The Supreme Court has given a boost to companies defending against securities claims, ruling in California Public Employees’ Retirement System v. ANZ Securities that a statute of repose cannot be extended by the doctrine that the filing of a class action tolls the statute of limitations for the claims of absent class members.
The case emanated from a prior class action that had alleged, in connection with certain offerings by Lehman Brothers Holdings Inc., violations of Section 11 of the Securities Act of 1933, which relates to misrepresentations and omissions made in a securities registration statement. Section 13 of the Act provides that any such claim must be brought within “three years after the security was bona fide offered to the public.” CalPERS, which was an absent class member in the original class action, filed its own class action complaint more than three years after the transactions at issue and then opted out of the original class action.
Affirming the decisions of the Southern District of New York and the Second Circuit, the Supreme Court held that the three-year limit in Section 13 is a statute of repose, and that such a limit cannot be extended by any court-made tolling doctrine. CalPERS argued that the statute was tolled under American Pipe & Construction Co. v. Utah during the pendency of the original class action, but the Supreme Court ruled otherwise.
The Supreme Court held that a statute of repose is tolled only where the legislature clearly provides for such an extension, either in the statute of repose itself or elsewhere in the code. Because the purpose of a statute of repose is to override tolling rules created by equitable powers of the courts, the Court found that court-made equitable tolling doctrines—including American Pipe tolling—cannot extend a statute of repose.
The Court rejected CalPERS’s argument that the filing of a class action complaint fulfills the purpose of a statute of repose to give notice to the defendant of the allegations against him. The Court reasoned that the risk of increasing defendant’s financial liability and giving opt-out plaintiffs leverage to obtain outsized recoveries “would threaten to alter and expand a defendant’s accountability, contradicting the substance of a statute of repose,” whose purpose is to give a defendant full protection from suit.
The Court also waved off concerns about limiting an individual plaintiff’s ability to opt out of a class action, as well as concerns about causing a proliferation of protective individual suits, noting that the Second Circuit has not experienced such an influx since it foreclosed tolling of statutes of repose in 2013.
The decision in CalPERS grants securities class action defendants certainty that their exposure to new litigation will be cut off on a particular date. The decision will likely have broad application to the many varieties of securities cases, as well. Claims under Section 12 of the Securities Act, for example, are subject to the same three-year statute of repose found in Section 13, and, pursuant to 28 U.S.C. 1658(b), private causes of action under Section 10(b) of the Securities Exchange Act are subject to a five-year statute of repose.