Under the American Pipe rule, in federal court the filing of a class action tolls the statute of limitations for would-be class members. Otherwise, the Supreme Court reasoned in American Pipe, putative class members would have to intervene or file their own individual actions during the pendency of the class action in case class certification is denied to avoid having their claims become time-barred.
But does the American Pipe rule also apply to statutes of repose, which create an absolute right to be free from liability after a certain time frame? District courts had reached conflicting decisions on this issue with respect to the statute of repose for the Securities Act—Section 13.
The Second Circuit has now provided its answer. In Police & Fire Retirement System of City of Detroit v. IndyMac MBS, Inc. (pdf), — F.3d —-, 2013 WL 3214588 (2d Cir. June 27, 2013), the Second Circuit held that the filing of a class action does not toll Section 13’s statute of repose. Nor does intervention under Rule 24 or “relation back” under Rule 15(c) allow absent class members to avoid application of the statute of repose to claims dismissed for lack of jurisdiction.
The IndyMac case involved allegations by plaintiffs that offering documents for a host of IndyMac MBS mortgage pass-through certificates contained misstatements that violated the Securities Act. The district court dismissed the claims as to many of the certificates because the named plaintiff did not purchase those certificates and thus lacked standing to assert the claims. Several putative class members who purchased certificates beyond those purchased by the named plaintiff then moved to intervene in the suit and amend the complaint pursuant to the “relation back” doctrine of Rule 15(c). The district court denied the motion based on Section 13’s statute of repose, which had expired during the pendency of the case.
In affirming, the Second Circuit first rejected the argument that Section 13 should be tolled by the filing of a class action. The court reasoned that, whether the American Pipe tolling rule is “equitable” or “legal” in nature, it cannot be applied to Section 13. The Supreme Court has expressly held that equitable tolling principles do not apply to the repose period in Section 13. And the Rules Enabling Act does not allow a court to use Rule 23—the source of any “legal” tolling—to “abridge, enlarge or modify any substantive right,” which by the Second Circuit’s reckoning includes the repose promised by Section 13.
The Second Circuit also rejected the argument that the would-be intervenors should be allowed to “relate back” their proposed amended complaint to the prior, timely complaint. The court explained that untimely intervention could not cure the jurisdictional defect that led to dismissal of the claims that the proposed intervenors wanted to assert.
As sensible and welcome as the Second Circuit’s tolling and intervention holdings are, their importance is diminished somewhat by the same court’s decision in NECA–IBEW Health & Welfare Fund v. Goldman Sachs & Co., 693 F.3d 145 (2d Cir. 2012), which (as we have noted) allows named plaintiffs to bring some class claims regarding certain securities that the named plaintiff did not purchase. Still, the IndyMac decision offers a valuable tool to prevent belated expansion of securities class actions. And it may even be of use in other areas of the law when plaintiffs’ lawyers try to either prop up expansive class actions after a repose period has expired or use tolling to shop successive class actions in different courts until a favorable forum appears.