The time limits to joining securities class action lawsuits have historically been justified for limiting the cost and time that a case could potentially eat up. Now the United States Supreme Court has decided to review those limits to determine whether or not time restrictions should be acceptable when a company misses a deadline but was part of similar but previously dismissed case.
The case in question started with a number of institutional investors filing a class action suit against mortgage securities that were tied to IndyMac MBS Inc., which failed during the financial crisis in 2008. The defendants in the initial suit were the underwriters for the securities and included heavyweights like Goldman Sachs Inc. and Morgan Stanley.
A New York district court and the 2nd U.S. Circuit Court of Appeals both ruled in favors of the defendants in 2013, but another entity that was not involved in the initial suit is trying to revive it based on a previous Supreme Court ruling.
The Public Employees’ Retirement System of Mississippi hopes to resurrect the case based on a 1974 decision that says that when a new entity files a class action before a three year deadline has elapsed, it removes the statute of limitations for all previously involved class members. This was done to prevent the proliferation of additional lawsuits; however there were no specific details relating to cases that had already received judgment or been dismissed.
Defendants say that the 1974 decision from the case American Pipe & Construction Co v. Utah does not override the 1933 Securities Act, which outlines more specific details on when and how class action suits may proceed.
The review of this case is expected in October and could change limitations on time restrictions previously associated with class action lawsuits.
This is the latest of multiple class action cases that the SCOTUS is anticipated to offer their thoughts on this year. One, involving Halliburton would make validate or reject the concept of “fraud on the market” which currently allows securities calls actions to be filed without plaintiff’s needing to show that they relied on financial statements to make their investment decisions.
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