New Justice Neil Gorsuch’s first foray into securities class action law on the U.S. Supreme Court came on his first day on the bench Monday. Though he did not tip his hand explicitly, he showed less sympathy for plaintiffs than for defendants.
His predecessor, the late Antonin Scalia, usually expressed similar preferences, so the court may be ready to take on class action reforms again.
The case before the court, California Public Employees’ Retirement System v. ANZ Securities, dealt with a narrow issue of deadlines for initiating litigation. But it comes up when investors seek to opt out of settlements and sue issuers individually for false information in registrations.
The Securities Act of 1933 states that lawsuits cannot be filed more than three years after the securities offering. But citing a 1974 Supreme Court precedent American Pipe & Construction v. Utah, Calpers claims that deadline can be tolled or delayed while class actions are under way.
“All manner of satellite litigation” could proliferate if statutory deadlines are interpreted too strictly, Tom Goldstein of Goldstein & Russell told the justices on behalf of the California pension fund, the largest in the nation. Because of the complexity of securities litigation, a three-year “statute of repose” limit advocated by defendants is too short, Goldstein argued, and would compel investor groups to file separate litigation early to protect their rights to opt out of class actions.
But Paul Clement of Kirkland & Ellis disputed Goldstein’s “parade of horribles,” noting that the three-year statute of repose has been in place for several years in the Second Circuit, without an avalanche of new litigation.
Justice Anthony Kennedy seemed especially hostile to Goldstein’s position, suggesting it was “an attack on statutes of repose generally.”
Gorsuch asked Goldstein “where is the ambiguity” in the Securities Act provision, suggesting he did not think tolling should apply to the three-year limit.
Supreme Court (Photo: Getty Images/Thinkstock)
Gorsuch’s views may not be surprising, given Gorsuch’s description—albeit years ago— of class actions as a “free ride to fast riches” for plaintiffs that needed to be reined in. Gorsuch asked only one set of questions—fewer than during the other two arguments earlier in the day. “Securities fraud litigation imposes an enormous toll on the economy,” Gorsuch wrote in a column for Legal Times while in private practice in 2005.
Justice Elena Kagan, for her part, seemed sympathetic toward plaintiffs on Monday, suggesting that the three-year limit could stifle class action opt-outs. “We’re used to thinking that the opt-out right is a very important part of class actions,” Kagan said. “It’s what saves them from a due process problem, that people actually do get to say, ‘I don’t want any part of this.’”
The case before the court stems from the financial crisis of 2008. Calpers sued the bankrupt Lehman Brothers and ANZ Securities, one of its underwriters, claiming false statements in registration documents. The pension fund had been part of a class action, but it opted out after a settlement was reached.
The timeline resulted in a conflict between statutory provisions that impose a deadline on when such lawsuits must be filed. The U.S. Court of Appeals for the Second Circuit ruled that the three-year deadline could not be put off. But the Second Circuit ruling also said the issue was “ripe for resolution by the Supreme Court” because of a circuit split over the issue.
The U.S. Chamber of Commerce warned the high court that if the Second Circuit is overruled, “the statute of repose in the Securities Act, and presumably any other federal or state statute of repose, may be circumvented by the simple expedient of filing a complaint on behalf of a putative class.” That would expose business defendants to liability long after “they are entitled to peace,” the brief added. William Jay of Goodwin Procter was counsel of record on the brief.
But Public Citizen, in a brief by Scott Nelson, said that imposing a strict “statute of repose” would “significantly impair opt-out rights of absent class members.”
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