CHICAGO – On June 26, the Supreme Court issued its opinion in California Public Employees’ Retirement System v. ANZ Securities, Inc., 582 U. S. ____ (2017), resolving a split of authority when it ruled in a 5-4 decision that California Public Employees’ Retirement System’s (“CalPERS”) complaint was untimely after CalPERS opted out of a putative class only to later file its own complaint alleging the same claims more than three years after the relevant transactions occurred, and, therefore outside of the three year statute of repose under Section 13 of the Securities Act of 1933.
The 1933 Act includes a limitation providing 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.
The Court ruled that regardless of whether CalPERS was a member of the putative class whose claims were timely filed, CalPERS’s decision to opt out of that class and pursue its claims in an independent proceeding filed more than three years after the relevant transactions occurred would be time barred, settling a split of authority.
Writing for the Court, Justice Kennedy emphasized that the purpose of a statute of repose like the one in the 1933 Act is to allow more certainty and reliability, which are necessary “in a marketplace where stability and reliance are essential components of valuation and expectation for financial actors.” Slip Op. at 16.
The practical result of the decision will provide defendants in securities class actions some certainty as to the scope of claims arising from potential violations of the 1933 Act, particularly after three years have passed since the securities in question were offered to the public. Writing in dissent, Justice Ginsburg emphasized that there may be increased pre-certification claims filed so as to protect the rights of potential claimants. However, Justice Kennedy noted that there had not been such a rise in filings in the Second Circuit, which has been operating under this limitations regime in Section 11 cases since 2013. Ultimately, the decision provides a bright line cutoff date for all claims under Section 11 of the 1933 Act. Depending on the dispute, the decision may also constrain the ability of plaintiffs to opt out of a putative class, which could alter parties’ settlement leverage. Ultimately, litigants will be well served by approaching pre-certification pleading in securities class actions cases with the knowledge that later opt outs may not be possible.