As a Dallas securities fraud lawyer, I am a bit puzzled by the Supreme Court’s recent decision in California Public Employees’ Retirement System v. Anz Securities, Inc., Et Al. The suit has to do with a securities class action filed against the 30 or so banks that underwrote billions in debt offerings by Lehman Brothers prior to the venerable investment bank’s collapse in 2008. A class action was filed in 2008 on behalf of investors in Lehman against the banks that underwrote and sold Lehman’s securities, including Royal Bank of Canada (RY.TO), Bank of New York Mellon Corp (BK.N), France’s BNP Paribas SA (BNPP.PA), Australia and New Zealand Banking Group (ANZ.AX), and Spanish lender BBVA (BBVA.MC), among others.
The California Public Employers’ Retirement System, an active investor overall and frequent lead plaintiff in securities claims, decided to opt-out of the class action settlement in 2011 and file its own claims. While that was passed the 3-year statute of limitations applicable to securities law claims, CalPERS relied on the Supreme Court’s 1974 American Pipe decision, which for decades held that absent members’ claims are tolled whilst a class action is pending.
While class action tolling is nothing new, the Second Circuit–and now the Supreme Court–have held that the Securities Laws’ 3 year statute of limitations is not a limitations period (or not just a limitations period), it is a statute of repose. Meaning: no claims can be brought more than three years after the securities were offered for public sale.
The obvious question to me is “what does this do to the discovery rule in securities fraud claims?” In other words, what if you don’t find out that you’ve been defrauded until year 4 or later? Some might say that the discovery rule is now toast too in securities fraud claims given the strict statutory reading. That is likely the next test.
On the practical side, CalPERS and the amici argued to the Supreme Court that the net effect of this rule will be that everyone who has a claim will now have to file it, vastly increasing the number of cases filed and the complexity of litigation. The Supreme Court has never accounted for these types of policy arguments–especially not slippery slope ones–so it is not surprising that SCOTUS did not mention the practical outcome. But at least one amicus is correct: Now, anyone who can file a stand-alone claim will need to do so or risk losing their claim altogether in the event that the class cannot be certified, or is certified for an amount disfavorable to the claimant.
My own view is that this will change very little. I have always championed opting out of class actions for larger claimants in any context, not just securities fraud. Your recovery is faster and typically higher than being an absent class member. You don’t have to wade through the miasma of class discovery and class certification (which thanks to CAFA comes with an automatic appeal and likely 2-year stay). Most people’s securities losses are too small to justify filing a stand-alone suit, which is why securities class actions are an important mechanism (albeit a far from perfect one) for vindicating the rights of small investors–good luck to them, but their lives will be no different because of this decision.