June 28, 2017

Supreme Court Rejects Equitable Tolling of Claims Under the Securities Act's Statute of Repose


In a 5-4 decision issued on June 26, the US Supreme Court in California Public Employees' Retirement System v. ANZ Securities, Inc., et al.1 limited the time in which individual plaintiffs may bring claims under Section 11 of the Securities Act of 1933. The Court determined that the applicable three-year limitations period is a statute of repose that is not subject to equitable tolling.


Section 11 of the Securities Act allows purchasers of securities to sue issuers, underwriters, and others for untrue statements and omissions of material facts in a registration statement. Section 13 of the Securities Act places two time limitations on actions brought under Section 11: a one-year statute of limitations from when the action accrues, and a three-year limitation from when the security "was bona fide offered to the public" or three years after the sale. The Supreme Court previously held in American Pipe & Construction v. Utah2 that a statute of limitations could be tolled by the filing of a putative class action, at least for the putative members of the class pending the class certification decision. The circuits were split, however, on whether the statute of repose in Section 13 could be tolled while a class certification decision was pending.

The California Public Employees' Retirement System (CalPERS) is the largest public pension fund in the United States. Between July 2007 and January 2008, CalPERS purchased millions of dollars of debt securities issued by Lehman Brothers. In June 2008, a putative class action lawsuit was filed in the Southern District of New York alleging that ANZ Securities and several dozen other financial institutions involved in underwriting Lehman's debt securities were liable under Section 11 for making alleged material misstatements and omissions in Lehman's registration statements. As a purchaser of the securities, CalPERS was a putative member of the class. In February 2011, more than three years after the purchase of the debt securities at issue, CalPERS filed its own complaint alleging the same claims as the class action. When the putative class reached a settlement later that year, CalPERS opted out of the class, and the ANZ defendants moved to dismiss CalPERS' individual complaint as untimely under Section 13's three year statute of repose. While CalPERS argued that the three year period was tolled while the class action case was pending pursuant to American Pipe, the district court rejected that argument and instead dismissed the complaint.

On appeal, the Second Circuit affirmed, holding that American Pipe tolling "does not affect the statute of repose embodied" in the Securities Act.3

CalPERS v. ANZ Holding

Writing for the majority, Justice Kennedy concluded that Section 13's three-year limitations period is a statute of repose that could not be tolled based on equitable considerations. In affirming the Second Circuit's dismissal of the CalPERS complaint, the Supreme Court concluded that: (i) Section 13's three-year limitations period was a statute of repose; (ii) the tolling outlined in the American Pipe decision was derived from equity principles; and (iii) equitable tolling does not apply to a statute of repose because such a statute is intended to establish a fixed time limit and reflects a "legislative decisio[n] that as a matter of policy there should be a specific time beyond which a defendant should no longer be subject to protracted liability."4 The Court reasoned that the legislature's determination "that as a matter of policy there should be a specific time beyond which a defendant should no longer be subject to protracted liability…supersedes the court's residual authority and forecloses the extension of the statutory period based on equitable principles."5

The Court distinguished between statutes of repose and statutes of limitations, noting that "[c]onsistent with the different purposes embodied in statutes of limitations and statutes of repose, it is reasonable that the former may be tolled by equitable considerations even though the latter in most circumstances may not."6Because petitioner brought its individual claims more than three years after the purchase of securities in question, the Court found that its complaint was properly dismissed as untimely regardless of equitable concerns.

The Court rejected plaintiff's argument that the filing of the class action within the three year period fulfilled the purpose of statutory time limits because it served the equitable purpose of providing notice to a defendant, noting (i) that equitable considerations were not germane because of the statute of repose, and (ii) the filing of a class action would not provide a defendant with sufficient information to "calculate its potential liability or set its own plans for litigation with much precision."7 The Court similarly rejected plaintiff's argument that the ruling would "create inefficiencies," calling such concerns "overstated" and noting that there was no evidence that the number of suits filed by individual shareholders had increased in the Second Circuit. Finally, the Court rejected plaintiff's argument that the timely filing of the class action complaint was itself sufficient to satisfy the Section 13 requirement that an "action" be "brought" within three years, noting "it defies ordinary understanding to suggest that its filing—in a separate form, on a separate date, by a separate named party—was the same 'action.'"8


1. This decision is consistent with a court trend of limiting plaintiffs' pursuit of federal securities class action, enforcing time limits and issuing decisions based on careful review of statutory language and plain meaning rather than an analysis of practical implications.

2. Going forward, institutional investors will need to consider whether and when to file protective complaints prior to class certification to preserve their ability to opt out of class settlements and pursue their own claims.

3. Although the decision addressed the statute of repose in the Securities Act, the decision clearly rejecting equitable tolling with respect to statutes of repose will likely apply to the five-year statute of repose in the Securities Exchange Act of 1934's anti-fraud provisions.

© 2017 Arnold & Porter Kaye Scholer LLP. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

  1. (No. 16-373), 582 U.S. __ (2017)

  2. 414 U.S. 538 (1974)

  3. See In re Lehman Brothers Securities and Erisa Litigation, 655 Fed. Appx. 13, 15 (2d Cir. 2016).

  4. 582 U.S. at __ (Slip Op. at 8) (internal quotations omitted).

  5. Id.

  6. (Slip Op. 11-12)

  7. (Slip Op. at 12).

  8. (Slip Op. at 15)


John A. Freedman
John A. Freedman
Senior Pro Bono Counsel
Washington, DC
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