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Article: Securities and Structured Finance Litigation Update

Business Litigation Reports

Continuing Circuit Split Puts “Tolling” of Statutes of Repose Back on U.S. Supreme Court’s Agenda. The U.S. Supreme Court is again set to weigh in on the reach of its decision in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), after the Court dismissed its prior grant of certiorari on the issue.

As discussed in greater detail in our July 2014 practice update titled “U.S. Supreme Court to Review Tolling of Securities Act Claims,” American Pipe held that “the commencement of a class action suspends the applicable statute of limitations as to all asserted members of the class.” 414 U.S. at 554. The Second Circuit held in Police & Fire Retirement System of the City of Detroit v. IndyMac MBS, Inc., 721 F.3d 95, 101 (2d Cir. 2013), that the class action “tolling” rule set forth in American Pipe does not apply to the three-year statute of repose in Section 13 of the Securities Act of 1933. In March 2014, the Supreme Court granted certiorari to the IndyMac plaintiffs because that decision conflicted with a decision from the Tenth Circuit, which had ruled that American Pipe does apply to Section 13’s statute of repose. See Joseph v. Wiles, 223 F.3d 1155, 1167-68 (10th Cir. 2000). In September 2014, the Supreme Court withdrew certiorari after the parties settled the IndyMac case.

The Circuit Courts continue to be split on the issue. In 2016, the Sixth Circuit joined the Second Circuit in holding that American Pipe does not apply to statutes of repose. See Stein v. Regions Morgan Keegan Select High Income Fund, 821 F.3d 780 (6th Cir. 2016). The Second Circuit has also applied its own IndyMac decision in recent cases to again conclude the American Pipe rule does not reach statutes of repose. See In re Lehman Bros. Sec. and ERISA Litig. (California Public Employees’ Ret. Sys. v. Moody Investors Serv.), 655 Fed.Appx. 13 (2d Cir. 2016); SRM Global Master Fund Ltd. P’ship v. Bear Stearns Cos., 829 F.3d 173 (2d Cir. 2016).

In September 2016, the plaintiffs in CalPERS and SRM filed petitions for writ of certiorari on the issue of whether American Pipe applies to statutes of repose. On January 13, 2017, the Supreme Court granted certiorari to the CalPERS plaintiffs, on the same question the Court was previously prepared to address in IndyMac:, whether American Pipe applies to the 1993 Act’s statute of repose. As discussed in our June 2014 update, how the Supreme Court addresses the scope of American Pipe may have a significant impact on the fortunes of investors, as well as securities issuers and underwriters.