Bass, Berry & Sims attorney Chris Lazarini examined a case in which the court declined to toll the running of the five-year statute of repose found in 28 U.S.C. §1658(b)(2) under the American Pipe Doctrine and dismissed claims filed by plaintiffs who opted out of a class action settlement.
Chris provided the analysis for Securities Litigation Commentator (SLC). The full text of the analysis is below and used with permission from the publication. If you would like to receive additional content from the SLC, please visit the SLC website to sign up for the newsletter.
SRM Global Master Fund Limited Partnership vs. Bear Stearns Companies, L.L.C., No. 14-507 (2nd Cir., 7/14/16)
The filing of a class action does not toll the running of the five-year statute of repose found in 28 U.S.C. §1658(b)(2) under the American Pipe Doctrine.
Between 2006 and early 2008, SRM, a registered private investment fund, purchased Bear Stearns common stock and entered into swap agreements based on the value of the stock. In March 2008, Bear Stearns collapsed, an early casualty of the financial crisis. The numerous fraud-based putative class actions that followed were eventually consolidated and settled. SRM opted out of the class action settlement, and sued Defendants in April 2013. Like the class actions, SRM's complaint alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, SEC Rule 10b-5, and common law fraud. On Defendants' motion, the district court dismissed the securities fraud claims as time-barred under the five-year repose period found in 28 U.S.C. §1658(b)(2) and the common law fraud claims upon finding that SRM failed to adequately plead reliance.
SRM appealed, pointing to American Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974), for the proposition that the five-year repose period was tolled by the 2008 filing of the putative class action. The Court disagrees and affirms the dismissal of the federal claims, adopting its holding in Police & Fire Retirement Sys. of City of Detroit v. IndyMac MBS, Inc., 721 F.3d. 95 (2d Cir. 2013) (finding that American Pipe tolling does not apply to the statute of repose in Section 13 of the Securities Act of 1933). First, the Court rules that, as a statute of repose, rather than a statute of limitations, §1658(b)(2) is not subject to equitable tolling. Second, the Court holds that §1658(b)(2) creates a substantive right in Defendants to be free from liability after five years, a right that cannot be modified without violating the Rules Enabling Act.
Finally, the Court likewise dismisses SRM's common law fraud claims, finding that it failed to allege facts sufficient to state a plausible claim that it acted in reliance on Defendants' alleged misrepresentations in deciding to purchase, sell, or hold Bear Stearns' stock and to enter into or unwind any swap agreement.
There is a split of authority on this issue. See Joseph v. Wiles, 223 F.3d 1155 (10th Cir. 2000) (applying American Pipe tolling to the statute of repose in Section 13 of the Securities Act of 1933). The Supreme Court had granted certiorari to review the IndyMac case, but later dismissed the writ after the parties settled. This case presents another potential for Supreme Court review.