The justices started off their new colleague Neil Gorsuch with a hard day of work, staying after lunch yesterday to hear a third oral argument in a single day for the first time since October. And this for a securities case. Now, if you are not a securities lawyer, you might have assumed from the question presented that California Public Employees’ Retirement System v. ANZ Securities involves some tediously intricate question about securities procedure, likely to leave the justices dozing after lunch. But in truth it is not really all that complicated. Indeed, as class-action cases in the Supreme Court go, this is about as simple as it gets. The basic question is one that any reader can appreciate: If a plaintiff files a class action complaint that includes your claims, does that count as your complaint if you decide to “opt out” of the class action? Or do you have to file your own complaint before the deadline for filing expires?

The Supreme Court has addressed a similar question before, in its 1974 decision in American Pipe & Construction v. Utah. The court held in that case that the class complaint did count as the claim of the individual claimants for purposes of statutes of limitation; specifically, it held that the class complaint “tolled,” or suspended, the statute of limitations so that the individual’s later complaint was timely. In the securities laws, though, there are two different kinds of filing deadlines. The first, statutes of limitation, are relatively short and run from the time when the claimant discovers the problem that gives it a right to sue; the second, statutes of repose, are relatively long and run from the date of the violation in question. We know from American Pipe that the class-action complaint tolls the statute of limitations. The question here is whether the same rule applies to statutes of repose. And on that question the argument suggests a bench that is far from settled.

During the argument of Thomas Goldstein (representing CalPERS, which tried to opt out of the class action after the expiration of the statute of repose), at least two of the justices (Justices Samuel Alito and newcomer Neil Gorsuch) seemed settled on the idea that the statute simply cannot be read to permit the late opting out. They emphasized the statutory command that no new “action” can be brought after the three-year deadline. As Gorsuch put it:

[W]hen I see the word “action,” I think of lawsuit, traditionally, and “claim” as the claims within the lawsuit. And the laws often distinguish between actions and claims. The securities laws do, routinely. … Here, why shouldn’t we follow the plain language and the traditional understanding of the term “action”? … I don’t like the policy consequences, but as a matter of plain language, why wouldn’t we?

Nor was Gorsuch alone on that point: Alito repeatedly pressed Goldstein on the same phrase of the statute: [W]hat does the term ‘such action’ mean? … [I]f a plaintiff in every single judicial district in the country had brought exactly the same claim, those would all be the same action, in your opinion?” And even Justice Stephen Breyer joined in to suggest the plausibility of that reading: “Your client leaves the first action. And what does he do after three years? I guess he puts a piece of paper called a complaint in a court and that would seem to be bringing an action.”

On the other side of the matter, Chief Justice John Roberts and Justice Elena Kagan seemed to think that significant practical considerations supported a rule that would treat the class-action complaint as adequate to protect the claims of specific investors. For her part, Kagan raised several different concerns in a series of exchanges with Paul Clement (counsel for the defendants). One of the most notable emphasized the disproportionate adverse impact the defendants’ rule would have on small investors:

If we go your way in this case, [in] any future suit like this all large investors [are going] to file a protective action. … Well, small investors are not going to do that. They’re not going to have the faintest idea that they should be doing that. So this is a rule that’s kind of guaranteed to create make-work for district courts to be essentially irrelevant for large investors, and [to cause] small investors to lose their claims.

At another point, Kagan suggested a limited conception of the “repose” that a statute of repose brings to defendants – not one that bars all later complaints, but really just one that bars the surprise of a plaintiff who brings a late suit when he first learns of its injuries many years after the defendants’ wrongful statements. Roberts seemed to agree with that point, commenting to Clement late in his presentation:

[T]here’s different levels of repose. … [Y]ou have repose under his theory, in the sense that you know what people are suing you about. You’re still facing a lawsuit in the other case. There aren’t going to be any more surprises. You know what’s on the table. That’s repose. … I mean, the liability is the same if you have the class action including CalPERS … as it is, if … you’re facing the class action without CalPERS, but another CalPERS suit.

Kagan also expressed concern that Clement’s understanding of repose would render the investors’ right to opt out largely illusory:

We’re used to thinking that the opt-out right is a very important part of class actions; it’s what saves them from a due process problem, that people actually do get to say, I don’t want any part of this. And you’re saying they only get to say that within 3 years …. [I]t may be 6 months [from] the time the suit was brought, or 1 month or something like that. And … if you haven’t decided within that month or 6 months that these lawyers are not doing a good job, you’ve lost your ability forever to do it for yourself.

The best quip of the argument came from Breyer, near the end of Clement’s presentation. I mentioned above that Breyer initially suggested he was sympathetic to the argument that the language of the statute cannot be read to validate the late opt-outs that CalPERS advocates. But Breyer made it clear near the end of the hour that the practical consequences of that reading might motivate him to abandon it. Imagining a class action involving 300,000 potential plaintiffs, Breyer strayed into the realm of hyperbole, contending that “[y]ou’ll have to build a new clerk’s office” to house the “300,000 pieces of paper [coming] across your desk” when every single one of the potential plaintiffs files a separate complaint.

The juxtaposition of several justices reading the statute as compelling a ruling for the defendants with other justices decrying the practical consequences of that reading suggests that the court is not likely to come to a unanimous resolution of the matter. So it is far from clear how this case will be decided, although given the apparent lack of unanimity, this case probably will not bring Gorsuch his first opinion assignment.

[Disclosure: Goldstein & Russell, P.C., whose attorneys contribute to this blog in various capacities, is among the counsel to the petitioner in this case. The author of this post, however, is not affiliated with the firm.]

Posted in California Public Employees’ Retirement System v. ANZ Securities, Analysis, Featured, Merits Cases

Recommended Citation: Ronald Mann, Argument analysis: Justices stay late to hear argument about deadlines for investors opting out of securities class actions, SCOTUSblog (Apr. 18, 2017, 12:01 PM), http://www.scotusblog.com/2017/04/argument-analysis-justices-stay-late-hear-argument-deadlines-investors-opting-securities-class-actions/