The U.S. Court of Appeals for the Second Circuit recently affirmed a lower court's denial of a petition to intervene filed by parties attempting to join in an MBS class action, as the claims asserted by the interveners were barred by the applicable statute of repose.
In reaching its decision the Court determined that: (1) the relation back doctrine in Fed. R. Civ. P. Rule 15(c) cannot be used to revive claims otherwise dismissed for want of jurisdiction; and (2) the tolling rule recognized by the Supreme Court in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974) ("American Pipe") does not apply to the three year statute of repose provided Section 13 of the Securities Act of 1933, 15 U.S.C. § 77m (the "1933 Act").
A copy of the opinion is available here: Link to Opinion
The underlying lawsuit involved two securities class actions, consolidated by the lower court, alleging violations of Sections 11, 12(a) and 15 of the 1933 Act against an issuer of mortgage pass-through certificates.
The lower court dismissed certain claims from the class action for lack of constitutional standing, a jurisdictional defect, because the lead and sole named plaintiff in the class action never purchased the relevant certificates.
The parties attempting to intervene in the class action had purchased the certificates. However, at the time the intervenors brought their petition, the 3 year statute of repose under the 1933 Act had already expired.
Nevertheless, the intervenors argued that the tolling rule from American Pipe operated to toll the statute of repose, or in the alternative, the claims "relate back" to the otherwise timely complaint filed by the lead plaintiff under Rule 15(c). The trial court rejected the intervenors' petition, and the intervenors appealed.
On appeal, the Second Circuit noted that the American Pipe rule provides that "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." 414 U.S., at 554. The Court further explained the rationale behind the American Pipe ruling was to avoid the filing of multiple actions by all putative class members in an effort to ensure that their claims were not barred by any statute of limitations in the event a class certification was denied.
However, the Second Circuit distinguished the present circumstances from American Pipe based upon the differences between a statute of limitation and a statute of repose. As recited by the Second Circuit, a statute of limitations merely limits the availability of remedies and is subject to equitable considerations, such as tolling, whereas statutes of repose affect the underlying rights and run without interruption once the necessary triggering event has occurred.
Importantly, the Second Circuit explicitly noted that a statute of repose in not subject to equitable considerations, and may only be limited by legislatively created exceptions.
The relevant portion of Section 13 of the 1933 Act provides "in no event shall any such action be brought to enforce a liability … more than three years after the [underlying] security was bona fide offered to the public, or … more than three years after [its] sale." 15 U.S.C. § 77m.
The Second Circuit rejected the intervenors' arguments that the American Pipe rule was a form of "legal tolling" as opposed to "equitable tolling", and, thus, applicable to the Section 13 statute of repose, based upon the Rules Enabling Act, 28 U.S.C § 2072(b). The Rules Enabling Act provides, in part, that the courts cannot use its power "shall not abridge, enlarge or modify any substantive right." Id. The Second Circuit explained that Section 13 created a "substantive right" and thus the courts, even the Supreme Court, were prohibited by the Rules Enabling Act from creating any rule which enlarges those rights. Thus, the American Pipe rule, whether it is classified as "equitable tolling" or "legal tolling" could not enlarge the time period provided by the statute of repose in Section 13.
Addressing the relation back doctrine of Rue 15(c), the Court noted a long standing rule providing that "if jurisdiction is lacking at the commencement of a suit, it cannot be aided by the intervention of a plaintiff with a sufficient claim." Thus, the intervenors could not attempt to revive these claims which were dismissed by the lower court for lack of constitutional standing.
Accordingly, the Second Circuit affirmed the ruling of the lower court.
Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
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