Takeaway: In California Public Employees’ Retirement System v. ANZ Securities, Inc., No. 16-373, 2017 WL 2722415 (U.S. June 26, 2017), the Supreme Court issued its closely-watched decision regarding whether the filing of a putative class action tolls the statute of repose for actions brought under Section 11 of the Securities Act of 1933. The Supreme Court held that the equitable tolling principles announced in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), cannot supersede the purpose of a statute of repose, which is “to grant complete peace to defendants.” CalPERS, 2017 WL 2722415, at *11. For the defense bar, this is a welcome restriction on American Pipe tolling, at least where a statue of repose is involved. As we discussed last month, the Ninth Circuit recently expanded American Pipe tolling to successive class actions, rejecting the argument that serial relitigation of class certification would force defendants “to settle to buy peace.” Resh v. China Agritech, Inc., No. 15-55432, 2017 WL 2261024 (9th Cir. May 24, 2017) (quoting Phipps v. Wal-Mart Stores, Inc., 792 F.3d 637, 653 (6th Cir. 2015)).     

The CalPERS case arises out of certain securities offerings by Lehman Brothers in 2007 and 2008. In 2008, a putative class action was filed in the Southern District of New York on behalf of all persons who purchased these securities, alleging claims under Section 11 of the Securities Act of 1933. More than three years after the securities offerings at issue, CalPERS – a member of the putative class – filed a separate complaint alleging identical claims under § 11. Shortly thereafter, the putative class reached a proposed settlement, CalPERS opted out of the class, and the defendants moved to dismiss CalPERS’ complaint as time barred.

The statutory time bar at issue – Section 13 of the Act – provides that “[i]n no event shall any such action be brought to enforce a liability created under [§11] more than three years after the security was bona fide offered to the public … .” 15 U.S.C. § 77m. CalPERS argued its complaint was timely under American Pipe tolling principles, where the Supreme Court held “the commencement of a class action suspends the applicable statute of limitations as to all asserted members of the class.” American Pipe, 414 U.S. at 554. The District Court and the Second Circuit rejected CalPERS’ argument, however, holding that American Pipe tolling does not apply to § 13’s three-year bar—which the appellate court denominated a statute of repose. Writing for the majority, Justice Kennedy agreed, relying primarily on the “nature and purpose” of the statutory time bar at issue and of American Pipe tolling more generally. CalPERS, 2017 WL 2722415, at *6.

Justice Kennedy recognized that statutory time bars fall into two categories with two “distinct” purposes: statutes of limitations and statutes of repose. While statutes of limitations encourage “diligent prosecution of known claims,” statutes of repose provide “more explicit and certain protection to defendants.” Id. at *6-*7. Put another way, statutes of repose grant “complete peace to defendants,” give defendants “full protection after a certain time,” and offer defendants “full and final security.” Id. at *8, *11. American Pipe tolling, on the other hand, is grounded in the “the judicial power to promote equity” or the “traditional equitable powers of the judiciary.” Id. at *10. Ultimately, CalPERS holds that these principles of equity cannot modify a statutory time bar designed to grant peace to defendants. Id. at *11.

In her dissent, Justice Ginsburg notes the potential for opportunistic behavior by class action defendants: “Defendants will have an incentive to slow walk discovery and other precertification proceedings so the clock will run on potential opt outs.” Id. at *16. But this concern likely will be limited to Securities Act cases, given that most statutes of repose are much longer than three years. Nevertheless, and particularly given the Ninth Circuit’s recent decision allowing American Pipe tolling across successive class actions, CalPERS reiterates the importance of carefully evaluating any applicable statutes of repose, in addition to the preclusion and “comity” defenses potentially applicable in any repetitive class action.