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On January 13, 2017, the Supreme Court granted certiorari in California Public Employees’ Retirement System v. ANZ Securities, Inc., No. 16-373 (ANZ Securities), to resolve whether the filing of a putative class action tolls the statute of repose for individual class members’ claims brought under Section 13 of the Securities Act.

The California Public Employees’ Retirement System (CalPERS or Petitioner) was a member of a putative class action in the Southern District of New York alleging securities fraud in connection with stock losses prior to the bankruptcy of Lehman Brothers Holdings Inc. Before the district court had ruled on class certification, CalPERS filed an individual action in the Northern District of California, which later consolidated with the class action. See MDL Transferred In, Cal. Pub Emps.’s Ret. Sys. v. Fuld, No. 3:11-cv-01281-LAK (S.D.N.Y. Feb. 25, 2011). After the parties to the class action reached a settlement and the district court preliminarily certified the class, CalPERS opted out, deciding to pursue its individual claim. But because CalPERS had filed its individual action “more than three years after the securit[ies] [at issue] [were] offered to the public,” the district court dismissed its suit as beyond the Securities Act’s three-year statute of repose. The Second Circuit affirmed, ruling that the putative class action did not toll the Securities Act’s statute of repose for CalPERS’s individual suit. See In re Lehman Bros. Sec. &amp; ERISA Litig., No. 15-1879, slip op. at 6 (2nd Cir. July 8, 2016), ECF No. 102. In doing so, it acknowledged that circuits are divided on this tolling question, noting a conflict between itself and the Tenth Circuit, based upon the rule in American Pipe &amp; Construction Co. v. Utah, 414 U.S. 538 (1974).  

In American Pipe, the Supreme Court considered whether a timely filed putative class action tolled the statute of limitations for actions brought by individual class members after the class was decertified and the statute of limitations period had run. The Court answered in the affirmative, holding that “the commencement of a class action suspends the applicable statute of limitations as to all asserted members of the class who would have been parties had the suit been permitted to continue as a class action.” But American Pipe did not address whether its rule applied to statutes of repose.

Circuit split between the Second and Tenth circuits

In ANZ Securities, the Second Circuit noted the Supreme Court’s distinction between statutes of limitations and statutes of repose: the latter are “fixed” and their “expiration will not be delayed by estoppel or tolling.” The Second Circuit stated that American Pipe tolling is either grounded in equity or establishes a legal tolling principle under Fed. R. Civ. P. 23 (Rule 23). If grounded in equity, then it cannot alter the substantive right granted by a statute of repose. And if American Pipe tolling establishes a legal right under Rule 23, then applying tolling to Section 13’s statute of repose would violate the Rules Enabling Act by permitting a procedural rule to abridge the substantive rights created by statutes of repose.

The Tenth Circuit reached a different result in Joseph v. Wiles, 223 F.3d 1155 (10th Cir. 2000). The Wiles court found that, in a class action alleging Securities Act claims, American Pipe operated to save a class member’s individual claim filed before the class was certified but after the statute of repose had expired. The Tenth Circuit reasoned that filing a putative class “commenced” the litigation for all class members for both statute of limitations and statute of repose purposes. The Tenth Circuit also saw no conflict with the Rules Enabling Act, reasoning that its interpretation of American Pipe serves the purposes of Rule 23 by “encourage[ing] judicial economy by eliminating the need for potential class members to file individual claims” and upholding the purposes of Rule 23(c)(2)’s notice opt-out provision.

Practical consequences

Whether filing putative class actions tolls statutes of repose for class members’ individual suits has important practical consequences. For example, Petitioner argues that the Second Circuit rule increases “the cost of class litigation” because each potential opt-out plaintiff will have to incur “the additional expense to retain counsel, file a[]… complaint, and then monitor … the entire litigation.” Petitioner argues that less-sophisticated or resourced class members “will forfeit their claims if class certification is denied.” Respondents counter that Petitioner’s “dire predictions” have not materialized and accuse Petitioner of acting opportunistically in an attempt to secure a larger award through an individual claim after opting out of the class when it was on notice that its individual suit would be dismissed under Second Circuit precedent.

The Supreme Court Will Review Whether Putative Class Actions Toll the Statute of Repose for Class Members’ Individual Securities Act Claims