`No. 17-1300
`In the
`Supreme Court of the United States
`________________
`DAVID FINDLAY, NATHAN GORIN, JOHN P. GRAHAM,
`N. DANTE LAROCCA, JOHN MCCARTHY, et al.,
`Petitioners,
`
`Respondent.
`
`v.
`FEDERAL HOUSING FINANCE AGENCY, as
`Conservator for the Federal National Mortgage
`Association and the Federal Home Loan Mortgage
`Corporation,
`________________
`On Petition for Writ of Certiorari to the
`United States Court of Appeals
`for the Second Circuit
`________________
`REPLY BRIEF FOR PETITIONERS
`________________
`DAVID B. TULCHIN
` Counsel of Record
`BRUCE E. CLARK
`STEVEN L. HOLLEY
`AMANDA FLUG DAVIDOFF
`SULLIVAN &
` CROMWELL LLP
`125 Broad Street
`New York, NY 10004
`(212) 558-4000
`tulchind@sullcrom.com
`Counsel for Petitioners
`
`
`PAUL D. CLEMENT
`GEORGE W. HICKS, JR.
`MATTHEW D. ROWEN
`KIRKLAND &
` ELLIS LLP
`655 Fifteenth Street, NW
`Washington, DC 20005
`
`
`June 4, 2018
`
`
`
`
`
`TABLE OF CONTENTS
`TABLE OF AUTHORITIES ....................................... ii
`REPLY BRIEF ............................................................ 1
`I. The Court Should Grant Certiorari To
`Determine Whether Section 12(a)(2) Claims
`Must Be Tried By A Jury .................................... 2
`A. Claims Under Section 12(a)(2) Trigger
`the Seventh Amendment Right to a Jury.... 2
`B. Petitioners Who Never Owned the
`Securities
`in the First Place Were
`Entitled to a Jury Trial ................................ 6
`C. This Issue is Exceptionally Important ........ 8
`II. The Court Should Grant Certiorari To
`Determine Whether HERA’s Extension Of
`Statutes Of Limitations Displaces Statutes
`Of Repose ............................................................. 9
`A. HERA Does Not Override Statutes of
`Repose in the Securities Act or Preempt
`State Blue Sky Laws .................................... 9
`B. The Question Presented is Exceedingly
`Important and Warrants Review Here ..... 11
`CONCLUSION ......................................................... 13
`
`
`
`
`
`
`
`ii
`
`TABLE OF AUTHORITIES
`
`Cases
`Basic Inc. v. Levinson,
`485 U.S. 224 (1988) .................................................. 8
`Cal. Pub. Emps.’ Ret. Sys. v. ANZ Sec., Inc.,
`137 S. Ct. 2042 (2017) .............................. 2, 9, 10, 12
`Chamber of Commerce of U.S. v. Whiting,
`563 U.S. 582 (2011) ................................................ 11
`City of Morgantown v. Royal Ins. Co.,
`337 U.S. 254 (1949) .................................................. 8
`CTS Corp. v. Waldburger,
`134 S. Ct. 2175 (2014) .................................... 2, 9, 10
`Deckert v. Indep. Shares Corp.,
`311 U.S. 282 (1940) .............................................. 4, 5
`Dimick v. Schiedt,
`293 U.S. 474 (1935) .................................................. 8
`Feltner v. Columbia Pictures Television, Inc.,
`523 U.S. 340 (1998) .................................................. 3
`Gordon v. Burr,
`506 F.2d 1080 (2d Cir. 1974) ................................... 6
`Granfinanciera, S.A. v. Nordberg,
`492 U.S. 33 (1989) .................................................... 3
`Great-West Life & Annuity Ins. Co.
`v. Knudson,
`534 U.S. 204 (2002) .......................................... 1, 6, 7
`Lyon v. Bertram,
`61 U.S. (20 How.) 149 (1857) ................................... 4
`Nat’l Ass’n of Home Builders
`v. Defenders of Wildlife,
`551 U.S. 644 (2007) ................................................ 11
`
`
`
`
`
`iii
`
`Omnicare, Inc. v. Laborers Dist.
`Council Constr. Indus. Pension Fund,
`135 S. Ct. 1318 (2015) .............................................. 8
`Pereira v. Farace,
`413 F.3d 330 (2d Cir. 2005) ..................................... 6
`Pinter v. Dahl,
`486 U.S. 622 (1988) .............................................. 4, 5
`Statute
`12 U.S.C. §4617 .............................................. 9, 10, 11
`Other Authority
`Hugh S. Koford, Rescission at Law and in
`Equity, 36 Cal. L. Rev. 606 (1948) .......................... 4
`
`
`
`
`
`REPLY BRIEF
`All agree that petitioners here did not sell any of
`the securities in question or receive any of the
`proceeds from those sales. Nor does the government
`contest that for a restitution remedy “to lie in equity,
`the action generally must seek … to restore to the
`plaintiff particular
`funds or property
`in
`the
`defendant’s possession.” Great-West Life & Annuity
`Ins. Co. v. Knudson, 534 U.S. 204, 214 (2002)
`(emphasis added). Under this Court’s precedent,
`therefore, this should have been an easy case:
`Because petitioners did not possess any of the
`proceeds of the sales, they could not “restore to” FHFA
`the “funds or property” at issue in the underlying
`transactions. Instead, the judgment imposed personal
`liability against petitioners (including five individuals
`who never sold any securities) to pay over $800
`million. And as the government concedes, the
`“imposition of such ‘personal liability … to pay money’
`was a legal remedy.” Opp.28 (quoting Great-West, 534
`U.S. at 210) (emphasis added). Thus, under Great-
`West and the Seventh Amendment, petitioners were
`entitled to a jury trial.
`In addition to that inescapable conflict with
`Great-West, the decision below is inconsistent with
`this Court’s
`broader
`Seventh Amendment
`jurisprudence. The government does not dispute that
`the elements of a claim under Section 12(a)(2) parallel
`the elements of a claim under Section 11, which all
`agree is “legal” for Seventh Amendment purposes.
`Instead, the government asserts that the parallelism
`is irrelevant because the rescission remedy that
`Section 12 authorizes is equitable. But even the
`
`
`
`2
`
`authorities cited by the government confirm that
`rescission under Section 12 is a legal remedy under
`this Court’s Seventh Amendment cases.
`The government’s arguments on the statute of
`repose
`issue are equally unavailing.
` The
`government’s merits arguments falter given the
`statutory text and this Court’s decisions in California
`Public Employees’ Retirement System v. ANZ
`Securities, Inc., 137 S. Ct. 2042 (2017), and CTS Corp.
`v. Waldburger, 134 S. Ct. 2175 (2014). And while the
`government contends that this Court has declined to
`review this issue in several recent cases, all were in
`an interlocutory posture and predated ANZ. Indeed,
`the government concedes that because similar
`extender provisions work to the government’s
`exclusive benefit in multiple contexts, the issue has
`“continuing significance.” This case is an ideal vehicle
`for review of this exceptionally important issue, as
`petitioners are liable for $800 million based on claims
`concededly barred by statutes of repose that proceeded
`only due to a statute-of-limitations extender.
`I. The Court Should Grant Certiorari To
`Determine Whether Section 12(a)(2) Claims
`Must Be Tried By A Jury.
`A. Claims Under Section 12(a)(2) Trigger
`the Seventh Amendment Right to a Jury.
`The government agrees that a claim under
`Section 11 of the Securities Act triggers the Seventh
`Amendment right to a trial by jury, and that the
`elements of a Section 12(a)(2) claim parallel the
`elements of a Section 11 claim. See Pet.17. The
`government nevertheless contends that Section
`12(a)(2)’s “similarities to Section 11 are immaterial”
`
`
`
`
`
`3
`
`is
`
`because Section 12(a)(2)’s recission remedy
`equitable. Opp.25. That claim lacks merit.
`To be sure, the Seventh Amendment inquiry
`“primarily” depends on the nature of the remedy the
`claim authorizes and the claimant seeks. Opp.25. But
`that does not render irrelevant the first step in the
`inquiry—i.e., whether the claim’s elements mirror the
`elements of a claim that could be brought in pre-
`merger courts of law. See Granfinanciera, S.A. v.
`Nordberg, 492 U.S. 33, 42 (1989). Indeed, this Court’s
`decisions hold otherwise.
` See, e.g., Feltner v.
`Columbia Pictures Television, Inc., 523 U.S. 340, 348
`(1998) (holding that Seventh Amendment right
`applies to statutory copyright-infringement actions
`because “the common law and statutes in England and
`this country granted copyright owners causes of action
`for
`infringement”).
` The conceded “similarities”
`between Section 11 and Section 12(a)(2) thus militate
`strongly in favor of the conclusion that Section 12(a)(2)
`triggers the jury right.
`As to remedy, the government’s own description
`of what constitutes “equitable” rescission for purposes
`of the Seventh Amendment makes clear that the
`remedy that Section 12(a)(2) authorizes is legal, not
`equitable. The government contends that, at common
`law, “unilateral rescission” would have been an action
`at law, but that FHFA “did not unilaterally rescind the
`contract before bringing suit.” Opp.23-24. The
`government ignores, however, that the district court
`found that FHFA “constructively tendered
`its
`securities as of September 2, 2011, the date of the
`initial complaint.” Pet.App.480. And it is well-
`established that a unilateral offer to tender (which
`
`
`
`
`
`4
`
`indisputably occurred here) is the equivalent of a
`unilateral rescission (which the government concedes
`is an action at law). See Hugh S. Koford, Rescission at
`Law and in Equity, 36 Cal. L. Rev. 606, 607 (1948).
`Because FHFA tendered certificates at the outset, “the
`requirements of a unilateral rescission” were satisified
`and its suit was an “action at law.” Opp.23.
`The government argues that Section 12(b)’s loss-
`causation defense fits within general equitable
`principles. See Opp.26. But that ignores the relevant
`point, which is that “[a]t common law, equitable
`rescission required the seller to refund the buyer the
`full original purchase price in exchange for … the
`purchased item.” Pet.21 (emphasis added); see Lyon v.
`Bertram, 61 U.S. (20 How.) 149, 154-55 (1857). That
`specific command cannot be squared with a loss-
`causation defense, which contemplates money paid to
`the buyer in an amount less than the “full original
`purchase price.” Nor does the government offer any
`response to the fact that, under Section 12(b)’s loss-
`causation provision, a trier of fact must apply
`proximate-causation principles, in contrast to the
`discretion afforded equity courts. See Pet.21 & n.8.
`Invoking Deckert v. Independent Shares Corp.,
`311 U.S. 282 (1940), and Pinter v. Dahl, 486 U.S. 622
`(1988), the government claims that “this Court has
`long made clear” that “rescission under Section
`12(a)(2) is an equitable remedy.” Opp.24-25. But as
`petitioners have explained (and the government does
`not answer),
`the government overreads
`these
`decisions, neither of which addressed whether Section
`12(a)(2) claims trigger the Seventh Amendment.
`Pet.19-21. In Deckert, the Court simply rejected the
`
`
`
`
`
`5
`
`sweeping proposition that Section 12(a)(2) authorizes
`no equitable relief whatsoever and categorically
`“restrict[s] purchasers … to a money judgment.” 311
`U.S. at 287. The Court’s observation in dicta that a
`rescission suit may be maintained in equity “at least
`where there are circumstances making the legal
`remedy inadequate” underscores the limited scope of
`the question before the Court. Id. at 289.
`Pinter is equally unhelpful to the government.
`Pinter addressed “whether one must intend to confer
`a benefit on himself or on a third party in order to
`qualify as a ‘seller’ within the meaning of” what is now
`Section 12(a)(1). 486 U.S. at 624-25. The Court’s
`passing footnote commentary on Section 12’s origins
`was thus dicta. And even that dicta acknowledged
`that while Section 12 was “adapted from common-law
`(or equitable) rescission,” it nevertheless “differs
`significantly” from its historical source material. Id.
`at 641 n.18. And that was before loss-causation
`principles were introduced into the provision. See
`Pet.21.
`The government highlights Pinter’s observation
`that a Section 12 plaintiff can “sue for damages” and
`the “damages calculation results in what is the
`substantial equivalent of rescission.” Opp.25. But
`that remark does not support the government;
`equating Section 12’s rescission remedy with the legal
`remedy of damages only underscores that Section 12
`rescission more closely tracks rescission at law rather
`than rescission at equity. See Pet.18-19.
`In short, Pinter and Deckert do not come close to
`demonstrating that Section 12(a)(2) claims do not
`trigger the Seventh Amendment right. If anything,
`
`
`
`
`
`6
`
`they show that this Court has not squarely addressed
`the question, confirming the need for review here.
`B. Petitioners Who Never Owned the
`Securities in the First Place Were
`Entitled to a Jury Trial.
`This Court held
`in Great-West that for a
`restitution remedy “to lie in equity, the action
`generally must seek … to restore to the plaintiff
`particular funds or property in the defendant’s
`possession.” 534 U.S. at 214 (emphasis added). The
`government concedes that the nine petitioners here
`never owned the securities at issue and never
`possessed the “particular funds or property” that
`FHFA paid for the securities. See Opp.28. The
`government also identifies no material difference
`between the restitution remedy in Great-West and the
`rescission remedy here. See Pet.22. Accordingly,
`under Great-West, because “the funds being sought” by
`FHFA “are not in the defendants’ possession,” a jury
`trial was “require[d],” even assuming that “the basis
`of the claim is” equitable. Pereira v. Farace, 413 F.3d
`330, 346-47 (2d Cir. 2005) (Newman, J., concurring);
`see Pet.22-24.
`The government’s only response is to argue that
`rescission could be granted in equity even against a
`defendant who was not a party to the contract.
`Opp.27. But that was true only for a defendant who
`actually induced the fraudulent purchase, as the
`government’s own authorities confirm. See, e.g.,
`Gordon v. Burr, 506 F.2d 1080, 1085 (2d Cir. 1974)
`(noting that “the wrongdoer who, though not a privy
`to the fraudulent contract, nonetheless induced the
`victim to make the purchase” must “restore the victim
`
`
`
`
`
`7
`
`to the status quo”). FHFA has never argued that any
`petitioner here “induced” the purchases.1
`The government’s attempt to distinguish Great-
`West is even less plausible. The government contends
`that under Great-West, an order to pay out of any
`“available funds” can be equitable, even if not directed
`to the “precise funds that were paid for the securities.”
`Opp.28. But the relevant language in Great-West
`commands that an equitable remedy must “restore to
`the plaintiff particular funds or property in the
`defendant’s possession.” 534 U.S. at 214 (emphases
`added).
` Petitioners,
`including five
`individuals,
`indisputably never possessed the securities
`in
`question, and never possessed any of the proceeds
`from the sale of those securities.
` They were
`nevertheless held jointly and severally liable for the
`entire amount of money necessary to “satisfy[]” the
`$800 million judgment. Final Judgment at ¶2,
`Dkt.1717. Forcing petitioners to return to FHFA
`money they never possessed,
`in exchange
`for
`securities they never held, does not restore the status
`quo, and it is not a rescission. It is the imposition of
`“personal liability … to pay money,” Great-West, 534
`U.S. at 210, which, as even the government concedes,
`is a “legal remedy” triggering the Seventh Amendment
`jury right, Opp.28.
`
`
`1 Nor could FHFA have proved inducement. For example, at
`least two petitioners, Nathan Gorin and John McCarthy, were
`held liable solely for having signed the registration statements.
`See Pet.7 n.4; see also App.407-09.
`
`
`
`
`
`8
`
`C. This Issue is Exceptionally Important.
`The government does not, and could not, dispute
`that the right to trial by jury in civil cases is “integral
`in our judicial system.” City of Morgantown v. Royal
`Ins. Co., 337 U.S. 254, 258 (1949). And if “any seeming
`curtailment of the right … should be scrutinized with
`the utmost care,” Dimick v. Schiedt, 293 U.S. 474, 486
`(1935), then the need for scrutiny is heightened when
`the end result of a bench trial, rather than a trial by
`one’s peers, is an $800 million judgment as to which
`every petitioner,
`including the
`five
`individual
`petitioners here, is jointly and severally liable.
`The government instead argues only that the jury
`trial right is not more important in Section 12 cases
`than
`in
`other matters, because
`issues
`of
`reasonableness might not be front-and-center in such
`cases. Opp.29. In reality, however, all of the key
`questions in Section 12 cases turn on reasonableness.
`In assessing falsity, for example, the first step is
`interpretation—the question of how to reasonably
`read a representation in context. See Omnicare, Inc.
`v. Laborers District Council Construction Industry
`Pension Fund, 135 S. Ct. 1318, 1330 (2015). Likewise,
`materiality depends on how a representation “would
`have been viewed by the reasonable investor.” Basic
`Inc. v. Levinson, 485 U.S. 224, 231-32 (1988). The
`government suggests that it makes no difference
`whether a jury or judge addresses these interpretive
`questions. Opp.29. But that assertion is belied by the
`government’s own tactics in this case, where the
`government dropped its Section 11 claims—which
`indisputably would have gone to a jury—only after a
`series of pre-trial rulings made clear that the district
`
`
`
`
`
`9
`
`judge viewed the government’s case favorably. Pet.10.
`That stratagem underscores the importance of the
`Seventh Amendment, especially when a defendant
`faces massive claims brought by the government, and
`the need for this Court’s review.
`II. The Court Should Grant Certiorari To
`Determine Whether HERA’s Extension Of
`Statutes Of Limitations Displaces Statutes
`Of Repose.
`A. HERA Does Not Override Statutes of
`Repose in the Securities Act or Preempt
`State Blue Sky Laws.
`1. The government offers little to defend the
`proposition that 12 U.S.C. §4617(b)(12) overrides
`statutes of repose like Section 13 of the Securities Act,
`preferring instead to emphasize that this Court has
`denied petitions presenting
`this
`issue
`in an
`interlocutory posture. The government does not
`dispute that §4617(b)(12) refers three times to “statute
`of limitations” and four times to the accrual of a claim,
`a concept relevant only to statutes of limitations. See
`ANZ, 137 S. Ct. at 2049; CTS, 134 S. Ct. at 2182-83.
`Instead, the government’s principal textual argument
`is that the extender statute’s “mandatory language”
`“precludes the possibility that some other limitations
`period might apply.” Opp.13. But the fact that
`§4617(b)(12) was intended to be the exclusive statute
`of limitations for certain government claims says
`nothing about whether it was meant to override
`statutes of repose.
`The government notes that “the fact that Section
`4617(b)(12) is itself a statute of limitations … does not
`provide guidance on the question whether [it]
`
`
`
`
`
`10
`
`displaces otherwise applicable statutes of repose.”
`Opp.15 (quotations and emphases omitted). But given
`the
`critical distinctions between
`statutes of
`limitations and statutes of repose, and the “complete
`defense” provided by Section 13 that “admits of no
`exception,” ANZ, 137 S. Ct. at 2049, the absence of
`“guidance” in §4617(b)(12)’s text is fatal to the
`government’s argument.
`2. The government argues that Congress must
`have wanted FHFA to be able to evaluate potential
`claims unimpeded by “limitations periods” that might
`otherwise apply. Opp.14. But “no legislation pursues
`its purposes at all costs,” CTS, 134 S. Ct. at 2185, and
`Congress could just as readily have wanted to sweep
`away “limitations periods” (which are primarily
`focused on the equities of allowing a plaintiff to sue)
`while leaving undisturbed repose periods (which are
`primarily focused on the equities of defendants). The
`government also points to similar extender provisions
`to which Congress supposedly looked when enacting
`§4617(b)(12), but it identifies no decision holding that
`those provisions displaced statutes of repose, much
`less a decision postdating CTS and ANZ.
`The government asserts that ANZ “did not
`suggest” that Section 13 “bars actions as to which
`Congress has specified a special exclusive time limit.”
`Opp.18. But ANZ unequivocally held that Section 13
`“give[s] a defendant a complete defense to any suit”
`filed more than three years after the security is
`offered. 137 S. Ct. at 2049 (emphases added). Indeed,
`ANZ reinforces that repose means repose. Repose
`except for actions brought by the full prosecutorial
`force of the government is hardly true repose or a
`
`
`
`
`
`11
`
` The conflict between the
`“complete defense.”
`government’s position and ANZ is stark: ANZ held
`that Section 13’s three-year statute of repose “admits
`of no exception,” and yet the government expressly
`describes §4617(b)(12) as an “exception” to Section 13.
`Opp.18.
`3. The government contends that the “general
`principle disfavoring repeals by implication” does not
`apply here because Section 13 “would continue to have
`‘the same effect’ in all situations not specifically
`addressed” by §4617(b)(12). Opp.19. But that is
`exactly the point: In the situations §4617(b)(12) does
`address, the government’s theory would make it an
`“implied amendment[]” resulting
`in a “partial
`repeal”—precisely the circumstances in which the
`presumption attaches. Nat’l Ass’n of Home Builders v.
`Defenders of Wildlife, 551 U.S. 644, 664 n.8 (2007).
`4. The government’s only argument in support of
`its contention that §4617(b)(12) preempts state
`statutes of repose is an assertion that §4617(b)(12)
`“clearly demonstrates” Congress’ intent to preempt.
`Opp.21. But the “plain wording” of §4617(b)(12),
`which “necessarily contains the best evidence of
`Congress’ preemptive intent,” Chamber of Commerce
`of U.S. v. Whiting, 563 U.S. 582, 594 (2011), does not
`contain one reference to statutes of repose, much less
`state statutes of repose. See Pet.30-31.
`B. The Question Presented is Exceedingly
`Important and Warrants Review Here.
`Petitioners are
`liable
`for an $800 million
`judgment based entirely on an action by the
`government commenced after applicable repose
`periods had run, when they justifiably believed they
`
`
`
`
`
`12
`
`had obtained “complete peace.” ANZ, 137 S. Ct. at
`2052. The policies underlying statutes of repose,
`which focus on the equitable needs of the defendant,
`are at their zenith when the government is the
`plaintiff. So too are the constitutional difficulties with
`a statute that could obliterate a vested right in repose
`for the government’s exclusive benefit. Pet.25.
`The government asserts that this Court has
`denied certiorari in four cases raising this issue.
`Opp.12-13, 22-23. But as the government concedes,
`all of those petitions “were filed at an interlocutory
`stage.” Id. at 22. This case alone comes to the Court
`after a final judgment—and after ANZ.
`The government claims that the question
`presented is “of diminishing practical importance”
`because most FHFA cases have “worked their way
`through the courts.” Id. But identical language is
`contained in extender statutes that are triggered
`every time a federally insured bank or credit union is
`placed in conservatorship and, as the government
`concedes, the question of whether these extender
`statutes displace statutes of repose has “continuing
`significance.” Id. at 22-23. Given the continuing
`uncertainty over that question, this case presents an
`ideal vehicle for the Court to decide once and for all
`whether the promise of repose provided by statutes
`like Section 13 is real.
`
`
`
`
`
`13
`
`PAUL D. CLEMENT
`GEORGE W. HICKS, JR.
`MATTHEW D. ROWEN
`KIRKLAND &
` ELLIS LLP
`655 Fifteenth Street, NW
`Washington, DC 20005
`
`CONCLUSION
`The Court should grant the petition.
`Respectfully submitted,
`DAVID B. TULCHIN
` Counsel of Record
`BRUCE E. CLARK
`STEVEN L. HOLLEY
`AMANDA FLUG DAVIDOFF
`SULLIVAN &
` CROMWELL LLP
`125 Broad Street
`New York, NY 10004
`(212) 558-4000
`tulchind@sullcrom.com
`Counsel for Petitioners
`
`June 4, 2018
`
`
`
`