United States: SCOTUS Holds American Pipe Tolling Does Not Apply To Securities Class Action Opt-Out Claims Filed Outside Repose Period: Calpers V. ANZ Securities, Inc.

We have blogged about the evolution and application of the American Pipe tolling rule, as further expanded by Crown Cork, many times ( here,  here,  here, and  here), most recently following the Ninth Circuit's Resh decision last month ( here and here). Under American Pipe, individual claims of unnamed class members in a previously dismissed action may proceed as a subsequently filed class action after the limitations period would otherwise have expired.

Today, we switch gears and write about a significant limitation to American Pipe's tolling rule applied in the context of a securities class action decided earlier this week by the United States Supreme Court, California Public Employees' Retirement System v. ANZ Securities, Inc., No. 16-373 (June 26, 2017).  In a §11 class action under the Securities Act of 1933, 15 U.S.C. §77k(a), the Supreme Court held, in a 5-4 decision split along ideological lines, that American Pipe tolling does not apply to extend the time for filing claims by an unnamed class member who opts out of a timely-filed suit after expiration of the three-year statute of repose under §13 of the Act.  Had the principle of American Pipe applied, the three-year statute of repose would have been tolled for the period of the pendency of the timely class claims, making the CalPERS opt-out claim timely. The Supreme Court decided otherwise.

The claims at issue were alleged material misstatements or omissions in the registration statements for certain securities offerings made by Lehman Brothers in 2007 and 2008, in violation of §11 of the Securities Act, subject to a one-year statute of limitations under §13.  Plaintiff CalPERS was an unnamed member of a putative class in a class action timely filed in September 2008. In February 2011, unhappy with a pending settlement and believing it could do better on its own, CalPERS opted out of the class and filed an identical suit in federal district court. However, its filing came more than three years from the date of the relevant transactions, outside the three-year repose period under §13 after which no §11 claims can be filed ("In no event shall any such action be brought ... more than three years after the security was bona fide offered to the public ....") (15 U.S.C. §77m). CalPERS argued that the three-year period should be tolled under American Pipe during the pendency of the class action, making its individual case timely. The district court disagreed and dismissed, and the Second Circuit affirmed.

On certiorari review, the Supreme Court agreed with both the district and circuit courts. In a decision penned by Justice Kennedy (and joined by Chief Justice Roberts, and Justices Thomas, Alito, and Gorsuch), the majority distinguished the equitable tolling of a statute of limitations under American Pipe, from the tolling of a statute of repose, which evidences a clear legislative intent to afford defendants complete peace from claims by granting full protection after a prescribed time. If the courts were to override such legislative intent, the majority reasoned, they would permit a class action to "splinter into individual suits . . . [which] would threaten to alter and expand a defendant's accountability, contradicting the substance of a statute of repose."  Maj. Op. at 13. The majority also noted that its decision benefitted the marketplace by allowing for more certainty and reliability, which are "essential components of valuation and expectation for financial actors." Id at 16.

The dissent, written by Justice Ginsburg (and joined by Justices Breyer, Sotomayor and Kagan), viewed the decision as creating a high risk that unnamed class members will "forfeit their constitutionally shielded right to opt out of the class and thereby control the prosecution of their own claims for damages." Dissent Op. at 4 (citing Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 363 (2011)). The dissent further warned that the decision will "gum up the works of class litigation" by increasing the costs and complexity of class action litigation and compelling courts and class counsel "to take on a more active role in protecting class members' opt-out rights."  Dissent Op. at 5.

Time will tell whether the limitations of American Pipe imposed by the CalPERS decision for claims subject to statutes of repose will have the effects predicted in Justice Ginsburg's dissent.  For the unnamed class member whose claim is too small to warrant opt out, there should be no practical effect. But unnamed class members with sizable claims subject to statutes of repose should be particularly attentive to the calendar before deciding to opt out and file their own lawsuits. The opinion is also notable in that the Court would have been equally divided but for the vote of newly appointed Justice Gorsuch, joining in Justice Kennedy's decision.

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