Exploration Co., the Government was itself a victim; it had been defrauded and was suing to recover its loss. The Government was not bringing an enforcement action for penalties. Exploration Co. cannot save the Government’s case here.
There are good reasons why the fraud discovery rule has not been extended to Government enforcement actions for civil penalties. The discovery rule exists in part to preserve the claims of victims who do not know they are injured and who reasonably do not inquire as to any injury. Usually when a private party is injured, he is immediately aware of that injury and put on notice that his time to sue is running. But when the injury is self-concealing, private parties may be unaware that they have been harmed. Most of us do not live in a state of constant investigation; absent any reason to think we have been injured, we do not typically spend our days looking for evidence that we were lied to or defrauded. And the law does not require that we do so. Instead, courts have developed the discovery rule, providing that the statute of limitations in fraud cases should typically begin to run only when the injury is or reasonably could have been discovered.
The same conclusion does not follow for the Government in the context of enforcement actions for civil penalties. The SEC, for example, is not like an individual victim who relies on apparent injury to learn of a wrong. Rather, a central “mission” of the Commission is to “investigat[e] potential violations of the federal securities laws.” SEC, Enforcement Manual 1 (2012). Unlike the private party who has no reason to suspect fraud, the SEC’s very purpose is to root it out, and it has many legal tools at hand to aid in that pursuit. It can demand that securities brokers and dealers submit detailed trading information. Id., at 44. It can require investment advisers to turn over their comprehensive books and records at any time. 15 U. S. C. §80b–4 (2006 ed. and Supp. V). And even without filing suit, it can subpoena any documents and witnesses it deems relevant or material to an investigation. See §§77s(c), 78u(b), 80a–41(b), 80b–9(b) (2006 ed.).
The SEC is also authorized to pay monetary awards to whistleblowers, who provide information relating to violations of the securities laws. §78u–6 (2006 ed., Supp. V). In addition, the SEC may offer “cooperation agreements” to violators to procure information about others in exchange for more lenient treatment. See Enforcement Manual, at 119–137. Charged with this mission and armed with these weapons, the SEC as enforcer is a far cry from the defrauded victim the discovery rule evolved to protect.
In a civil penalty action, the Government is not only a different kind of plaintiff, it seeks a different kind of relief. The discovery rule helps to ensure that the injured receive recompense. But this case involves penalties, which go beyond compensation, are intended to punish, and label defendants wrongdoers. See Meeker v. Lehigh Valley R. Co., 236 U. S. 412, 423 (1915) (a penalty covered by the predecessor to §2462 is “something imposed in a punitive way for an infraction of a public law”); see also Tull v. United States, 481 U. S. 412, 422 (1987) (penalties are “intended to punish culpable individuals,” not “to extract compensation or restore the status quo”).
Chief Justice Marshall used particularly forceful language in emphasizing the importance of time limits on penalty actions, stating that it “would be utterly repugnant to the genius of our laws” if actions for penalties could “be brought at any distance of time.” Adams v. Woods, 2 Cranch 336, 342 (1805). Yet grafting the discovery rule onto §2462 would raise similar concerns. It would leave defendants exposed to Government enforcement action not only for five years after their misdeeds, but for an additional uncertain period into the future. Repose would hinge on speculation about what the Government knew, when it knew it, and when it should have known it. See Rotella, 528 U. S., at 554 (disapproving a rule that would have “extended the limitations period to many decades” because such a rule was “beyond any limit that Congress could have contemplated” and “would have thwarted the basic objective of repose underlying the very notion of a limitations period”).
Determining when the Government, as opposed to an individual, knew or reasonably should have known of a fraud presents particular challenges for the courts. Agencies often have hundreds of employees, dozens of offices, and several levels of leadership. In such a case, when does “the Government” know of a violation? Who is the relevant actor? Different agencies often have overlapping responsibilities; is the knowledge of one attributed to all?
In determining what a plaintiff should have known, we ask what facts “a reasonably diligent plaintiff would have discovered.” Merck & Co., 559 U. S., at ___ (slip op., at 8). It is unclear whether and how courts should consider agency priorities and resource constraints in applying that test to Government enforcement actions. See 3M Co. v. Browner, 17 F. 3d 1453, 1461 (CADC 1994) (“An agency may experience problems in detecting statutory violations because its enforcement effort is not sufficiently funded; or because the agency has not devoted an adequate number of trained personnel to the task; or because the agency’s enforcement program is ill-designed or inefficient; or because the nature of the statute makes it difficult to uncover violations; or because of some combination of these factors and others”). And in the midst of any inquiry as to what it knew when, the Government can be expected to assert various privileges, such as law enforcement, attorney-client, work product, or deliberative process, further complicating judicial attempts to apply the discovery rule. See, e.g., App. in No. 10–3581 (CA2), p. 147 (Government invoking such privileges in this case, in response to a request for documents relating to the SEC’s investigation of Headstart); see also Rotella, supra, at 559 (rejecting a rule in part due to “the controversy inherent in divining when a plaintiff should have discovered” a wrong).
To be sure, Congress has expressly required such inquiries in some statutes. But in many of those instances, the Government is itself an injured victim looking for recompense, not a prosecutor seeking penalties. See, e.g., 28 U. S. C. §§2415, 2416(c) (Government suits for money damages founded on contracts or torts). Moreover, statutes applying a discovery rule in the context of Government suits often couple that rule with an absolute provision for repose, which a judicially imposed discovery rule would lack. See, e.g., 21 U. S. C. §335b(b)(3) (limiting certain Government civil penalty actions to “6 years after the date when facts material to the act are known or reasonably should have been known by the Secretary but in no event more than 10 years after the date the act took place”). And several statutes applying a discovery rule to the Government make some effort to identify the official whose knowledge is relevant. See 31 U. S. C. §3731(b)(2) (relevant knowledge is that of “the official of the United States charged with responsibility to act in the circumstances”).
Applying a discovery rule to Government penalty actions is far more challenging than applying the rule to suits by defrauded victims, and we have no mandate from Congress to undertake that challenge here.* * *
As we held long ago, the cases in which “a statute of limitation may be suspended by causes not mentioned in the statute itself . . . are very limited in character, and are to be admitted with great caution; otherwise the court would make the law instead of administering it.” Amy v. Watertown (No. 2), 130 U. S. 320, 324 (1889) (internal quotation marks omitted). Given the lack of textual, historical, or equitable reasons to graft a discovery rule onto the statute of limitations of §2462, we decline to do so.
The judgment of the United States Court of Appeals for the Second Circuit is reversed, and the case is remanded for further proceedings consistent with this opinion.
It is so ordered.
1 The SEC also sought injunctive relief and disgorgement, claims the District Court found timely on the ground that they were not subject to §2462. Those issues are not before us.
2 The court distinguished the discovery rule, which governs when a claim accrues, from doctrines that toll the running of an applicable limitations period when the defendant takes steps beyond the challenged conduct itself to conceal that conduct from the plaintiff. 653 F. 3d, at 59–60. The SEC abandoned any reliance on such doctrines below, and they are not before us. See Response and Reply Brief for SEC Appellant/Cross-Appellee in No. 10–3581 (CA2), p. 34 (“The Commission is not seeking application of the fraudulent concealment doctrine or other equitable tolling principles”).
ORAL ARGUMENT OF LEWIS LIMAN ON BEHALF OF THE PETITIONERS
Chief Justice John G. Roberts: We'll hear argument first this morning in Case 11-1274, Gabelli and Alpert v. the Securities and Exchange Commission.
Lewis Liman: Mr. Chief Justice, and may it please the Court:
This case concerns the statute dealing exclusively with penalty claims brought by government agencies to punish conduct made unlawful by statute.
Congress provided a clear and easily administered statutory time limitation on the Government's power to punish: 5 years, except as otherwise provided by Congress.
The case does not concern -- the statute does not concern the Government's power to seek remedial remedies such as disgorgement and injunction.
Consistent with Congress's normal approach in penal situations, Congress fixed a statute of limitations for penalties.
The court below, for the first time over the century the statute has been in existence, sweepingly concluded that unless Congress clearly directed otherwise, the statute and the 5 years did not begin to run from the time the defendant violated the law, the ordinary rule for statutes providing for accrual, but instead--
Justice Ruth Bader Ginsburg: Mr. Liman.
Mr. Liman, you -- you are typing this a penalty case.
The government says the accrual is the ordinary rule, but discovery is the rule in this Court, and so it is alleged here.
So how does the Court decide whether to type this case a penalty case, as you urge, or a fraud case, as the government urged -- urges, when both captions fit?
Lewis Liman: --Your Honor, I think there are two answers to that.
First is that the Court doesn't need to decide, Congress has decided.
Congress made it quite clear that the rule of accrual applied to all penalty claims.
And as this Court held in Clark v. Martinez, the same word in a statute cannot be given different interpretations depending on the underlying statute to which it is applied.
The second reason, though, Justice Ginsburg, is that it is not correct to say -- and this Court has never said -- that either the Bailey rule or the injury accrual rule applies to a statutory fraud claim where the government is seeking to punish.
Justice Anthony Kennedy: Excuse me.
Justice Ginsburg points out that you're talking about the statute, but the statute uses the term “ accrual ”.
Is it correct to say the term “ accrual ” is not used in statute of limitations for crimes -- generally -- for crimes?
Lewis Liman: --For -- for crimes, the general word that is used is time period from the violation.
Justice Anthony Kennedy: Right.
And this -- and this talks about accrual.
So that is indicative -- is indicative of the fact that Congress is using a civil analogue in the drafting of this statute.
Lewis Liman: Your Honor, it indicates that Congress is using accrual as it is understood at common law.
Common law, it means when the claim becomes ripe and the plaintiff has the ability to sue.
What that means is, as the D.C. Circuit said in 3M -- and we think the D.C. Circuit got it right on this -- that you look to the underlying statute pursuant to which the government is seeking a penalty to see when the claim became ripe.
In a penalty situation, and under the IAA, which is what this concerns -- it doesn't concern a common law fraud claim; it doesn't concern a claim where there's even any element of deception that's required.
It's a breach of fiduciary duty.
What the IAA says is that the government can sue when the violation occurs.
Justice Sonia Sotomayor: Mr. Liman, I understand your argument, but I have a fundamental difficulty, okay?
Bailey and Exploration Company, with statutes not too dissimilar from this one, who read the discovery rule into a fraud claim, both were a civil litigant and for the government.
The only way that I can tease out a potential difference between Exploration and this case is somehow that the penalty in this case is not for injury but for punishment, as you called it.
Government as enforcer, rather than government as victim.
Some of us would say that the common wheel is injured whenever someone breaks a law, so that that distinction between enforcer and victim makes no sense.
How do you answer that point?
Lewis Liman: --Justice Sotomayor, let me give you the precise answer to that, which is that in this case where the government is seeking a penalty, it is not acting on behalf of underlying investors, and the recovery is not one that is brought by way of damages or disgorgement.
Justice Sonia Sotomayor: It's acting as a sovereign to protect what it thinks is an ordered society.
And if you break that order, you are injuring the society.
That's the best--
Lewis Liman: Your Honor, I think that is the articulation that the government would have to make.
I don't think it holds up, for several reasons.
First of all, it would represent an extreme departure from anything this Court has ever held or, to our knowledge, any court has ever held with respect to the application of the discovery rule.
Second, when you're talking about penalty, you're not talking about recovery to victims.
Third, when we're talking about implying a rule, which is what the Government's argument is here -- it's not an argument to follow the plain language, it's an argument to depart from the plain language -- you should look at, and the cases direct you to look at the policy concerns.
And when you're talking about discover -- a discovery rule with respect to the government as enforcer, the rules don't work.
They don't work for several reasons.
First of all, when you've got an injury, a party who is injured, the statute of limitations has a natural start date that is not in control of the plaintiff.
There is a relationship to the underlying violation.
And that can be readily measured.
None of that is true when you're talking about the government in a law enforcement capacity.
Justice Elena Kagan: Mr. Liman, what you suggested, when we talked about the discovery rule, is that it has a basis in the notion that a defendant with unclean hands who has committed deceptive conduct preventing the plaintiff from understanding that he or it has a cause of action, you know, shouldn't be entitled to the benefit of a statute of limitations.
And if that's the understanding that lies behind the discovery rule, I guess the question for you is, why doesn't it apply in this case as well as in the case where the person bringing the action has himself suffered a harm?
Lewis Liman: Justice Kagan, I've got two answers to that question as well.
The first is that -- that I don't think is the basis for -- for the discovery rule at bottom.
The basis for the discovery rule -- if you look at this Court's opinion in Rotella, if you look at the Seventh Circuit in Cada, the D.C. Circuit in Connor -- is the notion that when the plaintiff cannot discover the injury, doesn't know that it's been injured and cannot reasonably know that the plaintiff's been injured, the plaintiff cannot take the steps that other plaintiffs would take to investigate and determine whether they've got a cause of action.
That's not applicable in a government enforcement context, because you're not talking about there the government as a victim.
The government may not know of the underlying transaction, will not know of the underlying transaction, unless the government asks.
The second reason is that there is a strain that -- in the Bailey line of cases -- that really speaks in terms of equitable tolling and fraudulent concealment, that sort of a notion of unclean hands.
That's not in this case, because the government affirmatively took it out.
But we would submit--
Justice Ruth Bader Ginsburg: How did the government take it out?
I mean, the point here is that there was a concealment.
There was a hiding of what was the impermissible action.
Lewis Liman: --That's not correct, Justice Ginsburg.
If you'd look at the -- at the opinion below and you look at the complaint, the essence of the allegation which we have not yet had a chance to disprove before you on a motion to dismiss is that there were misrepresentations and omissions made to the board of the mutual fund.
There was no misrepresentations made to the investing public.
That allegation is not in the complaint.
It would not be accurate.
And there is no allegation whatsoever that anything was hidden from the government or was in any way concealed from the government.
The records here would have been available -- were available for the government to look at, at any time.
Justice Sonia Sotomayor: --Mr. Liman, finishing up a point you were just on previously, what's your position with respect to fraudulent concealment?
Doesn't your theory preclude even the application of that to tolling of the statute?
Lewis Liman: Your Honor, I think you could and should conclude that if you reach that issue.
I don't think you need to reach that issue.
Justice Sonia Sotomayor: But tell me about--
Lewis Liman: Our theory doesn't require you to come to that conclusion.
Justice Sonia Sotomayor: --This is -- it's nice for you to say that.
But tell me, having announced your theory, how the next step is avoidable?
Under what theory would we say you can't have a discovery rule, but you can have a fraudulent concealment rule?
Lewis Liman: Your Honor, in the -- using the same type of theory and the same methodology that the Court employed in the RICO context in the Claire case and in the Rotella case, one can read the statute, I think you have to read the statute, here to say that “ accrue ” means accrue.
It's the time that the government can first sue.
That does not necessarily resolve the question of whether there are equitable exceptions that the government or any party could affirmatively assert to toll the statute of limitations, not to delay the accrual of the statute of limitations.
Justice Antonin Scalia: Mr. Liman, you acknowledge that a civil action could be brought beginning from the time when the injured plaintiff discovers the fraud, right?
Lewis Liman: That's--
Justice Antonin Scalia: So you're really not arguing for what you might call a total statute of repose.
It seems to me odd that the defendant would be relieved from prosecution by the government, but not relieved from a suit for sometimes very substantial damages by -- by an injured plaintiff who doesn't have to sue until he's discovered the fraud.
Lewis Liman: --Your Honor, respectfully, we think that's not odd at all.
If you look in the securities context, there is a 5-year statute of repose.
And it would be odd to think that the same Congress that passed that 5-year statute of repose limiting even the ability of an injured plaintiff without the tools of the government to bring a private suit for damages, that's the--
Justice Antonin Scalia: Sure.
But that 5 years doesn't begin to run until the private plaintiff discovers the fraud, right?
Lewis Liman: --That's -- that's not correct, Your Honor.
Justice Antonin Scalia: No?
Lewis Liman: Under Title 28 1658(b) the 5 years runs from the time of the violation.
It's exactly coextensive 2462, and it's not an accident that it's exactly coextensive.
Justice Ruth Bader Ginsburg: Mr. Liman, how does it work with a disgorgement remedy?
I take it that that's still -- that you are not challenging the disgorgement?
Lewis Liman: We are not challenging the disgorgement in front of this Court, and if this Court reverses the Second Circuit that issue will remain in the case and the SEC's claim for disgorgement will remain, and that's really been the way--
Justice Ruth Bader Ginsburg: But you don't apply -- you don't say it's too late for them to sue for disgorgement?
Lewis Liman: --2462 applies exclusively with respect to penalties, fines and forfeitures.
It does not apply with respect to equitable remedies.
Justice Ruth Bader Ginsburg: So is there any statute of limitations on disgorgement?
Lewis Liman: There is none.
There is none.
Justice Stephen G. Breyer: Does it apply to Social Security?
Does it apply to Veterans Affairs?
Lewis Liman: There is a Social Security statute that--
Justice Stephen G. Breyer: Does this statute apply to Social Security?
Lewis Liman: --Yes.
Justice Stephen G. Breyer: Does it apply to Veterans Affairs?
Yes or no or you don't know?
Lewis Liman: I don't know about Veterans Affairs.
Justice Stephen G. Breyer: What about Social Security?
Lewis Liman: Social Security, there is an underlying statute--
Justice Stephen G. Breyer: I'm asking about this statute.
Does it apply?
Lewis Liman: --The answer is yes.
The answer is yes.
It applies to a broad range of statutes unless Congress otherwise provided.
In fact, there are very few penalty statutes to which it does not apply.
Justice Stephen G. Breyer: Defense Department?
Lewis Liman: It does apply to a number of Defense Department statutes.
Justice Stephen G. Breyer: Antitrust?
Lewis Liman: --I'm not sure on antitrust.
But I believe that it applies to -- it does apply to a number of unfair trade practices.
Antitrust, there may be a separate statute.
Justice Stephen G. Breyer: FTC, you don't know?
Lewis Liman: FTC, yes.
Justice Stephen G. Breyer: It does apply to FTC, okay.
So Social Security, FTC.
Veterans Affairs we don't know, antitrust we don't know.
Lewis Liman: One of the notable features, Justice Breyer, is that if you look across the U.S. Code, the government makes a point of saying: Well, Congress uses penalty -- acknowledges that Congress has used penalty when -- the word “ penalty ” when the Congress has -- I'm sorry, it has used the word “ discovery ” when Congress has wanted the statute to--
Justice Sonia Sotomayor: Mr. Liman, I'm a little confused in your answer to Justice Scalia.
You said that the underlying case has a 5-year statute of repose for a civil claim.
It barely applies, however, those claimants who have -- under your theory, who have been directly injured.
The presumption would apply of discovery, if they were claiming a fraud.
Lewis Liman: --No, Your Honor.
Justice Sonia Sotomayor: So are you just arguing that under this statutory scheme there is no application of the discovery?
Lewis Liman: This -- this Court has held in the Lampf case that Bailey and Holmberg do not apply to securities fraud case.
Justice Sonia Sotomayor: Because of the alternative language of 5 years.
Lewis Liman: Well, in Lampf it was 1-year and 3-year.
Justice Sonia Sotomayor: Right.
Lewis Liman: And in the Merck case, the Court made clear that the 5 years was the statute of -- the statute of repose.
Justice Sonia Sotomayor: That's what I thought those involved.
Justice Stephen G. Breyer: Medicare, Medicaid?
Lewis Liman: Yes.
Justice Elena Kagan: It is true, though, isn't it, that Justice Scalia pointed to an anomaly that could easily exist in other contexts, because this isn't only a statute about securities violations.
So that you might have in other contexts in which this statute applies a world in which a private individual could sue, but the government -- could sue after the -- the period of time--
Lewis Liman: Yes.
Justice Elena Kagan: --the 5 years, but the government could not.
Lewis Liman: Yes, Justice Kagan.
And we don't think that's an anomaly.
We don't think it's an anomaly for two reasons.
First of all, in the private context, as again I mentioned, the statute, the start date for the statute of limitations is not in the control of the plaintiff.
That's a critical point.
It's critical in this Court's jurisprudence from Hubrick forward.
It -- there is a natural start date from when the injury would be known to a reasonable plaintiff.
Not true with respect to the government, who may not even know of the transaction.
But what it -- so it's -- I don't think there's an anomaly because there are different statutes of limitation.
Justice Elena Kagan: And I take it that your view would be that a case like Exploration, it's different than this case because it does have a natural start date; is that the idea?
Lewis Liman: Number one, it does.
And number two, the relief being sought in Exploration was the cancellation of a patent, so it was the government as a party to a transaction.
And what the Court really said in Exploration, what the Court, in fact, said in Exploration, is that there is no reason why the same rule applied the same way couldn't benefit the government as well as the private plaintiff.
What the government is seeking here is not the same rule and would not be applied in the same way, because you are talking about a transaction that is a, frankly, a private transaction that there is no reason that the government would know anything about.
The claim ultimately here is a claim about what was said in a private conversation between the advisor to a mutual fund and the mutual fund -- fund board.
So Exploration, what's notable is that the government doesn't cite a single case where the discovery rule has been applied to a party who is not a victim or that it's been applied -- where it's been applied and a penalty hasn't been -- a penalty has been at issue.
I mean, neither of those circumstances.
We are talking about a statute ultimately where the plain language is clear and the government is invoking a statutory canon not to try to interpret language of the statute, not even to fill a gap in a statute, but to override it.
The canon that they say overrides the plain language doesn't exist.
Justice Anthony Kennedy: In a civil -- in a civil action brought by an injured investor or private party, can that plaintiff, the injured investor, the private party, in the ordinary course plead and rely upon an earlier government determination that there had been a violation and so that that's presumptive showing of liability?
Lewis Liman: Your Honor--
Justice Anthony Kennedy: In other words, the SEC makes an investigation, find a violation; can a private investor then rely on that as a presumptive showing of liability?
Lewis Liman: --Yeah.
I think the lower courts are mixed on the extent to which you can rely upon the actual allegations in a complaint.
Justice Anthony Kennedy: No, not the allegation.
It's an ultimate finding.
Lewis Liman: Absolutely.
Justice Anthony Kennedy: But then under your rule.
The plaintiff would be deprived of that.
Lewis Liman: No, that's not correct, Your Honor.
Under our rule the plaintiff has exactly the same rights regardless of how this case is determined.
The plaintiff's cause of action will turn upon the underlying--
Justice Anthony Kennedy: But if the government's statute of limitations runs out and the private investor is on his own, then the private investor doesn't have the advantage that exists in other cases of reliance on an SEC finding as a presumptive showing of liability.
Lewis Liman: --Your Honor, that -- that -- our argument only applies with respect to penalty.
The government has huge powers with respect to disgorgement and injunctive relief.
So if the government believes that there is a wrongdoing, the government still has the ability to bring a claim and the private investors still have the ability to rely upon the government's enforcement action and whatever findings come out of that.
So there is nothing in our argument that diminished to any degree the recovery abilities of a private plaintiff.
In fact, as we've highlighted, that 5-year period for the -- in the securities laws puts a premium on the SEC acting promptly.
And I would note that that's something that is not accidental.
If you go back in the legislative history and look to the SEC's reaction to the Lampf decision, the SEC urged a 5-year statute of repose, saying that that struck in the private context the right balance between repose when you're dealing with complex commercial transactions and enforcement and -- and recovery.
There's -- the position that the SEC is taking now is a novel position that to our knowledge has not been taken by other regulators and hasn't been taken by the SEC until -- until quite recently.
This statute's been on the books for quite a long time, and it's notable that agencies have not urged that -- that interpretation.
Justice Ruth Bader Ginsburg: Are there no statutes, Mr. Liman, that say the claim accrues when the injury is discovered, that use both, both terms?
Lewis Liman: I'm sorry, Justice Ginsburg.
I missed the question.
Justice Ruth Bader Ginsburg: Are there no statutes that use both terms, “ accrues ” and “ discovery ”?
A statute, for example, that says: This claim accrues when the injury is discovered?
Lewis Liman: There are statutes that use that kind of language, and that's precisely our point, because it reflects that Congress recognizes the difference and could, if Congress wanted, provide that a claim for the violation of the IAA or for any other statute accrues when it is discovered.
If there are no further questions, I would like to reserve the remainder of my time.
Chief Justice John G. Roberts: Thank you, counsel.
ORAL ARGUMENT OF JEFFREY B. WALL ON BEHALF OF THE RESPONDENT
Jeffrey B Wall: Mr. Chief Justice and may it please the Court:
I think Justice Kennedy started us off in the right place by focusing on the statute and its use of the term “ accrual ”.
And when counsel concedes that that term had an established meaning at common law and this statute picks it up, I think he gave away his case, because there were a cluster of concepts.
One was the general rule governing accrual: It accrues when the plaintiff can -- has a right to sue.
But there was a specific principle for cases of fraud and concealment.
And I don't think there is any basis in law or logic for petitioner saying that this statute meant to pick up one of those concepts and not the other concept.
Justice Antonin Scalia: I don't think the common law held that it didn't accrue.
I think it was an exception to the accrual rule, that, even though it accrued earlier, we are going to allow a later suit where -- where discovery is made later.
Is that the way those cases were framed, that it didn't accrue until discovery?
Jeffrey B Wall: Justice Scalia, I don't want to fight about it too much because from the government's perspective, it doesn't matter--
Justice Antonin Scalia: Well, you are making the argument, so you ought to fight about it.
Jeffrey B Wall: --It doesn't matter how it's labeled.
It doesn't matter whether we label it as an interpretation of the statute or an exception for cases of fraud or concealment.
The result is the same.
But I will say you are right, in some cases it was described as an exception, but as long ago as Kirby in 1887 and as recently as Merck--
Justice Antonin Scalia: And never in a criminal case, right?
Do you have a single case in which the discovery rule was -- was applied in a criminal case with respect to a penalty or a criminal sanction?
Jeffrey B Wall: --No, not in--
Justice Antonin Scalia: Not a single one.
Jeffrey B Wall: --Well, no.
The criminal context is fundamentally different.
This Court has said that those statutes are construed liberally in favor of repose and are presumptively not subject to--
Justice Stephen G. Breyer: Now, that's the question, because I certainly agree with Justice Scalia that this is not an SEC statute, this is not a securities statute; it is a statute that applies to all government actions, which is a huge category across the board and it's about 200 years old.
And until 2004 I haven't found a single case in which the government ever tried to assert the discovery rule where what they were seeking was a civil penalty, not to try to make themselves whole where they are a victim, with one exception, a case called Maillard in the 19th century where they did make that assertion.
They were struck down by the district court, and the attorney general in his opinion said: The district court's absolutely right; of course, the government cannot effectively abolish the statute of limitations where what they're trying to do is to gather something that's so close to a criminal case.
So my question is: Is there any case at all until the year 2004, approximately, in which the government has either tried or certainly succeeded in taking this general statute and applying the discovery rule where they are not a victim, they are trying to enforce the law for the civil penalty?
The reason I brought up Social Security, Veteran's Affairs, Medicare, is it seems to me to have enormous consequences for the government suddenly to try to assert a quasi-criminal penalty and abolish the statute of limitations, I mean, in a vast set of cases.
And that -- you know, I have overstated that last remark a little bit, but I want you to see where I'm coming from, which isn't so different from the -- from the questions that have been put to you.
Jeffrey B Wall: --Justice Breyer, most or many of the penalty claims that are being brought under Section 2462 and other penalty statutes don't deal with fraud or concealment, and I grant you that it is--
Justice Stephen G. Breyer: All I'm asking you for is one case.
Jeffrey B Wall: --So in -- it's a problem of fairly recent vintage, to be sure--
Justice Stephen G. Breyer: No, it is not a problem of fairly recent vintage.
I'd say for 200 years there is no case.
The only case, as far as I have been able to discover, which is why I am asking, is that what created the problem of recent vintage is that the Seventh Circuit, I guess, or a couple of other circuits decided that this discovery rule did apply to an effort by the government to assert a civil penalty.
That's what created the problem.
Before that there was no problem; it was clear the government couldn't do it.
Now, you will tell me that I'm wrong by citing some cases that show I'm wrong.
And that's what I'm asking.
I want to be told I'm wrong, sort of.
Jeffrey B Wall: --And I guess what I want to tell you is there aren't cases out there one way or the other.
There aren't cases endorsing or declining to adopt the discovery rule in the context of fraud or concealment with civil penalty actions--
Justice Antonin Scalia: You'd expect that -- you'd expect there to be some cases in a couple of hundred years.
Justice Stephen G. Breyer: No, I haven't found one.
Justice Antonin Scalia: Fraud is nothing new, for Pete's sake.
Jeffrey B Wall: --Justice Scalia, it's not that--
Justice Antonin Scalia: This is brand-new assertion by the government that -- tell -- is there much difference between the rule you are arguing for and a rule that there is no statute of limitations?
Jeffrey B Wall: --Absolutely there is.
Since -- look.
In 1990 the Commission was given the right to seek civil penalties, so it could only have brought these actions for the last 20 years.
In those 20-plus years, we have seen 25 reported cases dealing with 2462 and civil penalties.
In 19 of those cases, the Commission brought its action within 5 years of the end of the fraud.
It used the discovery rule only to reach back and get the beginning of the fraud.
Chief Justice John G. Roberts: Well, but that ignores the point that has been raised, is that this statute does not just apply in the SEC context.
How many cases have you found across the board in the range of those areas that Justice Breyer catalogued?
Jeffrey B Wall: There are cases from the 1980s and 1990s dealing with concealment, and in our view the justification is the same for concealment as fraud.
Justice Stephen G. Breyer: I mean, we are asking the same question, but in 30 seconds I am going to conclude there is none.
What I want is a case before the year 2000 in which the government sought a civil penalty and was not trying to recover money or land that it had lost, and I want the name of that case in which they said that the discovery rule applies.
The two that you cited, Amy and the Case of Broderick's Will, did involve the government being injured by losing land or losing money, something like that.
So I have those and I don't think they count, but I will look at them again.
Is there anything else you would like to refer me to?
Jeffrey B Wall: Justice Breyer, I don't think there is anything on either side of the ledger, I will be very upfront, other than the Maillard case, which I think even courts at the time, an exploration company, the court of appeals recognized--
Justice Antonin Scalia: It's not a matter of there being nothing on either side of the ledger.
What's extraordinary is that the government has never asserted this, except in the 19th century, when it was rebuffed and repudiated its position.
It isn't just that there are no cases against you.
It's you've never -- the government has never asserted it before.
Jeffrey B Wall: --Justice Scalia, there were very few civil penalty actions in which -- that involved fraud or concealment, in which the government would have needed to invoke it, or did invoke it and was rebuffed by courts.
I mean, this is a fairly modern problem, and the question is do all of the same concepts that compelled one answer in these other contexts compel the same answer here or does a rule that blankets the waterfront--
Justice Sonia Sotomayor: This a very modern problem, but how about the statute of Elizabeth, which talked about penalties as being a criminal sanction but permitted private individuals, not the government, to seek the penalties and keep it.
So you cite the statute of James and I look at the statute of Elizabeth and try to find the analogy between which one.
Jeffrey B Wall: --Well, if this were a criminal penalty, the government agrees--
Justice Sonia Sotomayor: Even though private parties could keep the money back then.
Jeffrey B Wall: --That's right.
But what the Court's been clear on is that there are civil penalties and there are criminal penalties and which side of the line it falls on invokes a different set of background rules and legal norms.
The Congress denominated this as a civil penalty--
Justice Sonia Sotomayor: Could I move you to another issue?
If a party can defeat the government's claim of discovery by showing that the government wasn't reasonably diligent, how does a party ever accomplish that?
Aren't you going to raise the law enforcement privilege, the -- some other privilege to block discovery?
Jeffrey B Wall: --Justice Sotomayor, discovery is playing itself out in cases like these in district courts.
Privilege has not been a very major issue and the reason is defendants are by and large pointing to things in the public domain -- private lawsuits, public filings with the Commission, public statements -- to say those put the Commission on constructive--
Justice Sonia Sotomayor: Well, if they fail there, don't you think that they are going to also fail because they are not going to be able to look at your records to figure out exactly what you knew or didn't know?
Jeffrey B Wall: --No, not invariably.
I mean, the way this plays itself out in the district court is the Commission says that it didn't know and a defendant points to something in the public domain and says either that put you on constructive notice or--
Chief Justice John G. Roberts: So it depends really on how many enforcement officers the SEC has, is it reasonable for them to have been aware of the particular item in some publication.
Maybe if they've got 1,000 people reviewing it, but maybe not if they have 10; and that's just not the -- I mean, it's not just the SEC; it's all these other government areas.
It seems to me that it's going to be almost impossible for somebody to prove that the government should have known about something.
And which part of the government?
I mean, it's a big, big government, and particular agencies -- well, you say, well, the Defense Contractor Board should have known, but does that mean that the U.S. attorney's office or the defense counsel's office should have known?
It seems to me that, at least with respect to that aspect, you really are eliminating any real -- it's certainly not a lot of repose if the idea is, well, I've got to establish that this particular government agency should have known about this.
You certainly can't sit back and say, well, 5 years has gone by and--
Jeffrey B Wall: --Mr. Chief Justice, they can't point to a single case where it has been difficult here, and it hasn't been difficult--
Chief Justice John G. Roberts: --They can't point to a single case?
Jeffrey B Wall: --Where it's been difficult in order to make that determination.
And it hasn't proven difficult--
Chief Justice John G. Roberts: So you think it's significant if you can't point to a single case?
Jeffrey B Wall: --Well, I think there are -- where you should expect those cases to exist, yes.
Justice Anthony Kennedy: Are there cases discussing whether or not a government agency has been diligent in pursuing a fraud, a fraud investigation?
You see, in the private context we have some sense of what the plaintiff has to do to protect the plaintiff's rights.
He has to be diligent.
But to transpose that to a governmental agency -- suppose the agency's overworked or underfunded?
I don't -- which way do you come out when the government says that?
Jeffrey B Wall: Justice Kennedy, not just this statute.
There are other statutes, the False Claims Act and others, that have specific provisions requiring courts to determine when a government official would reasonably have been on notice of certain circumstances.
That hasn't proven difficult in those contexts.
It's not difficult here.
Justice Samuel Alito: What about the question that Justice Kennedy just asked?
What if a claim could have reasonably been discovered by a government agency if it had more resources, but given the resources that it had it couldn't have reasonably discovered the claim?
Would the discovery rule apply there?
Jeffrey B Wall: I don't think so, Justice Alito.
I mean, I think we could say that there might be circumstances where the Commission would be on constructive notice and not a private plaintiff because of its expertise.
It would see something in the public domain that should be meaningful to it that might not be meaningful to a private plaintiff.
Justice Antonin Scalia: The False Claims Act example you give is indeed a private plaintiff kind of a case.
Jeffrey B Wall: That's--
Justice Antonin Scalia: Yes, you can say the government, having been cheated, should have known it was cheated.
But we are talking here about prosecution, essentially, prosecution for a civil penalty rather than a criminal.
By the way, doesn't the rule of lenity apply whether the penalty is criminal or civil?
So if I think the word “ accrual ” is at best ambiguous, shouldn't the tie go to the defendant?
Jeffrey B Wall: --No.
The court's been very -- I mean, in all of the civil cases applying the fraud discovery rule, the court has never looked to the criminal analogies.
The canon here is that ambiguities get construed for the sovereign,l not against it.
Justice Antonin Scalia: But my question is broader than that.
Does the rule of lenity not apply to all penalties?
Jeffrey B Wall: I don't think it applies in the context of a civil penalty.
I don't think the -- I don't think--
Justice Antonin Scalia: Are you sure of that?
My belief is the contrary.
Jeffrey B Wall: --I can't say that I focused on it specifically, but I think if the Petitioner said--
Justice Antonin Scalia: Well, it's an important issue in this case surely.
I mean, if “ accrual ” is ambiguous and we have a rule of lenity, we should interpret it to favor the defendant.
Jeffrey B Wall: --Justice Scalia, I don't -- Petitioner certainly couldn't claim that this civil penalty should have to be proved beyond a reasonable doubt, or that they are entitled to a constitutional right to counsel.
I don't know why one legal norm among them all should change in the civil context and not the others.
Justice Stephen G. Breyer: The reason would be that the -- you know, once you start talking about applying this to Social Security, for example, or to Medicare, for example, or to DOD, for example, you have somebody who did commit some fraud and they kept the money.
You know, she had five children not four, or she has five, not six.
And I can understand it being fair when the Government catches her, you know, 18 years later, they say, We want our money back.
I say that's fair, not necessarily merciful but fair.
But then to go and say, and in addition we want this civil penalty, even though -- of course, we couldn't have discovered it.
Don't you know there are 4 million people who get Social Security or 40 million or something, and we can't police every one.
So suddenly, I see I am opening the door, not just to getting your money back but to also you're having what looked like criminal penalties years later without much benefit of a statute of limitations.
That is at the back of my mind.
And I'd like to know, having brought it up front, what your response is.
Jeffrey B Wall: Absolutely.
There are anomalies on both sides of the coin and I just want to touch on both very briefly.
Take the example you gave.
In that situation, the defendant's fraud or concealment the would allow it or him to escape paying civil penalties but not private damages.
Justice Stephen G. Breyer: That's right.
Jeffrey B Wall: This Court has never privileged a private lawsuit above a Government enforcement action in a securities context--
Justice Stephen G. Breyer: This is not the securities context.
This is the context of -- that's why I started down the road I was down.
Jeffrey B Wall: --But even in that context, imagine if there's a private right of action, the private plaintiff will be able to recover damages and the Government will not--
Justice Stephen G. Breyer: Yes, because you have two people who are hurt, where two people have been hurt.
For example, I wrote the case in Burk and we had the statute of limitations and Congress focused on this.
And it wrote a two-tier statute.
And it wrote a two-tier statute in large part because it was concerned about the problem you mention.
You have a victim.
So you're either going to let the defendant keep the money or the victim gets it back.
I understand that.
But this is not that context.
This is like a criminal context where not only are you getting your money back, but you also want to assess a kind of criminal penalty, and in that situation, I see a pretty clear line and I don't understand why the Government is so anxious to change what has long been the apparent--
Jeffrey B Wall: --Just imagine the opposite, which is far more dangerous.
Imagine a bank makes a bad loan to a veteran or a bank tells the FDIC that it's gotten mortgage insurance to help lower income families buy homes and then that fraud or falsity escapes detection for five years.
The Veterans Administration or the FHA then is barred from bringing a civil penalty action, and there is no private right of action.
Justice Stephen G. Breyer: --That's correct, you have a fraud and you can't put them in jail either, but you can get your money back.
Jeffrey B Wall: But the reason there's no private right of action in those contexts is in part because government agencies can seek civil penalties.
And I cannot imagine that the Congress, which allowed agencies to seek civil penalties, where here they had existing remedies, would have thought that the only people who could get away without paying them are the ones who commit fraud or concealment and that remains hidden for five years.
Chief Justice John G. Roberts: And the reason -- the reason there's no private action -- right of action is not because the Government could seek civil penalties, it's because Congress hasn't provided a private right of action.
Jeffrey B Wall: That's right, because it thought that the agencies could seek civil penalties and that was sufficient.
Justice Stephen G. Breyer: Oh, no, you can't--
Chief Justice John G. Roberts: But it didn't -- it didn't necessarily think, and that's why we have a case, that they could seek civil penalties 10 years later, 18 years later, however long, so long as they were busy doing other things and didn't have a chance to know.
Jeffrey B Wall: No question.
And in the average typical case, the time that Congress afforded is enough and we're not here claiming any different, but that--
Justice Ruth Bader Ginsburg: And it is a generous period.
It's 5 years.
And, Mr. Wall, maybe you can explain the SEC's pursuit of this -- of this case.
The alleged fraud went on from 1999 to 2002.
It was discovered in 2003.
The SEC waited from 2003 to 2008 to commence suit.
What -- what is the reason for -- for the delay from the time of discovery till the time suit is instituted?
Jeffrey B Wall: --Justice Ginsburg, there was a lot of back and forth between the parties, document exchanges, they wanted to make additional submissions.
The Government hoped that there would be a settlement that would encompass all the defendants.
Ultimately, there was a settlement that only went to the fund and petitioners did not settle and then the Government put together and brought its case.
Justice Elena Kagan: But, Mr. Wall, I'll go even further than Justice Ginsburg.
And this case actually seems to me a good example when Mr. Liman said there's no natural starting point and Justice Kennedy and Justice Alito referred to just -- this is a -- this is a decision about enforcement priorities.
The Government had decided not to go after market timers.
And it changed its decision when a State attorney general decided to do it, and it embarrassed them that they had made that enforcement priority decision, and then the Government made a different enforcement priority decision.
But that's not the kind of situation that the discovery rule was intended to operate on, is it?
Jeffrey B Wall: Justice Kagan, I don't think that's fair.
We didn't go -- it wasn't market timing that we discovered.
What General Spitzer announced was there are advisors that are permitting market timing, but misleading investors about it and they're doing it in return for investments in other funds that they manage, what are called sticky asset agreements, and then we started doing market sweeps for those agreements.
And I don't think we can ignore the evidence here, because we shouldn't decide the case based on feverish hypotheticals.
There are 25 reported cases brought by the Commission involving this statute, 19 were brought within 5 years and they were just reaching back to pick up the beginning of the fraud.
And the other six, including this case, the longest lag time was six and a half years from the end of the fraud to bringing the complaint.
And the reason is these are dynamic markets.
There's a lot going on in the public domain that puts the commission on notice, inquiry or constructive, and starts the clock running.
Not only have we not seen a 10, a 15, a 20-year case, we haven't seen a 7-year case.
Justice Stephen G. Breyer: --Well, if all that's true, and this is a point I want you to -- I'm not sure I am right about this point, but remember your banking case now, we're sounding like that, I thought -- doesn't the doctrine of fraudulent concealment still apply?
That is, if the defendant, in fact, takes any affirmative action to hide what's going on, the statute will be tolled.
Is that right?
Jeffrey B Wall: That's right, but that--
Justice Stephen G. Breyer: All right.
As long as that's right, then in all your banking cases, there are bank inspectors all over these banks, I hope, you know, about once a month or so--
Jeffrey B Wall: --But Justice Breyer, that's--
Justice Stephen G. Breyer: --or once a year.
And so the chance of there -- the chance of this somehow escaping notice without fraudulent concealment, which would allow the Government to extend the toll strikes me as small, but am I right?
Jeffrey B Wall: --Justice Breyer, I want to be clear.
In the government's view, the concealment would apply, though petitioners or others like them will be back here making exactly the same arguments.
The government's point is just that equity fraud and concealment were a pair and the justification was the same for both.
Justice Anthony Kennedy: Well, perhaps I've missed something.
I -- I came in here thinking that both parties were willing to concede for purposes of this case that there was a fraudulent concealment.
Is that -- is that wrong?
Jeffrey B Wall: I -- I--
Justice Anthony Kennedy: I mean, for purposes of presenting the statute of limitations issue that's before us.
Jeffrey B Wall: --I don't think the petitioners are disputing it here, but I think Mr. Liman acknowledged earlier that if pressed, his arguments could be leveraged to get rid of the concealment doctrine, too.
Justice Antonin Scalia: He didn't concede that there was fraudulent concealment.
All he conceded is that there was fraud, but later concealment to cover up that fraud I don't think has been conceded.
Jeffrey B Wall: Oh, no, no, not -- I didn't -- I'm sorry, Justice Scalia.
I wasn't trying to mislead.
This is not a concealment case.
This is a fraud case.
Justice Stephen G. Breyer: I thought it was the opposite.
In other words, I thought both parties, for purposes of this argument, are assuming fraudulent concealment has nothing to do with it.
We are not to consider fraudulent concealment.
Jeffrey B Wall: This is a fraud case, not a concealment case.
Justice Stephen G. Breyer: Am I right when I say that?
Jeffrey B Wall: Yes.
I was just trying to say that once you say there is a concealment exception, the fraud exception follows from equity because they were of a piece.
And once you say there is not a fraud exception, the same arguments will be leveraged to get rid of a concealment exception.
And the reason that equity treated them as -- of a piece was the deception was the same.
The fraud was self-concealing or even if it was non-fraud, the defendant could conceal, but either way--
Justice Antonin Scalia: Except that concealment is sort -- you know, it's sort of a self-starter.
You -- you -- it -- it doesn't apply always.
It applies when there is concealment, and the person who is being subjected to the longer statute of limitations is on notice that if he fraudulently conceals, he's extending the statute.
So I -- I don't think that the one has to go with the other.
Maybe they're both equitable doctrines, but that doesn't -- that doesn't mean that we have to apply them to this statute.
Jeffrey B Wall: --Justice Scalia, for 300 years, English and American courts looking at this problem have said where the defendant's misconduct, be it fraud or be it concealment of a non-fraud, but where the defendant's deception prevents a plaintiff from knowing that he, she or it has a cause of action, equity suspends the running of a statute of limitations.
Those -- that has been--
Justice Antonin Scalia: And for 300 years, that has been said only with respect to civil actions, not with respect to the government's attempt to exact a penalty.
Justice Stephen G. Breyer: That's correct.
Jeffrey B Wall: --Justice Scalia, this is a civil action.
I don't think even petitioners are disputing that.
Justice Stephen G. Breyer: I assume that we are on the same ground, but I don't know that you have -- I mean, I'm worried about your giving up the fraudulent concealment.
I mean, you wouldn't give up equitable estoppel, would you?
Jeffrey B Wall: If I gave up anything on fraudulent concealment--
Justice Stephen G. Breyer: No, no, no.
I mean -- I mean, there's nothing--
Jeffrey B Wall: --I want to be very clear.
Justice Stephen G. Breyer: If we were to say -- if we -- if the Court were to hold, it seemed to me, and this is again tentative to get your response, but if the -- if the Court were to hold the discovery doesn't -- rule doesn't apply, there's nothing in that that says equitable -- equitable tolling doesn't apply, nothing in that that says equitable estoppel doesn't apply, nothing in that that says fraudulent concealment doesn't apply.
Now, you've shaken me a little bit on the fraudulent concealment, but I don't know about the other two.
Jeffrey B Wall: Well, all the same arguments are going to apply.
Justice Stephen G. Breyer: Oh, not the equitable estoppel.
Jeffrey B Wall: --Oh, sure.
Justice Stephen G. Breyer: Equitable estoppel, the person comes in and says: Oh, yes, I'll tell you all about what I did, but by the way, I won't assert a statute of limitations defense, I promise.
And the Court says: Hey, you just asserted one, you can't.
Jeffrey B Wall: Justice Breyer, petitioners in a future case would be back here saying: The text of the statute says nothing about equitable estoppel.
And even if you've applied it to everybody else's actions, you can't apply it to me because I'm somehow--
Justice Antonin Scalia: And you will say nonsense in that future case, won't you?
Jeffrey B Wall: --That's -- I'll be as right then as I am now.
I mean, petitioners' argument has this sort air of unreality.
You've applied it everywhere else he says, but not to me.
Think how odd that is, Justice Scalia, that where you have a background canon that says ambiguities get construed for and not against the sovereign.
When the sovereign sues quasi-sovereign to enforce the laws, that is somehow a subordinate interest and the sovereign alone cannot take advantage of the Fraud Discovery Rule.
Justice Elena Kagan: Mr. Wall, why is it that you don't you have any cases?
I mean, you said way back when: This didn't come up, this is a modern problem.
So explain to me why this is a modern problem.
This is obviously an old statute.
Are you saying that this statute has not been used very -- was not used very much until very, very recently?
Jeffrey B Wall: There are -- that's right.
There are very few cases that deal with this statute at all, and obviously in this context, because the Commission's only had the ability to bring civil penalties for about 20 years.
But I think that is not a problem unknown to the law.
Again and again, facing garden variety limitations provisions written just like this one, this Court applied the fraud discovery rule.
And now they come in and say: Oh, but you've never applied it to this statute.
That's true, but everything about this statute is identical as a matter of text and history to the statute of Bailey.
The cause of action equally accrued there, and this Court's applied it across bankruptcies, land, patent cases--
Justice Elena Kagan: But what you're running up against is a skepticism, that, you know, the government, which has not asserted this power for 200 years, is now coming in and saying we want this.
And the question is why hasn't the government asserted this power previously?
Jeffrey B Wall: --There are just very few cases on it.
I think there are very few civil penalty actions that are being brought at all, certainly to which this statute apply, and certainly that deal with fraud or concealment and reach outside the 5-year period.
And I don't have a great answer for why there aren't cases.
All I can tell you is that -- it isn't like there are cases rejecting our arguments.
We just see an absence of case law.
But what we do see is cases like Exploration Company, where the government comes in, is really suing in a sovereign capacity, to redistribute land from some private land owners to another by annulling their patents.
And this Court rejects basically exactly the same arguments Petitioners are making and says it applies equally to the government when it brings an action as to private plaintiffs.
Now, an action for civil penalties?
No, the relief here is a little different, but if one looks back at the briefs the arguments are exactly the same.
They made exactly the same claims that the sky was falling there, and for 100 years they have not been true.
There is nothing important about this statute as a matter of text, structure or anything else from the other statutes to which this Court has again and again applied the rule.
And the justification is the same.
It's the defendant's misconduct which keeps the plaintiff from knowing of her cause of action.
Chief Justice John G. Roberts: Counsel, you made the point earlier that it would be very odd that it's only the sovereign that doesn't benefit from the discovery rule when other people can.
But it's when it's the sovereign that's bringing the action that the concerns about repose are particularly presented.
You know, the sovereign, with all of its resources, can decide to go after whomever it discovers, however many years after -- whether it's the Social Security recipient that Justice Breyer mentioned or anyone else.
So I at least don't find it unusual that it's the sovereign in particular that doesn't get the benefit of whenever you happen to find about it rule.
Jeffrey B Wall: No question in the typical case, but what equity has always said is in cases of fraud or concealment the defendant is not entitled to repose until there is discovery of the fraud.
And equity has never looked at the identity of the plaintiff, the elements of the cause of action, the plaintiff's status, role, party to what happened in the case.
That is never--
Chief Justice John G. Roberts: Would you agree that when we're talking about the interests in repose that the one plaintiff that we should be particularly concerned about is the government?
Jeffrey B Wall: --I don't think that there's a basis for separating as between private damages lawsuits and civil penalties.
I think when Congress sets a statute of limitations, that's a limitation on the various forms of--
Justice Antonin Scalia: What about criminal penalties?
Would your argument be different with regard to criminal?
Jeffrey B Wall: --Justice Scalia--
Justice Antonin Scalia: Incidentally, what makes something a civil penalty?
You just call it a civil penalty and you don't have to prove it beyond a reasonable doubt, and you get the benefit of this extension that you are arguing for?
Jeffrey B Wall: --Justice Scalia, two very important things.
Yes, our argument would absolutely be different in a criminal context.
In cases like Marion and Toussie, this Court has explained how statutes of limitations function in the criminal context is very different.
They are presumptively not equitably tolled, whereas civil statutes are presumptively equitably tolled.
Justice Antonin Scalia: What makes a penalty a civil penalty?
Jeffrey B Wall: In Hudson v. United States--
Justice Antonin Scalia: I mean, a penalty is a penalty as far as I'm concerned if the Government's taking money from me.
Jeffrey B Wall: --Justice Scalia, the Court walked through in Hudson v. United States the test for denominating a civil from a criminal penalty.
The main thing is what Congress denominates it, although you can look behind that.
Justice Antonin Scalia: That's nice.
Jeffrey B Wall: Here, there is no question that this is a civil penalty.
It was denominated by Congress that way, it functions that way, it is phrased that way.
I think even Petitioners and all of their amici -- not a single person on that side of the case has attempted to argue this penalty is criminal rather than civil under Hudson.
Justice Antonin Scalia: That isn't my point, that it is criminal.
My point is, it doesn't seem to me to make a whole lot of difference as far as these issues are concerned.
Jeffrey B Wall: Justice Scalia, the Court has always said that whether the penalty is civil or criminal carries with it a different set of legal rules or norms, and no party has ever successfully come into court and said, well, it may be civil, but it's a little criminal-like, so I should borrow from the criminal context.
Chief Justice John G. Roberts: What about the Halper case?
Jeffrey B Wall: Mr. Chief Justice, I think Hudson overruled Halper in large part, and no one here has asked this Court to label this a criminal penalty.
They have asked the Court to call this a civil penalty and yet say the fraud discovery rule does not apply.
That, there is no precedent for.
Chief Justice John G. Roberts: Thank you, counsel.
Mr. Liman, you have 5 minutes remaining.
REBUTTAL ARGUMENT OF LEWIS LIMAN ON BEHALF OF THE PETITIONERS
Lewis Liman: Just a few points in rebuttal.
First of all, with respect to whether this is a criminal penalty and whether the rules of lenity apply, this Court has held in the Commissioner v. Ackerly case that the rule of lenity applies to civil penalties.
Just as an--
Chief Justice John G. Roberts: I'm sorry.
Lewis Liman: --I believe it's Commissioner against Ackerly.
It's cited in one of the amicus briefs.
Second, the concession that you just heard a moment ago, that the statute would not apply as the government says it should apply if this was deemed to be a criminal penalty, we submit under this Court's reasoning in Clark v. Martinez, it just gave away the store in the government's case, because if it is possible -- if the government has now admitted it's possible -- and I don't want to get into all of the permutations of Hudson -- but if it is possible that the label of civil penalty does not -- is not dispositive as to whether a penalty is civil or criminal, then, as the Court held in Clark v. Martinez, the lowest common denominator applies.
One has to interpret this statute so that it is applicable across the range of statutes.
And if that's so, then it follows, it runs from accrual as that word is commonly understood.
The Government said that there are no cases where the Court considered the claim that it is making.
We would point the Court's attention to the Rotella case, in which in the context of a private plaintiff who did not have the resources of the government, the argument was made that the RICO statute should have a discovery of the violation type principle.
And the argument was made there that RICO can encompass a pattern of fraudulent acts.
And the plaintiff in that case said, as the government says here, fraud can be concealed, can be complex, can be difficult to discover.
And the Court unanimously had a response to that.
The response was that, at least as soon as you know the injury, where there is an injury element, the difficulty of discovery of the actual violation doesn't defer the running of the statute of limitations.
It would defeat the purposes of the statute of limitations.
The Government also argued that the problems of privilege are not significant ones.
We would point the Court's attention to the Joint Appendix in the Second Circuit, where the Government asserted privilege with respect to our questions about its investigations of the counterparty to this alleged quid pro quo.
The Court also asked a question of whether there are any cases in which courts have dealt with government agencies being diligent, and the claim being the government agency was not diligent.
The Court has dealt with that in a related context, in the Heckler v. Cheney context.
And in the Heckler v. Cheney context the Court held that that type of issue, how an administrative agency treats facts that are -- that it discovers and whether it chooses to bring a claim or not, whether it chooses to believe that they are in violation of a statute, the agency is charged with administering is not fit for judicial review.
No different result should apply here.
Just two more points.
The False Claims Act has a -- which has an explicit discovery rule, also has a statute of repose.
It would be very odd, indeed, if the one circumstance where Congress, one of the few circumstances where Congress chose to use the word “ discovery ”, was where the government was injured, and Congress chose to impose a statute of repose, where, as they say in the 100 or other statutes that use language, fraud-like language, Congress intended there to be discovery and no repose.
And that really ties into the last point, which is that there are by our count if you look at fraud, misleading, false statement-type statutes, there are somewhere like 80 or 100-type statutes that use that kind of language that would be applicable if this Court affirms the Second Circuit.
This case was in -- the government says this case was an outlier.
There is no reason to believe this case will remain an outlier.
Chief Justice John G. Roberts: Thank you, counsel.
The case is submitted.