Injury Is Not An Element Of Securities Act "Violation" For Statute Of Limitations Purposes
MCCANN v. HY-VEE, INC. (November 22, 2011)
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Denise and Anthony McCann divorced in 2002. The decree required Anthony to transfer stock in the closely held company by whom he was employed to Denise and to pay child support through 2007 and alimony through 2012. The decree also provided that the alimony obligation could end as early as 2007 if Anthony sold the stock and gave Denise the proceeds. According to Denise, the company's CFO told her that the shares could not be sold until Anthony died or left the company. In fact, that was not the case and Anthony did sell the stock in 2007, gave Denise the proceeds, and stopped making alimony payments. Denise filed suit against the company in September of 2009, alleging a violation of Section 10 (b) of the Securities Exchange Act and Rule 10b-5. Judge Nordberg (N.D. Ill.) dismissed the case on statute of limitations grounds. Denise appeals.
In their opinion, Seventh Circuit Judges Posner, Flaum, and Sykes affirmed. The Court first addressed the Company's alternative grounds urged for dismissal -- that there was no purchase or sale of stock. The Court concluded otherwise and held that the 2007 sale by Anthony was actually an involuntary sale by Denise and that the 2002 transfer pursuant to the divorce decree was also a sale in that Denise gave up certain demands in return for the shares. Returning to the timeliness issue, the Court noted that the statute allows a securities fraud case to be brought no later than two years after the discovery of facts constituting the violation or five years after the violation. Although the Court addressed the two-year prong, it based its holding solely on the five-year prong. Under that part of the statute, a plaintiff has five years to sue from the date of the violation. Denise argued that the violation occurred in 2007, when Anthony sold the stock and stopped making the alimony payments. The Court agreed that that was the time of her injury but concluded that injury was not an element of the "violation" indicated in the statute. Here, the alleged violation occurred when the CFO misrepresented the restrictions or limitations on Anthony's ability to sell the stock. That occurred in 2002. Denise's 2009 suit is untimely.
Michael Rigney practices in the law offices of GVC Ltd. in Chicago. In this blog, he reports on select