On June 26, 2017, the Supreme Court issued a 5-4 decision in California Public Employees’ Retirement System v. ANZ Securities, Inc., et al. (“CalPERS”) (No. 16–373, 2017 WL 2722415) (U.S. June 26, 2017), holding that the three-year time limit in Section 13 of the Securities Act of 1933 is a statute of repose that is not extended for subsequent opt-out individual actions by the filing of a class action under a rule for tolling statutes of limitations in class actions.
Statutes of limitations and statutes of repose both place important temporal restrictions on the assertion of claims. However, while limitations periods may be subject to tolling under judicially crafted equitable principles, the running of a repose period is tolled only where a statute so provides. Thus, statutes of repose are substantive in nature, extinguishing a cause of action after a period of time typically measured from the moment of the alleged wrongful act or omission. Both repose periods and limitations periods are frequent subjects of motion practice at the early stages of securities actions and other kinds of litigation.
Congress included in Section 13 of the Securities Act, as amended, 15 U.S.C. §77m, both a statute of limitations and a statute of repose for claims under Sections 11 relating to material misstatements and omissions in a registration statement. Section 13 requires that actions be brought within one year after discovery of an untrue statement or omission, or within a year of when discovery should have been diligently made, a statute of limitations. But Section 13 also provides that no action may be brought more than three years after the security in question was offered to the public, a statute of repose.
In American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), the Supreme Court had held that “the commencement of a class action suspends 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, 414 U.S. at 554. Under American Pipe tolling, filing a class action tolls the statute of limitations for all members of a proposed class who make timely motions to intervene after a court denies class certification.
Before the CalPERS action was brought, a different retirement fund had brought a class action in 2008 asserting Section 11 claims against various financial firms involved in underwriting debt offerings from Lehman Brothers Holdings Inc. CalPERS, which was a member of the plaintiff class, then filed its own suit in February 2011, but more than three years after the relevant offerings. When the proposed class reached a settlement later that year and was certified for settlement purposes, CalPERS opted out to pursue its claims individually. The district court, however, dismissed CalPERS' opt-out action as untimely, and the Second Circuit affirmed the dismissal, holding that the three-year time limit in Section 13 functions as a statute of repose that cannot be tolled by the filing of a class action.
The Supreme Court affirmed, holding that the American Pipe rule cannot extend the three-year repose limit under Section 13. Justice Kennedy wrote for the Court in an opinion joined in by Justices Roberts, Thomas, Alito and Gorsuch. He reasoned that “[t]he purpose of a statute of repose is to create ‘an absolute bar on a defendant’s temporal liability,’ and that purpose informs the assessment of whether, and when, tolling rules may apply.” Thus, “[i]n light of the purpose of a statute of repose, the provision is in general not subject to tolling. Tolling is permissible only where there is a particular indication that the legislature did not intend the statute to provide complete repose but instead anticipated the extension of the statutory period under certain circumstances.”
Applying those principles to Section 13, the Court held that “[t]he three-year limit is a statute of repose. And the object of a statute of repose, to grant complete peace to defendants, supersedes the application of a tolling rule based in equity.” The Court emphasized the certainty that statutes of repose are intended to provide: “No feature of § 13 provides that deviation from its time limit is permissible in a case such as this one. To the contrary, the text, purpose, structure, and history of the statute all disclose the congressional purpose to offer defendants full and final security after three years.”
In a vigorous dissent, Justice Ginsburg, joined by Justices Breyer, Sotomayor and Kagan, argued that the decision “disserves the investing public that §11 was designed to protect.” She raised the concern that “[t]he harshest consequences will fall on those class members, often least sophisticated, who fail to file a protective claim within the repose period.”
Justice Ginsburg further warned that the holding “will also gum up the works of class litigation” because “[a]ny class member with a material stake in a §11 case, including every fiduciary who must safeguard investor assets, will have strong cause to file a protective claim, in a separate complaint or in a motion to intervene, before the three-year period expires. Such filings, by increasing the costs and complexity of the litigation, ‘substantially burden the courts.’”
The Court’s decision may give defendants in class actions brought under Section 11 greater assurance that opt-out plaintiffs will not emerge at later times. Logically, a similar rule should apply to the five-year statute of repose applicable to securities actions brought under Rule 10b-5.