June 26, 2017
On June 26, 2017, the Supreme Court of the United States held in CalPERS v. ANZ Securities, Inc., that the filing of a putative class action does not toll the statute of repose in the Securities Act of 1933. Gibson Dunn filed an amicus curiae brief in the case on behalf of the Securities Industry and Financial Markets Association and The Clearing House Association, L.L.C., urging the outcome reached by the Court.
Section 11 of the Securities Act of 1933 provides a private right of action for misstatements and omissions in registration statements and certain other filings. Section 13 of the Act includes a two-part provision governing the deadline for bringing such suits: they must be filed "within one year after the discovery of the untrue statement or omission," but "[i]n no event … more than three years after the security was bona fide offered to the public." The Securities Exchange Act of 1934 has a similar structure for private suits, requiring that they be filed within two years of "the discovery of the facts constituting the violation," subject to an outer limit of five years. See 28 U.S.C. § 1658.
Under American Pipe & Construction Company v. Utah, 414 U.S. 538 (1974), the filing of a putative class action generally tolls the statute of limitations applicable to the claims of would-be class members until class certification is decided. If certification is denied, former members of the proposed class have the remaining limitations period within which to file individual suits or motions to intervene in a pending suit. Crown, Cork & Seal Co. v. Parker, 462 U.S. 345 (1983).
In CalPERS, a putative class action was filed within both the one-year and three-year limits, but the individual plaintiff opted out and filed suit more than three years after the securities were issued. The district court dismissed the complaint as untimely and the Second Circuit affirmed, following a previous ruling that because the outside limit in Section 13 is a statute of repose, not a statute of limitations, it is not subject to equitable tolling under American Pipe. See Police & Fire Ret. Sys. of the City of Detroit v. IndyMac MBS, Inc., 721 F.3d 95 (2d Cir. 2013), cert. dismissed, 135 S. Ct. 42 (2014). Gibson Dunn represented the defendants in IndyMac.
In an opinion by Justice Kennedy, joined by Chief Justice Roberts and Justices Thomas, Alito, and Gorsuch, the Supreme Court affirmed the dismissal of the CalPERS complaint as untimely. The Court confirmed that the three-year deadline in Section 13 of the Securities Act is a statute of repose (thus not subject to equitable tolling) and that American Pipe tolling is equitable. Hence, the Court concluded, the Securities Act statute of repose cannot be tolled under American Pipe.
At the outset, the Court explained that statutes of limitations and statutes of repose are different. The former run from accrual, or "when the plaintiff can file suit and obtain relief," while the latter run from "the date of the last culpable act or omission." Slip op. at 5 (quotations omitted). Crucially, "statutes of repose are not subject to equitable tolling" by the courts because they implement an "unqualified" legislative decision to set a "specific time beyond which a defendant should no longer be subjected to protracted liability." Id. at 8 (quotation omitted). Statutes of limitation, in contrast, can be equitably tolled.
Next, the Court examined the history and structure of the Securities Act’s timely filing provision to determine that the one-year limit is a statute of limitations while the three-year limit is a statute of repose. Slip op. at 4-7. Congress commonly employs both approaches in a statute, "giving leeway to a plaintiff who has not yet learned of a violation," while "protect[ing] the defendant from an interminable threat of liability." Id. at 6. The three-year limit in the Securities Act, the Court explained, is the outer bound of private liability.
The Court then reiterated that American Pipe tolling is "rooted in" courts’ "equitable powers," rather than stemming from "the text of a statute or a federal rule," such as Federal Rule of Civil Procedure 23. Slip op. at 10, 17. Accordingly, American Pipe tolling cannot override a Congressional determination to impose an absolute outer limit on liability. To the contrary, "the object of a statute of repose, to grant complete peace to defendants, supersedes the application of a tolling rule based in equity." Id. at 11.
Justice Ginsburg dissented, joined by Justices Breyer, Sotomayor, and Kagan. She argued that the purpose of a statute of repose was compatible with American Pipe tolling because a timely class action filing provides adequate notice to defendants "within the repose period, of their potential liability to all putative class members." Dissent at 2. She also warned that the decision would penalize unsophisticated individual class members, in addition to burdening the courts with protective filings by "[a]ny class member with a material stake" in the case. Id. at 4.
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The Supreme Court’s decision in CalPERS is significant on a number of points. First, it confirms the primacy of legislative, rather than judicial, determinations regarding the timeliness of suit. Second, it balances plaintiffs’ interests in pursuing claims with defendants’ interests in certainty and repose. Third, it clarifies the nature of American Pipe tolling and declines to expand that doctrine beyond its existing boundaries. CalPERS thus should bring helpful stability, predictability, and finality to litigation in the securities arena and beyond, to the benefit of courts and litigants alike.
Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, or the authors of this alert:
Mark A. Perry – Washington, D.C. (+1 202-887-3667, [email protected])
David A. Schnitzer – Washington, D.C. (+1 202-887-3775, [email protected])
Please also feel free to contact any of the following practice group leaders:
Appellate and Constitutional Law Group:
Mark A. Perry – Washington, D.C. (+1 202-887-3667, [email protected])
James C. Ho – Dallas (+1 214-698-3264, [email protected])
Caitlin J. Halligan – New York (+1 212-351-4000, [email protected])
Class Actions Group:
Christopher Chorba – Los Angeles (+1 213-229-7396, [email protected])
Theane Evangelis – Los Angeles (+1 213-229-7726, [email protected])
Securities Litigation Group:
Meryl L. Young – Orange County (+1 949-451-4229, [email protected])
Robert F. Serio – New York (+1 212-351-3917, [email protected])
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