United States: Supreme Court Docket Report - September 25, 2012

Last Updated: September 26 2012
Article by Andrew E. Tauber

Today the Supreme Court granted certiorari in two cases of interest to the business community:

  • Government Actions for Civil Penalties—Statute of Limitations—Investment Advisor Act
  • Driver's Privacy Protection Act—Permissible Use of Data in Connection with Litigation

Government Actions for Civil Penalties—Statute of Limitations—Investment Advisor Act

Under 28 U.S.C. § 2462, an action for civil penalties brought by the government must be "commenced within five years from the date when the claim first accrued" unless "otherwise provided by an Act of Congress." Today, the Supreme Court granted certiorari in Gabelli v. Securities and Exchange Commission, No. 11-1274, to determine whether a fraud claim brought by the government "accrues" when the alleged violation occurs, or only when the government either discovers or should have discovered the alleged violation.

The Supreme Court's decision will be of interest to the business community because, depending on the case's resolution, individuals and entities might be exposed to liability to the government many years after the alleged misconduct occurred.

Petitioners were the portfolio manager of a mutual fund and the chief operating officer for the fund's adviser. According to the SEC, for a three-year period ending in 2002, petitioners failed to disclose that they had granted favorable treatment to one investor at the expense of others. In 2008, six years after the cessation of the alleged conduct, the SEC filed an action alleging that petitioners had aided and abetted violations of the antifraud provisions of the Investment Advisers Act of 1940, 15 U.S.C. §§ 80b-6(1) & (2). The district court determined that the SEC could not seek civil penalties on that claim because it fell outside the five-year limitations period set forth in 28 U.S.C. § 2462 and was therefore time-barred. The Second Circuit reversed. The Court of Appeals held that because the claim was a fraud-based claim, the limitations period in § 2462 was subject to the discovery rule, according to which a fraud claim does not accrue until the party seeking relief discovered the fraud or, in the exercise of due diligence, should have discovered it. In so holding, the Second Circuit rejected petitioners' contention that the discovery rule was inapplicable because § 2462 contains no reference to it.

Absent extensions of time, amicus briefs in support of the petitioners will be due on November 9, 2012, and amicus briefs in support of the respondent will be due on December 10, 2012.

* * * * * * * * * *

Driver's Privacy Protection Act—Permissible Use of Data in Connection with Litigation

The Driver's Privacy Protection Act of 1994 (DPPA), 18 U.S.C. §§ 2721–2725, regulates the disclosure and use of personal information contained in the records of state motor-vehicle departments. The statute prohibits obtaining or using personal information in driving records for the purpose of bulk marketing or solicitations without the express consent of the individuals whose information is being used. The statute does, however, permit disclosure without consent of personal information for "use in connection with any civil ... proceeding," including "investigation in anticipation of litigation." 

The Supreme Court granted review today in Maracich v. Spears, No. 12-25, to determine whether the DPPA's litigation exception covers lawyers who obtain protected personal information from driving records solely to find plaintiffs, either for a future lawsuit or to add to an existing "placeholder" lawsuit.

This case is of interest to the business community because it addresses an emerging trend among plaintiffs' lawyers who troll for clients in order to bring lawyer-driven class and representative actions.

Respondents in Maracich are lawyers who filed a representative action in South Carolina state court against local car dealers, alleging that the dealers had improperly charged certain fees to customers. Before filing suit, respondents had invoked the South Carolina Freedom of Information Act to obtain from the local DMV a list of people who had recently purchased new cars. Once they received that information, respondents sent several bulk solicitations to the new-car purchasers, inviting them to be plaintiffs in the lawsuit. Some car-buyers responded by suing respondents in federal district court, alleging that the solicitations violated the DPPA; but the district court granted summary judgment in favor of respondents. The U.S. Court of Appeals for the Fourth Circuit affirmed, concluding that the solicitations were permissible under the DPPA's litigation exception and were "inextricably intertwined" with the original lawsuit. The Fourth Circuit's decision conflicts with decisions of the U.S. Court of Appeals for the Third Circuit and the District of Columbia Courts of Appeals (the highest court for D.C.) on whether lawyers may obtain protected driver information solely for the purpose of soliciting clients, and also conflicts with decisions of the Third and Eleventh Circuits on the appropriate test for when DPPA-protected information may lawfully be used.

Absent extensions of time, amicus briefs in support of the petitioners will be due on November 9, 2012, and amicus briefs in support of the respondent will be due on December 10, 2012.

Originally published September 25, 2012

Keywords: Supreme Court, civil penalties, fraud, Driver's Privacy Protection Act, personal information, marketing,

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