Waiting On The Eleventh Circuit

While the U.S. Court of Appeals for the Eleventh Circuit continues to consider whether the new statute of limitations in the Sarbanes-Oxley Act of 2002 revives time-barred claims, the district court split on the issue remains unresolved. Two recent decisions from the S.D.N.Y., in prominent cases, come to different conclusions.

In In re Worldcom, Inc. Sec. Litig., 2004 WL 1435356 (S.D.N.Y. June 28, 2004), Judge Cote found that “there is no explicit language in the statute” that would operate to revive time-barred claims and lengthening the statute of limitations in this manner “would affect the substantive rights of the defendants by depriving them of a defense on which they were entitled to rely.” Accordingly, the court held that “Sarbanes-Oxley does not revive previously time-barred private securities fraud claims” and dismissed certain claims in the case that had expired in June 2002 (a month before Sarbanes-Oxley was passed).

In In re AOL Time Warner, Inc. Sec. and “ERISA” Litig., 2004 WL 992991 (S.D.N.Y. May 5, 2004), Judge Kram went in another direction. In that case, the first class action was filed on July 18, 2002 (two weeks before Sarbanes-Oxley was passed). The court held that the plaintiffs’ otherwise time-barred claims would have been revived if the plaintiffs had filed after the passage of Sarbanes-Oxley. Although “in most cases, class actions or otherwise, the date of the first filing is the operative one for statute of limitations purposes,” the court decided that the filing date of the consolidated complaint, September 16, 2002, should be the operative date in the instant case. As a result, the longer statute of limitations in Sarbanes-Oxley applied and the otherwise time-barred claims could proceed. The court justified this rather extraordinary decision by arguing that any other result would punish the plaintiffs for filing too early and lead to a mass opt-out from the class.

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