Supreme Court Ruling Secures Victory for Cleary Gottlieb Clients

June 26, 2017

Cleary Gottlieb, in collaboration with Kirkland & Ellis, secured a major victory on behalf of over two dozen underwriter clients, at the U.S. Supreme Court in California Public Employees’ Retirement System (CalPERS) v. ANZ Securities Inc. et al. 

On June 26, 2017, the Supreme Court upheld the Second Circuit’s IndyMac decision holding that the class action tolling rule, established in the 1974 American Pipe Supreme Court decision, does not apply to the statute of repose established by Section 13 of the Securities Act of 1933. This is a landmark decision that affirms the limits of the liability period for securities issuers and underwriters, as well as corporate officers and directors, and extinguishes actions filed after repose periods expire.

This major decision is the culmination of a long-running case brought by CalPERS against Cleary client ANZ Securities Inc., and dozens of other financial institutions, stemming from global investment bank Lehman Brothers’ bankruptcy. Just prior to the 2008 financial crisis, Lehman raised more than $31 billion through debt offerings, and CalPERS acquired millions of dollars of those securities. Following Lehman’s bankruptcy, a putative class action was filed against the parties that had underwritten those offerings, claiming they were liable for misleading information in the registration statements. The parties reached a class settlement late in 2011, but CalPERS opted out to continue to pursue an individual action it had previously filed. Although CalPERS’s individual action was filed after the expiration of the repose period, CalPERS nonetheless argued that its action was timely because the statute of repose was satisfied by the filing of the class action. 

Judge Lewis Kaplan in the Southern District of New York dismissed CalPERS’s individual suit as untimely, and the Second Circuit later affirmed the district court’s ruling, stating that the American Pipe class action tolling rule does not affect the Securities Act’s statute of repose. In January 2017, the Supreme Court granted CalPERS’s petition for a writ of certiorari, taking up the question of whether a member of a putative class can opt out of the class action and pursue its individual claims after the expiration of the repose period, so long as the class action was timely filed.