Caution To Investors: Second Circuit Holds That Securities Act Statute Of Repose Not Tolled

A recent ruling by the United States Court of Appeals for the Second Circuit signals that investors should be more proactive to protect their interests in securities fraud cases. In Police & Fire Retirement System of the City of Detroit v. IndyMac MBS, Inc. (IndyMac), the Court of Appeals held that the tolling rule established in American Pipe and Construction Co. v. Utah (American Pipe) does not apply to the three-year statute of repose in Section 13 of the Securities Act of 1933.1 This means that potential class members can no longer safely wait to see how a class action progresses before deciding whether to pursue their individual actions.

Background

Two class actions were filed against IndyMac MBS, Inc., asserting Securities Act claims relating to offerings of mortgage pass through certificates.2 The District Court consolidated the two class actions and appointed the Wyoming State Treasurer and the Wyoming Retirement System as lead plaintiffs.3 The District Court, however, dismissed for lack of standing all claims concerning the certificates the Wyoming entities did not purchase.4

Following the decision, five different pension funds moved to intervene as additional plaintiffs to the action to assert the claims with respect to the certificates they had purchased.5 Although the three-year period of the statute of repose in Section 13 had run on most of their claims, the putative intervenors argued that the statute of repose was tolled under the tolling rule in American Pipe where the Supreme Court held that "the commencement of a class action suspends the applicable statute of limitations as to all asserted members of the class who would have been parties had the suit been permitted to continue as a class action."6 Alternatively, they argued that they could nonetheless "relate back" their proposed amended complaint pursuant to Rule 15(c).7 The District Court turned down the putative intervenors' arguments, holding that no form of tolling may be invoked to avoid the three-year statute of repose in Section 13 and that the three-year statute of repose cannot be extended by operation of the relation back rule.8 Three of the five putative intervenors appealed.9

IndyMac

The Court of Appeals affirmed the District Court's decision, holding that (1) the American Pipe tolling rule does not apply to the statute of repose in Section 13 regardless of whether the American Pipe tolling rule was characterized as "equitable" or "legal" in nature, and that...