At oral arguments Monday afternoon at the U.S. Supreme Court in California Public Employees’ Retirement System v. ANZ Securities, the justices seemed to fall into predictable camps – with one crucial – and potentially dispositive – exception.
The case, as you probably recall, presents the question of whether the filing of a securities class action extends the statute of repose as well as the statute of limitations. Justices Samuel Alito and Anthony Kennedy seemed skeptical that the time limitation specified in the Securities Act of 1933 – which says that “in no event shall any such action be brought … more than three years after the security was bona fide offered to the public” – can be read as anything but a defendant’s right to be free from new lawsuits after three years. Justice Neil Gorsuch suggested strict adherence to the text of the statute. (Justice Clarence Thomas was silent.)
On the court’s liberal wing, Justice Stephen Breyer was tough to read, but Justices Elena Kagan, Ruth Ginsburg and Sonia Sotomayor appeared to support a loose reading of the Securities Act’s time limitation. The practical consequences of a strict three-year time limit, they suggested, could be a flood of protective filings that would swamp trial judges’ dockets or else an unintended restriction on the rights of shareholders who thought they were covered in class actions. Justices Ginsberg and Kagan said it’s not even clear that the Securities Act provision is meant to be a statute of repose.
You’ve surely noted which justice I haven’t yet mentioned. Yep: the Chief, John Roberts. With the usual caveat that oral arguments are not necessarily a reliable indicator of how cases will be decided, Chief Justice Roberts could well be the swing vote to extend time limits for class members who want to sue on their own.
The chief justice was mostly quiet when CalPERS lawyer Thomas Goldstein of Goldstein & Russell argued that because a class action against Lehman debt underwriters asserted the same Securities Act claims as a separate CalPERS suit filed more than three years after the debt offerings, “the class complaint … which was filed within a year, brought the action on our behalf.” Goldstein told the justices that if they held otherwise, big pension funds like his client would be forced to file placeholder complaints or motions to intervene in pending class actions in order to protect their right to opt out later on.
The only reason there hasn’t already been a flood of protective filings, Goldstein said, is that investors’ lawyers tend not to file Securities Act suits in a rising stock market. Chief Justice Roberts asked him to explain; Goldstein said that investors can only recover damages for securities that lose value after their public offering. That scenario, Goldstein said, has been rare in recent years.
The chief justice stayed out of the fray when Justices Ginsburg, Kagan and Sotomayor peppered underwriters’ counsel Paul Clement of Kirkland & Ellis with questions about whether the Securities Act time limit is really a statute of repose and, if so, exactly what actions it bars. Clement reiterated his central point: The Supreme Court said in 1991’s Lampf, Pleva v. Gilbertson that the three-year Securities Act time limit is a statute of repose and said in 2014’s CTS v. Waldburger that statutes of repose cannot be tolled - so, under the court’s own precedent, CalPERS can’t get around the absolute three-year time bar. “A statute of repose means repose,” Clement said. “Its defining feature is that it's not subject to tolling or estoppel rules.”
That statement got the chief justice’s attention. “No,” he said. “There's different levels of repose.” Goldstein’s theory, Chief Justice Roberts said, is that a statute of repose gives defendants a right to be free from unannounced liability – but because a class action already exposes the defendant to liability to future opt-outs, the statute of repose doesn’t bar later-filed individual suits by putative class members. When a class action has been filed, Roberts said to Clement, “There aren't going to be any more surprises. You know what's on the table. That's repose.”
Clement responded that repose means no new actions and no exposure to additional liability. The chief justice countered that it’s not clear to him that opt-outs from a class action subject defendants to new liability.
This late exchange between Roberts and Clement could be the most important moment of the case – assuming that the Supreme Court wants to answer the big question of whether class actions extend the statute of repose for investors who are part of the class. Interpreting repose as the right to be free from additional exposure, rather than additional lawsuits, would allow the Supreme Court to bypass complications like the interplay between the Rules Enabling Act and the federal civil procedure rules for class actions and competing due process rights of plaintiffs and defendants.
Of course, Roberts could just have been livening up the last quarter-hour of a long day at the Supreme Court. Roberts could end up agreeing with the conservative justices that the statutory language of the Securities Act bars individual suits filed outside of the three-year time window, regardless of whether a class action is on file. Or the court could decide the case on the specific facts and hold CalPERS suit was untimely because it was not, strictly speaking, an opt-out from the class action.
But if the chief justice sides with the liberal wing to preserve plaintiffs' rights, we may have to start to revise conventional wisdom about the Roberts Court.