In a landmark 5-4 ruling issued earlier this summer, the U.S. Supreme Court held that the filing of a putative class action does not toll the three-year ­statute of repose for opt-out claims brought under Section 11 of the Securities Act of 1933 (Securities Act), in California Public Employees' Retirement System v. ANZ Securities, 137 S. Ct. 2042 (2017). By refusing to apply the equitable tolling rule of American Pipe & Construction Co. v. Utah, 414 U. S. 538 (1974), to the Securities Act's statute of repose (Section 13 of the act), the court restored the statute's purpose to protect defendants “from an interminable threat of liability.”

Five weeks later, on Aug. 2, the U.S. Court of Appeals for the Third Circuit revealed the broad impact of the Supreme Court's ruling by applying it to the five-year statutes of repose applicable to claims brought under Sections 10(b), 20(a) and 20A of the Securities Exchange Act of 1934 (Exchange Act) in North Sound Capital v. Merck, Nos. 16-1364, 16-1365, 16-1366, 16-1367, 2017 U.S. App. LEXIS 14170 (3d. Cir. Aug. 2). At least in the Third Circuit, defendants now have the ability to obtain dismissals of untimely opt-out ­actions, whether filed under the Securities Act or the Exchange Act.

Section 13's Three-Year Bar

Section 11 of the Securities Act, 15 U. S. C. Section 77k, gives investors who purchase securities pursuant to a public offering “a right of action against the ­issuer or ­designated individuals, including ­securities underwriters, for any material misstatements or omissions in a registration statement.” Section 12(a)(2), 15 U.S.C. 77l(a)(2), provides a private right of action to those investors who claim to have purchased securities pursuant to a materially false or misleading prospectus or oral communication.

Section 13 of the act, 15 U.S.C. Section 77m, provides two time limits for bringing private actions under Section 11 and Section 12(a)(2). The first sentence of Section 13 contains a one-year bar: “No action shall be maintained to enforce any liability created under [Section 11 or Section 12(a)(2)] unless brought within one year after the discovery of the untrue statement or the omission, or after such discovery should have been made by the exercise of reasonable diligence … .” The second sentence contains a three-year bar: “In no event shall any such action be brought to enforce a liability created under [Section 11 or Section 12(a)(2)] more than three years after the security was bona fide offered to the public … .”