If you have a claim under the Securities Act of 1933, you need to act promptly — within one year after you knew or should have known you had a claim and within three years "after the security was bona fide offered to the public" or "more than three years after the sale of the security." 15 U.S.C. § 77m.
Note the "and". Even if you could not have learned that you had a basis for a claim within the three-year period, if you sue after the three years expire, you lose. And if you reasonably could have discovered the claim within the three years but wait more than a year to file suit, you lose as well.
But the Supreme Court carved out an exception to the running of limitations under federal law if someone else filed a class action that covered your claim. So long as the class claim remained pending, the Court held, the limitations period went dormant for you. It stopped running.
That gave you time to decide what to do. If a court granted class treatment of the case, you could either remain a member of the class or "opt out" of it and pursue your own claim, either individually or with a group of others. If the court denied class certification, you would have to file your own case if you wanted to pursue a recovery.
The doctrine for class action "tolling" goes under the name "American Pipe", after the case that created the concept. Am. Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974). But Am. Pipe and its offspring left open a question, at least in the context of claims under the Securities Act. Does it apply both to the one-year period and the three-year one?
The Second Circuit held this week that American Pipe tolling exists only with respect to the shorter time frame. The panel based its ruling on the distinction between a "limitations" period — which it deemed "procedural" — and a "repose" period — which it called "substantive". Congress enacted the three-year cut-off as a substantive deadline of "repose", thus making class members who sue within the one-year limitations period but beyond the repose due date unable to invoke American Pipe tolling. Police & Fire Retirement Sys. of the City of Detroit v. IndyMac MBS, Inc., No. 11-2998-cv(L) (2d Cir. June 27, 2013).
What does that mean to you, assuming you have a Securities Act claim? It means that you cannot count on a class action to extend your time for filing a claim. If you think you may want to opt out, you need to put the three-year deadline on your calendar and take action before the period expires.
Will the Second Circuit's ruling open the floodgates to opt-outs in Securities Act cases? It may in the context of people that have large claims. They will need to accelerate their decision-making on whether to opt out of a class case or stay in it. Because if they wait, they'll lose the flexibility they thought they had — before now.