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May 19 — Investors can't revive their claims against five Morgan Keegan & Co. Inc. funds that lost 90 percent of their value during 2007 and 2008, the U.S. Court of Appeals for the Sixth Circuit said May 19.
In a case of first impression, Judge Eric L. Clay held that the tolling doctrine of American Pipe & Construction Co. v. Utah doesn't apply to statutes of repose, making the investors' claims untimely.
Statutes of repose—in this case, three years and five years—are an absolute limit of the time in which a lawsuit must be brought. They run from the last culpable act and are construed more strictly than statutes of limitation.
Statutes of limitation set out a time limit in which to sue based on the date the claim accrued and may be subject to equitable tolling. Under American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), the filing of a lawsuit tolls the running of a statute of limitations for all class members.
In this case, investors sued Morgan Keegan in October 2013 for allegedly misleading them about the funds' risky investment strategy. The funds collapsed in the run-up to the financial crisis, allegedly costing investors billions of dollars.
In July 2015, the district court dismissed the claims as barred by the applicable statute of limitations. On appeal, the investors contended that the relevant statute of limitations and repose were paused because their claims were filed during the pendency of other investor class proceedings.
Relying on the statute of repose, the Sixth Circuit determined that the investors filed their case too late. It said that because the plaintiffs sued more than five years after the alleged misconduct, without tolling of some kind, their claims are barred by the applicable statute of repose.
Resolving an issue of first impression, the Sixth Circuit concluded that American Pipe tolling doesn't apply to statutes of repose—a question on which the circuits are divided. In 2014, the U.S. Supreme Court agreed to tackle the issue, but the parties settled their differences two weeks before the case was to be argued (189 SLD, 9/30/14).
The investors were represented by H. Naill Falls, Jr. of Falls & Veach, Nashville, Tenn.
Morgan Keegan was represented by Maynard, Cooper & Gale, Birmingham, Ala., Paul Hastings, New York and Bass, Berry & Sims PLC, Nashville, Tenn.
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To view the court's opinion, visit: http://www.bloomberglaw.com/public/document/Stein_v_Regions_Morgan_Keegan_Select_High_Income_Fund_Inc_No_1559.
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