Class-Action Tolling, Federal Common Law, and Securities Statutes of Repose: A Recommendation
This Essay focuses on a narrow, but potentially outcome determinative, question: Does the filing of a securities class action toll the three-year outer time limit applicable to claims under sections 11 and 12(a)(2) of the Securities Act and the five-year outer time limit applicable to claims under section 10(b) of the Securities Exchange Act, such that potential class members—after a decision on class certification—can assert an individual federal action, even if those outer time limits would have elapsed absent tolling? There is currently a circuit split on this issue, with the Tenth Circuit answering “yes” and the Second Circuit answering “no.” Although the Supreme Court initially granted certiorari to resolve this issue, it later dismissed the writ as improvidently granted, leaving behind a vigorous debate between advocates of institutional investors and those of securities defendants, as well as among scholars.
This Essay makes the unique argument that these outer time limits, properly characterized as statutes of repose, should be tolled if class certification is denied but not if class certification is granted. To reach this conclusion, this Essay builds on the work of several eminent civil procedure scholars who have argued that class-action tolling is a creature of federal common law, drawn from the federal policies underlying Federal Rule of Civil Procedure 23, federal statutes of limitations, and the relevant federal legislative scheme. Then, picking up where these scholars have left off, this Essay argues that, in the context of securities class actions, the policies underlying Rule 23, the securities statutes of repose, and the securities laws merit this Essay’s proposed bifurcated approach to the class-action tolling of securities statutes of repose.