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Justice Anthony Kennedy of the U.S. Supreme Court speaking during the Supreme Court budget hearing for the year 2012 before the House Approps Subcommittee on the Financial Services and General Government. April 14, 2012. Photo by Diego M. Radzinschi/THE NATIONAL LAW JOURNAL.

The U.S. Supreme Court put another hurdle in the path of class action plaintiffs Monday with a 5-4 ruling that strictly interpreted deadlines for opting out of ongoing securities litigation.

Ruling on the final sitting for its current term, the court said a three-year deadline should govern and prevent later lawsuits in class actions. Justice Anthony Kennedy wrote the majority opinion in California Public Employees’ Retirement System v. ANZ Securities.

“The text, purpose, structure, and history of the statute all disclose the congressional purpose to offer defendants full and final security after three years,” Kennedy wrote.

It was the first class action case in which new Justice Neil Gorsuch participated, and as expected he joined the majority in ruling against plaintiffs. 

â–ºRead more: SCOTUS Takes Up Key Timing Question in Securities Suits

The ruling is a win for Paul Clement of Kirkland & Ellis, who argued for ANZ Securities. Tom Goldstein of Goldstein & Russell argued the case for CalPERS.

Daniel Sommers, partner of Cohen Milstein Sellers & Toll, a plaintiffs firm, criticized the decision. “Individual investors will simply have their rights extinguished in cases where their interests were previously protected as they never will be able to navigate the path set by the court today,” Sommers said.

The case before the court stems from the financial crisis of 2008. CalPERS sued the bankrupt Lehman Brothers and ANZ, 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 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 claimed that deadline can be tolled or delayed while class actions are underway.

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 high court ended up affirming the Second Circuit.

Justice Ruth Bader Ginsburg dissented, arguing that the majority violated due process by making opt-outs more difficult. “I dissent from today’s decision, under which opting out cuts off any chance for recovery,” she wrote. Justices Stephen Breyer, Sonia Sotomayor and Elena Kagan joined the dissent.

The U.S. Chamber of Commerce warned the high court that if the Second Circuit were 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.”  

Copyright the National Law Journal. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Contact Tony Mauro at tmauro@alm.com. On Twitter: @Tonymauro Reporter Amanda Bronstad contributed to this article.


Tony Mauro

Tony Mauro, based in Washington, covers the U.S. Supreme Court. A lead writer for ALM's Supreme Court Brief, Tony focuses on the court's history and traditions, appellate advocacy and the SCOTUS cases that matter most to business litigators. Contact him at tmauro@alm.com. On Twitter: @Tonymauro

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