In a decision with potentially far-reaching impact, the United States Supreme Court has held that the American Pipe tolling rule—that individual claims are tolled during the pendency of a class action suit until class certification is denied or the individual ceases to be a class member—does not apply to suits alleging misrepresentations in securities registrations under Section 11 of the Securities Act of 1933 (the “’33 Act”) when those suits are filed more than three years after the offering.
In California Public Employees’ Retirement System (CalPERS) v. ANZ Securities, Inc., CalPERS, an unnamed plaintiff in a class action lawsuit alleging material misstatements or omissions in connection with certain securities offerings sought to opt-out of the class action settlement and pursue its claims individually to try to obtain a more favorable recovery.1 Although the class action was filed within the three-year limit imposed by Section 13 of the ‘33 Act, CalPERS’s individual action was not. The district court dismissed CalPERS’s action as untimely, and the United States Court of Appeals for the Second Circuit affirmed. The question before the Supreme Court was whether the three-year limit imposed by Section 13 was tolled during CalPERS’s time as a member of the putative class.
The Supreme Court’s analysis began with a close reading of Section 13, which provides that “[n]o action shall be maintained to enforce any liability created under [§11] unless brought within one year after the discovery of the untrue statement or the omission, or after such discovery should have been made by the exercise of reasonable diligence . . . . In no event shall any such action be brought to enforce a liability created under [§11] more than three years after the security was bona fide offered to the public.”2 The Supreme Court noted that “statutory intent” would determine whether the three-year period was intended to be a statute of limitations—which are subject to tolling rules—or a statute of repose—which are not.
In making this determination, the Supreme Court pointed to two primary indicators that Congress had intended the three-year limit to operate as a statute of repose. First, Congress’s coupling of the three-year limit with the definite act of offering a security closely mirrors traditional statutes of repose. Statutes of limitations (such as the one-year limit in Section 13), by contrast, are more amorphous and tend to accrue when a cause of action arises or when an injury was or should have been discovered. This aligns with the intent of statutes of repose to “give more explicit and certain protection to defendants.”3 Second, the “two-sentence structure” of Section 13 also indicates that Congress intended the three-year limit to operate as a statute of repose.4 By pairing a shorter time limit, accruing upon injury or discovery, with a longer time limit, accruing upon a definite act, Congress intended the first to operate as a statute of limitations and the second to operate as a statute of repose. As the Supreme Court explained, “[t]he two periods work together: The discovery rule gives leeway to a plaintiff who has not yet learned of a violation, while the rule of repose protects the defendant from an interminable threat of liability.”5
After also considering the statute’s legislative history, the Supreme Court held that the three-year limit in Section 13 was a statute of repose and, therefore, could not be modified by tolling rules unless such rules were specified by statute. Because the tolling rule established by American Pipe is judicially-created, akin to equitable tolling,6 and not provided for by statute, the Court held that American Pipe tolling could not apply to the Section 13 statute of repose. As Justice Kennedy’s majority opinion explained, “the object of a statute of repose, to grant complete peace to defendants, supersedes the application of a tolling rule based in equity.”7
The Supreme Court’s decision has a simple but highly impactful implication: That claims alleging ’33 Act claims cannot be brought after three years from the public offering even when a class action alleging the same claims was brought within the period of repose. From a ’33 Act plaintiff’s perspective, the decision serves as a warning to those considering opting-out of a class action in the hopes of seeking a more favorable remedy in an individual lawsuit; such a strategy is no longer possible if the individual action is not filed within the repose period.