Argument preview: Able opponents trade arguments in high-stakes dispute over deadlines for filing class actions
on Sep 19, 2014 at 4:50 pm
It is almost a joy to read the papers in Public Employees’ Retirement System of Mississippi v. IndyMac MBS, Inc., with David Frederick squaring off against Ted Olson. The issue sounds tedious at first – whether the filing of a securities class action tolls the statute of limitations for all members of the asserted class. But it takes only a moment of reflection to realize how much is at stake. Suppose a securities class action alleges a class with hundreds of members (not at all uncommon), and suppose that litigation over certification lasts three to four years (again, not at all uncommon). Now suppose that certification is denied, and the class members now start to file their own individual suits, responding to the failure of the class action. But even if the class action was filed promptly after the incident giving rise to the litigation (not at all a foregone conclusion), it is likely that in many (most?) cases the statutes of limitations would have expired for the individual potential plaintiffs long before the conclusion of litigation over certification. What that means is that the potential plaintiffs who want to protect themselves must file separately, before the limitations period expires, to protect their right to sue after certification is resolved. Can that be right? That is what this case is about.
Not surprisingly, the brief for the plaintiff is long on practicality. But it also presents a compelling legal argument. The plaintiffs’ case stands or falls on the Court’s 1974 decision in American Pipe & Construction Co. v. Utah. In their view, American Pipe reflects the Court’s wholesale acceptance of the impracticalities of requiring every single class-action plaintiff to file a separate action. Thus, they contend, the Court has progressively strengthened American Pipe over the intervening decades, broadening it at almost every opportunity. The limitations provision at issue (Section 13 of the Securities Act) is in their view pedestrian and unexceptional; the application of American Pipe should follow routinely. The Second Circuit’s contrary view rested on the Court’s 1991 decision in Lampf v. Gilbertson, which held that equitable tolling does not extend the outer three-year limit contained in Section 13. Thus, they argue, because the rule of American Pipe derives from Rule 23 rather than judicially founded “equitable” principles, Lampf is wholly irrelevant.
Masterful, and dominatingly persuasive, at least within its own perspective. Not surprisingly, the defendants suggest a wholly different starting point, which produces a completely different vision of the terrain. For them, decisions about statutory time limits should begin and largely end with the language of the statute. In their view, drafters (and courts that review their handiwork) distinguish between statutes of limitation and statutes of repose. The former typically start to run upon “accrual” of the cause of action and often are tolled for a variety of reasons under discovery rules and the like, while the latter typically start from the last action of the defendant and typically run for a much longer period of time typically much longer, but at the same time are (to borrow the defendants’ phrasing) “impervious to judicial adjustment.”
Because Section 13 includes a one-year period, explicitly subject to tolling, and also categorically bars lawsuits once a three-year period has passed, the defendants argue that the three-year period plainly is a statute of repose. Being absolutely final, the filing of a class action can do nothing to toll the running of the statute of repose against individuals who have not yet filed suit. On that point, the defendants can draw powerful support from the decision in Lampf, which specifically described Section 13’s three-year period as one “of repose,” as well as the Court’s 2014 decision in CTS Corp. v. Waldburger, which explained that statutes of repose ordinarily can “not be tolled for any reason.” In sum, because Section 13 specifically bars later suits,there is no possibility of tolling, under American Pipe or otherwise.
The parties debate a number of other topics of likely jurisprudential interest – such as whether a broad reading of American Pipe can be reconciled with the Rules Enabling Act even if it in some sense limits the text of Section 13. But the summary above should give enough of a glimpse of the points on which the parties join issue to make it clear that the argument in this case is likely to be sparkling.
At bottom, the arguments seem closely balanced. The style of the defendants’ argument – hewing closely to specific statutory language – resonates much more closely with the Court’s current bent than the plaintiffs’ argument. Still, the practical arguments that the plaintiffs make are hard to avoid given the plausibility of their reading of the existing cases. If the case is a close one, perhaps the balance will turn on some of the interesting amicus briefs. To mention just a few of the most interesting, the plaintiffs can look to a brief from a group of retired federal district court judges contending that the Second Circuit’s limitation of American Pipe will make securities class actions even more unmanageable than they already are, as well as a brief from a prestigious list of law professors, presenting empirical evidence to document the likelihood that the rule will produce literally thousands of protective filings each year in these cases. If evidence like that impresses the Justices, it will give the plaintiffs a leg up.
