How quickly must class action plaintiffs act in order to preserve individual claims?

The Supreme Court is set to rule on a case that has significant implications for investors considering pursuing individual actions under the securities laws.

On April 17, 2017, the Supreme Court heard oral argument in the case of California Public Employees’ Retirement System v. ANZ Securities Inc. The case relates to whether and how quickly individual investors must act to preserve individual claims when their claims are already asserted as part of a pending securities class action.

In ANZ Securities, the Second Circuit ruled that the filing of a securities class action lawsuit under the Securities Act of 1933 does not toll or otherwise satisfy the “statute of repose” (a time limitation) for individual claims asserted separately, after the filing of the class action. This means that if an investor who is an unnamed plaintiff in a Securities Act class action is considering pursuing its claims separately, the investor must act to preserve those claims (for instance, by filing a separate individual suit) even while the class action asserting its claims in the aggregate is pending. This holding is notable because, depending on the particular case, investors may be forced to file such additional protective lawsuits even before the class action case reaches any significant milestones.

Other courts disagree with this reading of the Securities Act and the relevant procedural rules. The Tenth Circuit, for instance, holds that the filing of the class action effectively preserves the individual suits while the class action is pending, so there is no need for investors to file individual suits so early. The Tenth Circuit and other courts take this view based in large part on the Supreme Court’s 1974 American Pipe ruling, which held that the statute of limitations is tolled for individual plaintiffs during the pendency of such a class action. In late May 2017, the Ninth Circuit also reaffirmed American Pipe tolling, holding that it tolls the Securities Exchange Act statute of limitations to permit successive class action filings.

The ANZ Securities case has garnered significant interest in the legal community. Assisted by BLB&G, seventy-five prominent institutional investors with over $4 trillion under management filed an amicus brief in the matter. The amicus brief highlights not only the harmful burdens that the Second Circuit’s holding imposes on investors, but also how it imposes unnecessary litigation costs on both plaintiffs and defendants.

A separate amicus brief filed by retired federal judges similarly notes how the Second Circuit’s holding results in the filing of protective lawsuits to preserve investors’ rights and fails to guard against the possibility that class certification will be unreasonably denied under the Second Circuit’s ruling due to expiration of the statute of repose. Indeed, protective suits are on the rise. In the Petrobras securities litigation, for instance, nearly 500 individual plaintiffs opted out of the class case and are scheduled to have their damages claims heard individually. Yet another amicus brief in the ANZ Securities case — by ten securities law professors at schools including Stanford, Cornell, Duke, and the University of Virginia — concludes that against such costly protective suits, the Second Circuit’s ruling does “not yield any countervailing benefit.”

The Supreme Court heard argument on April 17 and a decision is expected by the end of the term.