The federal securities laws have statutes of repose (suit barred after a fixed number of years from the time the defendant acts in some way) and statutes of limitations (establishing a time limit for a suit based on the date when the claim accrued). There is a growing district court split, however, over whether the existence of a class action tolls the statute of repose for a federal securities claim.
Under what is known as American Pipe tolling, “the commencement of a class action suspends the applicable statute of limitations as to all asserted members of the class who would have been parties had the suit been permitted to continue as a class action.” American Pipe & Construction Co. v. Utah, 414 U.S. 538, 554 (1974). The Supreme Court found that its rule was “consistent both with the procedures of [Federal Rule of Civil Procedure] 23 and with the proper function of limitations statutes.” Id. at 555. In a later case, however, the Supreme Court also found that federal statutes of repose are not subject to equitable tolling. Lampf, Pleva, Lipkind, Prupis & Pettigrow v. Gilbertson, 501 U.S. 350, 364 (1991). In attempting to reconcile these two cases, the majority of lower courts have concluded that American Pipe tolling applies to the statute of repose for federal securities claims because it is based on FRCP 23 and, therefore, is a type of legal (as opposed to equitable) tolling. Other recent decisions, however, have concluded that because FRCP 23 does not expressly create a class action tolling rule, American Pipe tolling is best understood as a judicially-created rule based on equitable considerations and, as a result, cannot extend a statute of repose.
In New Jersey Carpenters Health Fund v. Residential Capital, LLC, 2013 WL 55854, (S.D.N.Y. Jan. 3, 2013), the court surveyed this case law and sided with the majority position. In particular, the court found that failing to toll the statute of repose would undermine the purpose of FRCP 23 and its endorsement of class actions. Indeed, the court noted that “in a securities case, the risk that potential class members would flood the courts is particularly serious, since class certification is a lengthy, uncertain process.” Moreover, any former class members would have effectively been a party to an action against the defendant already. Tolling their individual claims therefore would not be “contrary to the purpose of the repose period that the right to initiate suit against a defendant be within a legislatively determined time period.”
Holding: Denying motion to dismiss claims.
Addition: On the Case has a post on the decision and notes that the Second Circuit is considering the tolling issue in a pending appeal.