WASHINGTON (CN) – The U.S. Supreme Court agreed Friday to clarify whether its precedent on delaying the start of the statute of limitations in class actions has an application in the securities setting.
Referred to generally as “American Pipe tolling,” the practice takes its name from the Supreme Court’s decision on the 1974 decision American Pipe & Construction Co. v. Utah.
CalPERS, short for the California Public Employees’ Retirement System, contends that the precedent should be considered in determining whether a case it filed in New York is barred by the three‐year statute of repose contained in section 13 of the Securities Act of 1933.
ANZ Securities is the lead defendant named in the CalPERS case, which is part of sprawling litigation over the bankruptcy of Lehman Brothers.
After U.S. District Judge Lewis Kaplan dismissed CalPERS’ case, the Second Circuit affirmed on July 8, 2016, holding firm to its position that American Pipe tolling does not affect the statute of repose embodied in section 13.
In its 6-page opinion, the federal appeals court said it saw no reason to distinguish CalPERS’ case from its 2013 ruling Police & Fire Ret. Sys. of City of Detroit v. IndyMac MBS Inc.
“Under IndyMac’s reasoning, the inapplicability of American Pipe tolling to a statute of repose turns on the nature of the tolling rule and its ineffectiveness against statutes of repose, not whether the named plaintiffs have proper standing to assert claims on behalf of a class,” the decision says.
The ruling also rejects CalPERS’ argument that “its claims were essentially ‘filed’ against the defendant within three years and therefore timely” because it fell within the putative class before exercising its right to opt out.
“The very principle of tolling is to permit claims not timely asserted to proceed if the requirements for suspending the limitations period are met,” the ruling continues.
As to the issue of due process, the court noted that such protections “are directed at preventing a putative class member from being bound by a judgment without her consent.”
“In essence, the opt‐ out right merely ensures that each putative class member retains the ability to act independently of the class action if she so elects,” the judges added. “The opt‐out right does not confer extra benefits to a plaintiff’s independent action. CalPERS’s right to initiate and pursue an individual action before, during, and after the putative class action was unchanged — including the necessity of instituting such an action within section 13’s three‐year statute of repose.”
Given that IndyMac created a circuit split with the 10th Circuit, the panel noted that the Supreme Court might want to weigh in.
“Indeed, the court initially granted certiorari to review IndyMac itself, but dismissed the writ as improvidently granted two weeks after a motion for settlement approval was filed in the district court.”
That prediction proved prescient Friday, when the high court took up the case among a batch of 16 cases. Per their custom, the justices did not issue any comment with the grant of certiorari.
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