More than a dozen European pension funds and asset managers have joined with other prominent institutional investors to seek a legal ruling that could have significant implications for investors seeking compensation through the courts.
The funds – including APG, AP1, Industriens Pension, and the Universities Superannuation Scheme – have filed an amicus curiae (“friend of the court” brief) with the US Supreme Court asking it to review and overturn a 2014 ruling that placed a one-year time limit on filing class actions.
The case, which has significant implications for the institutional investor community, concerns the timeframe for investors to pursue lawsuits seeking recovery of damages under US securities laws. It has been brought by the California Public Employees’ Retirement System (CalPERS), the largest public pension fund in the US. CalPERS is suing ANZ Securities over losses resulting from the Lehman Brothers bankruptcy.
In all, 75 investors with more than $4trn (€3.75trn) in assets under management have joined together to back CalPERS. Other European supporters include Aegon Asset Management, Blue Sky Group, MP Investment Management, PGGM Investments, SEB Investment Management, and Storebrand, while the retirement systems for more than a dozen US states including New York and Pennsylvania are supporting the brief.
But the case’s larger significance lies in the existence of a legal time limit – the so-called “statute of repose” – for plaintiffs to file a securities action.
Generally, US securities laws provide a three-year time limit for strict liability claims on securities purchased in public offerings, and a five-year time limit for securities fraud claims based on open market purchases.
For decades, plaintiffs in US litigation have benefitted from the class action “tolling” rule. Established by the US Supreme Court in the landmark American Pipe case in the 1970s, the rule provided that filing a class action satisfied all time periods governing class members’ individual claims for recovery, including both the statute of limitations and the statute of repose for securities claims. (Under US law, investors are automatically included in a class action unless they actively decide to opt out of the lawsuit.)
Accordingly, under the so-called American Pipe rule, investors included in a securities class action could take comfort in their ability to sue individually, should they wish to do so at a later date – for instance, if a prospective class action failed, or they disagreed with a class settlement amount.
However, in 2014 a lower court ruled that the class action tolling rule only applied to a one-year statute of limitations for securities claims, not a separate three-year statute of repose. This case related to IndyMac, an American mortgage provider that collapsed a few months before Lehman Brothers in 2008.
The 2014 ruling meant that, if a US class action was formally certified by the court after the statute of repose expired, class members would not be able to pursue their own lawsuit later. In addition, if the court refused to grant the case class action status after the repose period expired, investors would not have any remedy under US securities laws, whether in a class action or otherwise.
The amicus brief filed by CalPERS asks the US Supreme Court to clarify the legal position, and to reverse the IndyMac decision.
Blair Nicholas, a senior partner at Bernstein Litowitz Berger & Grossmann (BLBG), the law firm that prepared the amicus brief, said: “For over 40 years, investors worldwide have relied on the filing of securities class actions to protect and preserve the timeliness of their claims for recovery of securities fraud damages in US courts. The IndyMac decision has created great uncertainty in the institutional investor community.”
Nicholas continued: “Without the critical class action tolling rule, investors must incur the substantial costs and burdens of monitoring hundreds of active securities class action cases across the US to determine whether to take affirmative action in order to prevent their claims from expiring. This is not only costly, it has resulted in wasteful and duplicative litigation that defeats the very purpose of US-style opt-out class actions.”
According to the brief itself, these burdens on institutional investors are already occurring, both in the [court] circuits that have held that the American Pipe rule does not apply to the three-year and five-year limitations periods, and in circuits that have not decided the question.
Dutch pension provider APG had already supported an amicus brief for the IndyMac case in 2014.
A spokesman for APG told IPE: “However, that never reached a verdict by the US Supreme Court, because the case itself was settled. As a result, the uncertainty and lack of clarity regarding tolling the statute of repose persisted. For the investment community it is important that filing a class action not only means tolling the statute of limitations, but also the statute of repose.”
The spokesman continued: “The [current] amicus brief demonstrates how the American Pipe rule is part of a sound and efficient securities litigation framework, and is needed to avoid imposing extensive and unnecessary costs and burdens on institutional investors, defendants, and the court system as a whole.”
AP1 said the timeframe for investors to bring individual claims for recovery of damages under the US securities laws was “an issue of great importance to the institutional investor community”.
The lawsuit is scheduled to be heard by the Supreme Court on 17 April 2017, with a decision issued by the end of June.