US Supreme Court Rules That Equitable Tolling Does Not Apply to Section 13 of the Securities Act

Skadden, Arps, Slate, Meagher & Flom LLP

CalPERS v. Anz Sec. Inc., No. 16-373 (Sup. Ct. June 26, 2017)

The U.S. Supreme Court resolved a circuit split by deciding that the three-year limit for filing lawsuits under Section 13 of the Securities Act is a statute of repose, not one of limitations, and thus is not subject to equitable tolling. In doing so, the Court barred a Section 11 claim that was filed more than three years after the debt offering at issue. The Court held that the equitable tolling doctrine described in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), did not apply to the “unconditional” language and purpose of Section 13’s three-year statute of repose. In the case, one plaintiff alleged that an investment bank made certain misrepresentations and omissions in connection with a debt offering. More than three years after the debt offering was made, a different plaintiff filed a separate complaint asserting substantially the same allegations against the investment bank. After the earlier action had settled, the plaintiff in the later-filed action opted out of the settlement in order to continue pursuing its claim separately.

The Court affirmed the Second Circuit’s dismissal of that later-filed action as untimely, holding that the earlier-filed action concerning the same debt offering did not toll Section 13’s three-year statute of repose. The Court considered the text, purpose, structure and history of the Securities Act and determined that it “reflects the legislative objective to give a defendant a complete defense to any suit after a certain period.” The Court determined that the tolling decision in American Pipe — which involved a statute of limitations — derived from equity principles, not the judiciary’s power to interpret and enforce statutory language, and thus was inapplicable in this case. The Court held that the timely filing of a class action complaint does not permit an individual class member to file suit after the statute of repose period has ended, as doing so would undermine the purpose of limiting a defendant’s liability after a certain period. The Court also determined that the plaintiff’s concerns about certain “inefficiencies” that might arise if the statute of repose could not be tolled were likely “overstated.” There was no evidence of increased individual class member lawsuits in the Second Circuit, and even if there were, the process for an individual to be added to a putative class action suit was unlikely to be onerous.

This summary can be found in the September 2017 issue of Inside the Courts.