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Section 804 of the Sarbanes-Oxley Act extended the one year/three year statute of limitations period previously applicable to federal securities fraud claims to a two-year/five-year period, and made the new period applicable to all federal securities fraud claims filed on or after the date of the act's enactment. One vitally important issue concerning Section 804's scope is whether this extended limitations period can be employed to revive securities fraud claims that had become time-barred prior to the act's passage.
Congress enacted the Sarbanes-Oxley Act of 2002 (SOA) (1) in response to the wave of corporate accounting scandals that first became public in the latter half of 2001. The SOA imposes a range of new duties on corporate executives, directors and lawyers, duties that have received the lion's share of the scholarly and professional attention paid to the SOA during its first year of existence. A largely overlooked provision of the SOA that will have a substantial impact on federal securities litigation, however, is Section 804, which lengthens the statute of limitations period applicable to federal securities fraud actions. (2)
This article discusses one uncertainty of particular importance concerning Section 804's scope: Whether Section 804's extended statute of limitations can be applied to revive federal securities fraud claims that had become time-barred prior to the SOA's passage under pre-enactment limitations periods. The implications of this uncertainty are potentially enormous for plaintiffs and defendants in securities fraud actions commenced after the SOA's enactment: If Section 804 can be employed to revive previously time-barred claims, substantially more alleged frauds (and the damages caused by those frauds) would become viable predicates for securities fraud claims.
As this article concludes, however, the argument that Section 804 can be interpreted to revive time-barred securities fraud claims faces steep hurdles. Section 804 likely fails to satisfy the Supreme Court's requirements for overcoming the strong interpretive presumption against retroactivity because neither its text nor its legislative history contains any express statement that it be applied to revive time-barred claims. Even if Section 804 could overcome the presumption against retroactivity, interpreting it to revive extinguished claims arguably contravenes Section 804's built-in prohibition on employing it to "create a new, private right of action." (3)
The Statutory Language
Section 804 of the SOA extends the statute of (imitations period applicable to certain private rights of action under the federal securities statutes by amending 28 U.S.C. [section] 1658. (4) Section 804(a) specifically provides that:
a private right of action that involves a claim of fraud, deceit, manipulation, or contrivance in contravention of a regulatory requirement concerning the securities laws, as defined in section 3(a)(47) of the Securities Exchange SOA of 1934 (15 U.S.C. 78c(a)(47)), may be brought not later than the earlier of-- 1. 2 years after the discovery of the constituting the violation; or 2. 5 years after such violation. (5)
Section 804(b) states that the new statute of limitations applicable to securities fraud claims "shall apply to all proceedings addressed by this section that are commenced on or after the date of enactment of the SOA." Section 804(c) makes plain that Section 804 does not, and cannot be construed to, "create a new, private right of action."
Does Section 804 Overcome the Presumption against Retroactivity?
Whether Section 804 may be employed to revive time-barred claims asserted in post-enactment actions is a question that first requires application of the Supreme Court's multi-step test for determining whether a federal statute may be applied to conduct or events that occurred before its enactment. The Supreme Court first announced this test in Landgraf v. USI Film Products. (6)
In Landgraf, the Court unequivocally adopted a presumption against retroactivity and set forth a two-step analysis for evaluating the temporal reach of a newly enacted federal statute sought to be applied in a case based on events that predated the statute's enactment. A court should first "determine whether Congress has expressly prescribed the statute's proper reach[,]" and, if it has, should follow that express prescription. (7) If the statute lacks an express prescription, a court then "must determine whether the new statute would have retroactive effect, i.e., whether it would impair rights a party possessed when he acted, increase a party's liability for past conduct, or impose new duties with respect to transactions already completed." (8) A statute that has a retroactive effect triggers the presumption against retroactivity and cannot be applied retroactively "absent clear congressional intent favoring such a result." (9)
The "Express Prescription" Test
Landgraf's first step requires an examination of the text of the statute at issue to determine whether the statute "expressly prescribes" its temporal reach. (10) Landgraf itself "did not speak to the rules for determining" whether a statute contains an "express prescription." (11) Subsequent decisions have suggested that the statutory text must satisfy a stringent test in order to qualify as an express prescription. Cases in which the Supreme Court has "found truly 'retroactive' effect adequately authorized by statute have involved statutory language that was so clear that it could sustain only one interpretation." (12)
Though they ultimately disagree on the issue, the only two cases that have addressed whether Section 804 revives time-barred claims have concluded that the section lacks an express textual prescription. In Glaser v. …