Third Circuit Joins With The Seventh, Ninth And Eleventh Circuits In Holding That Plaintiffs Asserting 1933 Act Claims Need Not Plead Compliance With The Statute Of Limitations, Splitting With The First, Eighth And Tenth Circuits

In Pension Trust Fund for Operating Engineers v. Mortgage Asset Securitization Transactions, Inc., No. 12-3454, 2013 WL 5184064 (3d Cir. Sept. 17, 2013), the United States Court of Appeals for the Third Circuit joined the Seventh, Ninth and Eleventh Circuits, holding that Section 13 of the Securities Act of 1933 ("1933 Act"), 15 U.S.C. § 77m, does not require plaintiffs asserting a claim under the 1933 Act to plead with particularity compliance with the statute of limitations. In doing so, the Third Circuit split from the First, Eighth and Tenth Circuits, potentially triggering review by the United States Supreme Court.

Plaintiffs, purchasers of mortgage-backed securities, sued UBS AG and several of its subsidiaries (collectively, "UBS") for alleged misrepresentations in the securities' offering documents and registration statements. As of September 18, 2007, when plaintiffs purchased the securities, both Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's ("S&P") had rated the securities AAA. However, being comprised entirely of loans originated by Countrywide Home Loans, Inc. ("Countrywide") and Indymac Bank, F.S.B. ("Indymac"), the securities rapidly lost value, and were subsequently downgraded — to B2 by Moody's on February 20, 2009, and to B by S&P on August 13, 2009. Between late 2007 through 2009, as the financial crisis began to unfold, many news articles also highlighted the alarming default rate for Countrywide and Indymac loans.

Plaintiffs filed their original complaint on February 22, 2010, asserting claims under Sections 11, 12(a)(2) and 15 of the 1933 Act, 15 U.S.C. §§ 77k, 77l(a)(2) and 77o. Plaintiffs subsequently filed an amended complaint, which the United States District Court for the District of New Jersey dismissed without prejudice, ordering plaintiffs to plead with particularity in a further amended complaint that their claims were timely under the applicable statute of limitations set out in Section 13 of the 1933 Act. Defendants moved to dismiss the second amended complaint (the "SAC") on the basis that the 1933 Act claims were untimely. The district court agreed, applying an inquiry notice standard to determine that the plaintiffs' claims were untimely, and dismissed the SAC with prejudice. Plaintiffs appealed.

The Third Circuit first took issue with the district court's ruling that plaintiffs must plead compliance with Section 13. Section 13 requires 1933 Act claims to be brought "within one year...