Another look at class-action cases
on Mar 10, 2014 at 1:35 pm
The Supreme Court’s current fascination with the law governing group lawsuits — that is, class-action claims — led it on Monday to add another test case, this time in a dispute left over from the financial downturn that began in 2008. The issue is the time limit to sue for false claims in the offer or sale of securities.
The Court added to its docket for rulings at its next Term the case of Public Employees’ Retirement System of Mississippi v. IndyMac MBS Inc. — a case growing out of the massive collapse of securities that were backed by home mortgage loans.
IndyMac was a major player in the marketing of mortgage-backed securities. Through a subsidiary, IndyMac MBS,Inc., it issued an investment vehicle known as mortgage pass-through certificates. These offered investors a part of the revenue generated by the monthly payments that homeowners made on their mortgage loans. Ultimately, the certificates were downgraded to junk status.
Among the investors who bought these certificates was the Public Employees’ Retirement System of Mississippi. It, along with other investors, joined in a class-action lawsuit claiming that IndyMac Bank’s underwriting statements contained false and misleading information and failed to disclose that the lending guidelines used in advancing the mortgage loans to home buyers had not, in fact, been followed.
The lawsuit was filed under the Securities Act of 1933, the so-called “truth in securities” law, which sets a time limit of one year for filing lawsuits to enforce the statute, and specifies that in no event may any lawsuit be filed more than three years after the security involved had been offered to the public or had been sold.
The investors’ class-action claim in court was filed in October 2009. A federal judge ruled that the three-year outside filing deadline had been missed. The U.S. Court of Appeals for the Second Circuit agreed. The Second Circuit’s ruling was based on alternative theories.
If the Supreme Court’s 1974 decision in American Pipe & Construction Co. v. Utah is treated as imposing an “equitable” limit on class-action lawsuits, then “equitable tolling” did not interrupt the running of the time limit in a “statute of repose” — as in the 1933 law, the court of appeals ruled. As an alternative, the Second Circuit said that, if this did not involve an equitable limit, but rather a form of legal tolling, then that was a violation of federal court rules.
In the American Pipe decision, the Supreme Court had ruled that the filing of a class-action lawsuit suspends the running of a filing deadline for all class members. The question raised in the new case by the Mississippi state employees’ pension system was whether that precedent meant that the lawsuit in this case served to interrupt the three-year time limit.
The Supreme Court took these other actions, in summary, on Monday:
** It asked the U.S. Solicitor General to provide the federal government’s views on whether the Court should hear two cases. In Bank of America v. Rose, the issue is whether customers of a national bank may sue in state court to enforce the banks’ legal duties under the federal Truth in Savings Act, even though Congress has taken away their right to sue in federal court. In Missouri ex rel. KCP&L Greater Missouri Operations Co. v. Missouri Public Service Commission, the question is whether the Constitution’s Supremacy Clause and legal doctrine on utility rates bars a state public service agency from prohibiting a utility from recovering from its retail customers the costs of importing electric power from another state, when those transmission costs have been federally approved.
** The Court refused to hear Easton Area School District v. B.H., a case which asked the Court clarify the power of public school officials to prohibit students from wearing a message-bearing object — in this case, a bracelet — that seeks to comment on a public policy issue, but does so in a sexually suggestive way. The case involving a ban on a bracelet that sought to raise the awareness of girls and young women to the threat of breast cancer, but used a colloquial way of referring to female breasts.
** Although a granted case had ended without a decision two years ago on the question of whether an individual may sue based only on a claim that a federal law had been violated, the Justices declined to grant review of that same issue in a new case. The new case, Mutual First Federal Credit Union v. Chavat, was a test of the right to sue for a technical violation of the federal Electronic Funds Transfer Act for failing to post a sign on ATM machines about the fee for using such a device.
** The Court chose to bypass a case on whether a corporate executive must have taken a personal role in denying workers their rights under federal wage-and-hour law in order to be held responsible for putting up the money for the lost overtime pay. The case was Catsimatidis v. Irizarry.