Statute of Limitations and Eligibility Issues in Securities Arbitration
By Michael A. Collora and David M. Osborne
The Sarbanes-Oxley Act of 2002 contains some good news for investors, extending the statute of limitations for securities claims to two years after the discovery of facts constituting the violation and five years after the violation actually occurred. In applying this new statute of limitations, practitioners will confront many questions. What triggers the two-year discovery limitation period? In an arbitration – where many securities claims are litigated – who decides whether a claim is time-barred? What tactical responses are possible when a limitations problem looms?
STATUTE OF LIMITATIONS PERIOD FOR SECTION 10(b) AND RULE 10b-5 CLAIMS
A. Evolution of the Two-Year/Five-Year Rule
In a securities arbitration, claims are frequently brought under Section 10(b) of the Securities Exchange Act (15 U.S.C. § 78j) and Rule 10b-5 (17 C.F.R. § 240.10b-5), a regulation promulgated by the Securities and Exchange Commission pursuant to Section 10. Section 10(b) and Rule 10b-5, which give a private cause of action for misstatements to both buyers and sellers, are implicated when virtually any kind of fraud is alleged, including churning, purchase of unsuitable securities, and even broken trades or incomplete orders. Section 10(b) and Rule 10b-5 require proof of intentional fraud, although the civil standard of gross recklessness will meet this requirement. See Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976).
The statute of limitations governing Section 10(b) and Rule 10b-5 claims was an unsettled issue for many years. Neither provision contained any limitations period. Left without guidance, the circuit courts relied on the Rules of Decision Act (28 U.S.C. § 1652) to borrow various limitations from analogous statutes of repose in states where the action arose. Not surprisingly, this approach created conflict, confusion, unfairness, and an onslaught of litigation.
The Supreme Court ended the confusion in Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350 (1991), holding that causes of action under Section 10(b) and Rule 10b-5 must be brought within one year after the discovery of the facts constituting the violation and within three years after the violation actually occurred. Id. at 360. The Court analogized these causes of action to Section 9(e) of the Exchange Act, which included a statutory one-year/three-year limitations period. Id.; see also 15 U.S.C. § 78i(e). In adopting this uniform rule, the Lampf Court rejected the application of equitable tolling to extend the three-year limitations period, noting the tolling doctrine was inconsistent with a three-year period of repose. Id. at 363.
In 2002, Congress modified Lampf by enacting the Sarbanes-Oxley Act of 2002, which extended the statute of limitations for claims of securities fraud, deceit or manipulation to the earlier of two years after the discovery of the facts constituting the violation or five years after such violation. See Pub. L. No. 107-204, 116 Stat. 745, Title VIII, § 804(a) (2002). This new limitations period applies to actions commenced on or after the date of enactment of the Sarbanes-Oxley Act. Id., § 804(b).
B. The Five-Year Limitations Period
If the alleged fraud was in connection with the purchase or sale of a security, the date of the purchase or sale would be the applicable date for determining the running of the five-year period of repose. If an initial public offering was involved, the payment date or initial trade date would be the applicable date. Purchasers in the after market who are influenced by a false or misleading prospectus are not limited by the initial trade date, however.
In a churning case, most courts hold that the last date of churning is the date from which the statute of limitations period begins to run. As noted by the court in Miley v. Oppenheimer & Co., 637 F.2d 318 (5th Cir. 1981):
Churning is a unified offense: there is no single transaction or limited identifiable group of trades which can be said to constitute churning. Rather, a finding of churning by the very nature of the offense can only be based on a hindsight analysis of the entire history of a broker's management of an account and of his pattern of trading that portfolio in comparison to the needs and desires of an investor.
Id. at 328.
Typically the entire history of a broker’s management of an account must be analyzed in determining the limitations date. See Nesbit v. McNeil, 896 F.2d 380, 384 (9th Cir. 1990) (holding that investors could recover for transactions that took place outside Oregon’s two-year statutory period since the last transactions occurred within the statutory time). Although the case law is sparse, arguably this same principle would apply when a plaintiff alleges a continuing series of unsuitable securities purchases. This proposition finds support in the fraud context, where “a cause of action is generally said to accrue when a defendant commits the last overt injurious act.” Nesbit at 385 (quoting Volk v. D.A. Davidson & Co., 816 F.2d 1406, 1412 (9th Cir. 1987)).
C. The Two-Year Limitations Period
Determining the commencement of the two-year limitations period is complicated because “discovery of the facts constituting the violation” is a fluid concept. A majority of the circuit courts now agree that “storm warnings” of the possibility of fraud trigger a plaintiff’s duty to investigate in a reasonably diligent manner. See Maggio v. Gerard Freezer & Ice Co., 824 F.2d 123, 128 (1st Cir. 1987); Rothman v. Gregor, 220 F.3d 81 (2d Cir. 2000); In Re Nahc, Inc. Sec. Litig., 306 F.3d 1314 (3d Cir. 2002); Howard v. Haddad, 962 F.2d 328, 330 (4th Cir. 1992); Harner v. Prudential-Bache Securities, Inc., 35 F.3d 565 (Table), 1994 WL 494871, *4-5 (6th Cir. 1994); Marks v. CDW Computer Ctrs., Inc., 122 F.3d 363, 368 (7th Cir. 1997); Great Rivers Cooperative v. Farmland Industries, Inc., 120 F.3d 893 (8th Cir. 1997); Sterlin v. Biomune Systems, 154 F.3d 1191, 1201 (10th Cir. 1998); Theoharous v. Fong, 256 F.3d 1219, 1228 (11th Cir. 2001). Several of these circuits have expressly held that the date of “discovery” for limitations purposes is the date the plaintiff should have discovered the alleged fraud in the exercise of reasonable diligence, not the date the storm warnings first appeared. See, e.g., Young v. Lepone, 305 F.3d 1, 9-10 (1st Cir. 2002); Fuqua v. Ernst & Young LLP, 33 Fed. Appx. 569 (2d Cir. 2002); Law v. Medco Research, 113 F.3d 781, 785 (7th Cir. 1997). However, at least one circuit has held that “the running of the statute of limitations begins when a plaintiff is put on inquiry notice – that is, when the plaintiff has been presented with evidence suggesting the possibility of fraud.” Harner, 1994 WL 494871, *4.
The Seventh Circuit has held that a statute of limitations bar is an affirmative defense that must be proven by the defendant. See Law, 113 F.3d at 786 (“On the record compiled so far, the defendants in this case, who have the burden of proving an affirmative defense, such as that the statute of limitations has run, have failed to show that a reasonably diligent investor would have brought suit before this suit was actually filed.”). However, the First Circuit and Third Circuits have applied a burden-shifting analysis. The Lepone court described this as follows:
When the defendant in a securities fraud case pleads the statute of limitations as an affirmative defense, the plaintiff normally has the burden of pleading and proving facts demonstrating the timeliness of her action. If, however, a defendant seeks to truncate the limitations period by claiming that the plaintiff had advance notice of the fraud through the incidence of storm warnings, then the defendant bears the initial burden of establishing the existence of such warnings. Only if the defendant succeeds in this endeavor must the plaintiff counter with a showing that she fulfilled her corresponding duty of making a reasonably diligent inquiry into the possibility of fraudulent activity.
305 F.3d at 8-9 (citations omitted). See also Mathews v. Kidder, Peabody & Co., Inc., 260 F.3d 239, 252 (3d Cir. 2001) (noting that, if defendants establish the existence of storm warnings, burden shifts to plaintiffs to show that they exercised reasonable due diligence).
Although most of the circuits have adopted the inquiry notice standard, the law in the Fifth and Ninth Circuits is somewhat less settled. In Berry v. Valence Technology, Inc., 175 F.3d 699, 705 (9th Cir.), cert. denied, 528 U.S. 1019 (1999), the Ninth Circuit appeared to express a preference for actual notice based on its reading of Lampf, although it also noted, “If we were to adopt inquiry notice, we would agree with the Tenth Circuit’s formulation of the standard [in Sterlin].” In Jensen v. Snellings, 841 F.2d 600, 606 (5th Cir. 1988), the Fifth Circuit held that inquiry notice applied to causes of action for fraud, including claims under Section 10(b) and Rule 10b-5, but has not addressed this issue since Lampf was decided in 1991.
1. What Constitutes a Storm Warning?
The precise definition of a storm warning varies from circuit to circuit. The Seventh Circuit has stated:
The facts constituting [inquiry] notice must be sufficiently probative of fraud – sufficiently advanced beyond the stage of a mere suspicion, sufficiently confirmed or substantiated – not only to incite the victim to investigate but also to enable him to tie up any loose ends and complete the investigation in time to file a timely suit.
Fujisawa Pharmaceutical Company, Ltd. v. Kapoor, 115 F.3d 1332, 1335 (7th Cir. 1997). “Plaintiff need not ... have fully discovered the nature and extent of the fraud before he was on notice that something may have been amiss. Inquiry notice is triggered by evidence of the possibility of fraud, not full exposition of the scam itself.” Sterlin, 154 F.3d at 1203. “The test for ‘storm warnings’ is an objective one, based on whether a ‘reasonable investor of ordinary intelligence would have discovered the information and recognized it as a storm warning.’” In Re Nahc, 306 F.3d at 1325; see also Sterlin, 154 F.3d at 1204 n.22.
Often the prospectus or offering memorandum itself contains information that triggers a storm warning. For instance, in Harner the Sixth Circuit noted that the prospectus warned investors of the risks of investing in the depressed aircraft market, conflicting with oral representations that the aircraft re-leasing market outlook was good. See 1994 WL 494871, *5-6. This discrepancy, the court concluded, was sufficient to put the investors on notice of “possible problems with the investment.” Id.
A dramatic market loss or drop in stock price also may be sufficient notice that an investor did not receive accurate information about the investment and thus trigger the investor’s duty to inquire further. See Cooperativa de Ahorro y Credito Aguada v. Kidder, Peabody & Co., 129 F.3d 222, 224 (1st Cir. 1997). However, a market drop usually has to be accompanied by some other evidence of fraud. See Law, 113 F.3d at 784 (noting that “a price plunge, without more, is not a reasonable basis for suspecting fraud”).
Public disclosures in the media may also put investors on inquiry notice. For instance, in In re USEC Sec. Litig., 190 F. Supp. 2d 808, 820-21 (D. Md. 2002), information that appeared in various industry publications and a newspaper were deemed to trigger the plaintiffs’ duty to investigate. In Sterlin, an article in Barron’s questioning whether the company’s purpose was to create a viable product or simply to “sell shares” also was held to be a storm warning. 154 F.3d at 1204. However, if the market fails to react to the public disclosure, a plaintiff may be able to argue that it was a premature storm warning and thus did not trigger a duty to investigate. See Law, 113 F.3d at 784.
A bankruptcy filing may indicate that representations about the soundness of an investment were false, and thus put investors on notice of the need to investigate further. In Theoharous, the Eleventh Circuit held that the plaintiff’s claims were time-barred because the announcement that the company was filing for bankruptcy put investors on notice that previous reports of the company’s “solid financial health” were inaccurate. 256 F.3d at 1228.
An investigation by a company audit committee or other investigating body may constitute a storm warning. However, in Young the First Circuit held that a plaintiff who delayed filing a claim until an audit committee completed its investigation of the allegations “could not be faulted, as a matter of law, for awaiting the results of that investigation before jumping to the conclusion that management was cooking the books.” 305 F.3d at 12; see also Jarrett v. Kassel, 972 F.2d 1415, 1424-28 (6th Cir. 1992) (allowing plaintiffs benefit of reasonably diligent investigation conducted on behalf of another); Jensen, 841 F.2d at 608 (suggesting that limitations period did not begin to accrue until plaintiffs received results of investigation). In addition, when the public is led to believe that an announced investigation is moot, the announcement may not constitute a storm warning. See Siebert v. Nives, 871 F. Supp. 110, 115 (D. Conn. 1994) (disclosure of FDIC investigation did not trigger inquiry notice where company simultaneously announced that it had revised its policies to meet investigators’ concerns).
2. What Constitutes Due Diligence?
Once on inquiry notice, plaintiffs have a duty to exercise reasonable diligence to uncover the basis for their claims, and they are held to have constructive notice of all facts that could have been learned through diligent investigation during the limitations period. Maggio, 824 F.2d at 127-128. This inquiry is both subjective and objective. The plaintiffs must first show that they investigated the suspicious circumstances – a subjective standard – and then the court must determine whether their efforts were adequate – an objective standard. See Mathews, 260 F.3d at 252. See also Maggio at 128 (“the determination of whether a plaintiff actually exercised reasonable Diligent investigation may involve as little as reading the prospectus. See Dean Witter Reynolds v. McCoy, 853 F. Supp. 1023, 1037 (D. Tenn. 1995) (dismissing claims where “[d]efendants through the exercise of reasonable diligence should have known the truth simply by reading the prospectuses”), aff’d, 70 F.3d 1271 (1995). When more is required, however, the totality of the circumstances determine what is sufficient.
An investor who relies solely on assurances from his broker that the investor has not been misled does so at his peril. In Cooperativa, the First Circuit noted that “even an investor of ordinary judgment and experience can discern that there is some risk in limiting inquiry to the very broker who may have misled or even defrauded the investor.” 129 F.3d at 225. Given that the broker did not “provide anything more than bland generalities about market fluctuations and repeated reassurances that the investment was safe,” the court held that the investor did not conduct an adequate investigation into storm warnings. Id. The court suggested that a reasonable inquiry might have involved pursuing the brokerage firm’s offer to assess the situation, seeking an expert opinion on this set of investments from a wholly independent party, or using the investor’s own resources to investigate promptly the nature of the investment. Id.
Similarly, in Mathew the investor’s only response to a storm warning was a single letter to the brokerage house inquiring into the status of investment. The Third Circuit held that this letter, with no follow-up by the investor, “evidences a lack of due diligence.” 260 F.3d at 255.
UNIFORM LIMITATION ON FILING ARBITRATION CLAIMS
A. NASD and NYSE Eligibility Requirements
The NASD and the NYSE have promulgated a rule of repose in their respective codes of arbitration. The NASD Code of Arbitration Procedure provides as follows:
No dispute, claim or controversy shall be eligible for submission to arbitration under this code where six (6) years have elapsed from the occurrence or event giving rise to the act or the dispute, claim or controversy. This rule shall not extend applicable statutes of limitations, nor shall it apply to any case which is directed to arbitration by a court of competent jurisdiction.
NASD Code of Arbitration Procedure, Rule 10304. The NYSE has a nearly identical eligibility requirement. See NYSE Code of Arbitration, Rule 603.
Decisions on eligibility frequently are made by the Arbitration Panel rather than the Director of Arbitration. However, eligibility challenges often are raised early in arbitration (in the form of a motion to dismiss) in order to avoid the costs of defending a time-barred claim on the merits. See, e.g., Cook v. Morgan Keegan & Company, Inc., 2002 WL 3170062 (NASD Sept. 6, 2002); Antonino v. Dean Witter, 2000 WL 726085 (NASD Jan. 20, 2000). When an eligibility challenge turns on disputed factual issues, however, a determination must await a hearing. See, e.g., Carey v. Lowry Financial Services Corp., 1997 WL 283094, *3 (NASD Mar. 6, 1997) (denying motion to dismiss on eligibility grounds where claimant asserted that he would prove facts showing fraudulent concealment which tolled eligibility period).
Several circuit courts have held that the eligibility requirement is not a statute of limitations and thus cannot be tolled by fraudulent concealment. See, e.g., Swofford v.
Haviland, 175 F.3d 1021 (Table), 1999 WL 164917, *3 (7th Cir. Mar. 3, 1999); Ohio Company v. Nemecek, 98 F.3d 234, 238-39 (6th Cir. 1996).
B. Who Interprets and Applies the Eligibility Rule?
For many years, the circuits were split as to whether the arbitrator or the courts should interpret and apply the eligibility rule. The Third, Sixth, Seventh, Tenth and Eleventh Circuits interpreted this to be a substantive matter that constituted a jurisdictional prerequisite for arbitration, and thus was for the courts to decide. See, e.g., PaineWebber, Inc. v. Hofmann, 984 F.2d 1372, 1378 (3d Cir. 1993); Smith Barney, Inc. v. Sarver, 108 F.3d 92 (6th Cir. 1997); J.E. Liss & Co. v. Levin, 201 F.3d 848, 851 (7th Cir. 2000); Howsam v. Dean Witter Reynolds, Inc., 261 F.3d 956 (10th Cir. 2001); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Cohen, 62 F.3d 381, 383-84 (11th Cir. 1995). The First, Second, Fifth, Eighth and Ninth Circuits took the opposite view, holding that eligibility was presumptively for the arbitrator to decide. See, e.g., PaineWebber Inc. v. Elahi, 87 F.3d 589 (1st Cir. 1996); PaineWebber Inc. v. Bybyk, 81 F.3d 1193, 1196 (2d Cir. 1996); Smith Barney Shearson, Inc. v. Boone, 47 F.3d 750 (5th Cir. 1995); FSC Sec. Corp. v. Freel, 14 F.3d 1310, 1312 n.2 (8th Cir. 1994); O’Neel v. National Ass’n of Secs. Dealers, Inc., 667 F.2d 804, 807 (9th Cir. 1982).
The Supreme Court recently resolved this split in Howsam v. Dean Witter Reynolds, Inc., 123 S. Ct. 588 (2002). The Court observed that, while the question of arbitrability is an issue for judicial determination, procedural questions “which grow out of the dispute and bear on its final disposition” are presumptively for an arbitrator to decide. Id. at 592. The Court noted that the comments to the Revised Uniform Arbitration Act of 2000 (RUAA) state that “in the absence of an agreement to the contrary, issues of substantive arbitrability . . . are for a court to decide and issues of procedural arbitrability, i.e., whether prerequisites such as time limits, notice, laches, estoppel, and other conditions precedent to an obligation to arbitrate have been met, are for the arbitrators to decide.” Id. (quoting RUAA, § 6, comment 2, 7 U. L. A., at 13 (Supp. 2002)). On this basis, the Court concluded that the NASD’s eligibility rule “closely resembles the gateway questions that this Court has found not to be “questions of arbitrability ….” Id. at 592-93. It added that “the NASD arbitrators, comparatively more expert about the meaning of their own rule, are comparatively better able to interpret and to apply it.” Id. at 593.
Howsam has already begun to reshape the eligibility rule landscape. In Gregory J. Schwartz & Co., Inc. v. Fagan, 2003 WL 1891879 (Mich. App. Jan. 31, 2003), a brokerage firm attempted to enjoin an arbitration on the grounds that the proceeding was barred by the NASD’s six-year eligibility rule. Citing Howsam, the Michigan Court of Appeals held that only the arbitrator had the discretion to determine eligibility. Id. at *1-2. The court also held that whether the eligibility rule can be tolled is a determination that must be left to the arbitrator, not the courts. Id. at *2.
TACTICAL RESPONSES TO LIMITATION AND ELIGIBILITY ISSUES
A. Alternative Claims
Given the constructive notice standard applied to federal securities fraud claims, practitioners may need to consider whether other claims should be brought. For instance, in common law a breach of contract claim generally is subject to a six-year statute of limitations period. However, an investor may not be able to enjoy the full benefit of this limitation period, since silence in the face of knowledge of a broker’s actions may provide the broker with a ratification defense. See Hill v. Bache Halsey Stuart Shields Inc., 790 F.2d 817, 827 (10th Cir. 1986).
The Uniform Securities Act also provides investors with remedies similar to Section 10(b) and Rule 10b-5, but the applicable statute of limitations will vary from state to state. For instance, under the Massachusetts Securities Act (Mass. Gen. L. ch. 110A, § 401 et seq.) the limitations period is four years, but under the New Jersey Uniform Securities Law (N.J. Stat. Ann. § 49:3-71) the period is just two years. New York’s blue sky law has no private cause of action, but the Attorney General may bring an action within six years, the limitations period for common law fraud. See State v. 7040 Colonial Road Associates Co., 176 Misc. 2d 367, 671 N.Y.S. 2d 938 (1998); see also N.Y. Civ. Prac. Law § 213(8) (McKinney Supp. 2003).
An investor also may be able to sue for breach of a fiduciary duty, which typically has a three-year statute of limitations that may be tolled until the investor has notice of the fraud. For instance, in Patsos v. First Albany Corp., 433 Mass. 323 (2001), the Massachusetts Supreme Judicial Court held that under certain circumstances a stockbroker may be a fiduciary for his customer, providing additional legal support for those alleging fraud by their stockbrokers and financial advisers. See 433 Mass. at 332-33 (“In determining the scope of the broker’s fiduciary obligations, courts typically look to the degree of discretion a customer entrusts to his broker.”). If a fiduciary relationship can be found, the statute of limitations may be tolled for certain common law claims, although not for federal claims such as those brought under Section 10(b)(5). See Lampf, 501 U.S. at 363. But see Pincay v. Andrews, 238 F.3d 1106, 1109 (9th Cir. 2001) (holding that, while allegations under RICO are subject to the “injury discovery” statute of limitations, even an allegation of a fiduciary relationship will not forestall the statute’s running if plaintiff had constructive notice of the fraud).
In addition, the investor may have a negligence claim, which typically has a three-year statute of limitations that may be avoided by pleading equitable tolling. See, e.g., Coleman & Company Securities, Inc. v. Gianquinto Family Trust, 236 F. Supp. 2d 288, 299-300 (S.D.N.Y. 2002) (interpreting New York law). A negligence cause of action may exist if the broker owed certain duties to the customer, such as managing the account in accordance with the customer’s needs and objectives, keeping the customer advised of the status of the account, and explaining any risks in his handling of the account to that customer. These duties may arise from failure to adhere to industry standards, violating internal procedures, lack of supervision, failure to carry out a customer’s instructions, misleading the customer, or lacking skill for the task involved. See deKwiatkowski v. Bear Stearns & Co, 306 F.3d 1293, 1308 (2d Cir. 2001) (reversing judgment for customer but acknowledging that “[t]he law thus imposes additional extra-contractual duties on brokers who can take unfair advantage of their customers’ incapacity or simplicity”). In such fiduciary situations, the purchase of speculative securities, frequent trades, and high commissions will be suspect. See Leib v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 461 F. Supp. 951, 954 (E.D. Mich. 1978), aff’d, 647 F.2d 165 (6th Cir. 1981) (cited favorably by Patsos, 433 Mass. at 334).
B. Asking a Court to Order Arbitration of Stale Claims
As previously noted, the six-year eligibility rule does not apply when a court has compelled the arbitration. See NASD Code of Arbitration Procedure, Rule 10304; NYSE Code of Arbitration Procedure, Rule 603. Thus, an investor with a stale claim that is potentially still viable under his or her state’s common law may be able to avoid the operation of this rule by filing with a court rather than the NASD or the NYSE and obtaining an order to arbitrate. See, e.g., Manasse v. Prudential-Bache Securities, 892 F. Supp. 696, 700-701 (W.D. Pa. 1995) (“we find that we may properly order plaintiffs’ remaining claims against [defendants] to arbitration, despite the fact that more than six years has elapsed since the triggering events, because these claims were filed in court and were only subsequently ordered to arbitration”); cf. Edward D. Jones & Co. v. Sorrells, 957 F.2d 509, 513 (7th Cir. 1992) (noting that “bar on all claims older than six years is removed only if a court with jurisdiction over the claim orders the matter be submitted to arbitration” but that claims of defendant were barred from arbitration because claims were presented first in arbitration, not to court).
C. Appealing on Eligibility Grounds After an Arbitration Award
The Federal Arbitration Act provides that a party to arbitration may ask a court to vacate an award “where the arbitrators exceeded their powers ….” 9 U.S.C. § 10(a)(4). Although the Supreme Court in Housam has determined that the interpretation and application of the eligibility rule is a gateway procedural matter that must be left to an arbitrator, not a court, it is not clear how this decision affects an appeal under Section 10(a)(4), at least with regard to eligibility disputes. Housam came to the Court on appeal from a lawsuit that was filed by the respondent to enjoin the arbitration, not as a Section 10(a)(4) appeal. See 123 S. Ct. at 591.
On a motion to vacate, the standard of review is manifest disregard of the law. In GMS Group LLC v. Benderson, 2003 WL 1792224 (2d Cir. April 7, 2003), the Second Circuit recently rejected a securities broker’s argument that an award that implicates a federal statutory right is subject to a more stringent standard of review than an award based on common law tort and contract claims. The court noted that, to the extent the Supreme Court has considered the standard of review at all, it has always found that “the traditional standard applied was sufficient to protect a party’s rights.” Id. at *4-5 (emphasis in original) (citing Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 32 n.4 (1991); Shearson/Am. Express Inc. v. McMahon, 482 U.S. 220, 221 (1987)). The court added that, to the extent any heightened scrutiny may exist, it “should only apply to denials of claims by arbitrators, as opposed to awards in a federal statutory claimant’s favor.” Id. at *6 (emphases in original).
Attorneys representing claimants with older claims (e.g., claims arising more than four years ago) may have to be imaginative in drafting their statements of claim – including listing all reasons why the claimant could not reasonably have uncovered the fraud in a timely manner – in order to avoid motions to dismiss within the arbitration process itself. It is true that, after Howsam a court will be very reluctant to hear an arbitration statute of limitations dispute prior to the arbitration hearing, but it may be willing to review the record post-hearing, testing the record to see if the claimant was able to make out a viable theory for a timely claim. Respondents faced with vague claims or claims of fraudulent concealment may be able to test those facts only at a contested hearing.
 Mr. Collora is a partner at Dwyer & Collora, LLP, a law firm located in Boston, Massachusetts. Mr. Osborne is an associate at the firm.