The Evolution of Securities Class Action Law: California Public Employees’ Retirement System v. ANZ (2017)

?Class actions serve multiple goals. Perhaps their most important purpose is to provide access to justice for people who otherwise would not obtain it. When a company engages in behavior such as securities fraud, selling an unsafe product, or false advertising, the harm done by the company is spread out among many victims. Even though the total amount of harm would warrant a lawsuit, most victims are not in a position to sue on an individual basis because the amount of money they can win is less than the cost of hiring a lawyer and going through the litigation process. These victims are sometimes referred to as “negative-value claimants” since their claims are likely to lose money when litigated individually.

It is important to recognize that class actions can help “positive-value claimants” as well. These are victims whose individual claims can win enough money to justify the costs of pursuing a lawsuit on their own. By aggregating their claims, class actions allow these victims to share the costs of litigation and increase their net compensation.

However, when it comes to positive-value claimants, class actions are a double-edged sword. Sometimes the class action will achieve a relatively small settlement, or a settlement that fails to recognize special circumstances that entitle a particular victim to greater compensation than other victims. In these situations, positive-value claimants may be better served by opting out of the class action settlement and pursuing their own lawsuit. For a long time, many positive-value claimants who were included in securities class actions followed a “wait and see” strategy.

Statutes of Limitations and Statutes of Repose

There are two potential barriers to a “wait and see” strategy. A statute of limitations limits the amount of time a plaintiff can take to decide whether they will file a lawsuit. Statutes of limitations begin to run at the time when it becomes possible to file a lawsuit—typically, this is the time when the plaintiff suffered an injury. In contrast, a statute of repose limits the amount of time that the defendant is subjected to liability, so as to eventually release them from fear of litigation. A statute of repose begins to run at the time of the last act of wrongdoing by the defendant.

?Securities fraud claims are subject to both statutes of limitations and statutes of repose. For Section 11 claims, the 1933 Act specifies a statute of limitations of one year and a statute of repose of three years. For Rule 10b-5 claims, the Sarbanes-Oxley Act of 2002 specifies a statute of limitations of two years and a statute of repose of five years.

Nonetheless, the “wait and see” strategy was still possible because judges “tolled” the statutes of limitations and statutes of repose, putting them on pause, while a class action was being litigated. This meant that a positive-value claimant could follow a “wait and see” strategy as long as a class action was filed before the statutes of limitations and repose ran out.

In California Public Employees’ Retirement System v. ANZ (2017) the Supreme Court held that tolling does not apply to statutes of repose, and that it applies only to statutes of limitations. Read the full article to understand the implications the CalPERS case had on organizations looking to adopt a “wait and see” strategy.?

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