On June 26, 2017, in CalPERS v. ANZ Securities, Inc., 137 S. Ct. 2042 (2017), a sharply divided US Supreme Court held that the three-year period in which to bring claims under the Securities Act of 1933 is not ‘tolled’ (paused) by the filing of a class action.
The Supreme Court reasoned the three-year time limit is a so-called ‘statute of repose’ and therefore is not subject to the equitable tolling doctrine (established in the Supreme Court’s 1974 decision in American Pipe & Construction Company v. Utah), which applies only to statutes of limitation.
Statutes of limitations are rules that set forth how much time plaintiffs have to bring a claim in court before the claim becomes too old and expires. The running of the limitations period may be paused (or ‘tolled’) for various reasons: for example, when a plaintiff did not bring suit yet but other plaintiffs who purport to represent an entire class of similarly situated plaintiffs did.
Class actions in the US require the court to decide, in a process called ‘class certification’, whether a mass claim is permitted to proceed as a class action, and to sign off on the definition of which plaintiffs fall within the class. If class certification is denied, or if a class was initially certified but later de-certified, or if the definition of the class is narrower than initially pleaded, plaintiffs who expected to be members of the class (and their claims to be included in the class action) but were not, may find themselves having to initiate their own legal action to preserve their claims for recovery.
By the time the court issues its class certification decision, however, it may be too late to do so, as their claims may have expired. The only way for a plaintiff to ensure against potential exclusion from the class after the limitations period has run and the claims become time-barred is for each plaintiff to file a protective lawsuit on its own behalf, just in case they later fall outside the class.
In the groundbreaking American Pipe decision, the Supreme Court held that the purpose of class actions is to prevent such mass filing of individual claims, and that the class certification process shall have the effect of equitably tolling the applicable limitations period. The American Pipe rule therefore prevents putative class members from having to file protective actions just to preserve their claim in the event of a negative certification decision (which may never materialise).
Right to sue?
In CalPERS v. ANZ, the Supreme Court has now held the rule has no application to statutes of repose. Those are also rules that set maximum time-frames but they do not merely deprive a plaintiff of its right to sue, as statutes of limitations do, but have the effect of terminating the right to compensation itself.
This decision has important implications for Grant & Eisenhofer’s clients (and anyone) who must determine whether or not to file Securities Act claims or to opt out of a class action. In the past, class members may have decided to wait until the resolution of the case to determine whether or not to opt out. Now, in order to preserve their option to later opt out, class members may be forced to file protective actions earlier in the case in order to avoid their claims being barred by the Securities Act’s three-year statute of repose.
The Supreme Court’s decision likely impacts other statutes of repose, including the five-year time limit for liability actions in the Securities Exchange Act of 1934. Accordingly, when the statutes of repose under the Securities or Exchange Acts may be implicated, Grant & Eisenhofer counsels its clients about the need to file a protective action to preserve securities claims.
The Supreme Court’s decision may also impel class counsel to take a more active role in protecting class members’ opt-out rights. Indeed, prior to the Supreme Court’s ruling in CalPERS v. ANZ, approximately 500 institutional investors in the Petrobras class action in the Second Circuit filed individual actions there alongside a class action (while a Rule 23(f) appeal against the class certification decision was pending) in order to preserve their rights to later litigate their Securities Act and Exchange Act claims.
Moreover, as Justice Ginsburg explained in her dissenting opinion (joined by Justices Breyer, Sotomayor and Kagan), it may be “incumbent on class counsel, guided by district courts, to notify class members about the consequences of failing to file a protective claim”.
In short, the ruling in CalPERS v. ANZ requires class members to file their own complaints or motions to intervene before the applicable Securities Act or Exchange Act statute of repose lapses, in order to preserve their claims. Defendants in these securities class actions may have an incentive to delay discovery and other pre-certification proceedings so that the clock will run out on potential opt-outs.
Accordingly, in its case evaluations, whether considering new actions or advising clients on whether to opt out of an existing class action, Grant & Eisenhofer carefully considers the applicable statutes of limitation and statutes of repose in order to protect its clients’ rights and preserve their options.
Column sponsored and supplied by Grant & Eisenhofer Law
Grant and Eisenhofer