The Supreme Court has granted certiorari to review a decision of the Second Circuit holding that securities fraud plaintiffs “may not circumvent” the statute of repose in Section 13 of the Securities Act of 1933 by invoking a class action tolling rule established by the Supreme Court 40 years ago. See Police and Fire Ret. Sys. Of the City of Detroit, et al. v. IndyMac MBS, et al., 721 F.3d 95, 102 (2d Cir. 2013). In taking up the case, the Justices agreed to review the following question: “Does the filing of a putative class action serve, under the American Pipe rule, to satisfy the three-year time limitation in § 13 of the Securities Act with respect to the claims of putative class members?”
The question is important because the outcome could have implications for how long plaintiffs have to file suit for all sorts of statutory claims that contain explicit time limitations on when lawsuits can be filed, a.k.a. statutes of repose, not only in securities fraud cases.
This case involved allegations originally made by the state treasurer of Wyoming and that state’s public retirement fund, stating that the large banks it sued misrepresented and omitted information about the issuance of mortgage-backed securities that preceded the 2008 financial crisis. Many of the claims were dismissed in 2010 on the ground that the named plaintiffs lacked standing to pursue them (a decision partially overturned later in the litigation). Other retirement systems sought to intervene, which led to the district court’s decision in June 2011 holding that their claims were time barred. Mississippi’s public employees’ retirement system filed the successful petition for a writ of certiorari, which was opposed by the banks.
The statutory provision at issue states that “In no event shall any such action be brought to enforce a liability created under . . . this title more than three years after the security was bona fide offered to the public, or . . . more than three years after the sale.” 15 U.S.C. § 77m. Close readers would assume this provision means exactly what it says; that after three years, no lawsuit can be filed alleging securities fraud. But the rub, according to the petitioner for cert in this case, is that the Supreme Court long ago decided ̶ in American Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974) ̶ that statutes of limitations are tolled for absent class members upon the filing of a class action lawsuit that encompasses their claims. The petitioner argued, among other things, that allowing the Second Circuit’s decision to stand would upset class action practice, which has recognized that putative unwary plaintiffs with potential claims should not be required to file duplicative lawsuits or risk losing their right to recover damages related to alleged violations. That is contrary to the purpose of class actions, they contend, which aim to streamline judicial proceedings.
The respondents, on the other hand, argued that the Second Circuit was correct in concluding that whether the rule established in American Pipe allows “judicial” tolling (where a court considering principles of equity allows it) or “legal” tolling (where a statute provides for it) makes no difference. The Supreme Court has already decided in a 1991 case that equity does not trump the statute of repose, they contended, and the Rules Enabling Act forbids Rule 23 from altering any statutory provision duly enacted by Congress.
Now that you have a sense of the arguments made by both sides in the certiorari stage, you can understand the import of the Supreme Court’s decision to take up this case. The decision has the potential to change 40 years of class action law as it relates to limitations and timeliness issues. Stay tuned to this blog as we follow further developments