High Court to Decide Multi-Billion Dollar Case Against Underwriters

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By Antoinette Gartrell

Justices asked about the impact of a class action timeliness rule on both investors and the lower courts during an April 17 oral argument at the U.S. Supreme Court ( Calif. Pub. Emp. Ret. Sys. v. ANZ Securities, Inc., U.S., No. 16-373, 4/17/17 ).

The district courts could be flooded with “make-work” under the defendant investment bank’s argument, Justice Elena Kagan said.

The dispute concerns whether the filing of a class action stops the clock on a three-year time limit set out in securities law provisions governing when lawsuits must be filed. The issue is important to institutional investors who often opt out of securities class litigation to bring their own individual suits.

The resolution depends on whether the high court’s previous tolling decision—that the commencement of a class action suspends the applicable statute of limitations as to all would-be class members—applies. The justices agreed to tackle the topic two years ago in an unrelated case, but the parties settled their differences before oral argument.

California Public Employees’ Retirement System (CalPERS) opted out of a class action and brought an individual suit in 2011 claiming that the underwriters of $31 billion in Lehman Brothers Holdings’ debt offerings didn’t disclose risks related to Lehman’s exposure to subprime mortgages in the years before its demise.

During arguments, CalPERS’ attorney Thomas C. Goldstein of Goldstein & Russell PC, Bethesda, Md., told the court that his client’s suit was, in essence, the same action as the class suit because it involved the same allegations.

“The class action complaint, in the passive voice, brought the action on our behalf, and then we just took control of it when we opted out,” he said. “All that happens is we have different lawyers,” Goldstein said. “There’s no additional surprise,” he said in assuring the justices that it was a mere formality that “just involves more paperwork.”

The April 17 oral argument took place on Justice Neil Gorsuch’s first day on the job. During the argumens, Gorsuch focused on the proper meaning of the term “action” found in the provision and why the court shouldn’t follow the traditional interpretation of the word.

ANZ Securities Inc.'s attorney, Paul Clement, a former U.S. solicitor general and partner at Kirkland & Ellis, Washington, said that statutes of repose, which limit civil liability, aren’t subject to tolling. It’s only when investors wish to go outside of the class action to get a “better deal,” that they have to concern themselves with the timeliness issue, he said. “I’m sorry, 2011 is too late under the plain terms of the statute,” Clement said.

Washington lawyer Daniel S. Sommers, Cohen Milstein Sellers & Toll PLLC, who represents investors in class actions, told Bloomberg BNA that it’s too difficult to predict how the justices will rule, but said that it was worth noting that five members of the court—Kagan, Ruth Bader Ginsburg, John Roberts, Stephen Breyer and Sonia Sotomayor—“expressed significant concerns about the practical implications on investors of ANZ’s position that investors must file a separate action within three years of the issuance of a security in order to protect their rights.”

Mark R.S. Foster of Morrison & Foerster LLP, San Francisco, who represents public companies in securities class actions, said in a statement that no matter how the justices decide, it’s unlikely that it will have a significant effect on securities litigation over the long term.

To contact the reporter on this story: Antoinette Gartrell in Washington at agartrell@bna.com

To contact the editor responsible for this story: Phyllis Diamond at pdiamond@bna.com

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