On The Case

Business as usual: SCOTUS upholds strict time limit for securities class actions

(Reuters) - For a moment during U.S. Supreme Court oral arguments last April in California Employees’ Retirement System v. ANZ Securities, it looked as though something remarkable was happening: Chief Justice John Roberts seemed to be on the verge of siding with plaintiffs in a case heavily lobbied by business groups.

The CalPERS case, as you probably recall, presented the question of whether the filing of a securities class action stops the clock on the three-year statute of repose for claims under the Securities Act. CalPERS contended (among other arguments) that once a company becomes a class action defendant, it’s on notice of its potential liability to every investor. So, according to CalPERS, defendants’ right of repose – the right to be free of unannounced exposure after a certain amount of time - is not violated when individual plaintiffs bring their own suits, even if those suits are filed more than three years after the supposed securities violation.

In oral arguments, the chief justice agreed that for defendants, repose means freedom from surprises. He also said it wasn’t clear to him that opt-outs from a securities class action would expose defendants to new liability. Those comments were sufficiently ambiguous to lead me to theorize that Chief Justice Roberts might turn out to be an unlikely plaintiffs’ savior in a big business case.

He wasn’t.

In a 5-4 ruling Monday, Justice Roberts and the other justices on the Supreme Court’s conservative wing ruled that the statute of repose is not tolled by the filing of a class action. Plain and simple, the decision means investors can’t wait more than three years to decide whether to stay in securities class actions, even though these cases typically take more than three years to resolve. To preserve a right to bring their own claims if they don’t like the class settlement, or if the class action falls apart, investors will have to file individual suits or motions to intervene with the three-year statute of repose.

CalPERS and a coalition of 75 institutional investors had argued that such a requirement would be a waste of time and money for them and for the courts, which would be flooded with suits and motions by investors filing protectively. Justice Anthony Kennedy, who wrote the court’s opinion, wasn’t swayed. The majority called investors’ concerns “overstated” and pointed out that there’s no evidence of a surge in filings at the 2nd U.S. Circuit Court of Appeals, which issued the CalPERS ruling under Supreme Court review.

“Many individual class members may have no interest in protecting their right to litigate on an individual basis,” the opinion said. “Even assuming that they do, the process is unlikely to be as onerous as petitioner claims. A simple motion to intervene or request to be included as a named plaintiff in the class-action complaint may well suffice.”

As it did in its 2014 decision in CTS v. Waldburger, the court distinguished between statutes of repose and limitations. A statute of limitations, Justice Kennedy said, is equitable and gives leeway to plaintiffs who haven’t learned of violations. That’s why the Supreme Court held in 1974’s American Pipe v. Utah that the filing of a class action tolls the statute of limitations for all potential class members.

By contrast, Justice Kennedy explained, statutes of repose are supposed “to grant complete peace to defendants.” Statutes of repose can’t be tolled at all, the Supreme Court said, unless lawmakers specifically say the time limits apply only under particular circumstances. Nothing in the Securities Act, according to the opinion, suggests Congress intended to provide exceptions to the law’s “fixed bar against future liability,” Justice Kennedy wrote.

“To the contrary, the text, purpose, structure, and history of the statute all disclose the congressional purpose to offer defendants full and final security after three years,” the opinion said.

Given the chief justice’s comments at oral argument, I was wondering what the opinion had to say about the idea that class actions put defendants on notice of the entirety of their exposure. The dissent, written by Justice Ruth Bader Ginsburg, emphasized that point. But Judge Kennedy’s majority opinion – echoing ANZ counsel Paul Clement of Kirkland & Ellis in response to the chief justice’s questions on repose during oral argument - said the realities of securities litigation belie it.

“If the number and identity of individual suits, where they may be filed, and the litigation strategies they will use are unknown, a defendant cannot calculate its potential liability or set its own plans for litigation with much precision,” the opinion said. The initiation of separate individual suits may thus increase a defendant’s practical burdens. The emergence of individual suits, furthermore, may increase a defendant’s financial liability; for plaintiffs who opt out have considerable leverage and, as a result, may obtain outsized recoveries.”

There’s really not much room for interpretation of the Supreme Court’s decision. The only good news for plaintiffs’ lawyers is that they may now get to represent investors filing protective individual suits and motions in securities class actions.