Case 4:18-cv-06753-PJH Document 85 Filed 02/26/20 Page 1 of 40
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`UNITED STATES DISTRICT COURT
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`NORTHERN DISTRICT OF CALIFORNIA
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`VLADI ZAKINOV, et al.,
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`Plaintiffs,
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`v.
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`RIPPLE LABS, INC., et al.,
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`Case No. 18-cv-06753-PJH
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`ORDER GRANTING IN PART AND
`DENYING IN PART DEFENDANTS'
`MOTION TO DISMISS
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`Defendants.
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`Re: Dkt. No. 70
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`Defendant Ripple Labs, Inc.’s (“defendant Ripple”), defendant XRP II, LLC’s
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`(“defendant XRP II”), and defendant Ripple’s Chief Executive Officer, Bradley
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`Garlinghouse (“defendant Garlinghouse”) (collectively, “defendants”) motion to dismiss
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`plaintiff Vladi Zakinov’s (“plaintiff”) consolidated class action complaint came on for
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`hearing before this court on January 15, 2020. Plaintiff appeared through his counsel,
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`James Taylor-Copeland and Oleg Elkhunovhich. Defendants appeared through their
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`counsel, Damien Marshall, Kathleen Hartnett, and Menno Goedman. Having read the
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`papers filed by the parties and carefully considered their arguments and the relevant
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`legal authority, and good cause appearing, the court hereby GRANTS IN PART and
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`DENIES IN PART defendants’ motion for the following reasons.
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`BACKGROUND
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`This consolidated putative class action (“In re Ripple”) arises out of the creation,
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`dispersal, circulation, and sale of “XRP,” a sort of digital units often referred to as a
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`“cryptocurrency.” In re Ripple comprises various actions alleging both violations of
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`federal and California state securities laws. Such actions include Coffey v. Ripple et al.,
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`18-3286, Greenwald v. Ripple et al., 18-4790, Zakinov v. Ripple et al., 18-CIV-2845 (Cal.
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`Case 4:18-cv-06753-PJH Document 85 Filed 02/26/20 Page 2 of 40
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`Super. Ct. San Mateo Cty.), and Oconer v. Ripple Labs, Inc., 18-CIV-3332 (Cal. Super.
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`Ct. San Mateo Cty.). The procedural posture of this action is complex and its
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`restatement here is largely unnecessary. The court need note only that this action is the
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`only ongoing matter of those referenced above. For more information, the court directs
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`readers to its February 28, 2019 order denying remand. Dkt. 33.
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`On August 5, 2019, plaintiff filed the operative consolidated complaint against
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`defendants. In it, plaintiff alleges the following claims:
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`1.
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`Violation of Section 12(a)(1) of the Securities Act (Title 15 U.S.C. §
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`77l(a)(1)) against defendants for the unregistered offer and sale of
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`securities. Compl. ¶¶ 169-175;
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`2.
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`Violation of Section 15 of the Securities Act (Title 15 U.S.C. § 77o) against
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`defendant Ripple and defendant Garlinghouse for control person liability for
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`the primary violation of Title 15 U.S.C. § 77l(a)(1). Id. ¶¶ 176-183 (together
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`with U.S.C. § 77l(a)(1), the “federal securities claims”);
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`3.
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`Violation of California Corporations Code § 25503 against defendants for a
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`primary violation of § 25110’s restriction on the offer or sale of unregistered
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`securities. Id. ¶¶ 184-190.
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`4.
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`Violation of California Corporations Code § 25504 against defendant Ripple
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`and defendant Garlinghouse for control person liability in connection with
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`defendants’ primary violation of § 25110. Id. ¶¶ 201-207;
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`5.
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`Violation of California Corporations Code § 25501 against defendant Ripple
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`and defendant XRP II, as well as a parallel material assistance claim under
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`§ 25504.1 against defendant Ripple and defendant Garlinghouse, for
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`misleading statements in connection with the offer or sale of securities in
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`violation of § 25401. Id. ¶¶ 191-200;
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`6.
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`Violation of California Business & Professions Code § 17500 against
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`defendants for misleading advertisements concerning XRP. Id. ¶¶ 208-212;
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`7.
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`Violation of California Business & Professions Code § 17200 against
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`Case 4:18-cv-06753-PJH Document 85 Filed 02/26/20 Page 3 of 40
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`defendants for their unregistered offer or sale of securities in violation of
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`federal and state law, false advertising practices, misleading statements,
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`and offense to established public policy. Id. ¶¶ 212-222.
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`Defendants filed the instant motion to dismiss for failure to state a claim under
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`Rule 12(b)(6). Dkt. 70. At the core of plaintiff’s claims is that XRP qualifies as a security
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`under California state and federal law. While plaintiff alleges this legal theory at length in
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`his complaint, Compl. ¶¶ 121-159, defendants save their dispute with that theory for
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`another day and assume—solely for the instant motion—plaintiff’s legal position that XRP
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`qualifies as a security. Dkt. 70 at 11; Dkt. 74 at 9; Dkt. 75 at 7 n.1. Instead, defendants
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`challenge the complaint on grounds of Title 15 U.S.C. § 77m’s three-year statute of
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`repose and traditional Rule 12(b)(6) failure to state a claim grounds. Below, the court
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`provides a summary of the relevant allegations and judicially noticeable facts.
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`13
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`A.
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`The Court Partially Grants Defendants’ Unopposed Requests for Judicial
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`Notice
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`As an initial matter, defendants request that the court take judicial notice of the
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`following documents:
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`•
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`The Statement of Facts from the federal government’s May 2015 settlement
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`with defendants Ripple Labs and defendant Ripple XRP II (predecessor to
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`defendant XRP II, LLC). Dkt. 70-3. This document is cited or referenced in
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`the complaint at paragraphs 2 n.2, 25, and 112.
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`•
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`The “Ripple Credits” page from defendant Ripple’s Wiki website. Dkt. 70-4.
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`This document is cited or referenced in the complaint at paragraphs 24 n.7,
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`130 n.91, and 145 n.99.
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`•
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`•
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`A Quarter One 2018 XRP Markets Report. Dkt. 70-5. This document is
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`cited at complaint paragraph 36 n.16.
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`An article titled “Ripple is sitting on close to $80 billion and could cash out
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`hundreds of millions per month—but it isn’t.” Dkt. 70-6. This document is
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`cited at complaint paragraph 52 n.31.
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`Northern District of California
`United States District Court
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`Case 4:18-cv-06753-PJH Document 85 Filed 02/26/20 Page 4 of 40
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`Here, the court need not consider the fourth request for judicial notice (Dkt. 70-6)
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`to resolve defendants’ motion. As a result, the court denies that request. Otherwise,
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`because plaintiff does not oppose the remaining requests and their underlying documents
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`are sufficiently cited at the complaint sections noted immediately above, the court grants
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`defendants’ request for judicial notice of those three documents and will incorporate their
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`contents by reference in its analysis below.
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`B.
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`The Parties
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`1.
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`Defendant Ripple
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`Defendant Ripple is a Delaware corporation with its principal place of business in
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`San Francisco. Compl. ¶ 14. While defendant Ripple sells certain enterprise software
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`products, the primary source of its income is the sale of XRP. Id. ¶ 28.
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`2.
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`Defendant XRP II
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`Defendant XRP II is a New York limited liability company with its principal place of
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`business in San Francisco. Id. ¶ 15. Defendant XRP II’s predecessor is XRP Fund II,
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`LLC, which was incorporated in South Carolina on July 1, 2013. Dkt. 70-3 ¶ 22.
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`Defendant XRP II was created to “engage in the sale and transfer of” XRP to “various
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`third parties on a wholesale basis.” Id.
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`3.
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`Defendant Garlinghouse
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`Defendant Garlinghouse is the Chief Executive Officer of defendant Ripple.
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`Defendant Garlinghouse has held that position since January 2017. Compl. ¶ 16.
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`Previously, Garlinghouse served as Ripple’s Chief Operating Officer from April 2015
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`through December 2016. Id.
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`4.
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`Plaintiff
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`On June 21, 2019, the court appointed Bradley Sostack as lead plaintiff. Dkt. 60.
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`Plaintiff is a Florida resident. Id. ¶ 13. Between January 1, 2018 and January 16, 2018,
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`plaintiff purchased roughly 129,000 units of XRP for approximately $307,700 in other
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`cryptocurrencies. Id. Plaintiff alleges that he purchased such XRP “from defendants,” id.
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`¶¶ 172, 187, although he does not specify whether he made such purchase directly from
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`Case 4:18-cv-06753-PJH Document 85 Filed 02/26/20 Page 5 of 40
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`defendants or incidentally on a cryptocurrency exchange. Plaintiff sold his XRP between
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`January 9, 2018 and January 17, 2018 for $189,600 in other cryptocurrency, representing
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`a $118,100 loss in XRP value. Id. ¶ 163. Plaintiff seeks to certify a Rule 23(b)(3) class
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`that generally includes all persons or entities who purchased XRP. Id. ¶ 160.
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`C.
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`Relevant Allegations
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`In 2013, defendant Ripple generated 100 billion units of XRP. Compl. ¶ 2.
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`Following their creation, defendant Ripple gave 20 billion XRP to its founders and
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`retained the remaining 80 billion XRP. Id. ¶¶ 2, 22, 23.
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`1.
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`XRP Escrow Program
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`Since the XRP’s creation, defendant Ripple has placed a substantial percentage of
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`XRP that it owns in escrow and developed a plan for when and in what quantities XRP
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`should be sold. Id. ¶ 5. As of May 2017, defendant Ripple maintained 62 billion XRP.
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`Id. ¶ 84. At that time, defendant Ripple stated that it would place 55 billion XRP in a
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`secured escrow account and would only offer and sell limited amounts of XRP at defined
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`intervals. Id. In an article, defendant Garlinghouse publicly stated that “[o]ur goal in
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`distributing XRP is to incentivize actions that build trust, utility, and liquidity.” Id. ¶ 86. In
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`that same publication, Garlinghouse subsequently characterized the XRP distribution as
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`“ongoing.” Id. Defendants adopted the escrow plan to allow investors “to mathematically
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`verify the maximum supply of XRP that can enter the market.” Id. ¶ 87.
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`2.
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`Alleged Offers or Sales of XRP by Defendants
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`a.
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`Sales Acknowledged in Defendants’ May 2015 Settlement
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`Agreement
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`In May 2015, defendant Ripple and defendant XRP II entered a settlement
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`agreement with the United States Attorney’s Office for the Northern District of California
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`(“USAO”) for violation of the Bank Secrecy Act, Title 31 U.S.C § 5330. Id. ¶ 25; Dkt. 70-
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`3. Significantly, plaintiff alleges that, as part of that agreement, defendants
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`“acknowledged that they sold XRP to the general public.” Compl. ¶ 25 (emphasis
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`added). The parties’ characterization of the agreement aside, its statement of facts and
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`Case 4:18-cv-06753-PJH Document 85 Filed 02/26/20 Page 6 of 40
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`violations section identifies the following XRP sale-related conduct by defendants since
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`2013:
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`•
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`As of the date of the agreement, defendant Ripple “facilitated transfers of
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`virtual currency and provided virtual currency exchange transaction
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`•
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`•
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`•
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`•
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`•
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`•
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`•
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`services.” Dkt. 70-3 ¶ 2.
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`“From at least March 6, 2013, through April 29, 2013, Ripple Labs sold
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`convertible virtual currency known as ‘XRP.’” Id. ¶ 17.
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`“Throughout the month of April 2013, Ripple Labs effectuated multiple sales
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`of XRP currency totaling over approximately $1.3 million U.S. dollars.” Id. ¶
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`20.
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`“By on [sic] or about August 4, 2013, XRP II was engaged in the sale of
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`XRP currency to third-party entities.” Id. ¶ 23.
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`Prior to September 26, 2013, defendant XRP II had “engag[ed] in numerous
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`sales of virtual currency to third parties.” Id. ¶ 26(a).
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`On September 30, 2013, defendant XRP II “negotiated an approximately
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`$250,000 transaction . . . for a sale of XRP virtual currency with a third-party
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`individual.” Id. ¶ 28(a).
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`In November 2013, defendant XRP II considered and rejected a roughly
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`$32,000 transaction. Id. ¶ 28(b).
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`In January 2014, defendant XRP II considered and rejected an offer from
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`foreign-based customer who sought to purchase XRP. Id. ¶ 28(c).
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`Lastly, as part of the settlement, defendant XRP II is described as “created to
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`engage in the sale and transfer of the convertible virtual currency, XRP, to various third
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`parties on a wholesale basis.” Id. ¶ 22 (emphasis added).
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`b.
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`Pre-2017 XRP Sales and Circulation Rates
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`On or before July 12, 2014, defendant Ripple stated on its website that it “sells
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`XRP to fund its operations and promote the network.” Compl. ¶ 24; Dkt. 70-4 at 4
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`(webpage “last modified” on “12 July 2014”). Between December 2014 and July 2015,
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`Case 4:18-cv-06753-PJH Document 85 Filed 02/26/20 Page 7 of 40
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`defendant Ripple also disclosed the amount of XRP that it held and that in circulation.
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`Compl. ¶ 26. As of June 30, 2015, defendant Ripple held approximately 67.5 billion XRP.
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`Id. Of the remaining 32.5 billion XRP in circulation, 20 billion was held by defendants’
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`founders and some other undisclosed amount was used for “business development
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`agreements.” Id.
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`In 2016, defendant Ripple promised but did not execute an agreement with a third-
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`party vendor an option to purchase 5 billion XRP in exchange for access to the vendor’s
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`consortium of financial institutions. Id. ¶ 104. Aside from this potential transaction,
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`neither plaintiff nor defendants alleged or proffered any judicially noticeable fact showing
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`any other specific instances of XRP sales between December 2014 and 2016.
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`c.
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`Defendants’ Increase Their XRP Sales to the Public in 2017
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`Defendants sell XRP to retail consumers in exchange for legal tender or other
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`cryptocurrencies. Id. ¶ 4. Defendants also sell XRP “wholesale to larger investors” as
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`well as “significant quantities of XRP directly to the general public on cryptocurrency
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`exchanges.” Id. ¶¶ 30, 127, 156. The earliest indication of XRP’s listing on an exchange
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`that plaintiff alleges is May 18, 2017. Id. ¶ 44.
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`Significant to the instant motion, in 2017 and early 2018, defendants rapidly
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`accelerated their sale of XRP to the public. Id. ¶ 30. During that period, Ripple increased
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`its efforts to engage in distribution strategies aimed at the general public that would result
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`in stabilizing or strengthening XRP exchange rates against other currencies. Id. ¶ 5.
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`Since 2017, defendants have “earned over $1.1 billion through the sale of XRP.” Id. ¶
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`30.
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`Plaintiff alleges that defendants, primarily through defendant XRP II, sold the
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`following amounts of XRP per quarter:
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`Annual Quarter
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`Amount Allegedly Sold (in USD)
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`Q2 2017
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`Q3 2017
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`Q4 2017
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`$31 million
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`$52 million
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`$91 million
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`Case 4:18-cv-06753-PJH Document 85 Filed 02/26/20 Page 8 of 40
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`Q1 2018
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`Q2 2018
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`Q3 2018
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`Q4 2018
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`Q1 2019
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`Q2 2019
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`Id. ¶¶ 31-39.
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`$167 million
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`$154 million
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`$81 million
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`$129 million
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`$169 million
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`$251 million
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`Plaintiff alleges that such sales occurred through some combination of direct,
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`exchange, institutional, or programmatic sales. Id. As of August 5, 2019, defendant has
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`not registered XRP with the Securities and Exchange Commission (“SEC”) or qualified it
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`with the California Commissioner of Corporations. Id. ¶ 12.
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`3.
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`Public Access to XRP
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`Defendant Ripple’s website provides advice on “How to Buy XRP” and includes
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`hyperlinks to exchanges trading XRP. Id. ¶¶ 4, 43, 135. In 2017, defendant Ripple, as
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`well as its various officers, published tweets concerning or including hyperlinks to such
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`exchanges. Id. ¶¶ 44-45. As of December 21, 2017, XRP was available for purchase or
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`sale at over 50 exchanges. Id. ¶¶ 45, 128.
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`4.
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`Alleged Misstatements concerning XRP
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`Plaintiff alleges numerous purported misstatements by defendants concerning
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`XRP, its value, and its status as a non-security. Id. ¶¶ 42-83, 95-97. The court details
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`those misstatements in its analysis below.
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`DISCUSSION
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`A.
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`Legal Standard
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`1.
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`Rule 12(b)(6)
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`A motion to dismiss under Rule 12(b)(6) tests for the legal sufficiency of the claims
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`alleged in the complaint. Ileto v. Glock, 349 F.3d 1191, 1199-1200 (9th Cir. 2003). Rule 8
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`requires that a complaint include a “short and plain statement of the claim showing that
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`the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). Under Rule 12(b)(6), dismissal “is
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`Case 4:18-cv-06753-PJH Document 85 Filed 02/26/20 Page 9 of 40
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`proper when the complaint either (1) lacks a cognizable legal theory or (2) fails to allege
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`sufficient facts to support a cognizable legal theory.” Somers v. Apple, Inc., 729 F.3d 953,
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`959 (9th Cir. 2013). While the court is to accept as true all the factual allegations in the
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`complaint, legally conclusory statements, not supported by actual factual allegations,
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`need not be accepted. Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009). The complaint
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`must proffer sufficient facts to state a claim for relief that is plausible on its face. Bell
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`Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 558-59 (2007).
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`As a general matter, the court should limit its Rule 12(b)(6) analysis to the
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`contents of the complaint, although it may consider documents “whose contents are
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`alleged in a complaint and whose authenticity no party questions, but which are not
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`physically attached to the plaintiff's pleading.” Knievel v. ESPN, 393 F.3d 1068, 1076 (9th
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`Cir. 2005); Sanders v. Brown, 504 F.3d 903, 910 (9th Cir. 2007) (“a court can consider a
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`document on which the complaint relies if the document is central to the plaintiff's claim,
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`and no party questions the authenticity of the document”). The court may also consider
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`matters that are properly the subject of judicial notice, Lee v. City of L.A., 250 F.3d 668,
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`688–89 (9th Cir. 2001), exhibits attached to the complaint, Hal Roach Studios, Inc. v.
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`Richard Feiner & Co., Inc., 896 F.2d 1542, 1555 n.19 (9th Cir. 1989), and documents
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`referenced extensively in the complaint and documents that form the basis of the
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`plaintiff's claims, No. 84 Emp'r-Teamster Jt. Counsel Pension Tr. Fund v. Am. W. Holding
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`Corp., 320 F.3d 920, 925 n.2 (9th Cir. 2003).
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`Lastly, a district court “should grant the plaintiff leave to amend if the complaint
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`can possibly be cured by additional factual allegations,” however, dismissal without such
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`leave “is proper if it is clear that the complaint could not be saved by amendment.”
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`Somers, 729 F.3d at 960.
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`2.
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`Rule 9(b)
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`For actions alleging fraud, “a party must state with particularity the circumstances
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`constituting fraud or mistake.” Fed. R. Civ. Pro. 9(b). To satisfy Rule 9(b), a plaintiff
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`must allege “the ‘time, place, and specific content of the false representations as well as
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`the identities of the parties to the misrepresentations.’” Swartz v. KPMG LLP, 476 F.3d
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`756, 764 (9th Cir. 2007). “Averments of fraud must be accompanied by ‘the who, what,
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`when, where, and how’ of the misconduct charged,” and “a plaintiff must set forth more
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`than the neutral facts necessary to identify the transaction. The plaintiff must set forth
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`what is false or misleading about a statement, and why it is false.” Vess v. Ciba-Geigy
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`Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (emphasis in the original). Plaintiff’s
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`allegations of fraud “must be specific enough to give defendants notice of the particular
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`misconduct which is alleged to constitute the fraud charged so that they can defend
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`against the charge and not just deny that they have done anything wrong.” Swartz, 476
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`F.3d at 764.
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`B.
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`Analysis
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`1.
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`Plaintiff’s Claims under the Federal Securities Laws Are Not Barred by
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`the Statute of Repose
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`Here, whether Title 15 U.S.C § 77(m)’s three-year statute of repose bars plaintiff’s
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`federal securities law claims depends upon two distinct issues: (1) the controlling rule for
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`measuring when the statute of repose commences for purpose of Title 15 U.S.C §
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`77l(a)(1); and (2) when the alleged (or judicially noticeable) sales of XRP first qualified as
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`a “bona fide” public offering within the meaning of Title 15 U.S.C. § 77l(a)(1).
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`The court analyzes each issue in turn.
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`a.
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`The First Offered Rule Articulated by the Second Circuit in Stolz
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`Family Controls
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`Title 15 U.S.C § 77m provides the following in relevant part:
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`“No action shall be maintained to enforce any liability created
`under section 77k or 77l(a)(2) of this title unless brought within
`one year after the discovery of the untrue statement or the
`omission, or after such discovery should have been made by
`the exercise of reasonable diligence, or, if the action is to
`enforce a liability created under section 77l(a)(1) of this title,
`unless brought within one year after the violation upon which it
`is based. In no event shall any such action be brought to
`enforce a liability created under section 77k or 77l(a)(1) of
`this title more than three years after the security was bona
`fide offered to the public, or under section 77l(a)(2) of this title
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`Case 4:18-cv-06753-PJH Document 85 Filed 02/26/20 Page 11 of 40
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`more than three years after the sale.” 15 U.S.C. § 77m
`(emphasis added).
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`Defendants argue that the statute of repose’s commencement is controlled by the
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`so-called “first-offered” rule articulated by the Second Circuit in Stolz Family Partnership
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`L.P. v. Daum, 355 F.3d 92 (2d Cir. 2004) (“Stolz”). Under that rule, “the three-year period
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`begins when the security is first bona fide offered.” Stolz, 355 F.3d at 100 (italics in the
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`original) (bold added).
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`In his briefing, plaintiff primarily argues that when the statute of repose
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`commences is controlled by the so-called “last-offered” rule stated by the district court In
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`re Bestline Products Securities and Antitrust Litigation, 1974 WL 386 (S.D. Fla. 1975) and
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`subsequently adopted by a court in this district in Hudson v. Capital Mgmt. Int'l, Inc., 1982
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`WL 1384 (N.D. Cal. Jan. 6, 1982). Under that rule, the three-year period begins “on the
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`date the alleged security was last offered to the public.” In re Bestline, 1975 WL 386 at
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`*2. Explained below, the court adopts the first-offered rule as controlling here.1
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`In Stolz, the Second Circuit considered two federal securities claims against a
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`defunct company, one of which was a claim for sale of unregistered securities (labeled
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`“membership units”) under § 77l(a)(1). 355 F.3d at 95. Plaintiff filed his initial complaint
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`in February 2001 and his operative pleading on November 19, 2001. Id. In it, plaintiff
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`alleged that “beginning in or about July, 1997 [sic] and continuously through the
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`bankruptcy filing . . . [defendant] engaged in a ‘public offering.’” Id. The district court held
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`that plaintiff’s original complaint was filed “more than three years after the membership
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`interests were ‘bona fide offered to the public’” and the claim was therefore time barred
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`under § 77m. Id. at 96.
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`On appeal, the Second Circuit focused its analysis on the core legal question
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`1 At oral argument, plaintiff’s counsel effectively abandoned the argument that the last-
`offered rule controls. Instead, counsel only briefly mentioned Hudson as “the only in
`district decision” and then went on at length to discuss Stolz “if the court was to find the
`reasoning of the Second Circuit in Stolz persuasive.” Despite plaintiff’s apparent
`concession, because of the significance of selecting the proper doctrine to dispose of
`defendants’ statute of repose challenge in this motion and to guide the parties in this
`litigation going forward, the court will explain its decision to choose and apply the first-
`offered rule here.
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`Case 4:18-cv-06753-PJH Document 85 Filed 02/26/20 Page 12 of 40
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`here—namely, “at what point during the bona fide offer does the repose period begin?”
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`355 F.3d at 98-99. While the Second Circuit advanced several reasons in support of its
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`determination that the statute of repose is triggered by a defendant’s first bona fide offer
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`to the public of its allegedly unregistered securities—including the weight of precedent,
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`statutory interpretation, historical function of statutes of repose, and policy
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`considerations, 355 F.3d at 100-107—the court finds Stolz’s statutory construction
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`justification most persuasive.
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`Significantly, § 77m includes both a three-year statute of repose and a one year-
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`statute of limitations for claims brought under § 77l(a)(1). If the court were to interpret the
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`statute of repose to commence at the time of the last bona fide public offer, such
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`interpretation would effectively nullify its effect because “every potential plaintiff
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`purchasing a defendant's security during an offering period would have at least three
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`years before being constrained by the repose period, since each day during which the
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`offer continued would delay the start of the repose period. Therefore, the statute would
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`fail to enforce final repose with respect to any plaintiff, with one exception—a plaintiff
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`whose one-year limitations period was tolled not only for the duration of the offer, but for
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`the three years subsequent to the end of the offering period.” P. Stolz, 355 F.3d at 105
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`n.9. Stated differently, under the last-offered rule, the statute of repose would generally
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`bar a § 77l(a)(1) claim only if such claim fell within a tolling exception to § 77m’s one-
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`year statute of limitations. Absent such an exception, the one-year statute of limitation
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`would bar the § 77l(a)(1) claim two years before the statute of repose could take effect.
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`Plaintiff failed to explain how the last-offered rule would not result in such an eviscerating
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`effect upon the statute of repose, and the court does not see a way to adopt such
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`construction without rendering the statute of repose “surplusage.” Stolz, 355 F.3d at 105
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`n.9. Given such inability, the court concludes that the only reasonable way to construe
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`the statute of repose is by adopting the first-offered construction.
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`Separately, the court further finds that the authorities urged by plaintiff here in
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`support of the last-offered rule are unpersuasive. Significantly, as the Second Circuit
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`Case 4:18-cv-06753-PJH Document 85 Filed 02/26/20 Page 13 of 40
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`correctly noted, Hudson stems from In re Bestline and itself offers no analytical
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`justification for adopting last-offered rule.2 To support its articulation of the last-offered
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`rule, the court in In re Bestline provides only the following:
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`“The defendants' interpretation of the statute [arguing the first-
`offered approach] is simply at odds with the remedial purposes
`of the Securities Act of 1933. To hold as the defendants
`suggest would be to give individuals a license to sell
`unregistered securities to whomsoever they wished if they first
`offered the security to a group of people and, so to speak, ‘ran
`the gauntlet’ for three years. It is doubtful that Congress
`intended the 1933 Act's goals of registration, disclosure, and
`private enforcement to be so easily frustrated. As a result, the
`defendants' interpretation of [Title 15 U.S.C. § 77(m)] must be
`rejected in favor of the plaintiffs' interpretation, according to
`which the limitations period began on the date the alleged
`‘security’ was last offered to the public.” Stolz, 355 F.3d at 102
`citing In re Bestline, 1975 WL 386 at *2.
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`While the court appreciates the policy concern identified above, such a concern
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`does not overcome the statutory interpretation-based justification articulated by Stolz in
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`support of the first-offered rule. Moreover, as the Second Circuit correctly noted, a
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`statute of repose is a creature of legislative supremacy that operates independent of
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`equitable concerns. Stolz, 355 F.3d at 102-03 (“[A] statute of repose begins to run
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`without interruption once the necessary triggering event has occurred, even if equitable
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`considerations would warrant tolling or even if the plaintiff has not yet, or could not yet
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`have, discovered that she has a cause of action.”) (internal citations omitted). By making
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`§ 77m’s statute of repose applicable to § 77l(a)(1) claims, Congress decided to limit the
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`availability of such statutory claims. Such decision is contrary to In re Bestline’s doubt
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`about congressional intent and assertion that the first-offered rule would improperly
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`undermine § 77l(a)(1)’s remedial purposes.
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`Further, when articulating the last-offered rule, the court in In re Bestline
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`incorrectly characterized § 77m’s three-year statute of repose as a “statute of limitations.”
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`In re Bestline, 1975 WL 386, at *1 (“One of the more hotly contested issues is whether
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`2 Hudson, 1982 WL 1384, at *3 n. 3 (“The relevant offering is the last offering of the
`security [citing In re Bestline] . . . That date should be pled.”).
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`Case 4:18-cv-06753-PJH Document 85 Filed 02/26/20 Page 14 of 40
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`the claims of the plaintiff class under section 12(1) of the Securities Act of 1933 are
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`barred by the Statute of Limitations contained in section 13 of the Act. In pertinent part,
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`section 13 reads: No action shall be maintained to enforce any liability created under . . .
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`section 12(1), unless it is brought within one year after the violation upon which it is
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`based. In no event shall any such action be brought to enforce a liability created under . .
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`. section 12(1) more than three years after the security was bona fide offered to the
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`public. . . The defendants take the position that the underscored language should be
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`interpreted to mean that an action under section 12(1) may not be brought more than
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`three years after the security was first offered to the public.”) (italics in the original) (bold
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`italics added). As explained in Stolz, Congress recognizes a significant distinction
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`between the function of a statute of repose and a statute of limitation.3 Because the court
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`in In re Bestline incorrectly characterized § 77m’s statute of repose as a statute of
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`limitations, it appears to have failed to account for the absolute nature of the three-year
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`statute of repose when advancing its “remedial purposes” policy critique. Given this
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`shortcoming, too, the court rejects the last-offered rule.
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`Lastly, plaintiff cites the Supreme Court in Cal. Public Employees’ Retirement Sys.
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`v. ANZ Sec., Inc., 137 S. Ct. 2042 (2017) for the proposition that § 77m’s statute of
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`r