Last Call for Securities Class Actions

The Supreme Court made clear this past Monday that there’s no room for hesitation in pursuing claims for securities law violations.

In a 5-4 decision, the Court held in California Public Retirement System v. ANZ Securities (CalPERs) that the three year deadline for filing claims under Section 11 of the Securities Act of 1933 is a statute of repose—not a statute of limitations—and therefore cannot be tolled by equitable doctrines. Thus, any Section 11 claim for material misstatements or omissions must be brought within three years from the time of the securities offering.

CalPERs involved the difference between two deadlines for filing Section 11 claims: A one-year deadline from the time that an “untrue statement” is discovered, and a three year deadline from the time that the statement was actually made. In 1974, the Supreme Court held in American Pipe & Construction v. Utah that a class complaint could count as a claim by individuals within the class, “tolling” the statute of limitations to allow later complaints by these individuals to be timely. The issue in CalPERs was whether “American Pipe tolling” applied not only to Section 11’s one-year limitations period, but also to the statute’s three-year outside limit for filing claims.

For the majority of the Court, the answer to the question presented was clearly “no.” In the Court’s view, the relevant statute, on its face, “admits of no exception” and creates a “fixed bar against future liability.” It would be contrary to the plain language of the statute to allow any sort of tolling. It would also be contrary to the purpose of a statute of repose, which is designed to afford certainty to potential defendants as to when claims may be brought against them.

The dissent in CalPERs predicts that the decision will “gum up the works of class litigation” while creating extra burdens that will fall primarily on the least sophisticated investors. It will be interesting to see what impact, if any, the decision has on the pacing of class litigation. There will almost certainly be a push for earlier class certification. The ruling should therefore curb the practice of potential class action opt outs sitting on the sidelines of a class action to wait and see how things shake out before deciding whether to pursue an individual action. More sophisticated investor litigants like CalPERs, who more frequently exercise opt out rights, will no longer have the luxury of time. The ruling also provides certainty for industry participants, like underwriters and issuers, over the outside date on which claims under the securities laws can be made.

CalPERs is the latest in a series of Supreme Court decisions declining to relax time limitations for brining securities law claims. Just two weeks ago, the Supreme Court held in Kokesh v. SEC that SEC enforcement actions seeking disgorgement must be filed within five years of the violation.  And a few years back, the Supreme Court rejected an argument advanced by the SEC that the five-year limitations period for violations of the Investment Advisers Act should be subject to a “discovery rule,” holding instead that the five-year limit applies regardless of when the SEC discovers a fraud. This growing trend makes clear that plaintiffs with potential securities law claims—including the SEC—must keep their eye on the ball. If they don’t, they risk missing hard deadlines and the total loss of potential claims.

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The post was written with assistance from D. Garrison Golubock, a Summer Associate in Allen & Overy’s New York office.