Briefing has concluded in Public Employees’ Retirement System of Mississippi v. Indymac MBS Inc. et al, teeing the case up for a decision by the Supreme Court regarding whether the Court’s holding in American Pipe & Construction Co. v. Utah, 414 U.S. 350 (1974), applies to statutes of repose, such as that contained in Section 13 of the Securities Act, rather than just statutes of limitations. In American Pipe, the Court held that the filing of a putative class action tolls the statute of limitations for putative class members. The Tenth Circuit has since held that the same tolling principal applies to statutes of repose. Last year, however, the Second Circuit held that the doctrine did not apply to Section 13’s statute of repose, and refused to allow a group of retirement systems to intervene in a securities fraud class action following the district court’s dismissal a majority of the claims in a putative class action.
In light of the potentially far-reaching effects of the decision, the Supreme Court earlier this year granted The Public Employees’ Retirement System of Mississippi’s petition to hear the Second Circuit’s decision in Indymac. Petitioners seek reversal of the district court’s denial (affirmed by the Second Circuit) of petitioner’s 2010 motion to intervene in a 2009 putative class action suit, alleging that the retirement system’s claims (which were based on sales occurring in 2005, 2006, and 2007) were time-barred under Section 13’s three-year statute of repose. The district court held that the filing of a putative class action did not toll the running of the statute of repose because the American Pipe rule did not apply to a statute of repose.
In their briefing to the Supreme Court, petitioners argue thatAmerican Pipe “is properly understood as determining when a putative class member’s action commences,” so application to Section 13’s statute of repose is “straightforward” because Section 13 requires an action to be “brought” no more than three years after the sale. Because the Securities Act does not define the term “brought,” petitioners argue that the governing standard (underAmerican Pipe) should be that an action is “brought” for all putative members with a class action complaint is filed. Petitioners argue that upholding the Second Circuit’s refusal to apply American Pipeto Section 13’s statute of repose would encourage putative class members to “inundate district courts with separate suits or motions to intervene to protect against the application of a time bar,” not only in securities cases, but also in other areas of law involving statutes of repose. As a result, petitioners argue, both defendants and the courts would be subject to duplicative suits filed by plaintiffs as placeholders in case a putative class action is not certified or is otherwise dismissed.
Respondents, on the other hand, argued in their brief that American Pipe, by its own language, applies only to statutes of limitations, not statutes of repose, and there is a substantive distinction between two concepts. As held by the Supreme Court in Lampf, Pleva, Lipkind, Prupis & Petrigrow v. Gilbertson, 501 U.S. 350 (1991), statutes of repose, unlike statutes of limitations, are designed to provide “an absolute end-point for claims” and are thus not subject to equitable tolling. Respondents further argue that even if theAmerican Pipe doctrine was construed, not as an equitable tolling principle, but instead as a legal or statutory tolling principle derived from Federal Rule of Civil Procedure 23, the doctrine, nevertheless, should not apply to statutes of repose because the Rules Enabling Act forbids Federal Rules from “abridg[ing], enlarg[ing] or modify[ing] any substantive right.” The Securities Industry and Financial Markets Association filed a amicus curiae brief also urging the Court to limit American Pipe, and arguing that such limitation would “provide certainty and finality” while extension of the doctrine to statutes of repose would frustrate the efficiency of the securities laws and place defendants “at risk of claims being filed into perpetuity.”
While some argue that upholding the Second Circuit’s decision will promote the finality intended by Section 13, others believe that it will disproportionately affect smaller, less sophisticated investors who cannot afford to bring suit to preserve their claims in case a putative class action fails. Members of the both sides of the bar await the Court’s decision on this important issue.