Section 11 of the Securities Act of 1933 gives purchasers of securities a cause of action when there are misrepresentations in a registration statement. Section 13 states, in part, that: “In no event shall any such action be brought to enforce a liability created under section [11] of this title more than three years after the security was bona fide offered to the public . . . .” In California Public Employees’ Retirement System v. ANZ Securities, Inc., the Supreme Court held that this portion of Section 13 is a statute of repose that is not subject to tolling by the filing of a class action complaint.

CalPERS purchased Lehman Brothers Holdings, Inc.’s securities through public offerings in 2007 and 2008. Shortly after Lehman Brothers filed for bankruptcy in September 2008, a putative class action was filed alleging securities violations based on the sale of Lehman Brothers stock in the 2007 and 2008 public offerings. The putative class action was consolidated with other securities suits brought against Lehman Brothers in a single multidistrict litigation. In February 2011, which was more than three years after the relevant CalPERS’s purchases, CalPERS filed a separate complaint alleging identical securities law violations as the class action complaint. CalPERS’s individual suit was consolidated with the multidistrict litigation. When the putative class action settled, CalPERS opted out of the class, choosing instead to pursue its individual suit. The defendants then moved to dismiss CalPERS’s individual suit, arguing that the Section 11 violations were untimely under the three-year exclusion period in Section 13. CalPERS responded that that the three-year exclusion period was tolled during the pendency of the class action lawsuit and relied on the tolling of a different statute of limitations established in American Pipe & Construction Co. v. Utah. The district court disagreed and dismissed CalPERS’s lawsuit. The Second Circuit affirmed and the Supreme Court granted certiorari.

Justice Kennedy authored the Court’s opinion and affirmed the Second Circuit. The Court began by analyzing whether the language in Section 13 is a statute of repose or a statute of limitations. A statute of limitations is designed to encourage a plaintiff to diligently pursue claims and begins to run when the claim accrues. In contrast, a statute of repose is designed to provide a defendant with certainty that it is free of liability after a certain time and begins to run on the date of the defendant’s last culpable act or omission. The three-year period in Section 13 is a statute of repose because it runs from the date of the defendant’s last culpable act, and because its explicit language, “[i]n no event,” creates a set bar against any future liability.

The Court then explained that a statute of repose is not subject to equitable tolling. Instead, a statute of repose can only be tolled when 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.” Examples of this legislative indication can be found in certain statutes of repose (e.g., 29 U.S.C. § 1113). But there is no such legislative indication in Section 13. The Court then easily rejected CalPERS principal argument that the three-year period in Section 13 was tolled during the pendency of the class action lawsuit because the American Pipe tolling CalPERS sought to apply to the statute of repose was equitable tolling. And in contrast to Section 13’s statute of repose, the statute that was tolled in American Pipe was a statute of limitations, which can be tolled through equitable tolling. Accordingly, the Court affirmed the dismissal of CalPERS’s Section 11 claims as untimely.

The Court’s decision provides securities litigation defendants with certainty about the exact time when potential liability for Section 11 claims will be extinguished. Plaintiffs, on the other hand, now know that they must timely file separate protective actions during the pendency of a class action if they wish to preserve the choice of opting-out of the class action.