Second Circuit Holds Sarbanes-Oxley's Five-Year Statute Of Repose Applies To Claims Under Sections 9(f) And 18(a), But Reaffirms That Three-Year Repose Period Applies To Section 14 Claims

Author:Shearman & Sterling LLP
Profession:Shearman & Sterling LLP

Twenty-five years ago, in Ceres Partners, the Second Circuit held that the implied private right of action under Section 14 of the Securities and Exchange Act of 1934 ("Exchange Act") was subject to a three-year repose period, based on analogizing such claims to the express private rights of action in Sections 9(f) and 18(a) of the Exchange Act and then borrowing those statutes' then-applicable three-year statutes of repose.1 In 2002, the Sarbanes-Oxley Act ("SOX") extended the repose period for private rights of action involving claims of "fraud, deceit, manipulation, or contrivance" to five years.2 In DeKalb County Pension Fund v. Transocean Ltd., No. 14-0894-cv (2d Cir. Apr. 29, 2016), the Second Circuit reexamined its Ceres holding in light of SOX, and (1) resolving disagreements among district courts within the Second Circuit, held that claims under Sections 9(f) and 18(a) are subject to SOX's five-year statute of repose, but (2) claims under Section 14 are nevertheless still subject to a three-year statute of repose. The Transocean Court further held that Section 14's repose period begins to run on the date of the defendant's last culpable act or omission—i.e., when the allegedly misleading proxy statement was issued—not when the plaintiff's claim may have accrued or been discovered.


On October 2, 2007, GlobalSantaFe Corp. ("GSF"), an offshore oil and gas drilling contractor, and Transocean, one of the largest international providers of offshore oil and gas contract drilling services, disseminated a joint proxy concerning a proposed merger between the companies. The proxy statement included representations regarding Transocean's compliance with various environmental laws, its training and safety programs, and its equipment maintenance. GSF's shareholders, including DeKalb County Pension Fund ("DeKalb"), approved the merger in November 2007. At the time of the merger, Transocean owned the Deepwater Horizon oil-drilling rig, which exploded on April 20, 2010, causing the worst oil spill in US history. In the wake of that disaster, Transocean's stock lost more than half of its value.

On September 30, 2010, Bricklayers and Masons Local Union No. 5, Ohio Pension Fund ("Bricklayers") filed a class action complaint against Transocean and certain individuals alleging that the proxy statement contained false and misleading statements regarding Transocean's safety protocols, in violation of Section 14(a). DeKalb first appeared in the action on December 3, 2010, when it filed a motion to be appointed lead plaintiff. The district court appointed the "DeKalb-Bricklayers Group" as lead plaintiff, and the DeKalb-Bricklayers Group filed an amended class action complaint asserting violations of Section 14(a) and SEC Rule 14a-9, as well as control-person claims under Section 20(a). Bricklayers was later dismissed from the action for lack of standing, leaving DeKalb as the sole lead plaintiff. DeKalb filed a second amended class action complaint, again asserting Section 14(a), Rule 14a-9, and Section 20(a) claims. The district court thereafter granted defendants' motion to dismiss DeKalb's complaint, holding...

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