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2nd Circuit: Stale Claims Barred Under Sarbanes-Oxley Extension

The 2nd U.S. Circuit Court of Appeals held that fraud claims under Exchange Act Section 10 were properly found to be time-barred. In appeals from two separate district court decisions, the appellate panel held that the limitations period had expired before the enactment of the statutory filing time extension under the Sarbanes-Oxley Act. The Sarbanes-Oxley Act provision did not revive claims that were stale at the time the measure became law, held the court.

Section 804 of the Sarbanes-Oxley Act extended the statute of limitations for private securities fraud cases from the longer of either one year from the date of the occurrence or three years from the date of discovery to the longer of two years from the date of occurrence or five years from the date of discovery. In both cases under review, the plaintiffs initiated their actions before the enactment of the statutory extension. In one of the cases, the plaintiffs added additional claims to their complaint, and in the other, the plaintiffs named an additional defendant in an attempt to fall within the limitations extension.

The 2nd Circuit panel determined that "the language of Section 804 does not unambiguously revive previously stale securities fraud claims." The court also noted that the measure's legislative history "does not suggest that Congress intended to provide for retroactive application."

The panel also cited Section 804(c) of the act, which provides that "nothing in this section shall create a new, private right of action." Because the parties had no legally recognizable claims at the time the bill became law, the court observed that "where a plaintiff is empowered by a new statute to bring a cause of action that previously had no basis in law, a new cause of action has, in some sense of the word, been created."