General Publications August 16, 2017

“How CalPERS v. ANZ Securities Marks Gorsuch’s Arrival,” Law360, August 16, 2017.

Extracted from Law360

On June 26, 2017, the U.S. Supreme Court issued another important opinion regarding the federal securities laws: California Public Employees’ Retirement System v. ANZ Securities Inc. The court resolved a circuit split on the three-year time bar for securities class actions brought under the Securities Act of 1933 (the “Securities Act”).[1] Specifically, the court held that civil plaintiffs alleging Section 11 claims must bring suit within three years of the violation, even if they were formerly part of a class of investors in an already-pending securities class action raising the same claims.

The 5-4 decision was important because it was the first in which we saw Justice Neil Gorsuch’s view of securities liability — he represented the crucial fifth justice joining the majority opinion. It also may be a harbinger of further limits on claims under the Securities Exchange Act of 1934 (“Exchange Act”).

Factual and Procedural Background

The respondents served as underwriters to debt securities issued by Lehman Brothers during 2007 and 2008.[2] Following the bank’s bankruptcy in 2008, the operative class action complaint was filed in the Southern District of New York, alleging liability under Section 11 of the Securities Act.[3] Petitioner CalPERS was a member of the putative class and, more than three years after the alleged violations, filed its own complaint that was later consolidated with the original class action.[4] When a class settlement was reached, CalPERS opted out to pursue its claims individually.[5]

The respondents moved to dismiss CalPERS’ claims, arguing that the suit was untimely since it was brought beyond the three-year period prescribed in Section 13 of the Securities Act. In response, CalPERS argued that the three-year time bar was tolled (delayed) by the class action complaint, relying chiefly on the court’s decision in American Pipe & Construction Co. v. Utah, which held that the filing of a class action complaint tolls the relevant statute-of-limitations period.[6] Both the district court and the Second Circuit found for the respondents, holding that the three-year bar in Section 13 is a statute of repose that is not subject to tolling.

The Supreme Court’s Decision: Statutes of Limitations vs. Repose

The Supreme Court affirmed, finding CalPERS’ claims properly barred as untimely. In so holding, the court noted that the critical issue was whether the three-year time bar constitutes a statute of limitation or of repose. The court explained that statutes of limitation, which generally run from the time the injury was discovered, serve to encourage timely filing by prospective plaintiffs. Meanwhile, statutes of repose run from a defendant’s last culpable act and serve to provide “more explicit and certain protection to defendants.”[7]

As a result, the court affirmed dismissal of CalPERS’ individual lawsuit as untimely.

The Arrival of Gorsuch in the World of Securities Claims

The decision in CalPERS generally confirms what many expected for securities cases from the long-awaited arrival of Justice Gorsuch in the court. Justice Gorsuch sided with the more conservative justices, enabling a 5-4 decision that narrows the scope of potential liability for defendants in securities class actions. Going forward, the decision suggests that a majority of the current court will continue its trend of foreclosing expansion of civil liability under the securities laws.

Will the CalPERS Decision Unintentionally Open the Floodgates?

Some argue that an unintended effect of the CalPERS decision will be an increase in shareholder litigation. Their theory is that it will encourage a flood of class members to bring their own individual claims to protect against the possibility of being barred like the CalPERS plaintiffs were barred. Such protective filings would supposedly increase the costs and complexity of the litigation and substantially burden the courts.

This is not likely. The Second Circuit has been following the rule set forth in CalPERS since 2013. There is no evidence of an uptick in protective filings there. While some point to In re Petrobras Securities Litigation, a case in the Second Circuit where hundreds of investors have opted out of the class to bring their own individual claims, there is little to suggest that the Petrobas situation supports the theory of expanding litigation in the wake of CalPERS.

The immense size and scope of Petrobas makes it an outlier in the securities litigation world. Petroleo Brasileiro SA (“Petrobras”) was once the world’s fifth-largest company until it lost almost $300 billion in investor value, allegedly because of a multiyear, multibillion-dollar bribery and kickback scheme involving false and misleading statements under both the Securities Act and the Exchange Act in connection with the company’s stock and debt securities. The class period was over five years long. Cases with such complex claims, long class periods and significant alleged damages are very rare. They are also far more prone to multiple claims by individual investors, since so many have a material stake in bringing their own lawsuit.

Potential Application Beyond Securities Act Claims

The holding in CalPERS only applies to Securities Act claims. Nevertheless, it will be interesting to see whether the court’s reasoning could be extended to claims under the Exchange Act. Similar to Section 13 of the Securities Act, the Exchange Act provides for two different time bars for claims based on fraud or deceit — a two-year bar (from the date of discovery) and a five-year bar (from the date of violation).[8]

Before the decision in CalPERS, both the Sixth and Eleventh Circuits found that the five-year time bar under the Exchange Act is a statute of repose. Specifically, in Stein v. Regions Morgan Keegan Select High Income Fund Inc., the Sixth Circuit stated that the five-year bar is “a statute of repose” to which American Pipe could not apply.[9] Soon after, in Dusek v. JPMorgan Chase & Co., the Eleventh Circuit similarly held that the Exchange Act’s five-year time bar is a statute of repose to which tolling under American Pipe is inapplicable.[10] Thus, the CalPERS decision could be a harbinger of similar limits under the Exchange Act.


The court’s opinion in CalPERS provides a clear rule: the three-year time bar of Section 13 is a statute of repose that will not be tolled by a class action complaint alleging liability under the Securities Act. This rule is likely to continue what seems to be a continued effort by the more conservative members of the Supreme Court, now including Justice Gorsuch, to curb any efforts to expand civil liability under the federal securities laws.

[1] Slip op., No. 16-373 (June 26, 2017).

[2] Id. at 3.

[3] Id.

[4] Id.

[5] Id.

[6] 414 U.S. 538 (1974).

[7] CalPERS, Slip. op. at 5.

[8] 28 U.S.C. § 1658(b).

[9] 821 F.3d 780, 787, 792–95 (6th Cir. 2016).

[10] 832 F.3d 1243, 1246–1249 (11th Cir. 2016).

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