Case 4:12-cv Document 101 Filed in TXSD on 02/22/13 Page 1 of 29 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION

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1 Case 4:12-cv Document 101 Filed in TXSD on 02/22/13 Page 1 of 29 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION ) SECURITIES AND EXCHANGE ) COMMISSION, ) ) Plaintiff, v. ) ) MARK A. JACKSON and ) JAMES J. RUEHLEN, ) ) Defendants. ) ) ) Case No. 4:12-cv ) DEFENDANTS JOINT MOTION FOR PARTIAL DISMISSAL OF THE SEC S AMENDED COMPLAINT

2 Case 4:12-cv Document 101 Filed in TXSD on 02/22/13 Page 2 of 29 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 II. B. The SEC Failed to Plead Facts Establishing its Diligence... 7 C. Equitable Tolling Does Not Apply to Penalty Actions Subject to Section D. The SEC Should Not Be Permitted to Replead Again THE CONTINUING VIOLATIONS DOCTRINE DOES NOT SAVE THE SEC S UNTIMELY CLAIMS A. The Continuing Violations Doctrine Does Not Apply to Discrete Acts Outside of the Limitations Period 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 Section 30A and Section 13(b)(5) Claims Section 13(b)(2)(A) Claim CONCLUSION i

3 Case 4:12-cv Document 101 Filed in TXSD on 02/22/13 Page 3 of 29 Cases TABLE OF AUTHORITIES 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) 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) Baldwin Cnty. Welcome Ctr. v. Brown, 466 U.S. 147 (1984) Cherosky v. Henderson, 330 F.3d 1243 (9th Cir. 2003) Clement A. Evans & Co. v. McAlpine, 434 F.2d 100 (5th Cir. 1970)... 8 Credit Suisse Secs. (USA) LLC v. Simmonds, 132 S. Ct (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) FEC v. Williams, 104 F.3d 237 (9th Cir. 1996) Foman v. Davis, 371 U.S. 178 (1962) Granger v. Aaron s, Inc., 636 F.3d 708 (5th Cir. 2011)... 4 Heard v. Sheahan, 253 F.3d 316 (7th Cir. 2001) Holmberg v. Armbrecht, 327 U.S. 392 (1946) 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 (S.D. Tex. Aug. 26, 2009)... 2 In re Enron Corp. Sec., Deriv. & ERISA Litig., 310 F. Supp. 2d 819 (S.D. Tex. 2004) In re Guy P. Riordan, Initial Decision Release No. 353, 2008 WL , at *12-13 (ALJ July 28, 2008) In re Juniper Networks, Inc. Sec. Litig., 542 F. Supp. 2d 1037 (N.D. Cal. 2008) In re Merrill Lynch Ltd. P ships Litig., 7 F. Supp. 2d 256 (S.D.N.Y.1997) Jones v. ALCOA, Inc., 339 F.3d 359 (5th Cir. 2003)... 1 Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350 (1991) Levine v. Bally Total Fitness Holding Corp., No. 06 C 1437, 2006 U.S. Dist. LEXIS (N.D. Ill. Sept. 29, 2006) Limestone Dev. Corp. v. Vill. of Lemont, 520 F.3d 797 (7th Cir. 2008) Meeker v. Lehigh Valley R.R. Co., 236 U.S. 412 (1915) Nat l Parks Conservation Ass n v. TVA, 480 F.3d 410 (6th Cir. 2007) ii

4 Case 4:12-cv Document 101 Filed in TXSD on 02/22/13 Page 4 of 29 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) 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) SEC v. Harden, No. 1:05-CV-354, 2006 WL (W.D. Mich. Jan. 12, 2006) SEC v. Koenig, 557 F.3d 736 (7th Cir. 2009) SEC v. Kovzan, 807 F. Supp. 2d 1024 (D. Kan. 2011) 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) U.S. ex rel. Adrian v. Regents of Univ. of Calif., 363 F.3d 398 (5th Cir. 2004) United States v. Beggerly, 524 U.S. 38 (1998) United States v. Borin, 209 F.2d 145 (5th Cir. 1954) United States v. Brockamp, 519 U.S. 347 (1997) 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) United States v. Jones, 676 F. Supp. 2d 500 (W.D. Tex. 2009) United States v. Midgley, 142 F.3d 174 (3d Cir. 1998) United States v. Musto, No. 3:10-CR-338, 2012 WL (M.D. Pa. Nov. 21, 2012) United States v. Niven, 952 F.2d 289 (9th Cir. 1991) United States v. Payne, 978 F.2d 1177 (10th Cir. 1992) United States v. Sunia, 643 F. Supp. 2d 51 (D.D.C. 2009) United States v. Yashar, 166 F.3d 873 (7th Cir. 1999) Wallace v. Kato, 549 U.S. 384 (2007)... 4 iii

5 Case 4:12-cv Document 101 Filed in TXSD on 02/22/13 Page 5 of 29 Statutes 15 U.S.C. 78dd-1(a) U.S.C. 78m(b)(2)(A) U.S.C. 78m(b)(5) U.S.C , U.S.C U.S.C. 2416(c) U.S.C. 657(c)(1) U.S.C. 2000e-5(e)(1) U.S.C. 462(a) Other Authorities Brief for the Respondent, Gabelli v. SEC, No , 2012 WL (U.S. Dec. 10, 2012) Information, United States v. Vetco Gray Controls, Inc., No. H (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 (S.D. Tex. Feb. 6, 2007)... 8 Reply Brief for Petitioners, Gabelli v. SEC, No , 2012 WL (U.S. Dec. 26, 2012) Rules Fed. R. Civ. P. 12(b)(6)... 1 Fed. R. Civ. P. 15(a) Fed. R. Civ. P. 9(b)... 1, 4 Fed. R. Evid. 201(b)... 6 iv

6 Case 4:12-cv Document 101 Filed in TXSD on 02/22/13 Page 6 of 29 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,

7 Case 4:12-cv Document 101 Filed in TXSD on 02/22/13 Page 7 of WL , 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 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 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. 2

8 Case 4:12-cv Document 101 Filed in TXSD on 02/22/13 Page 8 of 29 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 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, (5th Cir. 2012). That issue is not before the Court on this motion. 3

9 Case 4:12-cv Document 101 Filed in TXSD on 02/22/13 Page 9 of 29 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 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, 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). 4

10 Case 4:12-cv Document 101 Filed in TXSD on 02/22/13 Page 10 of 29 defendant s denial. Id. at 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 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 ) (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 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. 5

11 Case 4:12-cv Document 101 Filed in TXSD on 02/22/13 Page 11 of 29 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, (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, (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 Am. Compl 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. ). 6

12 Case 4:12-cv Document 101 Filed in TXSD on 02/22/13 Page 12 of 29 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 7

13 Case 4:12-cv Document 101 Filed in TXSD on 02/22/13 Page 13 of 29 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 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 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 (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 (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. 8

14 Case 4:12-cv Document 101 Filed in TXSD on 02/22/13 Page 14 of 29 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 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 9

15 Case 4:12-cv Document 101 Filed in TXSD on 02/22/13 Page 15 of 29 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 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 (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 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 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, (1998) (statute of limitations for the Quiet Title Act); United States v. Brockamp, 519 U.S. 347, (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,

16 Case 4:12-cv Document 101 Filed in TXSD on 02/22/13 Page 16 of 29 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 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, (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 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 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). 11

17 Case 4:12-cv Document 101 Filed in TXSD on 02/22/13 Page 17 of 29 (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, (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) These issues are presently before the Supreme Court in Gabelli v. Securities and Exchange Commission, No 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 See 12

18 Case 4:12-cv Document 101 Filed in TXSD on 02/22/13 Page 18 of 29 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 , 2012 WL , at *20-21 (U.S. Dec. 10, 2012) (attached as Exhibit E); Reply Brief for Petitioners, Gabelli v. SEC, No , 2012 WL , 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. 13

19 Case 4:12-cv Document 101 Filed in TXSD on 02/22/13 Page 19 of 29 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, (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, (D.D.C. 2010). 14

20 Case 4:12-cv Document 101 Filed in TXSD on 02/22/13 Page 20 of 29 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 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 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, (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 15

21 Case 4:12-cv Document 101 Filed in TXSD on 02/22/13 Page 21 of 29 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 (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, (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, (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, (S.D. Tex. 2004) (applying Morgan to determine whether claims for securities fraud were continuing violations). 16

22 Case 4:12-cv Document 101 Filed in TXSD on 02/22/13 Page 22 of 29 offense doctrine in criminal matters. 13 See Toussie, 397 U.S 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. 17

23 Case 4:12-cv Document 101 Filed in TXSD on 02/22/13 Page 23 of 29 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, (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, See Pegram, 361 F.3d at 280 ( Under Morgan, discrete acts... which are separately actionable[] may not be pursued outside the relevant limitations period. ) 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 , 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, 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 (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 ). 18

24 Case 4:12-cv Document 101 Filed in TXSD on 02/22/13 Page 24 of 29 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 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 See United States v. Jones, 676 F. Supp. 2d 500, (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 , at *3-4 (M.D. Pa. Nov. 21, 2012) (same); United States v. Sunia, 643 F. Supp. 2d 51, (D.D.C. 2009) (same); see also In re Guy P. Riordan, Initial Decision Release No. 353, 2008 WL , 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 19