On June 26, 2017, the Supreme Court ruled, in California Public Employees’ Retirement System v. ANZ Securities, Inc., that a pending putative class action does not toll the running of the three-year time bar for claims brought under § 11 of the Securities Act. The Court ruled that the three-year time limit set forth in § 13 of the Securities Act is a statute of repose designed to provide defendants full and final protection from suit after three years and is therefore not subject to equitable tolling principles, including the class action-tolling rule.
The decision was split 5-4, with Justice Kennedy writing for the majority and Justice Ginsburg authoring the dissent. The decision is here.
In 2007 and 2008, Lehman Brothers raised capital through several public securities offerings. In 2008, a putative class action was filed in the Southern District of New York, alleging that the registration statements for certain of the securities offerings contained material misstatements or omissions, in violation of § 11 of the Securities Act. CalPERS was a member of the putative class.
Section 13 of the Securities Act provides two time limits for § 11 lawsuits: the action must be brought (i) within one year after the untrue statement or omission was or reasonably should have been discovered; but (ii) in no event more than three years after the securities were offered to the public.
In February 2011, more than three years after the relevant securities offerings, CalPERS filed a separate complaint against the same defendants in the Northern District of California, alleging the same claims.
Soon thereafter, a proposed settlement was reached in the putative class action, but CalPERS opted out. The defendants then moved to dismiss CalPERS’ separate action, alleging that the claims were untimely.
CalPERS argued that the limitations period was tolled during the pendency of the class action, under the rule previously set forth by the Supreme Court in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974).
The district court disagreed with CalPERS and dismissed the case as untimely; the Second Circuit affirmed.
The Supreme Court affirmed, holding that the three-year limit in § 13 is a statute of repose and is therefore not subject to equitable tolling, including the equitable tolling provided under the American Pipe class action-tolling rule.
The Court distinguished American Pipe by noting that the statute in that case was one of limitations, not of repose; it began to run when the cause of action accrued. Slip Op. at p. 11. The three-year statute at issue in CalPERS’ case, on the other hand, is a statute of repose. The statute runs from the offering of the securities, not from a plaintiff’s discovery of defects in the registration statement, and it provides that “[i]n no event” shall the action be brought more than three years after the offering.
The Court noted that the “text, purpose, structure, and history of the [§ 13] statute all disclose the congressional purpose to offer defendants full and final security after three years.” Slip Op. at 11.
Therefore, the Court held, while the statute in American Pipe could be tolled by equitable principles, the three-year limit in § 13 could not. The Court reasoned that “the object of a statute of repose, to grant complete peace to defendants, supersedes the application of a tolling rule based in equity.” Slip Op. at 7.
The Court provided a clear summary of its ruling, as follows:
The 3-year time bar in §13 of the Securities Act is a statute of repose. Its purpose and design are to protect defendants against future liability. The statute displaces the traditional power of courts to modify statutory time limits in the name of equity. Because the American Pipe tolling rule is rooted in those equitable powers, it cannot extend the 3-year period. Slip Op. at 16-17.
Given the Court’s reasoning, the ruling likely applies as well to claims under Rule 10b-5, which may be brought not later than the earlier of two years after discovery of the facts constituting the violation or five years after such violation.
Accordingly, plaintiffs who wish to preserve their right to separately litigate claims that are subject to a running statute of repose cannot rely on the pendency of a putative class action to toll their claims. They will need to either file a separate protective case or intervene in the class action within the time period to protect their rights. Defendants, on the other hand, can feel secure that, after they settle a class action, they will not be exposed to opt-out litigation filed after the statute of repose has run.