As loyal readers of our blog know, we have been following developments in an important class action case taken up by the U.S. Supreme Court relating to a long-established rule allowing the filing of class action lawsuits to toll statutes of limitations for absent class members. As we noted in our previous post discussing the case of Public Employees’ Retirement System of Mississippi v. IndyMac MBS Inc., et al, which you can read here, the Supreme Court will decide 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 petitioner who successfully persuaded the Supreme Court to take the case is a public employees’ pension fund that tried to intervene in a case alleging that fraud in mortgage backed securities prior to the housing crisis caused them losses. The district court and the Second Circuit denied the motion to intervene, ruling that the fund’s claims were untimely and American Pipe does not trump § 13’s three-year time limitation because, among other things, a statute of repose is different than a statute of limitations, and class action tolling only applies to the latter. Hence, the case poses the issue that ought to allow the Supreme Court to re-examine the tolling rule ̶ from 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 Justices — and indeed, their law clerks too — now have some work cut out for them. The Petitioner’s merits brief, along with a brief in support of Petitioner’s view filed by two other public pension funds, have been filed along with seven amicus briefs. The amici include law professors who teach civil procedure and securities law, the Public Citizen Litigation Group, the American Association for Justice, AARP, and others. The briefs collectively make the broad point that the Second Circuit’s ruling upsets class action practice by requiring potential class members to file duplicative lawsuits or risk losing their right to recover damages. They argue this is contrary to the efficiency gains class actions are supposed to bring to the judiciary. They also take on the Second Circuit’s rather technical argument that it could not apply American Pipe to this statute due to a 1991 Supreme Court ruling that would conflict with such a decision, and contend the Second Circuit’s view of American Pipe is in conflict with other circuits and with American Pipe itself. And it appears that the authors of these briefs are concerned about the force of the defendant’s forthcoming argument that allowing tolling under the principles of Rule 23 would violate the Rules Enabling Act, because the briefs try to preemptively address that issue.
If the Petitioner’s view prevails, it will mean that filing a class action would allow American Pipe tolling of claims regardless of statutory language preventing a plaintiff from suing over a security offered or sold more than three years prior to the suit. Such a ruling could reverberate beyond securities class actions, to extend American Pipe tolling to statutes of repose in other substantive areas of the law.
More reading will be necessary by the Justices and their clerks when the defendants in the case below file their merits briefs. We will continue to monitor the developments in the case and update our readers.