Yesterday afternoon, the Supreme Court heard oral argument (pdf) in CalPERS v. ANZ Securities, a case that asks whether a plaintiff asserting violations of Section 11 of the Securities Act of 1933 can file suit after the three-year outer limit for such suits has passed, if a class action encompassing the plaintiff’s claims was timely filed and remained pending. The answer to that important question, which has divided the federal courts of appeals, will tell defendants facing suit over the issuance of securities whether the Securities Act’s three-year repose period is a real protection against belated lawsuits or simply a limited protection that dissolves once a timely class action is filed. Yesterday’s argument suggested the Court, too, may be divided about how to resolve this debate.

CalPERS is an individual suit by a state pension fund against underwriters for certain debt securities issued by Lehman Brothers. The suit was brought more than three years after the issuance of the securities. But, at the time, a timely putative class action asserting similar claims was pending. CalPERS was dismissed, and the dismissal was affirmed, because the suit was filed outside the three-year period of repose established by Section 13 of the Securities Act and Second Circuit precedent (Police & Fire Retirement System of Detroit v. IndyMac MBS, Inc., 721 F.3d 95 (2d Cir. 2013)) precluded any tolling of that repose period.

In the Supreme Court, CalPERS challenged that ruling on several grounds. It argued that its suit was not barred because the class action was timely and its suit simply followed from the claims raised in the class action. CalPERS also contended that the class action tolling rule for statutes of limitations established in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), should apply to Section 13’s restriction on suits filed more than three years after issuance of the relevant securities—notwithstanding Supreme Court precedents holding that equitable tolling does not apply to statutes of repose (CTS Corp. v. Waldburger, 134 S. Ct. 2175 (2014)) and that the three-year restriction in Section 13 was a repose period inconsistent with tolling (Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350 (1991)). CalPERS finally asserted that, without tolling, opt-out rights would become illusory and courts would be flooded with suits by individual class members concerned about Section 13.

Defendants pointed to the contrary Supreme Court precedent. They noted that courts in the Second Circuit have not been inundated with protective suits. And they explained that applying tolling would incentivize big investors to free-ride off of class actions for years and then opt-out of settlements to claim a greater recovery than other investors.

Much of the oral argument focused on the meaning of the word “action” in the relevant part of Section 13—“In no event shall any such action be brought to enforce a liability created under [Section 11] more than three years after the security was bona fide offered to the public.” Justices Gorsuch and Alito pressed counsel for CalPERS on the argument that its individual suit should not be treated as a new “action” for purposes of Section 13 because it mirrored the previously filed class action. Justice Gorsuch made the textual point that traditionally “action” means “lawsuit” and is not the same as “claim.” Justice Alito seemed to doubt that Congress could have intended the less straightforward reading favored by CalPERS. Justice Breyer’s questioning of both sides also concentrated on whether “action” could somehow refer to a timely class action encompassing claims presented in a later individual suit by a class member.

Justice Kagan, meanwhile, suggested that the term “action” might have multiple meanings, making it appropriate to consider the practical consequences of defendants’ position. Chief Justice Roberts similarly asked about different “levels of repose,” raising the possibility that the repose period established by Section 13 merely precludes “new liability.” Based on this approach, an individual suit might not add to the potential liability asserted by the class action when the individual claims were part of the class action. As counsel for defendants pointed out, the approaches described by Justice Kagan and the Chief Justice cannot be squared with the text of Section 13, Supreme Court precedents in this area, or the reality that individual suits like the one filed by CalPERS are new suits by new parties that increase a defendant’s potential liability.

Another big topic focused on the practical consequences of enforcing Section 13’s repose period against individual suits despite a timely filed class action. Justices Sotomayor, Breyer, and Ginsburg all expressed concern about how defendants’ approach would work in practice. Of particular concern was the burden that lower courts might face when numerous individual putative class members file papers to protect themselves from the repose period. Counsel debated whether those concerns had merit, with respondents’ counsel noting that courts in the Second Circuit have not seen an epidemic of such filings.

Perhaps of greatest interest to class action observers more generally, Justice Kennedy worried that CalPERS’s position would invoke Rule 23 to override a legal right to repose (i.e., a substantive defense) in violation of the Rules Enabling Act. Justice Kagan, by contrast, worried that defendants’ position could undermine the opt-out right created by Rule 23. Justice Kagan also probed whether Section 13 actually is a statute of repose rather than a discovery-rule cut-off. And Justice Ginsburg asked whether American Pipe tolling was really equitable tolling.

With oral argument suggesting that the Justices could be closely divided, a confident prediction of how the Court will rule is not possible. But it would seem difficult for the Court to rule for CalPERS unless it departs from the plain meaning of Section 13 and retreats from its prior decisions in Waldburger and Lampf. We will see in June.