For more than 40 years, you could wait (and wait and wait) to decide whether or not to opt out of a class action in order to pursue your own individual case. You didn’t have to squawk until (1) you got formal notice of your right to remove yourself from the class and (b) you failed to timely respond by saying “I opt out. Leave me alone. I would rather do it myself! More money for me!!”
But the thing that gave you leisure — American Pipe tolling — went partially poof last week. The Supreme Court ruled 5-4 (with Gorsuch in the role of Scalia) that tolling may apply to a statute of “limitations” but doesn’t stop the tick-tock under a statute of “repose”. California Public Employees’ Retirement Sys. v. ANZ Securities, Inc., No. 16-373 (U.S. June 26, 2017).
Wake up, people! You may need to move fast.
Securities Act of 1933
The case arose from claims against firms that underwrote public offerings of securities in Lehman Brothers. Lehman, you’ll recall, spectacularly crashed and burned in the 2008-09 financial crisis.
Section 11 of the Securities Act of 1933, a New Deal-era law that aimed to inject honesty into raising money in public markets, gave buyers a cause of action against issuers, underwriters, and others for losses resulting from misstatements and omissions. With liability nearly absolute and a full refund the main remedy, section 11 casts a fearsome shadow over Wall Street.
But section 13 of the Act puts investors who choose to sue on the clock — two clocks, in fact. It provides:
No action shall be maintained to enforce any liability created under [§11] unless brought within one year after the discovery of the untrue statement or the omission, or after such discovery should have been made by the exercise of reasonable diligence . . . . In no event shall any such action be brought to enforce a liability created under [§11] more than three years after the security was bona fide offered to the public . . . .
15 U. S. C. § 77m.
The first sentence creates a one-year statute of limitations, but the second one establishes a three-year statute of repose.
The difference matters because of the tolling doctrine the Court conjured in an antitrust case, American Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974). The Court there held that the filing of a class action complaint stops the clock on limitations.
The ruling preserves the ability of claimants who fall within the complaint’s class definition to file their own individual actions even after the limitations period has expired.
The courts below in ANZ Securities ruled that tolling doesn’t apply to the three-year repose period in setion 13 of the Securities Act. Agreeing with them, Justice Kennedy explains for the majority:
Tolling may be of great value to allow injured persons to recover for injuries that, through no fault of their own, they did not discover because the injury or the perpetrator was not evident until the limitations period otherwise would have expired. This is of obvious utility in the securities market, where complex transactions and events can be obscure and difficult for a market participant to analyze or apprehend. In a similar way, tolling as allowed in American Pipe may protect plaintiffs who anticipated their interests would be protected by a class action but later learned that a class suit could not be maintained for reasons outside their control.
The purpose of a statute of repose, on the other hand, is to allow more certainty and reliability. These ends, too, are a necessity in a marketplace where stability and reliance are essential components of valuation and expectation for financial actors. The statute in this case reconciles these different ends by its two-tier structure: a conventional statute of limitations in the first clause and a statute of repose in the second.
The statute of repose transforms the analysis. In a hypothetical case with a different statutory scheme, consisting of a single limitations period without an additional outer limit, a court’s equitable power under American Pipe in many cases would authorize the relief petitioner seeks. Here, however, the Court need not consider how equitable considerations should be formulated or balanced, for the mandate of the statute of repose takes the case outside the bounds of the American Pipe rule.
ANZ Securities, slip op. at 16. Justices Breyer, Ginsburg, Kogan, and Sotomayor dissented, in an opinion that Justice Ginsburg wrote.
The Court’s decision confirms that class members whose claims face a statute of repose may not rely on class-action tolling under American Pipe to protect them from a repose defense. They must file their own individual action, if at all, within the repose period.
The need to recognize the new reality has particular urgency for pension and mutual funds and other large or frequent buyers of securities in initial offerings. On an ongoing basis, they should focus on whether or not they will wish to pursue claims outside of a class action. Class members who opt out can receive “outsized recoveries” (per Justice Kennedy) over what they would get if they stayed in a class action. ANZ Securities, slip op. at 12.
Because in the new regime they will have less information as well as less time to evaluate their options, they should consider engaging counsel able to pursue opt-out claims to assist them in the process.