As I had noted on this blog (here), one of the important securities law cases on the U.S. Supreme Court’s docket for the upcoming term involved the failed IndyMac bank. The Court had granted cert in the case to decide whether the three-year limitations period in Section 13 of the ’33 Act may be tolled by the filing of a putative securities class action (under a legal theory known as the American Pipe tolling doctrine), or rather is a statute of repose that cannot be tolled. Though seemingly technical, the case presented potentially significant issues.
The case was scheduled to be argued next Monday, October 6. However, on September 29, 2014, in an unexpected development, the U.S. Supreme Court entered an order dismissing the writ of certiorari as improvidently granted, based on settlement-related developments in the underlying case.
As discussed in greater detail here, the underlying securities lawsuit involves allegations that the failed IndyMac Bank misled investors in connection with its issuance of securities in over 100 different offerings. The District dismissed for lack of standing all claims in which the plaintiffs had not themselves purchased securities. Five investors who did purchase the securities sought to intervene. The district court denied the motion to intervene, on the grounds that the three year statute of repose had lapsed and was not extended by the American Pipe tolling doctrine and could not be extended under Fed. R. Civ. Proc. 15 (c). The proposed intervenors appealed.
In a June 27, 2013 opinion (here), the Second Circuit, in an opinion by Judge Jose A. Cabranes for a three-judge panel, held that the filing of a class action lawsuit does not toll Section 13’s statute of repose. The appellate court held that neither the equitable tolling principles under American Pipe nor the legal tolling principles could operate to extend the period of the statute of repose.
The proposed intervenors filed a petition with the U.S. Supreme Court seeking a writ of certiorari. The intervenors argued that the Second Circuit’s opinion conflicted with a prior holding of the Tenth Circuit that American Pipe tolling does apply to Section 13’s statute of repose. The intervenors also argued that the Second Circuit’s holding unsettled long-standing class action practices with regard to the principles of tolling. The Court granted the petition and the case was fully briefed and ready to be argued.
All was set for the Supreme Court to address these important legal issues under the federal securities laws. However, on September 22, 2014, the plaintiffs in the underlying case notified the district court that they had reached a settlement with the underwriter defendants in the underlying case. As discussed in a September 23, 2014 post in her On the Case blog (here), Alison Frankel reported that the amount of the settlement was $340 million dollars. The settlement is of course subject to court of approval.
The U.S. Supreme Court got wind of this development and the justices likely were asking themselves that if the case has settled is there anything left of the case for the Court to consider? So on September 23, 2014, the Supreme Court entered an order in the case directing the parties to submit letter briefs addressing the issue ““What should be the effect, if any, of the proposed settlement agreement now pending before the district court on the matter pending before this Court?”
In response, lawyers for all of the parties in the case of suggested that the case could go forward in the Court because there remained claims against one of the underwriting firms sued in the case — Goldman Sachs & Co. Goldman Sachs had been dismissed as a defendant in the class action and didn’t participate in the proposed settlement.
However, as discussed in a September 29, 2014 post on the SCOTUS blog (here), the Court seems to have concluded that as a result of the settlement there was not enough of the case left of the case for the Court to hear – although the Supreme Court’s terse order dismissing the writ of certiorari in the case contains precious little explanation for the Court’s action.
The most immediate consequence of the Court’s order is that the Supreme Court appeal in the case will not go forward, meaning that the Second Circuit’s order in the case will remain standing – which in turn means that the split in the circuits that was the basis on which the Court had granted cert in the first place will continue. Because such a vast preponderance of securities cases are filed in the Second Circuit, the Second Circuit’s ruling that the filing of a class action does not toll the ’33 Act’s statute of repose will remain operative with respect to a very large number of securities cases that are filed.
In the merits briefs filed with the Supreme Court and in certain of the amicus briefs that were filed in support of the plaintiffs, the plaintiffs and the amici had argued that if the Second Circuit’s decision were allowed to stand, class members in many securities class actions would have to make wasteful “protective filings” in order to maintain their right to proceed independently and avoid being time-barred if class certification was subsequently denied. These filings would drain judicial resources and impose costs on putative class members without any countervailing benefit. (This position is discussed in greater detail here.) Whether or not this will happen remains to be seen, but there is no doubt that the fact that the Second Circuit’s decision in the case will be allowed to stand could have a significant impact on class action practice in ’33 Act case in the Second Circuit.
Though the U.S. Supreme Court has dismissed the IndyMac case from its docket, that does not mean that there won’t be any securities law action in the Court’s upcoming term. The Court still has another securities case on its docket. On November 3, 2014, the Court will hear argument in the Omnicare case.
As discussed here, in March 2014 the Supreme Court granted cert in the Omnicare case to take up the question whether or not to survive a dismissal motion it is sufficient for a plaintiff in a Section 11 case to allege that a statement of opinion was objectively false, or whether the plaintiff must also allege that the statement was subjectively false – that is, that the defendant did not believe the opinion at the time the statement was made. The Supreme Court’s consideration of the Omnicare case will resolve a split in the circuits between those (such as the Second and Ninth Circuits) holding that in a Section 11 case allegations of knowledge of falsity are required; and those (such as the Sixth Circuit, in the Omnicare case) holding that it is not required.
So the Supreme Court will be hearing and deciding an important securities law case in the upcoming term. It just won’t be getting to the ’33 Act statute of repose issue, at least not this term. Those of us who find the American Pipe tolling doctrine fascinating will have to find some other way to amuse ourselves.
And Finally: Two camels in a car. For all of you who have been wondering what would happen if you tried to put two camels in a car.