The U.S. Supreme Court granted certiorari in China Agritech Inc. v. Resh, to determine whether “[u]pon denial of class certification, may a putative class member, in lieu of promptly joining an existing suit or promptly filing an individual action, commence a class action anew beyond the time allowed by the applicable statute of limitations.” On Monday, the Court decided that the answer is no, holding that “American Pipe tolls the statute of limitations during the pendency of a putative class action, allowing unnamed class members to join the action individually or file individual claims if the class fails,” but “does not permit the maintenance of a follow-on class action past expiration of the statute of limitations.” As with the court’s decision in ANZ Securities last term, this decision highlights the need for institutional investors to closely monitor the statutes of limitations and repose applicable to securities fraud cases involving issuers in which they have made significant purchases during the putative class period.
In a 5-4 decision, issued during the final week of the its term, the U.S. Supreme Court held that the filing of a class action does not toll the three-year period provided for in Section 13 of the Securities Act of 1933. Interestingly, aside from the holding, both the majority and dissenting opinions contain statements potentially impacting institutional investors. The majority, in a phrase that could be repeated in the future by law firms soliciting institutional investors to opt out, asserted – citing only to law review articles from 2008 and 1997 – that plaintiffs who opt out have “considerable leverage” and receive “outsized recoveries.” Meanwhile, the dissent suggested that the majority’s decision will require “every fiduciary who must safeguard investor assets” to file individual actions before the three-year deadline.
The Supreme Court is set to hear arguments on Monday in CalPERS v. ANZ Securities. Previously we provided a comprehensive overview of CalPERS’s brief. In anticipation of oral arguments, below we discuss the arguments raised in ANZ’s brief and CalPERS’s reply.
The CalPERS litigation is notable because of the potential impact it will have on the Second Circuit’s IndyMac decision, which held that because the three-year limitations period in Section 13 of the Securities Act is a statute of repose, the time to initiate a claim is not tolled by the filing of a class action. In the case now before the Supreme Court, CalPERS argues that the Second Circuit’s ruling in IndyMac, and in the instant case, conflicts with the Supreme Court’s holding in American Pipe that the filing of a class action tolls the limitations period for any unnamed member of the proposed class.
ANZ’s AND AMICI’S ARGUMENTS
In sum, in its brief ANZ (a) urges the Court to adopt the Second Circuit’s reasoning in IndyMac, which distinguishes the two limitations periods in Sections 13, delineating Section 13’s one-year limitations period as a statute of limitations and Section 13’s three-year period as a statute of repose; (b) argues that American Pipe establishes an equitable tolling rule that cannot be applied to a congressionally mandated repose period; (c) argues that CalPERS has intentionally distorted the issues to its own advantage by framing its argument to addresses case-specific matters on which the Court declined to grant certiorari; and (d) addresses CalPERS’s policy arguments (which we outlined in our prior post). Continue Reading Update: Briefs Filed in CalPERS v. ANZ Securities
On February 27, 2017, the California Public Employees’ Retirement System (“CalPERS”) filed its brief with the Supreme Court, requesting that the Court reverse the decision of the Second Circuit and abrogate the Second Circuit’s ruling in Police and Fire Retirement System of the City of Detroit v. IndyMac MBC, Inc., as inconsistent with the Supreme Court’s holding in American Pipe & Construction Co. v. Utah. Specifically, CalPERS argues that the timely filing of a valid class action satisfies or tolls the three-year filing period set by Section 13 of the Securities Act with respect to subsequently filed opt-out suits.
In 2008, a retirement fund filed a class action (the “Class Action”) in the Southern District of New York, asserting claims pursuant to Section 11 of the Securities Act related to debt offerings underwritten by the Respondents in the instant case. The Class Action was filed on behalf of all persons and entities that purchased the securities in question. In 2011, CalPERS brought individual suit asserting the same claims and relying on the same facts presented in the Class Action.
Subsequently, the District Court issued a notice of settlement to the class and granted each class member the right to opt-out of the settlement. CalPERS did so. The District Court then dismissed CalPERS’s claims as untimely pursuant to Section 13, because by 2011, when CalPERS filed its individual complaint, more than three years had passed since the securities in question were offered to the public. The Second Circuit affirmed the District Court’s ruling, relying on its decision in IndyMac.
In the brief filed in part by Tom Goldstein, who will presumably argue the case for CalPERS, the pension fund argues that the Second Circuit’s ruling in IndyMac and in the instant case conflict with the Court’s holding in American Pipe, and thus must be overturned. In American Pipe, the Supreme Court held that Rule 23 of the Federal Rules of Civil Procedure provides that the filing of a class action commences the action for all class members, named or unnamed, and tolls the limitations period for the cause of action if the class action fails. CalPERS argues that pursuant to American Pipe, as a putative member of the Class Action, it cannot be time-barred by Section 13 from asserting the claims it filed in 2011.
CalPERS argues that the Court can rule consistent with American Pipe by either: 1) holding that CalPERS’s action was timely regardless of tolling because it was a member of the timely filed Class Action; or 2) holding that the time for CalPERS to file its complaint was tolled by the filing of the Class Action. In addition to its arguments regarding the language of Section 13 and American Pipe, CalPERS relies on two other arguments concerning efficiency and due process. Continue Reading Briefs Filed in CalPERS v. ANZ Securities
On November 4, 2016, Judge Keith Ellison of the United States District Court for the Southern District of Texas granted preliminary approval of a $175 million settlement in the federal securities class action In re: BP p.l.c. Securities Litigation between BP and Lead Plaintiffs for the “post-explosion” class. While the settlement is still subject to final approval, it resolves allegations that BP misrepresented the seriousness of the Deepwater Horizon explosion and its aftermath—covering investors who purchased BP shares between the date of the first alleged misrepresentation about the amount of oil being released as a result of the explosion (April 26, 2010) and the date on which it was revealed that BP initially misrepresented the spill’s severity (May 28, 2010). In granting preliminary approval of the settlement, Judge Ellison also: (1) rejected 135 institutional investors’ request for exemption from opt-out procedures; and (2) allowed some plaintiffs who timely requested exclusion from the class to withdraw their requests and opt back into the settlement. Continue Reading Court in the BP p.l.c. Securities Litigation Upholds Opt-Out Procedures But Then Allows Individual Action Plaintiffs to Opt Back Into $175 Million Settlement
Angela DiIenno contributed to this article.
On September 27, 2016, the Second Circuit ruled against a value investor in an opt-out action brought in the continuing Vivendi litigation. The recently issued opinion, however, does have positive implications for institutional investor class participants. First, the opinion confirms the availability of the fraud-on-the-market theory of reliance for institutional investors. Second, the opinion restricts the situations in which defendants may successfully rebut the presumption of reliance. Notably, however, institutions that have significant after-class purchases should be aware that such purchases could undercut their ability to rely on the fraud-on-the-market theory of reliance.
In GAMCO Investors Inc. v. Vivendi, S.A., GAMCO brought an individual action asserting Section 10(b) and Rule 10b-5 claims against Vivendi, alleging Vivendi made material misrepresentations regarding its liquidity. First, the U.S. District Court for the Southern District of New York held that Vivendi was estopped from denying any elements of GAMCO’s Section 10(b) claim other than reliance. After a bench trial on the reliance issue, the Court entered judgment for Vivendi, holding that Vivendi had successfully rebutted the fraud-on-the-market presumption of reliance. Continue Reading In GAMCO v. Vivendi, the Second Circuit Affirms that Value Investors Can Rely on the Fraud-on-the-Market Presumption Unless Specific Facts Establish Non-Reliance
There have been several recent and interesting updates to the In re Petrobras Securities Litigation, 14-cv-9662 (S.D.N.Y.) that we have discussed several times on this blog. First, the Second Circuit has decided to accept review of the class certification question. Second, Judge Jed Rakoff denied a motion to stay the underlying proceedings (including the impending trial) pending the Second Circuit appeal in a decision that called the class action “arguably secondary” to the numerous opt-out proceedings. Finally, several plaintiffs have voluntarily dismissed their claims with prejudice—but without explanation.
A January 4, 2016 opinion in the Southern District of Texas by Judge Keith Ellison (“Op.”) in the In re: BP p.l.c. Securities Litigation, MDL No. 4:10-md-2185, has taken up the issue of whether plaintiffs can properly assign their claims to entities created solely for the purpose of litigating those claims. The court found that these assignments were invalid, which may give plaintiffs in other disputes pause before pursuing the same course in the future. This decision is an interesting contrast to the recent decision we covered in the In re Petrobras Securities Litigation, No. 14-cv-9662 (S.D.N.Y.) consolidated litigation, where certain opt-out plaintiffs whose assignments were challenged were allowed to proceed with their cases.
As a follow-up to our October 15 discussion about challenges to the standing of certain opt-out plaintiffs in the In re Petrobras Securities Litigation, No. 14-cv-9662 (S.D.N.Y.) consolidated litigation, Judge Rakoff has resolved those issues in two decisions. In a brief October 19, 2015 decision announcing the Court’s opinion (and dismissing certain opt-out claims) and a more fulsome January 5, 2016 decision explaining his reasoning, Judge Rakoff denied the Petrobras defendants’ motion to dismiss on each of the standing arguments. Although the two opinions address a variety of arguments beyond the standing issues, including dismissal of various claims on limitations grounds, the Court’s opinion allows those opt-out plaintiffs whose standing was challenged to proceed with certain claims in their cases.
A recent motion to dismiss filed by the defendants in the In re Petrobras Securities Litigation, No. 14-cv-9662 (S.D.N.Y.) consolidated litigation challenges the standing of several institutional opt-out plaintiffs. Defendants’ arguments on standing, if accepted, could have a far reaching impact on an investment advisor’s standing to sue on behalf of funds it advises.
As background, Petróleo Brasileiro S.A. (“Petrobras”), a Brazil-based energy multinational, is a target of a Brazilian police investigation of alleged rampant corruption involving construction contracts. Allegedly, several large construction companies colluded to avoid Petrobras’s competitive bidding process, giving kickbacks to Petrobras executives to allow the collusion. As a result, Petrobras allegedly significantly overpaid for the construction of certain refineries.
In December 2014, investors who had purchased American Depository Shares (ADSs) of Petrobras on the New York Stock Exchange filed a securities class action in the Southern District of New York, alleging violations of the Securities Act of 1933, the Securities Exchange Act of 1934, and (in an amended complaint) Brazilian securities laws. Plaintiffs allege that in regulatory filings and public statements, Petrobras misrepresented its financial condition, financial controls, and ethical practices. A motion to dismiss the class action was substantially denied.
However, on August 21, 2015, Defendants, i.e., Petrobras, affiliated entities, and their underwriters, filed a Motion to Dismiss certain Individual Opt-Out Complaints (the “Opt-Out Def. Mem.”). Defendants’ supporting memorandum makes a variety of arguments in favor of dismissal against a variety of plaintiffs, including arguments on standing. Continue Reading Standing of Petrobras Opt-Out Plaintiffs Challenged