On 26 June 2017, in California Public Employees' Retirement System v. ANZ Securities, Inc., the US Supreme Court resolved a dispute between the federal appellate courts over whether the filing of a class action tolls (or suspends) the three-year period for bringing claims under the Securities Act. In 1974, the Supreme Court ruled in American Pipe & Construction Co. v. Utah, that the filing of a class action tolls the running of the statute of limitations for all members of the proposed class during the pendency of the case. That case did not address whether that same principle applies to the separate three-year period under the Securities Act that courts refer to as a statute of repose. As we have pointed out in prior editions of this newsletter, the federal courts of appeals around the country have been divided over whether American Pipe's tolling doctrine applies to the Securities Act's three-year time bar. The Court here determined in a five-to-four decision that the American Pipe tolling doctrine does not apply to the Securities Act's three-year statute of repose.

This case dealt with claims brought by the California Public Employees' Retirement System ("CalPERS"), the country's largest public pension fund, under the Securities Act arising out of securities offerings by Lehman Brothers in 2007 and 2008. CalPERS was initially part of a class action bringing these claims. CalPERS later chose to opt out (or exclude itself) from the class action and filed the same claims in a separate action. Although the class action was timely filed, by the time CalPERS filed its own individual action, the Supreme Court ruled, the Securities Act's three-year bar had passed.

The Securities Act provides two time limitations. First, a one-year statute of limitations that begins to run when the plaintiff discovers (or should have discovered) the untrue statement or omission at issue. Second, the statute provides that "in no event shall an action" be brought "more than three years after the security" was offered to the public. The Court determined that the Securities Act's three-year time bar is a statute of repose because it "reflects the legislative objective to give a defendant a complete defense to any suit after a certain period". Because the three-year repose period is intended "to grant complete peace to defendants", the Court reasoned, it is not subject to the equitable tolling that American Pipe applied to the statute of limitations while a class action is pending. The Court recognised a tension between allowing tolling to protect the ability of plaintiffs to file suit, and providing the "certainty and reliability" to defendants of a statute of repose. The statute's "two-tier structure" addresses this tension, according to the Court, by providing a one-year statute of limitations that does not start to run until discovery of the defendant's violation and is subject to equitable tolling, and a three-year repose period that starts to run "from the defendant's last culpable act" and "protects the defendant from an interminable threat of liability". Plaintiffs who are concerned about losing their ability to bring individual claims while a class action is pending, the Court noted, might be able to preserve their claims by filing "[a] simple motion to intervene or request[ing] to be included as a named plaintiff in the class action".

Four justices dissented from the Court's majority opinion. These justices concluded that when a plaintiff excludes itself from a class action and files separate claims, those claims should be considered a "continuation" of the class action for as long as the class action is still pending. The dissenting justices were concerned that under the majority's ruling, plaintiffs would be deprived of their constitutional right to opt out of class actions once the repose period passes. Other potential consequences of the Court's decision that the dissenters raised are that class members with a significant stake in the litigation will now have a strong reason to file separate claims to protect their rights, thus "increasing the costs and complexity of the litigation". In addition, defendants will now "have an incentive to slow walk" the litigation process "so the clock will run on potential opt outs". Time will tell whether these concerns prove valid. On the other hand, the Court's decision provides defendants with the comfort that additional suits by individual defendants after the Securities Act's statute of repose has elapsed should not be allowed.

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