SEC v. Jackson/Ruehlen (Joint Motion to Dismiss Amended Complaint)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

) SECURITIES AND EXCHANGE ) COMMISSION, ) ) Plaintiff, ) Case No. 4:12-cv-00563 ) v. ) ) MARK A. JACKSON and ) JAMES J. RUEHLEN, ) ) Defendants. ) )

DEFENDANTS’ JOINT MOTION FOR PARTIAL DISMISSAL OF THE SEC’S AMENDED COMPLAINT

Case 4:12-cv-00563 Document 101 Filed in TXSD on 02/22/13 Page 1 of 29

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TABLE OF CONTENTS

TABLE OF CONTENTS .............................................................................................................. i TABLE OF AUTHORITIES ....................................................................................................... ii STATEMENT OF NATURE AND STAGE OF PROCEEDING ............................................ 1

STATEMENT OF ISSUES TO BE RULED ON AND APPLICABLE STANDARDS ......... 1

SUMMARY OF THE ARGUMENT .......................................................................................... 2

ARGUMENT ................................................................................................................................. 3

I. THE SEC FAILED TO ADEQUATELY ALLEGE FRAUDULENT CONCEALMENT................................................................................................. 3

A. The SEC Did Not Plead Facts Establishing Affirmative Acts of Concealment or Reliance on Defendants’ Denials of Wrongdoing ............ 4

B. The SEC Failed to Plead Facts Establishing its Diligence ......................... 7

C. Equitable Tolling Does Not Apply to Penalty Actions Subject to Section 2462.............................................................................................. 10

D. The SEC Should Not Be Permitted to Replead Again .............................. 13

II. THE CONTINUING VIOLATIONS DOCTRINE DOES NOT SAVE THE SEC’S UNTIMELY CLAIMS .................................................................. 14

A. The Continuing Violations Doctrine Does Not Apply to Discrete Acts Outside of the Limitations Period ............................................................. 14

B. The SEC’s Claims for Bribery, False Books and Records, and Circumvention of Internal Controls Are Based on Discrete Acts to Which the Continuing Violations Doctrine Does Not Apply ................... 17

1. Section 30A and Section 13(b)(5) Claims .................................... 18

2. Section 13(b)(2)(A) Claim ............................................................ 21

CONCLUSION ........................................................................................................................... 23


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TABLE OF AUTHORITIES

Cases

3M Co. v. Browner, 17 F.3d 1453 (D.C. Cir. 1994) ............................................................... 12, 18

Abrams v. Baylor Coll. of Med., 805 F.2d 528 (5th Cir. 1986) .................................................... 21

AKM LLC v. Sec’y of Labor, 675 F.3d 752 (D.C. Cir. 2012) ................................................. 21, 22

Axcan Scandipharm, Inc. v. Ethex Corp., 585 F. Supp. 2d 1067 (D. Minn. 2007) ................ 16, 20

Bailey v. Glover, 88 U.S. 342 (1874) ............................................................................................ 12

Baldwin Cnty. Welcome Ctr. v. Brown, 466 U.S. 147 (1984) ...................................................... 10

Cherosky v. Henderson, 330 F.3d 1243 (9th Cir. 2003) ............................................................... 21

Clement A. Evans & Co. v. McAlpine, 434 F.2d 100 (5th Cir. 1970) ............................................. 8

Credit Suisse Secs. (USA) LLC v. Simmonds, 132 S. Ct. 1414 (2012) ................................. 4, 9, 11

CSC Holdings, Inc. v. Redisi, 309 F.3d 988 (7th Cir. 2002)................................................... 16, 20

EEOC v. Bass Pro Outdoor World, LLC, 884 F. Supp. 2d 499 (S.D. Tex. 2012) ........................ 16

FEC v. Williams, 104 F.3d 237 (9th Cir. 1996) ............................................................................ 11

Foman v. Davis, 371 U.S. 178 (1962) .......................................................................................... 13

Granger v. Aaron’s, Inc., 636 F.3d 708 (5th Cir. 2011) ................................................................. 4

Heard v. Sheahan, 253 F.3d 316 (7th Cir. 2001) .......................................................................... 18

Holmberg v. Armbrecht, 327 U.S. 392 (1946) .............................................................................. 10

In re Beef Indus. Antitrust Litig., 600 F.2d 1148 (5th Cir. 1979) ................................................... 8

In re Energy Transfer Partners Natural Gas Litig., No. 07-cv-3349, 2009 WL 2633781 (S.D. Tex. Aug. 26, 2009) ......................................................................................................... 2

In re Enron Corp. Sec., Deriv. & ERISA Litig., 310 F. Supp. 2d 819 (S.D. Tex. 2004) .............. 16

In re Guy P. Riordan, Initial Decision Release No. 353, 2008 WL 2884080, at *12-13 (ALJ July 28, 2008) ................................................................................................................ 19

In re Juniper Networks, Inc. Sec. Litig., 542 F. Supp. 2d 1037 (N.D. Cal. 2008) ........................ 20

In re Merrill Lynch Ltd. P’ships Litig., 7 F. Supp. 2d 256 (S.D.N.Y.1997) ................................. 13

Jones v. ALCOA, Inc., 339 F.3d 359 (5th Cir. 2003) ...................................................................... 1

Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350 (1991) .......................... 10

Levine v. Bally Total Fitness Holding Corp., No. 06 C 1437, 2006 U.S. Dist. LEXIS 95006 (N.D. Ill. Sept. 29, 2006) ............................................................................................. 20

Limestone Dev. Corp. v. Vill. of Lemont, 520 F.3d 797 (7th Cir. 2008) ....................................... 16

Meeker v. Lehigh Valley R.R. Co., 236 U.S. 412 (1915) .............................................................. 12

Nat’l Parks Conservation Ass’n v. TVA, 480 F.3d 410 (6th Cir. 2007)........................................ 16


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Nat’l R.R. Passenger Corp. v. Morgan, 536 U.S. 101 (2002) ............................................... passim

Newby v. Enron Corp., 542 F.3d 463 (5th Cir. 2008)................................................................... 14

Norris v. Hearst Trust, 500 F.3d 454 (5th Cir. 2007) ..................................................................... 8

Pegram v. Honeywell, Inc., 361 F.3d 272 (5th Cir. 2004) ...................................................... 16, 18

Pocahontas Supreme Coal Co. v. Bethlehem Steel Corp., 828 F.2d 211 (4th Cir. 1987) .............. 6

R2 Invs. LDC v. Phillips, 401 F.3d 638 (5th Cir. 2005) ................................................................. 6

Rotella v. Wood, 528 U.S. 549 (2000) ............................................................................................ 9

SEC v. Bartek, 484 F. App’x. 949 (5th Cir. 2012) ............................................................ 3, 6, 9, 10

SEC v. Brown, 740 F. Supp. 2d 148 (D.D.C. 2010) ..................................................................... 14

SEC v. Harden, No. 1:05-CV-354, 2006 WL 89864 (W.D. Mich. Jan. 12, 2006) ....................... 11

SEC v. Koenig, 557 F.3d 736 (7th Cir. 2009) ............................................................................... 11

SEC v. Kovzan, 807 F. Supp. 2d 1024 (D. Kan. 2011) ................................................................. 11

SEC v. Microtune, Inc., 783 F. Supp. 2d 867 (N.D. Tex. 2011) ..................................................... 9

Texas v. Allan Constr. Co., 851 F.2d 1526 (5th Cir. 1988) ................................................... passim

Toussie v. United States, 397 U.S. 112 (1970) ................................................................. 12, 17, 20

TRW Inc. v. Andrews, 534 U.S. 19 (2001) .............................................................................. 10, 18

Tull v. United States, 481 U.S. 412 (1987) ................................................................................... 12

U.S. ex rel. Adrian v. Regents of Univ. of Calif., 363 F.3d 398 (5th Cir. 2004) ........................... 13

United States v. Beggerly, 524 U.S. 38 (1998) ............................................................................. 10

United States v. Borin, 209 F.2d 145 (5th Cir. 1954) ................................................................... 11

United States v. Brockamp, 519 U.S. 347 (1997) ......................................................................... 10

United States v. Core Labs., Inc., 759 F.2d 480 (5th Cir. 1985) .................................. 7, 11, 12, 18

United States v. Dunne, 324 F.3d 1158 (10th Cir. 2003).............................................................. 20

United States v. Jones, 676 F. Supp. 2d 500 (W.D. Tex. 2009) ................................................... 19

United States v. Midgley, 142 F.3d 174 (3d Cir. 1998) ................................................................ 12

United States v. Musto, No. 3:10-CR-338, 2012 WL 5879609 (M.D. Pa. Nov. 21, 2012) .......... 19

United States v. Niven, 952 F.2d 289 (9th Cir. 1991) ................................................................... 17

United States v. Payne, 978 F.2d 1177 (10th Cir. 1992) .............................................................. 20

United States v. Sunia, 643 F. Supp. 2d 51 (D.D.C. 2009) ........................................................... 19

United States v. Yashar, 166 F.3d 873 (7th Cir. 1999) ................................................................. 17

Wallace v. Kato, 549 U.S. 384 (2007) ............................................................................................ 4


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Statutes

15 U.S.C. § 78dd-1(a) ................................................................................................................... 19

15 U.S.C. § 78m(b)(2)(A) ............................................................................................................. 21

15 U.S.C. § 78m(b)(5) .................................................................................................................. 20

18 U.S.C. § 666 ....................................................................................................................... 19, 20

28 U.S.C. § 2415 ........................................................................................................................... 11

28 U.S.C. § 2416(c) ...................................................................................................................... 11

29 U.S.C. § 657(c)(1) .................................................................................................................... 22

42 U.S.C. § 2000e-5(e)(1)............................................................................................................. 15

50 U.S.C. § 462(a) ........................................................................................................................ 20

Other Authorities

Brief for the Respondent, Gabelli v. SEC, No. 11-1274, 2012 WL 6131633 (U.S. Dec. 10, 2012) ....................................................................................................................................... 13

Information, United States v. Vetco Gray Controls, Inc., No. H-07-004 (S.D. Tex. Jan. 5, 2007) ......................................................................................................................................... 8

Noble Corporation, Annual Report on SEC Form 10-K (Feb. 28, 2007) ....................................... 6

Noble Corporation, Annual Report on SEC Form 10-K (March 14, 2006) ................................... 6

Plea Agreement, United States v. Vetco Gray Controls, Inc., No. H-07-004 (S.D. Tex. Feb. 6, 2007) ............................................................................................................................. 8

Reply Brief for Petitioners, Gabelli v. SEC, No. 11-1274, 2012 WL 6755122 (U.S. Dec. 26, 2012) ................................................................................................................................. 13

Rules

Fed. R. Civ. P. 12(b)(6)................................................................................................................... 1

Fed. R. Civ. P. 15(a) ..................................................................................................................... 13

Fed. R. Civ. P. 9(b) ..................................................................................................................... 1, 4

Fed. R. Evid. 201(b) ........................................................................................................................ 6


STATEMENT OF NATURE AND STAGE OF PROCEEDING

Plaintiff Securities and Exchange Commission (“SEC”) filed its Complaint against

Defendants Mark A. Jackson (“Mr. Jackson”) and James J. Ruehlen (“Mr. Ruehlen”) (collectively,

“Defendants”) on February 24, 2012 (Dkt. 1). Defendants waived service of the Complaint and filed

motions to dismiss on May 8, 2012 (Dkts. 35, 36). On December 11, 2012, the Court issued an

opinion granting the motions to dismiss in part and granting the SEC leave to amend (Dkt. 87) (“Slip

Op.”). The SEC filed its Amended Complaint (“Am. Compl.”) against Defendants on January 25,

2013 (Dkt. 95).

STATEMENT OF ISSUES TO BE RULED ON AND APPLICABLE STANDARDS

Defendants jointly move for partial dismissal of the Amended Complaint under Fed. R. Civ.

P. 12(b)(6) based on the expiration of the statute of limitations. The parties agree that the SEC’s

claims for civil monetary penalties are time-barred to the extent they are based on alleged conduct

that occurred before May 10, 2006, unless the SEC can establish a basis to extend the statute of

limitations. A Rule 12(b)(6) motion to dismiss based on the expiration of the statute of limitations

should be granted “where it is evident from the plaintiff’s pleadings that the action is barred and the

pleadings fail to raise some basis for tolling or the like.” Jones v. ALCOA, Inc., 339 F.3d 359, 366

(5th Cir. 2003).

The SEC has offered two bases for avoiding the limitations bar—the doctrines of

fraudulent concealment and continuing violations. With respect to the fraudulent concealment

doctrine, the plaintiff bears the burden of showing “that the defendants concealed the conduct

complained of, and . . . that the plaintiff failed, despite the exercise of due diligence on his part,

to discover the facts that form the basis of his claim.” Texas v. Allan Constr. Co., 851 F.2d 1526,

1528 (5th Cir. 1988) (alterations omitted). The allegations must be pleaded with particularity

under Fed. R. Civ. P. 9(b). In re Energy Transfer Partners Natural Gas Litig., No. 07-cv-3349,


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2009 WL 2633781, at *13 (S.D. Tex. Aug. 26, 2009) (Ellison, J.).1 With respect to continuing

violations, the doctrine only applies to claims based on the cumulative effect of a series of

individual acts, not a series of discrete but factually related acts. Nat’l R.R. Passenger Corp. v.

Morgan, 536 U.S. 101 (2002).

SUMMARY OF THE ARGUMENT

The SEC is not entitled to extend the statute of limitations under 28 U.S.C. § 2462. First,

tolling based on fraudulent concealment requires the plaintiff to establish both concealment and

diligence, but the Amended Complaint alleges neither. The SEC has not pleaded any affirmative

acts of concealment, nor has it pleaded that it reasonably relied on Defendants’ denials of

wrongdoing. Moreover, the SEC disregarded the Court’s express instruction that it plead facts

establishing its diligence; the Amended Complaint is simply bereft of facts that would justify the

SEC’s delay in bringing this lawsuit, which centers on events that took place from 2003-2007.

In addition, the equitable tolling doctrine of fraudulent concealment should not apply in cases

where the government seeks to impose punitive sanctions on individuals with whom it had no

prior relationship.

Second, the continuing violations doctrine does not apply as a matter of law to the SEC’s

bribery claims, books and records claims, and circumvention of internal controls claim because

each of these claims is based on discrete acts, rather than the cumulative effect of a series of

individual acts. Accordingly, there is no basis for the SEC to avoid the statute of limitations, and

therefore its claims for civil monetary penalties based upon conduct before May 10, 2006 must

be dismissed.

1 All unreported cases cited herein are attached in an Appendix.


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ARGUMENT

This motion seeks partial dismissal of the SEC’s claims for civil monetary penalties

based on the expiration of the statute of limitations.2 The parties agree that the penalty claims

are subject to the five year limitations period set forth in 28 U.S.C. § 2462 and that the

limitations period was tolled by agreement for approximately 290 days. Thus, unless the SEC

can establish an additional basis to avoid the statute of limitations, conduct before May 10, 2006

cannot give rise to penalties. Slip Op. at 49.

The SEC has offered two bases for avoiding the limitations bar—the doctrines of

fraudulent concealment and continuing violations. As the Court has previously recognized, the

SEC bears the burden with respect to pleading, and later proving, the applicability of these

claims. Slip Op. at 51, 58. For the reasons that follow, the Amended Complaint fails to satisfy

the SEC’s burden with respect to fraudulent concealment, and the continuing violations doctrine

does not apply as a matter of law. Moreover, because the SEC has had a sufficient opportunity

to cure the pleading defects in its claims, or the defects are incurable as a matter of law, the

claims for penalties based on conduct before May 10, 2006 should be dismissed with prejudice.

I. THE SEC FAILED TO ADEQUATELY ALLEGE FRAUDULENT CONCEALMENT

The SEC has asked the Court to equitably toll the limitations period based on

Defendants’ alleged fraudulent concealment. To establish fraudulent concealment, a plaintiff

must show “that the defendants concealed the conduct complained of, and . . . that the plaintiff

failed, despite the exercise of due diligence on his part, to discover the facts that form the basis

of his claim.” Texas v. Allan Constr. Co., 851 F.2d 1526, 1528 (5th Cir. 1988) (alterations

2 The arguments herein would also apply to the SEC’s claims for injunctive relief to the extent that such relief is punitive rather than remedial. SEC v. Bartek, 484 F. App’x. 949, 956-57 (5th Cir. 2012). That issue is not before the Court on this motion.


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omitted); see also Credit Suisse Secs. (USA) LLC v. Simmonds, 132 S. Ct. 1414, 1419 (2012)

(“Generally, a litigant seeking equitable tolling bears the burden of establishing two elements:

(1) that he has been pursuing his rights diligently, and (2) that some extraordinary circumstances

stood in his way.”) (emphasis omitted). “Equitable tolling is a rare remedy to be applied in

unusual circumstances, not a cure-all for an entirely common state of affairs.” Wallace v. Kato,

549 U.S. 384, 396 (2007).3 The allegations establishing fraudulent concealment must be pleaded

with particularity pursuant to Rule 9(b). Slip Op. at 50.

The SEC’s Amended Complaint does not plead facts establishing either concealment or

diligence. In addition, the statutory language of Section 2462 forecloses application of equitable

tolling and the rationale underlying the doctrine has no applicability to governmental penalty

actions. Finally, the SEC should not be permitted a second attempt to cure the pleading

deficiencies in its fraudulent concealment claim.

A. The SEC Did Not Plead Facts Establishing Affirmative Acts of Concealment or Reliance on Defendants’ Denials of Wrongdoing

The Fifth Circuit has held that fraudulent concealment requires the defendant to have

“engaged in affirmative acts of concealment. . . . The defendant must be guilty of some trick or

contrivance tending to exclude suspicion and prevent inquiry.” Allan Constr., 851 F.2d at 1528-

29. Ordinarily, “[c]oncealment by defendant only by silence is not enough” and a “denial of

wrongdoing is no more an act of concealment than is silence.” Id. at 1529, 1532. However, a

denial of wrongdoing “may constitute concealment where the parties are in a fiduciary

relationship, or where the circumstances indicate that it was reasonable for the plaintiff to rely on

3 Fraudulent concealment is a form of, or basis for, equitable tolling. Granger v. Aaron’s, Inc., 636 F.3d 708, 712 (5th Cir. 2011) (identifying “plaintiff’s unawareness of the facts giving rise to the claim because of the defendant’s intentional concealment of them” as one of three grounds for equitable tolling of the limitations period).


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defendant’s denial.” Id. at 1532-33.

Here, the Court found that the SEC had sufficiently pleaded facts establishing that

Defendants had denied wrongdoing by logging payments relating to TIP applications as

“legitimate operating expenses” and through certifications in which Mr. Jackson denied

knowledge of false financial statements or material control weaknesses. Slip Op. at 54.4 The

Court noted that such denials could “theoretically” establish concealment—but “only where the

parties are in a fiduciary relationship, or where the circumstances indicate that it was reasonable

for the plaintiff to rely on defendant’s denial.” Id. (citing Allan Constr., 851 F.2d at 1532-33)

(internal quotation marks omitted). As a result, the Court instructed the SEC that it “will

eventually have to show that its reliance on these representations was reasonable.” Id.5

However, the Amended Complaint pleads no facts whatsoever establishing that the SEC

relied on Defendants’ denials at all, let alone that such reliance was reasonable. With respect to

booking the payments as legitimate expenses, the SEC does not allege that it knew of the manner

in which the payments were booked, much less that it actually relied on such accounting

treatment. Indeed, any such argument would be unreasonable given the de minimis amounts of

4 The Court held that accounting for the payments as “legitimate operating expenses” constituted a denial of wrongdoing, not that such accounting treatment was an “affirmative act of concealment.” Slip Op. at 54. Indeed, there is nothing concealing about that conduct—in fact, the SEC’s allegations make clear that the payments were reflected in Noble’s books and records and therefore subject to review by its independent auditors. There are no allegations that Defendants hid the existence of the payments or the fact that they were made to government officials through a customs agent. This is far from a “trick or contrivance tending to exclude suspicion and prevent inquiry.” Allan Constr., 851 F.2d at 1528-29. 5 The defendants understand the Court to have found that the SEC sufficiently plead facts establishing denials of wrongdoing, but that it failed to plead facts establishing the necessary reasonable reliance on those denials. Notwithstanding the Court’s statement that the SEC “will eventually have to show” such reliance, Slip Op. at 54, the SEC must plead such facts to survive a motion to dismiss. Despite the Court’s clear statement of the law, the SEC failed to do so.


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the payments at issue.6 With respect to the certifications, the SEC does not allege any facts

indicating that it relied on them in any way, or that it reasonably expected Defendants to

voluntarily confess their alleged wrongdoing. See Pocahontas Supreme Coal Co. v. Bethlehem

Steel Corp., 828 F.2d 211, 218-19 (4th Cir. 1987) (“To permit a claim of fraudulent concealment

to rest on no more than an alleged failure to own up to illegal conduct upon this sort of timid

inquiry would effectively nullify the statute of limitations in these cases.”).

Moreover, treating these accounting entries and certifications as concealing, especially in

the absence of any indication of reliance by the SEC, would eviscerate the statute of limitations

in SEC enforcement cases. All companies book payments to external parties as some type of

expense, and public companies require certifications from their officers similar to those that Mr.

Jackson signed here. If that is all that is needed to toll the limitations period, the SEC will

always be able to bring stale claims against a person who caused a company to erroneously

record an accounting entry or who signed a certification denying wrongdoing. Under the SEC’s

approach, the clock would never run until the SEC is on notice of the claims—effectively

creating a back-door discovery rule, despite the Fifth Circuit’s clear rejection of the discovery

rule in Section 2462 cases. SEC v. Bartek, 484 F. App’x. 949, 953-55 (5th Cir. 2012) (citing

6 The Amended Complaint alleges that Defendants authorized their employer, Noble Corporation (“Noble”), to make approximately 40 payments totaling $733,000 in connection with applications for TIPs or TIP extensions from 2003-2007. Am. Compl. ¶¶ 43-46. During that time period, Noble’s annual revenues ranged from $987 million to $2.1 billion. See Noble Corporation, Annual Report on SEC Form 10-K (Feb. 28, 2007) at 41 (excerpts attached as Exhibit A); Noble Corporation, Annual Report on SEC Form 10-K (March 14, 2006) at 43 (excerpts attached as Exhibit B). These facts, set forth in Noble’s SEC filings, can be considered on a motion to dismiss because they are subject to judicial notice. R2 Invs. LDC v. Phillips, 401 F.3d 638, 640 n.2 (5th Cir. 2005) (“[A] court may also take judicial notice of documents in the public record, including documents filed with the Securities and Exchange Commission, and may consider such documents in determining a motion to dismiss.”); Fed. R. Evid. 201(b) (“The court may judicially notice a fact that is not subject to reasonable dispute because it . . . (2) can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned.”).


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United States v. Core Labs., Inc., 759 F.2d 480, 481 (5th Cir. 1985)).

B. The SEC Failed to Plead Facts Establishing its Diligence

In its Opinion, the Court noted that the SEC had failed to plead any facts regarding its

diligence, but offered the agency an opportunity to cure the defect:

However, the SEC has not pled any facts that support the inference that it acted diligently in bringing this Complaint. The SEC argues that, because it did not learn of the misconduct until June 2007, and because it brought its complaint within five years of that date, it has pled all it needs to plead. (Resp., at 47.) However, as explained above, the SEC must plead facts that show that it acted diligently in gathering the facts that form the basis of its claims. It concedes that, by June 2007, when Noble disclosed its internal investigation to the SEC, it had inquiry notice of potential misconduct. (Resp., at 47.) The SEC has leave to amend its Complaint to plead facts that would support the inference that it acted diligently in gathering the facts that form the basis of this Complaint.

Slip Op. at 55 (emphasis added); see also Allan Constr., 851 F.2d at 1533 (“[T]he statute of

limitations is tolled only until such time as the plaintiff, exercising reasonable diligence, could

have discovered the facts forming the basis for the claim.”).

Despite the Court’s instruction, however, the Amended Complaint says nothing

whatsoever about the SEC’s diligence. The only new allegation even arguably relevant is

Paragraph 176, which states as follows:

On or about June 1, 2007, Noble disclosed to the Commission and to the United States Department of Justice (“DOJ”) that it was conducting an internal investigation into potential FCPA violations arising out of its payments for TIPs and TIP extensions. Before June 1, 2007, the Commission was unaware of any potential FCPA violations by Noble. The Commission thereafter commenced an investigation into potential FCPA violations by Noble and certain individuals. The Commission commenced this action on February 24, 2012—within five years of June 1, 2007 and within the period during which the running of any applicable statute of limitation was tolled by agreement, as set forth below.

Paragraph 176 says nothing about the agency’s diligence in “gathering the facts that form the

basis of this Complaint,” either before or after it was on inquiry notice. This allegation merely


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repeats the precise allegations that the Court specifically told the SEC were insufficient: “The

SEC argues that, because it did not learn of the misconduct until June 2007, and because it

brought its complaint within five years of that date, it has pled all it needs to plead.” Slip Op. at

55.

The SEC has pleaded no facts whatsoever regarding its efforts, if any, to gather facts

about Defendants’ alleged misconduct before Noble’s voluntary disclosure in June 2007. In re

Beef Indus. Antitrust Litig., 600 F.2d 1148, 1171 (5th Cir. 1979) (“The plaintiffs bear the

ultimate burden of persuasion on the fraudulent concealment issue. The burden is a heavy one.

Those who have learned of facts “calculated to excite inquiry” must inquire.”) (quoting Clement

A. Evans & Co. v. McAlpine, 434 F.2d 100, 102 (5th Cir. 1970)). The SEC simply has not

alleged facts suggesting that it was diligently attempting to gather facts prior to Noble’s

voluntary disclosure, but that it was somehow stymied by Defendants’ denials of wrongdoing.7

After Noble’s voluntary disclosure, the Amended Complaint alleges only that the SEC

“thereafter commenced an investigation.” Am. Compl. ¶ 176. The agency provides no facts

about what it did to pursue its claims against Mr. Jackson and Mr. Ruehlen during the nearly five

7 In fact, well before Noble’s voluntary disclosure, the SEC was on notice of facts that should have “excited inquiry.” On February 6, 2007, the Department of Justice (“DOJ”) announced that Vetco Gray Controls, Inc. and several related entities (collectively, “Vetco”) had pleaded guilty to criminal FCPA violations in this Court. Vetco, which was based in Houston, had employed an agent to make payments to officials of the Nigerian Customs Service “in connection with the customs clearance process and the avoidance of Nigerian customs duties and tariffs.” Information, ¶ 30, United States v. Vetco Gray Controls, Inc., No. H-07-004 (S.D. Tex. Jan. 5, 2007) (attached as Exhibit C). Vetco first disclosed the facts underlying its plea agreement to the government in May 2005, more than two years before the SEC claims that it was on inquiry notice of Noble’s similar alleged violations. Plea Agreement, ¶ 19(b), United States v. Vetco Gray Controls, Inc., No. H-07-004 (S.D. Tex. Feb. 6, 2007) (attached as Exhibit D); see also id. at 26 (requiring Vetco to “[c]ontinue to cooperate with the [DOJ] and the [SEC] in their respective investigations”). These facts, which are derived from public judicial filings in this Court, can be considered on this motion because they are subject to judicial notice. Norris v. Hearst Trust, 500 F.3d 454, 461 n.9 (5th Cir. 2007) (“[I]t is clearly proper in deciding a 12(b)(6) motion to take judicial notice of matters of public record.”); see also supra n. 6.


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full years that elapsed between the voluntary disclosure and the filing of this lawsuit. The SEC

does not even allege when within the limitations period it “commenced” that investigation—

which, in any event, is merely a ministerial act. The Amended Complaint alleges no facts

establishing that the investigation was sufficiently timely and diligent to justify overriding the

statute of limitations and Defendants’ right to repose. Slip Op. at 53 (“To the extent that this

requirement [that the plaintiff not have had inquiry notice within the limitations period] is meant

to prevent plaintiffs who had inquiry notice early on in the limitations period from delaying

bringing their claim, the diligence prong already accomplishes this goal.”); see also SEC v.

Microtune, Inc., 783 F. Supp. 2d 867, 878 (N.D. Tex. 2011) (“[G]iven that fraudulent

concealment allows the court to toll the statute of limitations under principles of equity, the

Court gleans from this doctrine a requirement that the SEC must have acted diligently in filing its

complaint in a timely manner once it had inquiry notice.”), aff’d, Bartek, 484 F. App’x. 949.

The diligence requirement serves important interests underlying statutes of limitations.

Credit Suisse Secs., 132 S. Ct. at 1420 (“Allowing tolling to continue beyond the point at which

a §16(b) [of the Exchange Act] plaintiff is aware, or should have been aware, of the facts

underlying the claim would quite certainly be inequitable and inconsistent with the general

purpose of statutes of limitations: to protect defendants against stale or unduly delayed claims.”)

(internal quotation marks omitted). Here, the SEC’s lack of diligence has resulted in a case that

will go to trial a full decade after many of the critical events occurred. Not only does that present

a substantial risk of lost evidence, it has forced Mr. Jackson and Mr. Ruehlen to live far too long

with the stigma and uncertainty associated with the SEC’s investigation and lawsuit. See Rotella

v. Wood, 528 U.S. 549, 555 (2000) (emphasizing “the basic policies of all limitations provisions:

repose, elimination of stale claims, and certainty about a plaintiff’s opportunity for recovery and


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a defendant’s potential liabilities”); see also Baldwin Cnty. Welcome Ctr. v. Brown, 466 U.S.

147, 151 (1984) (“One who fails to act diligently cannot invoke equitable principles to excuse

that lack of diligence.”).

C. Equitable Tolling Does Not Apply to Penalty Actions Subject to Section 2462

Even assuming the SEC has met its burden of pleading facts showing fraudulent

concealment, that doctrine should not be applied to government civil penalty actions subject to

Section 2462.

Section 2462 provides in clear and emphatic terms that “an action, suit or proceeding for

the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be

entertained unless commenced within five years from the date when the claim first accrued.” 28

U.S.C. § 2462 (emphasis added). There are only two exceptions: (1) where the “offender or the

property” is not “found within the United States in order that proper service may be made

thereon”; and (2) “[e]xcept as otherwise provided by an Act of Congress.” Id. Because

Congress has not “otherwise provided” an exception for fraudulent concealment, or any other

form of equitable tolling, that doctrine cannot apply in actions subject to Section 2462. See TRW

Inc. v. Andrews, 534 U.S. 19, 28 (2001) (“Where Congress explicitly enumerates certain

exceptions to a general prohibition, additional exceptions are not to be implied, in the absence of

evidence of a contrary legislative intent.”) (internal quotation marks omitted); see also Bartek,

484 F. App’x. at 953.8

8 Although the Supreme Court in Holmberg v. Armbrecht stated that the equitable tolling doctrine is “read into every federal statute of limitation,” 327 U.S. 392, 397 (1946), since Holmberg, the Supreme Court has repeatedly disallowed equitable tolling where its application would be inconsistent with the structure or text of the applicable statute of limitations. See United States v. Beggerly, 524 U.S. 38, 48-49 (1998) (statute of limitations for the Quiet Title Act); United States v. Brockamp, 519 U.S. 347, 349-54 (1997) (statute of limitations for tax refund claims); Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 363 (1991) (statute of limitations for private securities claims); see also United States v. Borin, 209


11

The lack of an equitable tolling exception to Section 2462 was not an oversight. Indeed,

another provision of Title 28—Section 2415—similarly provides that every action by the United

States to recover money damages founded on a tort or contract claim must be brought within

three or six years, respectively, after the cause of action “accrues,” “except as otherwise provided

by Congress.” 28 U.S.C. § 2415(a), (b). There, though, Congress has “otherwise provided” an

exception. See 28 U.S.C. § 2416(c) (“For the purpose of computing the limitations periods

established in Section 2415,” certain time periods are excluded, including “all periods during

which . . . facts material to the right of action are not known and reasonably could not be

known by an official of the United States charged with the responsibility to act in the

circumstances.”) (emphasis added). There is no similar “Act of Congress” that tolls the

limitations period for penalty actions subject to Section 2462. See SEC v. Harden, No. 1:05-CV-

354, 2006 WL 89864, at *2 (W.D. Mich. Jan. 12, 2006) (holding that Section 2462 “is a statute

of repose” that is “not subject to equitable extensions, such as . . . fraudulent concealment”).9

Moreover, the rationale underlying the equitable tolling doctrine compels the conclusion

that it cannot apply to governmental penalty actions. As the Supreme Court has explained,

equitable tolling applies “where the party injured by the fraud remains in ignorance of it without

any fault or want of diligence or care on his part.” Credit Suisse Secs., 132 S. Ct. at 1420 F.2d 145, 147-48 (5th Cir. 1954) (equitable tolling did not apply to statute of limitations for the False Claims Act). 9 Defendants recognize that some courts have applied equitable tolling to civil penalty claims by the government that were subject to Section 2462. See, e.g., SEC v. Koenig, 557 F.3d 736, 739 (7th Cir. 2009); FEC v. Williams, 104 F.3d 237, 240 (9th Cir. 1996); SEC v. Kovzan, 807 F. Supp. 2d 1024, 1035 (D. Kan. 2011). However, neither the Supreme Court nor the Fifth Circuit has ever held that equitable tolling applies to penalty actions subject to Section 2462. The Fifth Circuit mentioned the doctrine in United States v. Core Laboratories, Inc.—a case to enforce the Export Administration Act —but it simply remanded the case for the district court to “consider th[e] possibility” that equitable tolling could apply to the government’s claims and never concluded that the doctrine did apply. 759 F.2d 480, 484 (5th Cir. 1985) (emphasis added).


12

(quoting Bailey v. Glover, 88 U.S. 342, 348 (1874)). Here, the SEC has not been “injured” by

any “fraud”—indeed, injury is not an element of its claims for civil monetary penalties. See 3M

Co. v. Browner, 17 F.3d 1453, 1460 (D.C. Cir. 1994) (“[i]n an action for a civil penalty . . .

injuries or damages resulting from the violation are not part of the cause of action”). Rather, the

SEC seeks to impose official punishment on individuals with whom it had no prior relationship

“because of acts in the far-distant past.” Toussie v. United States, 397 U.S. 112, 114-15 (1970);

see also Tull v. United States, 481 U.S. 412, 422 (1987) (civil penalties are “[r]emedies intended

to punish culpable individuals, as opposed to those intended . . . to extract compensation or

restore the status quo”); Meeker v. Lehigh Valley R.R. Co., 236 U.S. 412, 423 (1915) (explaining

that the “words ‘penalty or forfeiture’ in [a predecessor to Section 2462] refer[s] to something

imposed in a punitive way for an infraction of a public law, and do not include a liability

imposed for the purpose of redressing a private injury”). The doctrine of equitable tolling has no

application in this penal context, where statutes of limitations are “liberally interpreted in favor

of repose.” Toussie, 397 U.S. at 115; see also Core Labs., 759 F.2d at 483 (5th Cir. 1985)

(noting that an “interpretation of § 2462 [that would extend the limitations period beyond the

accrual date] is in derogation of the right to be free of stale claims, which comes in time to

prevail over the right to prosecute them”); United States v. Midgley, 142 F.3d 174, 180 (3d Cir.

1998) (“However tempting it may be to create equitable exceptions to bright line rules. . . . the

clear and unambiguous rule afforded by . . . criminal statute[s] of limitations is preferable to a

shifting standard based on the perceived equity of [a particular case].”) (internal quotation marks

and citation omitted).10

10 These issues are presently before the Supreme Court in Gabelli v. Securities and Exchange Commission, No. 11-1274. Although the principal issue in Gabelli is whether a “discovery rule” applies to enforcement actions involving fraud claims that are subject to Section 2462, the parties in Gabelli also dispute whether equitable tolling applies to Section 2462. See


13

D. The SEC Should Not Be Permitted to Replead Again

Rule 15(a) provides that leave to amend pleadings “shall be freely given when justice so

requires.” But justice does not require giving the SEC a third try here. A failure to cure

identified deficiencies in the complaint is a sound basis for rejecting additional opportunities.

Foman v. Davis, 371 U.S. 178, 182 (1962). “[P]leading is not an interactive game in which

plaintiffs file a complaint, and then bat it back and forth with the Court over a rhetorical net until

a viable complaint emerges.” In re Merrill Lynch Ltd. P’ships Litig., 7 F. Supp. 2d 256, 276

(S.D.N.Y.1997), aff’d 154 F.3d 56 (2d Cir. 1998).

The SEC’s disregard for the Court’s straightforward instruction that the agency plead

facts establishing its diligence does not warrant another opportunity to amend. U.S. ex rel.

Adrian v. Regents of Univ. of Calif., 363 F.3d 398, 404 (5th Cir. 2004) (affirming district court’s

decision that “[o]ne opportunity to amend, in the face of motions that spelled out the asserted

defects in the original pleadings, was sufficient under the circumstances”). The SEC is a

sophisticated litigant which undoubtedly understood the Court’s express instruction to allege

facts, if any existed, regarding the agency’s fraudulent concealment claim. It decided not to do

so. Further delay for yet another amended complaint is not required and would be unfair to

Defendants. Accordingly, the SEC’s claim of fraudulent concealment should be rejected.

Brief for the Respondent, Gabelli v. SEC, No. 11-1274, 2012 WL 6131633, at *20-21 (U.S. Dec. 10, 2012) (attached as Exhibit E); Reply Brief for Petitioners, Gabelli v. SEC, No. 11-1274, 2012 WL 6755122, at *19-22 (U.S. Dec. 26, 2012) (attached as Exhibit F). The Supreme Court heard oral argument in Gabelli on January 8, 2013 and presumably will decide the case this term.


14

II. THE CONTINUING VIOLATIONS DOCTRINE DOES NOT SAVE THE SEC’S UNTIMELY CLAIMS

The SEC also asserts that the “continuing violations” doctrine applies to save its untimely

claims for civil monetary penalties. Although numerous courts have expressed skepticism that

the doctrine applies to claims for violations of securities laws,11 the Court has determined that,

on the record developed by the parties during the initial motions, it need not decide whether the

doctrine applies in the securities context at this stage of the proceedings. Slip Op. at 57.

However, even assuming that the continuing violations doctrine could apply to claims for

violations of securities laws, it cannot apply to the specific anti-bribery and books and records

claims alleged here, or the claim for circumvention of internal controls. This is because each of

these alleged violations consists of discrete acts that, as a matter of law, are not subject to the

doctrine. See Nat’l R.R. Passenger Corp. v. Morgan, 536 U.S. 101, 110-15 (2002).

Accordingly, those penalty claims that are based on alleged FCPA violations that occurred

before May 10, 2006 are barred and should be dismissed without leave to amend. See Newby v.

Enron Corp., 542 F.3d 463, 469 (5th Cir. 2008) (“[A] court need not grant leave to amend when

the filing would be futile because the proposed claims are time-barred.”).

A. The Continuing Violations Doctrine Does Not Apply to Discrete Acts Outside of the Limitations Period

The SEC has argued that the continuing violations doctrine applies to “conduct [that] is

inherently continuing in nature,” and therefore that as long as one claim is within the limitations

period, all earlier claims based on similar “conduct” that would otherwise be time-barred are

nonetheless saved. See Plaintiff’s Consolidated Response in Opposition to Defendants Jackson’s

and Ruehlen’s Motions to Dismiss (Dkt. 37) (“Resp.”) at 45 (emphasis added). But the SEC

misapprehends the nature of the continuing violations doctrine. As the Supreme Court has made 11 See, e.g., SEC v. Brown, 740 F. Supp. 2d 148, 158-59 (D.D.C. 2010).


15

clear, the doctrine does not apply whenever there is a series of discrete acts that are somehow

factually related, but only where the cumulative effect of a series of individual acts gives rise to a

single claim. Morgan, 536 U.S. 101.

Morgan was a Title VII case based on a long series of allegedly discriminatory

employment actions against the plaintiff, most of which had taken place before the applicable

limitations period. The Ninth Circuit had held that the continuing violations doctrine saved all of

the plaintiff’s claims because it applied to any “series of related acts[,] one or more of which are

within the limitations period.” Morgan, 536 U.S. at 107 (emphasis added) (internal quotation

marks omitted).

The Supreme Court unanimously rejected the Ninth Circuit’s “serial violations” approach

to the continuing violations doctrine as inconsistent with the statutory text. See id. at 109-14.

Title VII mandates that claims be filed with the Equal Employment Opportunity Commission

within 180 days “after the alleged unlawful employment practice occurred.” 42 U.S.C. § 2000e-

5(e)(1). The Court held that the plaintiff’s claims based on “discrete acts,” such as “termination,

failure to promote, denial of transfer, or refusal to hire,” had “occurred” on the date that they

“happened,” and thus “are not actionable if time barred, even when they are related to acts

alleged in timely filed charges.” Morgan, 536 U.S. at 110, 113-14 (emphasis added); see also id.

at 112 (“discrete acts that fall within the statutory time period do not make timely acts that fall

outside the time period”). By contrast, the continuing violations doctrine did apply to the

plaintiff’s claim for a hostile work environment, because “[s]uch claims are based on the

cumulative effect of individual acts.” Id. at 115 (emphasis added); see also id. at 118 (because

“incidents constituting a hostile work environment are part of one unlawful employment

practice, the employer may be liable for all acts that are part of this single claim”) (emphasis


16

added).

Morgan therefore establishes that the continuing violations doctrine applies only to

claims that arise from the “cumulative effect of individual acts,” rather than discrete violations

that occur both within and outside of the limitations period. See Pegram v. Honeywell, Inc., 361

F.3d 272, 279 (5th Cir. 2004) (noting that “[t]he Supreme Court recently clarified the limits of

the continuing violations doctrine” in Morgan by “mak[ing] clear that claims based on discrete

acts are timely only where such acts occurred within the limitations period”); see also Limestone

Dev. Corp. v. Vill. of Lemont, 520 F.3d 797, 801 (7th Cir. 2008) (citing Morgan and explaining

that the “misnamed” continuing violations doctrine is “a doctrine not about a continuing, but

about a cumulative, violation”). Morgan also establishes that the statutory text—and not the

specific characteristics of the conduct underlying a given claim—is dispositive of whether the

continuing violations doctrine applies. See EEOC v. Bass Pro Outdoor World, LLC, 884 F.

Supp. 2d 499, 524 (S.D. Tex. 2012) (Ellison, J.) (noting that Morgan emphasized the importance

of “close adherence to [the applicable] statutory text” in applying the continuing violations

doctrine) (internal quotation marks omitted).12

This approach is also consistent with the Supreme Court’s application of the “continuing

12 As numerous courts have recognized, the Morgan Court’s analysis applies to the continuing violations doctrine generally, in both the employment discrimination context and other contexts. See, e.g., Limestone Dev. Corp., 520 F.3d at 801-02 (applying Morgan to determine whether claims under the Racketeer Influenced and Corrupt Organizations Act were continuing violations); Nat’l Parks Conservation Ass’n v. TVA, 480 F.3d 410, 416-18 (6th Cir. 2007) (applying Morgan—which requires a “careful examination of the specific conduct prohibited by the statute at issue”—to determine whether claims under the Clean Air Act were continuing violations); CSC Holdings, Inc. v. Redisi, 309 F.3d 988, 992 (7th Cir. 2002) (applying Morgan to determine whether claims under the Cable Communications Policy Act were continuing violations); Axcan Scandipharm, Inc. v. Ethex Corp., 585 F. Supp. 2d 1067, 1077-78 (D. Minn. 2007) (applying Morgan to determine whether claims for false advertising under the Lanham Act were continuing violations); In re Enron Corp. Sec., Deriv. & ERISA Litig., 310 F. Supp. 2d 819, 844-48 (S.D. Tex. 2004) (applying Morgan to determine whether claims for securities fraud were continuing violations).


17

offense” doctrine in criminal matters.13 See Toussie, 397 U.S. 112. In Toussie, the Supreme

Court held that the offense of failing to register for the draft was complete—and the statute of

limitations began to run—on the date when the defendant was first required to and failed to

register, even though he “continued” to be in violation each day thereafter that he remained

unregistered. Id. at 118. The Court concluded that a criminal offense is “continuing” for statute

of limitations purposes only if (1) “the explicit language of the substantive criminal statute

compels such a conclusion,” or (2) “the nature of the crime involved is such that Congress must

assuredly have intended that it be treated as a continuing one.” Id. at 115.

Thus, like the continuing violations doctrine, the continuing offense doctrine turns on the

language of the statutory provision establishing the offense and the nature of the offense—not

whether a series of discrete offenses are “continuing” or “related” as a factual matter. See, e.g.,

United States v. Yashar, 166 F.3d 873, 875 (7th Cir. 1999) (a “continuing offense” is a “term of

art, and does not merely mean an offense that continues in a factual sense”); United States v.

Niven, 952 F.2d 289, 293 (9th Cir. 1991) (“[T]he analysis turns on the nature of the substantive

offense, not on the specific characteristics of the conduct in the case at issue.”).

B. The SEC’s Claims for Bribery, False Books and Records, and Circumvention of Internal Controls Are Based on Discrete Acts to Which the Continuing Violations Doctrine Does Not Apply

Under 28 U.S.C. § 2462, an action for the enforcement of “any civil fine [or] penalty” is

time-barred unless it was “commenced within five years from the date when the claim first

accrued.” Id. (emphasis added). The date that the underlying violation occurred “has been

13 Although this is a civil enforcement action, the “continuing offense” doctrine is also germane to the Court’s analysis of whether the FCPA violations alleged in this case are “continuing.” Indeed, the FCPA’s anti-bribery, books and records, and internal accounting controls provisions give rise to both criminal and civil liability, and it would make no sense if these claims were deemed “continuing” in one context but not the other.


18

accepted without question as the date when the claim first accrued, and, therefore, as the date on

which the statute began to run.” Core Labs., 759 F.2d at 482; accord, e.g., 3M Co. v. Browner,

17 F.3d 1453, 1462-63 (D.C. Cir. 1994). As set forth below, the SEC’s claims for civil monetary

penalties under the FCPA’s anti-bribery, books and records, and circumvention of internal

control provisions are based on “discrete” acts that are not “continuing” under Morgan. As such,

these claims should be dismissed as time-barred to the extent that they are based on violations

that occurred—and therefore “first accrued”—before May 10, 2006. See Pegram, 361 F.3d at

280 (“Under Morgan, discrete acts . . . which are separately actionable[] may not be pursued

outside the relevant limitations period.”).14

1. Section 30A and Section 13(b)(5) Claims

The SEC’s claims under Sections 30A and 13(b)(5) of the Exchange Act are based on

discrete acts in which Defendants authorized payments to Nigerian officials for specific

temporary importation permits (“TIPs”) or TIP extensions from 2004 to 2007 and then falsely

recorded those payments as “legitimate operating expenses” (i.e., facilitation payments). See,

e.g., Am. Compl. ¶¶ 38-47, 85, 112, 119, 123. The SEC further alleges that Defendants

circumvented Noble’s system of internal accounting controls through several discrete acts or

omissions—most of which occurred before May 10, 2006. See, e.g., Am. Compl. ¶ 99 (alleging

14 Notably, the text of Section 2462 makes clear that the five-year limitations period begins to run from the date the claim “first accrued.” 28 U.S.C. § 2462 (emphasis added). The bribery claims, books and records claims, and claims for circumventing Noble’s internal controls clearly “first accrued” on the date of the underlying violations, even if similar, additional violations—e.g., additional TIP-related payments to foreign officials—occurred thereafter. Applying the continuing violations doctrine to such claims would render the word “first” superfluous. See TRW Inc. v. Andrews, 534 U.S. 19, 31 (2001) (“It is a cardinal principal of statutory construction that a statute ought . . . to be so construed that, if it can be prevented, no . . . word shall be superfluous, void, or insignificant.”) (internal quotation marks omitted); see also Heard v. Sheahan, 253 F.3d 316, 319 (7th Cir. 2001) (“the usual and it seems to us the correct characterization of the doctrine of continuing violation is that it is a doctrine governing accrual”).


19

that Mr. Ruehlen “backdated” a memorandum regarding the paper process in March 2005); id.

¶ 106 (alleging that Mr. Ruehlen authorized TIP-related payments in February 2005 without

required approval); id. ¶ 114 (alleging that Defendants failed to notify Noble’s Audit Committee

that the “paper process” was used in 2005); id. ¶ 128 (alleging that Defendants failed to inform

Noble’s new CFO of the nature of the TIP-related payments in December 2005).

In its Opposition to Defendants’ original motions to dismiss, the SEC did not argue that

the continuing violations doctrine applies to its claims for bribery (Section 30A) or its claims for

falsifying Noble’s books and records or circumventing Noble’s system of internal accounting

controls (Section 13(b)(5)). Resp. at 45-46. However, assuming that the SEC may argue that the

continuing violations doctrine applies to these claims, Slip Op. at 55 n.28, such arguments fail as

a matter of law and should be rejected now.

There is nothing in the statutory language of the FCPA that suggests Congress intended

to make a violation of the anti-bribery, books and records, or circumvention of internal controls

provisions “continuing” violations. Indeed, the statutory text establishes the opposite:

• Bribery: A claim for violation of the FCPA’s anti-bribery provision (Section 30A) accrues when a payment of anything of value is corruptly made, offered, promised, or authorized for the purpose of obtaining or retaining business. See 15 U.S.C. § 78dd-1(a). Indeed, bribery is a straightforward example of a “discrete” violation that is not “continuing,” as courts have held with respect to violations of domestic bribery statutes.15

15 See United States v. Jones, 676 F. Supp. 2d 500, 517-19 (W.D. Tex. 2009) (bribery related to the receipt of federal funds, 18 U.S.C. § 666, is not a “continuing offense” because the crime is complete once “‘anything of value’ is exchanged with the requisite intent to influence or be influenced”); United States v. Musto, No. 3:10-CR-338, 2012 WL 5879609, at *3-4 (M.D. Pa. Nov. 21, 2012) (same); United States v. Sunia, 643 F. Supp. 2d 51, 69-72 (D.D.C. 2009) (same); see also In re Guy P. Riordan, Initial Decision Release No. 353, 2008 WL 2884080, at *12-13 (ALJ July 28, 2008) (holding, in administrative proceeding initiated by the SEC, that the continuing violations doctrine did not apply to alleged violations of Rule 10b-5 arising from defendant’s scheme of paying kickbacks in exchange for obtaining business from a state treasurer’s office, because “each kickback constituted a separate and distinct violation which would have been actionable alone had none of the others occurred”). Notably, the SEC has


20

• Books and Records: A claim for violation of Section 13(b)(5)—which provides that “[n]o person shall . . . knowingly falsify any book, record, or account” of an issuer—accrues when a book, record, or account is “falsif[ied].” 15 U.S.C. § 78m(b)(5) (emphasis added). Courts have reached the same conclusion with respect to analogous types of claims concerning false statements or representations.16

• Circumvention of Internal Controls: Similarly, a claim for violation of Section 13(b)(5)—which provides that “[n]o person shall knowingly circumvent . . . a system of internal accounting controls”—accrues once such a system of internal accounting controls is “circumvent[ed].” 15 U.S.C. § 78m(b)(5) (emphasis added). Cf. Toussie, 397 U.S. at 120-24 (holding that a previous version of 50 U.S.C. § 462(a), which made it a crime to “knowingly fail or neglect” to register for the draft or to “otherwise evade[] or refuse[] registration,” was not a continuing offense) (emphasis added).

Ignoring the statutory text defining these claims and construing them as “continuing”

violations—simply because they were all related to TIPs or TIP extensions—would entail

application of the same “serial violation” approach that the Supreme Court has rejected.

Morgan, 536 U.S. at 114; see also CSC Holdings, Inc. v. Redisi, 309 F.3d 988, 992 (7th Cir.

2002) (applying Morgan and noting that “[t]he mere fact that [defendants] made a regular habit

of violating [a] statute is not enough to convert multiple individual violations into one long

continuing wrong”). Moreover, if these provisions of the FCPA were deemed to establish

“continuing” violations, individuals could be charged for bribes or false records that were made

decades earlier, so long as they were factually “related” to payments or records made within the

limitations period. Such a result would effectively repeal the limitations period in SEC previously urged the Court to consider “analogous” domestic bribery statutes—including 18 U.S.C. § 666—in construing the FCPA’s anti-bribery provisions. See Resp. at 17-18. 16 See, e.g., United States v. Dunne, 324 F.3d 1158, 1164-66 (10th Cir. 2003) (false statement in an audit report in violation of 18 U.S.C. § 1001 is not a continuing offense); United States v. Payne, 978 F.2d 1177, 1180-81 (10th Cir. 1992) (false representation of social security numbers in violation of 42 U.S.C. § 408(a)(7)(B) is not a continuing offense); In re Juniper Networks, Inc. Sec. Litig., 542 F. Supp. 2d 1037, 1051 (N.D. Cal. 2008) (false statements in financial statements in violation of Rule 10b-5 are not continuing violations); Axcan Scandipharm, Inc. v. Ethex Corp., 585 F. Supp. 2d 1067, 1078 (D. Minn. 2007) (false advertising under the Lanham Act is not a continuing violation); Levine v. Bally Total Fitness Holding Corp., No. 06 C 1437, 2006 U.S. Dist. LEXIS 95006, at *28-30 (N.D. Ill. Sept. 29, 2006) (false statements in audit reports in violation of Rule 10b-5 are not continuing violations).


21

enforcement actions. See Abrams v. Baylor Coll. of Med., 805 F.2d 528, 533 (5th Cir. 1986)

(cautioning that the “theory of continuing violation [must] be guardedly employed because

within it are the seeds of the destruction of the [applicable] statute of limitation”); see also

Cherosky v. Henderson, 330 F.3d 1243, 1248 (9th Cir. 2003) (“The Supreme Court has made

clear . . . that the application of the continuing violations doctrine should be the exception, rather

than the rule.”).

2. Section 13(b)(2)(A) Claim

The SEC also charges Defendants with aiding and abetting Noble’s alleged violations of

Section 13(b)(2)(A) of the Exchange Act, which requires issuers to “make and keep books,

records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions

and dispositions of the assets of the issuer.” 15 U.S.C. § 78m(b)(2)(A). This claim is based on

the same conduct as the SEC’s Section 13(b)(5) claim—i.e., that Noble recorded TIP-related

payments as “legitimate operating expenses,” and therefore failed to “make” books and records

that “accurately and fairly reflect[ed]” those transactions. As with its claim under Section

13(b)(5), this claim is time-barred to the extent that it is based on records of TIP-related

payments that were made prior to May 10, 2006.

In its Opposition to Defendants’ original motions to dismiss, however, the SEC

asserted—without analysis—that violations of Section 13(b)(2)(A) are “inherently continuing in

nature.” Resp. at 45. Emphasizing Section 13(b)(2)(A)’s use of the word “keep,” the SEC

apparently believes that a violation of Section 13(b)(2)(A) “continues” each and every day that

an issuer fails to correct a book, record, or account that was inaccurate when “made.”

This argument must be rejected because it would mean that the statute of limitations

“could be expanded ad infinitum.” AKM LLC v. Sec’y of Labor, 675 F.3d 752, 758 (D.C. Cir.

2012). In AKM, the government cited the defendant for violating its obligations under the


22

Occupational Safety and Health Act to “make, keep and preserve” records of workplace injuries

and illnesses, 29 U.S.C. § 657(c)(1) (emphasis added), by “improperly record[ing] injuries”

during a four-year period. AKM, 675 F.3d at 753. The government argued that the continuing

violations doctrine applied because defendants’ violations “continue[d] every day that an unmet

record-keeping obligation remain[ed] unsatisfied.” Id. at 755. The D.C. Circuit noted that the

government’s interpretation “incorrectly assume[d] that the obligation to maintain an existing

record expands the scope of an otherwise discrete obligation to make that record in the first

place.” Id. at 756 (emphasis added). To the contrary, the court held that “[t]he mere requirement

to save a record cannot possibly impose a continuing affirmative duty to correct past failures to

make the record in the first place.” Id. at 757.

Here, the SEC’s interpretation of Section 13(b)(2)(A) would mean that the statute of

limitations would never begin to run for Section 13(b)(2)(A) claims—regardless of whether the

inaccurate record at issue was made 10, 50, or even 100 years ago—unless and until the issuer

corrected the record. Under this theory, the trigger for the running of the statute of limitations is

not the making of the false record—which is the action expressly proscribed by Section

13(b)(2)(A)—but the making of a correction, which is the antithesis of the violation. Such a

result would impermissibly expand Section 2462’s limitations period “ad infinitum.” AKM, 675

F.3d at 758; see also id. at 757 (“[T]he mere failure to right a wrong . . . cannot be a continuing

wrong which tolls the statute of limitations, for if it were, the exception would obliterate the

rule.”) (internal quotation marks and citation omitted).


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CONCLUSION

For the foregoing reasons, Defendants Mark A. Jackson and James J. Ruehlen

respectfully request that the Court dismiss with prejudice the foregoing claims for civil monetary

penalties to the extent based on conduct before May 10, 2006.

Dated: February 22, 2013 Respectfully submitted, __/s/______________________

David S. Krakoff Attorney-in-Charge D.C. Bar No. 229641 BuckleySandler LLP 1250 24th Street NW, Ste. 700 Washington, D.C. 20037 Telephone: (202) 349-7950 Facsimile: (202) 349-8080 [email protected]

Of Counsel: James T. Parkinson Adam Miller Lauren R. Randell Paige Ammons BuckleySandler LLP 1250 24th Street NW, Ste. 700 Washington, D.C. 20037 Counsel for Defendant Mark A. Jackson

__/s/______________________ F. Joseph Warin Attorney-in-Charge D.C. Bar No. 235978 Gibson, Dunn & Crutcher LLP 1050 Connecticut Avenue, NW Washington, D.C. 20036 Telephone: (202) 955-8500 Facsimile: (202) 467-0539 [email protected] Of Counsel: John H. Sturc Martin A. Hewett Gibson, Dunn & Crutcher LLP 1050 Connecticut Avenue, N.W. Washington, D.C. 20036 Nicola T. Hanna Kristopher P. Diulio Gibson, Dunn & Crutcher LLP 3161 Michelson Drive Irvine, California 92612 David Gerger Gerger & Clarke 1001 Fannin, Suite 1950 Houston, Texas 77002 Telephone: (713) 224-4400 Facsimile: (713) 224-5153 Counsel for Defendant James J. Ruehlen


CERTIFICATE OF SERVICE

I certify that on February 22, 2013, I caused to be electronically filed with the Clerk of

Court using the CM/ECF system, which will send notification of such filing to the counsel of

record in this matter who are registered on the CM/ECF system, the foregoing Defendants’

Joint Motion for Partial Dismissal of the SEC’s Amended Complaint.

_____/s/_____________________ Adam B. Miller


Date post:	14-Apr-2015
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SEC v. Jackson/Ruehlen (Joint Motion to Dismiss Amended Complaint)

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