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U.S. Supreme Court Rules That Tolling Principles Do Not Apply To Securities Act Statute Of Repose

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  • Posted on: Jul 7 2017

On June 26, 2017, the U.S. Supreme Court ruled, in a 5-4 decision, that the three-year statute of repose in Section 13 of the Securities Act of 1933 (the “Securities Act” or the “’33 Act”) is not subject to equitable tolling under American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974). California Public Employees’ Retirement Sys. v. ANZ Sec., Inc., No. 16-373 (U.S.) (here).


ANZ Securities arose from the demise of Lehman Brothers Holdings Inc. (“Lehman”) in September 2008, and its issuance of securities during the financial crisis.

Around the time that Lehman filed for bankruptcy, investors filed class action complaints in the Southern District of New York against Lehman and its former officers and directors, among others, under Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), and against the underwriters of certain Lehman debt offerings in 2007 and 2008 under Section 11 of the Securities Act. The class action was consolidated with other securities actions against Lehman in a single multidistrict litigation in New York.

On February 25, 2011, the California Public Employees’ Retirement System (“CalPERS”) filed an individual action in California federal court against Lehman’s former officers and directors and the underwriters of Lehman’s debt securities, alleging the same violations of law as in the class action. Notably, the action was filed more than three years after the debt offerings occurred. Soon thereafter, CalPERS’s case was transferred to and consolidated with the class case in New York.

In late 2011, class counsel reached a settlement with Lehman’s former officers and directors, and the underwriters. CalPERS opted out of the class settlement in March 2012 in order to continue its individual action.

Several of the underwriters (including ANZ Securities, Inc. (“ANZ”)) moved to dismiss CalPERS’s Section 11 claims as time-barred under Section 13 of the Securities Act, in particular under the three-year statute of repose.

The district court dismissed the action, holding that the filing of the class action complaint in 2008 did not toll the repose period under Section 13 of the Securities Act. According to court, Section 13 is “absolute” and provides for no exception, including equitable tolling, for a plaintiff who opts out of a class action.

The Second Circuit affirmed, holding that Section 13 is a statute of repose making equitable tolling under American Pipe inapplicable. In re Lehman Brothers Sec. and ERISA Litig., 655 Fed. Appx. 13, 15 (2016). In so holding, the court followed its earlier decision in Police & Fire Retirement Sys. of Detroit v. IndyMac MBS, Inc., in which it observed that tolling under American Pipe (which is grounded in a court’s equitable powers) is inconsistent with a statute of repose. See also Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 363 (1991) (“[T]he equitable tolling doctrine is fundamentally inconsistent with” the statute of repose governing claims under the Securities Act).

Alternatively, the Second Circuit found that even if American Pipe tolling were appropriate under Rule 23 of the Federal Rules of Civil Procedure, using a procedural rule to toll a statute of repose would “necessarily enlarge or modify a substantive right and violate the Rules Enabling Act.” See IndyMac, 721 F.3d at 109; see also 28 U.S.C. § 2072(b) (The Federal Rules of Civil Procedure “shall not abridge, enlarge or modify any substantive right.”).

Finally, the court rejected CalPERS’s argument that its individual claims were “essentially ‘filed’ in the putative class complaint,” so that the filing of the class action within three years made the individual claims timely. 655 Fed. Appx. at 15.

CalPERS petitioned the Supreme Court for a writ of certiorari (here), highlighting the split between the Second, Sixth, and Eleventh Circuits – which held that American Pipe tolling did not apply to statutes of repose under the federal securities laws – and the Tenth Circuit, which held that American Pipe could be used to toll the statute of repose under Section 13 of the Securities Act.

On January 13, 2017, the Supreme Court granted the petition.

The Supreme Court Ruling: A Statute of Repose Cannot Be Tolled Under American Pipe

In an opinion written by Justice Kennedy, the Court affirmed the Second Circuit’s ruling and found CalPERS’s opt-out action to be untimely.

As an initial matter, the Court examined the purposes of statutes of limitations and statutes of repose, noting that although both mechanisms impose time limits on liability, they have very different purposes. According to the Court, statutes of limitations “encourage plaintiffs to pursue diligent prosecution of known claims,” whereas statutes of repose “give more explicit and certain protection to defendants” by providing a “complete defense to any suit” that is not filed within a “legislatively determined period of time” after the “last culpable act or omission of the defendant.” (Citations and internal quotation marks omitted.)

With these purposes in mind, the Court turned to the Securities Act, and concluded that Section 13 of the ’33 Act is a “statute of repose”. In doing so, the Court reaffirmed its finding in Lampf that Section 13 “establish[es] a period of repose, which impose[s] an outside limit on temporal liability.” Lampf, 501 U. S. at 363 (internal quotation marks omitted). This finding, said Justice Kennedy, was supported by both the language and the structure of Section 13.  As to the former, the Court said:

The statute provides in clear terms that “[i]n no event” shall an action be brought more than three years after the securities offering on which it is based. 15 U. S. C. §77m. This instruction admits of no exception and on its face creates a fixed bar against future liability. The statute,  furthermore, runs from the defendant’s last culpable act (the offering of the securities), not from the accrual of the claim (the plaintiff ’s discovery of the defect in the registration statement). Under CTS [Corp. v. Waldburger, 573 U. S. ___ (2014)], this point is close to a dispositive indication that the statute is one of repose. [Emphasis added.]

Citations omitted.

As to the latter, the Court noted that:

This view [i.e., that Section 13 is a statute of repose] 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 …. 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.

Citations omitted.

Second, the Court addressed the issue of tolling, noting that tolling a repose period is appropriate only when provided by legislative enactment, such as where the statute itself contains an express exception. Equitable tolling, said the Court, is not such an example because it “derive[s] from the traditional power of the courts to apply the principles . . . of equity jurisprudence.” (Citation and internal quotation marks omitted.)  Thus, “[t]he unqualified nature of [the legislative] determination [that “there should be a specific time beyond which a defendant should no longer be subjected to protracted liability”] supersedes the courts’ residual authority and forecloses the extension of the statutory period based on equitable principles.”

Third, the Court resolved the question whether tolling under American Pipe is legal or equitable, holding 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.” Indeed, said Justice Kennedy, there is nothing in American Pipe to “suggest[] that the tolling rule … was mandated by the text of a statute or federal rule.” Because American Pipe was “based on traditional equitable powers, designed to modify a statutory time bar where its rigid application would create injustice,” and because statutes of repose “supersede[] the application of a tolling rule based in equity,” the three-year repose period in Section 13 could not be tolled.

Finally, the Court addressed each of CalPERS’s counter arguments.

First, the Court rejected CalPERS’s argument that its case was indistinguishable from American Pipe on the ground that the time bar at issue in American Pipe was a statute of limitations, not a statute of repose.

Second, the Court disagreed with CalPERS’s argument that putting a defendant on “notice as to the content of the claims against it and the set of potential plaintiffs who might assert those claims” satisfied the purpose of a statute of repose. According to the Court, notice is relevant to a statute of limitations, it is not important to a statute of repose. If CalPERS were correct, then defendants may have to defend against multiple opt-out actions after the statute of repose has run, thereby increasing their “practical burdens” and financial liability. Such uncertainty, wrote Justice Kennedy, “can put defendants at added risk in conducting business going forward, causing destabilization in markets which react with sensitivity to these matters.”

Third, the Court rejected CalPERS’s argument that “dismissal of its individual suit as untimely would eviscerate its ability to opt out,” holding that “any privilege to opt out” does not override the “mandatory time limits set by statute.”

Finally, the Court found no merit in CalPERS’s claim that declining to apply American Pipe tolling will create inefficiencies because absent class members will inundate district courts with protective filings. The Court found that CalPERS’s claim was likely “overstated” because there has been no such influx of protective filings in the Second Circuit, where IndyMac has been in effect since 2013.

The Court rejected CalPERS’s alternative argument that did not depend on tolling, namely that the filing of a timely class-action complaint “brought” an individual “action” for all putative class members within the three-year statute of repose. The Court construed the word “action” in Section 13 to refer to a judicial proceeding or lawsuit, not to the “general content of claims,” noting the “implausibility” of CalPERS’s alternative construction:

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.

Citations omitted.

The Court further reasoned that CalPERS’s alternative argument was “inconsistent with the reasoning in American Pipe itself,” because that decision was based on promoting equity. In American Pipe, any individual filings post denial of class certification still had to be timely filed. “If the filing of a class action made all subsequent actions by putative class members timely,” as CalPERS argued, “there would be no need for tolling at all.”

The Dissenting Opinion

Justice Ginsburg, joined by Justices Breyer, Sotomayor, and Kagan, dissented from the Court’s opinion.

Justice Ginsburg agreed with CalPERS that when the fund decided to opt out of the class action to pursue its claims individually, the underwriters were on notice of those claims since they were already alleged in the class complaint. (“Respondents … received what §13’s repose period was designed to afford them: notice of their potential liability within a fixed time window.”)  Thus, CalPERS “simply took control of the piece of the action that had always belonged to it.”

Moreover, Justice Ginsburg agreed with CalPERS’s construction of the word “action” in Section 13, stating that under American Pipe the filing of the class action complaint “commence[d] the action for all members of the class.” (Citation omitted.) Therefore, when CalPERS opted out of the class action, its “claim remained timely.”

Further, Justice Ginsburg disagreed with the majority that the purpose of a statute of repose would be thwarted by allowing CalPERS’s action to go forward:

CalPERS’ statement of the same allegations in an individual complaint could not disturb anyone’s repose, for respondents could hardly be at rest once notified of the potential claimants and the precise false or misleading statements alleged to infect the registration statements at issue. CalPERS’ decision to opt out did change two things: (1) CalPERS positioned itself to exercise its constitutional right to go it alone, cutting loose from a monetary settlement it deemed insufficient; and (2) respondents had to deal with CalPERS and its attorneys in addition to the named plaintiff and class counsel. Although those changes may affect how litigation subsequently plays out … they do not implicate the concerns that prompted §13’s repose period: The class complaint disclosed the same information respondents would have received had each class member instead filed an individual complaint on the day the class complaint was filed.

Footnote omitted.

Finally, Justice Ginsburg observed that the decision “disserves the investing public that § 11 was designed to protect,” who, unlike CalPERS, are often unsophisticated and do not have the wherewithal to file protective actions within the repose period. As such, “those members stand to forfeit their constitutionally shielded right to opt out of the class and thereby control the prosecution of their own claims for damages.”

Justice Ginsburg also warned that the majority’s decision will incentivize defendants to “slow walk discovery and other precertification proceedings so the clock will run on potential opt outs.” Justice Ginsburg noted that such maneuvers would likely increase the costs of the litigation because every “class member with a material stake in a §11 case, including every fiduciary who must safeguard investor assets [such as CalPERS], will have strong cause to file a protective claim, in a separate complaint or in a motion to intervene, before the three-year period expires.”

In closing, Justice Ginsburg cautioned that “[a]s the repose period nears expiration, it should be incumbent on class counsel, guided by district courts, to notify class members about the consequences of failing to file a timely protective claim.” “At minimum,” said Justice Ginsburg, “when notice goes out to a class beyond [§13’s limitations period], a district court will need to assess whether the notice [should] alert class members that opting out . . . would end [their] chance for recovery.” (Citation omitted.)


The Court’s decision in ANZ Securities is likely to impact federal securities litigation in several ways. First, institutional investors will no longer be able to “wait and see” whether to opt out of Securities Act class actions – that is, wait to see if there is a settlement that adequately recompenses the fund and its beneficiaries. Under ANZ Securities, the decision will have to be made within the repose period, which often occurs before there is any discovery or settlement.

Second, the majority’s reasoning should apply to the five-year statute of repose found in the Exchange Act. See Merck & Co., Inc. v. Reynolds, 559 U.S. 633, 650 (2010) (relied on by Justice Kennedy; the case analyzed the five-year statute of repose under the Exchange Act). Like the statutory structure of Section 13, the language and structure of the Exchange Act is similar. See 28 U.S.C. § 1658(b) (A private right of action alleging fraud under the Exchange Act “may be brought not later than the earlier of (1) 2 years after the discovery of the facts constituting the violation; or (2) 5 years after such violation.”).

Since IndyMac, the Second Circuit has extended its holding to claims under the Exchange Act. See, e.g., SRM Global Master Fund Ltd. P’ship v. Bear Stearns Cos. L.L.C., 829 F.3d 173, 177 (2d Cir 2016), cert. denied, No. 16-372 (U.S. June 27, 2017) (extending IndyMac’s holding to Section 10(b) of the Exchange Act); DeKalb Cty. Pension Fund v.  Transocean Ltd., 817 F.3d 393, 413-14 (2d Cir. 2016), cert. denied, No. 16-206 (U.S. June 27, 2017) (extending IndyMac’s holding to Section 14(a) of the Exchange Act). Notably, the Court declined to consider the foregoing cases (here and here) on the same day it decided ANZ Securities.

Third, the Court’s ruling makes it clear that the filing of a class action complaint does not commence an individual action for members of the class; that a plaintiff’s right to opt out does not supersede the time limitation in a statute of repose; and that a defendant’s statutory right to repose is absolute – that is, it is immune to equitable tolling.

The Court’s decision in ANZ Securities is likely to impact other types of litigation as well. As noted, the Court not only concluded that repose periods cannot be equitably tolled, but it did so by providing a framework for the lower courts to evaluate whether a limitations provision is properly considered to be a statute of repose.

This Blog will continue to follow lower court rulings applying ANZ Securities to see whether the courts outside the Second Circuit will apply the decision to Exchange Act cases and other non-securities actions and whether the concerns articulated by Justice Ginsberg come to fruition.

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