Securities and Shareholder Litigation & Class Actions
Class Action Tolling and Statutes of Repose
The U.S. Supreme Court, in California Pub. Empl. Ret. Sys. v. ANZ Secs., No. 16-373 (U.S. June 26, 2017), held that American Pipe tolling does not extend the statute of repose for claims under the Securities Act of 1933. The Court’s broad reasoning suggests that the ANZ rule (building on the Court’s prior decision in CTS Corp. v. Waldburger) likely applies to all statutes of repose.
ANZ involved a timely class action, filed in the fall of 2008, and an individual opt-out action that was filed outside the 3-year statute of repose for 2007 and 2008 offerings. Slip op. at 3. The Court first concluded that the 3-year bar from the date of the transaction in Section 13 is a statute of repose:
This view is confirmed by the two-sentence structure of §13. In addition to the 3-year time bar, §13 contains a 1-year statute of limitations. The limitations statute runs from the time when the plaintiff discovers (or should have discovered) the securities-law violation. The pairing of a shorter statute of limitations and a longer statute of repose is a common feature of statutory time limits. . . . Statutes applying a discovery rule . . . often couple that rule with an absolute provision for repose. The 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. . . . The history of the 3-year provision also supports its classification as a statute of repose. It is instructive to note that the statute was not enacted in its current form. The original version of the 1933 Securities Act featured a 2-year discovery period and a 10-year outside limit, but Congress changed this framework just one year after its enactment. The discovery period was changed to one year and the outside limit to three years. . . . The evident design of the shortened statutory period was to protect defendants’ financial security in fastchanging markets by reducing the open period for potential liability.
Id. at 6-7 (emphasis added; quotations and citations omitted). The Court then concluded, in sweeping terms, that statutes of repose are not subject to equitable rules such as American Pipe tolling but are tolled only by conditions set forth in the statute:
In light of the purpose of a statute of repose, the provision is in general not subject to tolling. Tolling is permissible only where 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. For example, if the statute of repose itself contains an express exception, this demonstrates the requisite intent to alter the operation of the statutory period. . . . In contrast, where the legislature enacts a general tolling rule in a different part of the code — e.g., a rule that suspends time limits until the plaintiff reaches the age of majority — courts must analyze the nature and relation of the legislative purpose of each provision to determine which controls. . . . The purpose and effect of a statute of repose, by contrast, is to override customary tolling rules arising from the equitable powers of courts. By establishing a fixed limit, a statute of repose implements a legislative decision that as a matter of policy there should be a specific time beyond which a defendant should no longer be subjected to protracted liability. . . . The unqualified nature of that determination supersedes the courts’ residual authority and forecloses the extension of the statutory period based on equitable principles. For this reason, the Court repeatedly has stated in broad terms that statutes of repose are not subject to equitable tolling. . . . [T]he object of a statute of repose, to grant complete peace to defendants, supersedes the application of a tolling rule based in equity. See supra, at 7–8. No feature of §13 provides that deviation from its time limit is permissible in a case such as this one. To the contrary, the text, purpose, structure and history of the statute all disclose the congressional purpose to offer defendants full and final security after three years.
Id. at 7-8, 11 (emphasis added; quotations and citations omitted). As the Court noted, the defendant’s interest in knowing the scope of its liability as of the repose date is a significant one:
If the number and identity of individual suits, where they may be filed, and the litigation strategies they will use are unknown, a defendant cannot calculate its potential liability or set its own plans for litigation with much precision. The initiation of separate individual suits may thus increase a defendant’s practical burdens. . . . . The emergence of individual suits, furthermore, may increase a defendant’s financial liability; for plaintiffs who opt out have considerable leverage and, as a result, may obtain outsized recoveries. . . . . These uncertainties can put defendants at added risk in conducting business going forward, causing destabilization in markets which react with sensitivity to these matters. By permitting a class action to splinter into individual suits, the application of American Pipe tolling would threaten to alter and expand a defendant’s accountability, contradicting the substance of a statute of repose. All this is not to suggest how best to further equity under these circumstances but simply to support the recognition that a statute of repose supersedes a court’s equitable balancing powers by setting a fixed time period for claims to end.
Id. at 12-13 (emphasis added; quotations and citations omitted). The Court yet again stressed the need of financial markets, in particular, for certainty in legal rules. Id. at 16.
The Court confirmed that “the source of the tolling rule applied in American Pipe is the judicial power to promote equity, rather than to interpret and enforce statutory provisions.” Id. at 10.
Nothing in the American Pipe opinion suggests that the tolling rule it created was mandated by the text of a statute or federal rule. Nor could it have. The central text at issue in American Pipe was Rule 23, and Rule 23 does not so much as mention the extension or suspension of statutory time bars. The Court’s holding was instead grounded in the traditional equitable powers of the judiciary.
Id. at 10. Finally, the Court rejected efforts to avoid this rule. It noted that American Pipe itself involved a limitations period, not repose. Id. at 11-12. It held that no right to opt-out can trump the statutory requirement of timely filing. Id. at 13. And it rejected a statutory argument that a class member’s “action” has been “brought” within the meaning of Section 13 when a putative class action is filed, a discussion that could have wider implications for the application of limitations periods in class actions:
This argument rests on the premise that an “action” is “brought” when substantive claims are presented to any court, rather than when a particular complaint is filed in a particular court. The term “action,” however, refers to a judicial “proceeding,” or perhaps to a “suit” — not to the general content of claims. . . . Whether or not petitioner’s individual complaint alleged the same securities law violations as the class-action complaint, it defies ordinary understanding to suggest that its filing — in a separate forum, on a separate date, by a separate named party — was the same “action,” “proceeding,” or “suit.” The limitless nature of petitioner’s argument, furthermore, reveals its implausibility. It appears that, in petitioner’s view, the bringing of the class action would make any subsequent action raising the same claims timely. Taken to its logical limit, an individual action would be timely even if it were filed decades after the original securities offering — provided a class-action complaint had been filed at some point within the initial 3-year period. Congress would not have intended this result. . . . If the filing of a class action made all subsequent actions by putative class members timely, there would be no need for tolling at all. . . . If the filing of the class action “brought” any included individual actions, it would have sufficed for the [American Pipe] Court to note the date on which the class action was filed and deem all subsequent individual actions proper, regardless when filed.
Id. at 15 (emphasis added).
The 5-4 ANZ opinion was written by Justice Kennedy, with Justices Ginsburg, Breyer, Sotomayor and Kagan dissenting on the grounds that the Court’s decision cut off the right to opt out.
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