In March, the Supreme Court granted certiorari to determine whether the filing of a putative class action serves, 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. Now, the Court is beginning to consider the merits. The Court’s ruling may have implications for any class action claim subject to a statute of repose.
This case involved a class action led by the State Treasurer of Wyoming and that state’s public retirement fund (collectively “Wyoming”), alleging that defendant banks violated the Securities Act when issuing mortgage-backed securities. The district court dismissed many of the claims due to Wyoming’s lack of standing. Thereafter, other retirement systems (“proposed intervenors”) moved to intervene.
The district court denied the motion, ruling that their claims were time barred by § 13’s three-year statute of repose, which provides that no action shall be brought more than three years “after the security was bona fide offered to the public, or … more than three years after the sale.” The district court rejected the proposed intervenors’ argument that the statute of repose was tolled under American Pipe, which holds that the filing of a class action complaint tolls the applicable statute of limitations as to all asserted members of the class who would have been parties had the suit been permitted to continue as a class action. American Pipe & Construction Co. v. Utah, 414 U.S. 538, 554 (1974).
On appeal, the Second Circuit affirmed. The court held that the American Pipe tolling rule does not apply to § 13’s statute of repose. The court reasoned that the Supreme Court’s ruling in Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gibertson, 501 U.S. 350, 363 (1991) provides that equitable tolling does not apply to statutes of repose, while the Rules Enabling Act, 28 U.S.C. § 2072(b) precludes legal tolling of statutes of repose.
Before the United States Supreme Court
Thereafter, proposed intervenor the public Employees’ Retirement System of Mississippi (“Mississippi”) petitioned for certiorari, and the Supreme Court granted the petition. The question certified for review is: “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?”
On March 21, 2014, Mississippi filed its brief. Another proposed intervenor filed a supporting brief, and seven other entities filed amici briefs supporting the proposed intervenors. The amici include, among others, the AARP, Inc., the Public Citizen, Inc., the American Association for Justice, a group of retired judges, and a group of law professors teaching civil procedure and securities law.
The briefs collectively assert that American Pipe holds that the filing of a class action complaint suspends any limitations period for members of the putative class and that neither Lampf nor the Rules Enabling Act preclude applying American Pipe’s tolling rule to § 13’s limitations periods. The briefs also argue 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, a practice which would negate the efficiency gains that class actions are supposed to bring to the judiciary.
If the proposed intervenors’ view prevails, the filing of a class action will toll Securities Act claims notwithstanding § 13’s plain language preventing a plaintiff from suing over a security offered or sold more than three years prior to the suit. If, on the other hand, the Supreme Court adopts the Second Circuit’s view, the decision will limit putative class member’s ability to take a “wait-and-see” approach to litigation. Instead, to protect their rights, putative class members will need either to intervene in an existing class action or to file an independent action.
Although this case focuses on the Securities Act § 13, any ruling may have broad application to all claims subject to statutes of repose. We will continue to monitor the developments in the case and update our readers.