Statutes of Repose Are Not Tolled By a Pending Class Action
The Supreme Court’s assault on Rule 23 continues unabated. This time, in California Public Employees’ Retirement System v. ANZ Securities, Inc.,
137 S. Ct. 2042 (2017), the Court weakened a litigant’s constitutional right to opt out of a class settlement. As discussed below, that decision requires absent class members and class counsel to rethink old strategies.
The issue in CALPERS was straightforward: Does the filing of a class action complaint toll the statute of repose? The facts were simple. A class action was timely filed alleging violations of the Securities Act of 1933. CALPERS was not a named plaintiff but was a member of the putative class. The 1933 Act contains a limitations provision. Any action to enforce liability under section 11 of that statute must be brought within one year of discovery of the untrue statements or omissions giving rise to the claim, but in no event more than three years after the security was offered to the public. CALPERS decided to opt out of the class action and go it alone. That opt out and the filing of its individual case occurred more than three years from the securities offering. Defendants moved to dismiss the individual case as time-barred. Defendants prevailed.
Central to understanding why CALPERS elected to opt out and proceed alone, after the statute would ordinarily have run, is to briefly discuss the seminal 1974 case, American Pipe & Constr. Co. v. Utah,
414 U.S. 538 (1974), where the Supreme Court held that the filing of a class action tolls the statute of limitations for subsequently filed actions. The American Pipe
holding is commonly referred to as “equitable tolling.” In American Pipe
, a timely class action was filed alleging violations of federal securities laws. The trial court denied class certification and persons who would have been part of a certified class then filed motions to intervene as individual plaintiffs. These motions were made outside of the applicable statute of limitations period. The Supreme Court, in bygone days, applied equitable principles and permitted intervention so that plaintiffs’ suits could proceed.
Although the CALPERS
Court recognized its equitable tolling decision “reveals a rule based on traditional equitable powers, designed to modify a statutory time bar where its rigid application would create injustice,” that doctrine was not extended to statutes of repose. In a 5-4 decision, the majority opinion, penned by Justice Kennedy, drew a critical distinction between statutes of limitations and statutes of repose. The latter, the majority stated, are statutes designed to protect defendants against future liability, while the former are designed to encourage the diligent prosecution of suits. Statutes of repose are legislative determinations preventing courts from tolling strict limitations periods by the application of equitable principles. The Court stated that “[t]he unqualified nature of that determination (legislative intent to provide repose) supersedes the courts’ residual authority and forecloses the extension of the statutory period based on equitable principles.”
Justice Ginsburg authored the dissent, noting that the filing of a class action gives defendants what the repose period was designed to provide: notice of potential liability within the prescribed time period. Importantly, her dissent underscored that the constitutionally protected opt out right embodied in Rule 23 has been undermined. What is the value of an opt out right if the repose period has elapsed?
case has important consequences. If a case is not certified or settled before the statute of repose expires, a putative class member will not be able to file an individual action. This outcome must cause putative class members to rethink an old strategy of standing on the sidelines as the class action is litigated. Now, putative class members must be proactive. They should consider intervening or filing a protective individual action. Finally, query whether class counsel has an obligation to provide notice to the putative class as the repose period approaches.
It seems to this author that this rigid application will give rise to injustice, something American Pipe
sought to avoid.