16-1364; 16-1365; 16-1366; 16-1367 United States Court Of Appeals for the Third Circuit NORTH SOUND CAPITAL LLC; NORTH SOUND LEGACY INTERNATIONAL; NORTH SOUND LEGACY INSTITUTIONAL; UNITED FOOD COMMERCIAL WORKERS LOCAL 1500 PENSION FUND, Plaintiffs-Appellees, - v. - MERCK & CO INC; MERCK SCHERING PLOUGH PHARMACEUTICALS; MSP DISTRIBUTION SERVICES C LLC; MSP SINGAPORE CO LLC; RICHARD T. CLARK; DEEPAK KHANNA, Defendants-Appellants. (See Inside Cover For Continuation of Consolidated Captions) APPEAL PURSUANT TO 28 U.S.C. § 1292(b) FROM AN ORDER OF THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY, ENTERED ON AUGUST 26, 2015 CIVIL ACTION NOS. 3:14-00242 (FLW); 3:14-00241 (FLW); 3:13-07241 (FLW); 3:13-07240 (FLW) BRIEF OF DEFENDANTS-APPELLANTS PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP Daniel J. Kramer Theodore V. Wells, Jr. Charles E. Davidow Daniel J. Leffell Daniel J. Juceam 1285 Avenue of the Americas New York, New York 10019-6064 (212) 373-3000 TOMPKINS, MCGUIRE, WACHENFELD & BARRY LLP William H. Trousdale Brian M. English 3 Becker Farm Road, Fourth Floor Roseland, New Jersey 07068-1726 (973) 622-3000 Attorneys for Defendants-Appellants Merck & Co., Inc.; Merck/Schering-Plough Pharmaceuticals; MSP Distribution Services (C) LLC; MSP Singapore Company LLC; Richard T. Clark; Deepak Khanna; Fred Hassan; and Carrie S. Cox Case: 16-1367 Document: 003112256060 Page: 1 Date Filed: 04/06/2016
63
Embed
16-1364; 16-1365; 16-1366; 16-1367 - blogs.reuters.comblogs.reuters.com/alison-frankel/files/2016/05/northsoundvmerck...16-1364; 16-1365; 16-1366; 16-1367 United States Court Of Appeals
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
16-1364; 16-1365; 16-1366; 16-1367
United States Court Of Appeals
for the
Third Circuit
NORTH SOUND CAPITAL LLC; NORTH SOUND LEGACY INTERNATIONAL;
NORTH SOUND LEGACY INSTITUTIONAL; UNITED FOOD COMMERCIAL WORKERS
LOCAL 1500 PENSION FUND,
Plaintiffs-Appellees,
- v. -
MERCK & CO INC; MERCK SCHERING PLOUGH PHARMACEUTICALS;
MSP DISTRIBUTION SERVICES C LLC; MSP SINGAPORE CO LLC;
RICHARD T. CLARK; DEEPAK KHANNA,
Defendants-Appellants.
(See Inside Cover For Continuation of Consolidated Captions)
APPEAL PURSUANT TO 28 U.S.C. § 1292(b) FROM AN ORDER
OF THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF NEW JERSEY, ENTERED ON AUGUST 26, 2015
5 See In re Schering-Plough Corporation/ENHANCE Sec. Litig., No. 08-cv-397
(D.N.J.) (“Schering Vytorin Class Action”), JA 0811-87; In re Merck & Co., Inc. Vytorin/Zetia Sec. Litig., No. 08-cv-2177 (D.N.J.) (“Merck Vytorin Class Action”), JA 0888-940.
6 See Schering Vytorin Class Action, ECF No. 440; Merck Vytorin Class Action,
ECF No. 353.
Case: 16-1367 Document: 003112256060 Page: 19 Date Filed: 04/06/2016
9
On November 14, 2013, Plaintiffs who opted out of the Schering
Vytorin Class Action settlement brought the two present actions against Schering,
with Merck named as successor. On January 14, 2014, Plaintiffs who opted out of
the Merck Vytorin Class Action settlement brought the two present actions against
Merck directly. (JA 0009, 0039-40, 0045, 0050, 0055-56.) The four opt-out
Complaints are virtual carbon copies of the consolidated complaints filed in the
Vytorin Class Actions.7 As in the Vytorin Class Actions, Plaintiffs assert claims
under Sections 10(b), 20(a), and 20A of the Exchange Act. Based on the same
factual allegations, they also add a claim for common-law fraud under New Jersey
law. (JA 0009.) Other than the handful of institutional investors who are parties to
this appeal, no other shareholder of Merck or Schering opted out of the class
settlements and filed an individual lawsuit concerning Vytorin or the ENHANCE
trial.
The following chart summarizes the timeline of relevant key events:
May 1, 2007 Schering Defendants’ last alleged
insider trade.
November 19, 2007 Schering Defendants’ last alleged
misrepresentation to investors.
January 14, 2008 Merck and Schering publicly disclose
the failure of the ENHANCE trial to
meet its primary endpoint.
7 See Schering Vytorin Class Action, ECF No. 52; Merck Vytorin Class Action,
ECF No. 208. The opt-out Complaints were marked as “related” to the Vytorin Class Actions, but assigned to Judge Freda L. Wolfson in light of Judge Cavanaugh’s retirement. (JA 0231, JA 0414-15, JA 0610, JA 0807.)
Case: 16-1367 Document: 003112256060 Page: 20 Date Filed: 04/06/2016
10
January 18, 2008 The first putative class action complaint
is filed against Schering.
January 30, 2008 Merck Defendants’ last alleged
misrepresentation to investors.
March 30, 2008 The ENHANCE results are debated at a
scientific conference, causing Merck
and Schering stock prices to drop.
May 5, 2008 The first putative class action complaint
is filed against Merck.
2008-2013 The Vytorin Class Actions are litigated
before Judge Cavanaugh. Millions of
pages of documents are produced;
dozens of witnesses are deposed;
motions to dismiss, discovery motions,
class certification motions, and
summary judgment motions are
decided; joint pre-trial statements,
proposed jury instructions, verdict
forms, and other trial preparations are
completed.
February 14, 2013 Proposed settlements of the Vytorin
Class Actions are publicly announced,
only weeks before a scheduled trial.
October 1, 2013 Judge Cavanaugh gives final approval to
the Vytorin Class Action Settlements
and enters Final Judgments.
November 14, 2013 Plaintiffs-Appellees file two copycat
Complaints against Merck as successor
to Schering, nearly six years after the
last alleged securities violation. The
Schering opt-out cases are assigned to
Judge Freda Wolfson.
January 14, 2014 Plaintiffs-Appellees file two copycat
Complaints against Merck, nearly six
years after the last alleged securities
violation. The Merck opt-out cases are
assigned to Judge Freda Wolfson.
Case: 16-1367 Document: 003112256060 Page: 21 Date Filed: 04/06/2016
11
On November 17, 2014, Defendants served motions to dismiss the
opt-out Complaints as barred by the five-year statutes of repose that govern claims
under Sections 10(b), 20(a), and 20A of the Exchange Act. Defendants also
moved to dismiss the common-law fraud claim for failure to plead the element of
reliance required under New Jersey law. Plaintiffs served oppositions to those
motions on January 9, 2015. The motions were fully briefed and filed in the
District Court on January 30, 2015. (JA 0036-37, 0042-43, 0047-48, 0053.)
On August 26, 2015, Judge Wolfson denied Defendants’ motions to
dismiss. The District Court ruled that the five-year limitations periods that govern
Plaintiffs’ federal securities claims are “statute[s] of repose.” See JA 0013-14
(citing 28 U.S.C. § 1658(b)(2); 15 U.S.C. § 78t-1(b)(4)). The District Court also
recognized that Plaintiffs’ federal securities claims would be time-barred but for
the application of American Pipe tolling to the statutes of repose. (JA 0025-27.)
However, the District Court made two legal rulings that, taken together, led it to
accept Plaintiffs’ federal securities claims as timely: (1) class action tolling under
American Pipe represents a form of “legal,” rather than “equitable,” tolling, and (2)
applying American Pipe tolling to extend the five-year statutes of repose would not
“abridge, enlarge, or modify any substantive right” under the Rules Enabling Act.
(JA 0016-25.) The District Court also concluded that Plaintiffs had adequately
Case: 16-1367 Document: 003112256060 Page: 22 Date Filed: 04/06/2016
12
pled the element of reliance for purposes of surviving a motion to dismiss the
common-law fraud claim. (JA 0027-30.)
On September 30, 2015, Defendants asked the District Court to certify
the statute of repose question to this Court under 28 U.S.C. § 1292(b). (JA 0036,
0042, 0047, 0052.) After full briefing, the District Court granted Defendants’
motion for Section 1292(b) certification on January 7, 2016. (JA 0031-34.) On
January 15, 2016, Defendants petitioned this Court for leave to file an interlocutory
appeal. On January 28, 2016, Plaintiffs filed an Answer opposing Defendants’
petition. On February 11, 2016, this Court granted permission for Defendants to
appeal pursuant to 28 U.S.C. § 1292(b). (JA 0001-02.)
SUMMARY OF ARGUMENT
The federal securities claims asserted in these cases are time-barred.
As the District Court properly determined, each of those claims is subject to a five-
year statute of repose, and Plaintiffs filed their individual Complaints more than
five years after completion of the alleged fraud.
The District Court erred, however, in holding that the statutes of
repose were tolled by the pendency of the Vytorin Class Actions under American
Pipe. That case merely decided that class action tolling was consistent with a
particular statute of limitations. The Supreme Court has never extended American
Pipe tolling to a statute of repose, which provides certainty for litigants and courts
that claims not asserted within a fixed statutory window are beyond the law’s
Case: 16-1367 Document: 003112256060 Page: 23 Date Filed: 04/06/2016
13
reach. In fact, the Supreme Court has held that a statute of repose cannot be tolled
for any reason. Because American Pipe tolling is a form of judicial tolling, it
cannot apply to the statutes of repose at issue here.
The District Court, like some other lower courts, ruled that American
Pipe provides a form of “legal tolling” that applies even to statutes of repose. The
Supreme Court has not used the term “legal tolling” to designate situations in
which a statute of repose may be properly tolled, such as where a statute expressly
provides for tolling. Instead, the Supreme Court has explained that “a statute of
repose is a judgment that defendants should ‘be free from liability after the
legislatively determined period of time, beyond which liability will no longer exist
and will not be tolled for any reason.’” Waldburger, 134 S. Ct. at 2183; see also
Lampf, 501 U.S. at 363 (A period of repose is “inconsistent with tolling,” and “we
hold that tolling principles do not apply to that period.”).
Moreover, even if American Pipe tolling had a “legal” basis in Federal
Rule of Civil Procedure 23, the Rules Enabling Act mandates that procedural rules
“shall not abridge, enlarge or modify any substantive right.” 28 U.S.C. § 2072(b).
It is well established that a statute of repose extinguishes the plaintiff’s cause of
action and confers on defendants substantive rights to put past events behind them.
Using American Pipe tolling to preserve or revive an otherwise expired cause of
Case: 16-1367 Document: 003112256060 Page: 24 Date Filed: 04/06/2016
14
action would abridge Defendants’ substantive rights and enlarge Plaintiffs’
substantive rights, in violation of the Rules Enabling Act.
Finally, public policy arguments cannot override the statute of repose.
In any event, as this case illustrates, Plaintiffs are wrong when they contend that it
would be inefficient and unfair to enforce the statute of repose as written. Rather
than filing suit within the five-year repose period and coordinating their cases with
the discovery and briefing in the class actions, Plaintiffs now seek to start over
with four new cases before a different district judge. Seriatim litigation of the kind
represented by these lawsuits would burden the entire judicial system with
inefficiency, and unfairly deprive defendants of their statutory right to repose.
STANDARD OF REVIEW
On a motion to dismiss under Federal Rule of Civil Procedure
12(b)(6), a district court is required to accept as true the well-pleaded allegations in
the complaint. See Simon v. FIA Card Servs., N.A., 732 F.3d 259, 264 (3d Cir.
2013). To survive such a motion, the complaint “must contain sufficient factual
matter, accepted as true, to state a claim for relief that is plausible on its face.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks omitted).
Courts will dismiss cases on statute of repose grounds where it is clear from the
face of the complaints that the claims are time-barred. See, e.g., Ranke v. Sanofi-
(3d Cir. 2005). By their nature, statutes of repose may impose on plaintiffs “‘the
hardship of having a claim extinguished before it is discovered, or perhaps before
it even exists.’” Luzadder v. Despatch Oven Co., 834 F.2d 355, 358 (3d Cir. 1987)
(quoting William Keeton, et al., PROSSER AND KEETON ON THE LAW OF TORTS § 30,
at 168 (5th ed. 1984)). Likewise, statutes of repose reflect a legislative judgment
that there comes a time when allowing defendants to “put their wrongful conduct
behind them—and out of the law’s reach—is more important than providing those
wronged with a legal remedy, even if the victims never had the opportunity to
pursue one.” Exxon Mobil, 500 F.3d at 199-200.
II.
THE FIVE-YEAR STATUTES OF REPOSE ARE NOT
SUBJECT TO TOLLING UNDER AMERICAN PIPE
Plaintiffs nonetheless argue—and the District Court agreed—that the
five-year statutes of repose under the Exchange Act were tolled by the Vytorin
Class Actions under American Pipe. This is incorrect for two threshold reasons.
First, American Pipe tolling does not apply on its face because that case concerned
Case: 16-1367 Document: 003112256060 Page: 32 Date Filed: 04/06/2016
22
a particular statute of limitations, and its holding does not extend to statutes of
repose. Second, American Pipe invoked “judicial tolling,” and a statute of repose
cannot be tolled without express statutory license. It is undisputed on this appeal
that no statutory text tolls the five-year repose period.
A. American Pipe Tolling Does Not Apply On Its Face
In American Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974), the
U.S. Supreme Court held that the filing of a class action complaint tolled a statute
of limitations for members of a putative class who later sought to intervene by
asserting the same antitrust claims at issue in the class action. American Pipe
addressed a particular time bar, the Clayton Act’s four-year statute of limitations,
which runs from the date “the cause of action accrued,” 15 U.S.C. § 15b, and is
suspended during related suits brought by the federal government, id. § 16(b),
recodified as amended at 15 U.S.C. § 16(i) (Pub. L. No. 93-528 (1974), Pub. L.
No. 94-435 (1976)). Neither the four-year statute of limitations following accrual,
nor the suspension provision tolling that statute of limitations for a government
action, reflects a repose period that runs from the date the defendant acted. Citing
legislative history that the Clayton Act’s statute of limitations was “strictly a
procedural limitation” that would “in no way affect the substantive rights of
individual litigants,” the American Pipe court concluded that tolling during the
pendency of a class action was not inconsistent with the legislative scheme set
forth in the Clayton Act. American Pipe, 414 U.S. at 557-58 & n.29.
Case: 16-1367 Document: 003112256060 Page: 33 Date Filed: 04/06/2016
23
Importantly, American Pipe interpreted a particular “statute of
limitations,” considered whether tolling was consistent with that “statute of
limitations,” and expressly limited its holding to the “statute of limitations.” See,
e.g., 414 U.S. at 558 (invoking a “judicial power to toll statutes of limitation”); id.
at 554 (“the commencement of a class action suspends the applicable statute of
limitations”); id. at 559 (“the statute of limitations is tolled under certain
circumstances not inconsistent with the legislative purpose”). In each case, the
Court explained, the ultimate question is “whether tolling the limitation in a given
context is consonant with the legislative scheme.” Id. at 558.
Wholly unlike the statute of limitations at issue in American Pipe,
tolling is antithetical to the statute of repose at issue here, and thus would not be
consonant with the legislative scheme of the Exchange Act. As American Pipe
illustrates, courts “presume” that tolling applies to a statute of limitations. See
Lozano v. Montoya Alvarez, 134 S. Ct. 1224, 1232 (2014).11
By contrast, courts
prohibit tolling a statute of repose. See, e.g., IndyMac, 721 F.3d at 106 (A statute
of repose is subject only to “legislatively created exceptions,” and not to judge-
made tolling.); First United Methodist Church of Hyattsville v. U.S. Gypsum Co.,
882 F.2d 862, 866 (4th Cir. 1989) (As “substantive grants of immunity,” statutes of
11
See also Holland v. Florida, 560 U.S. 631, 645-46 (2010) (A nonjurisdictional federal statute of limitations is presumptively subject to equitable tolling.); Young v. United States, 535 U.S. 43, 49-50 (2002) (A statute of limitations is customarily subject to equitable tolling.).
Case: 16-1367 Document: 003112256060 Page: 34 Date Filed: 04/06/2016
24
repose will “not [be] tolled for any reason because to do so would upset the
economic balance struck by the legislative body.”); In re Bear Stearns Cos., Inc.
(“[T]olling is never consonant with a statute of repose” because tolling would
“violate a defendant’s substantive rights.”); Cohen v. Telsey, No. 09-cv-2033, 2009
WL 3747059, at *9 (D.N.J. Nov. 2, 2009) (“[T]olling principles do not apply to the
five-year statute of repose.”); 4 Charles A. Wright & Arthur R. Miller, FEDERAL
PRACTICE AND PROCEDURE § 1056 (4th ed. 2015) (“[A] repose period is fixed and
its expiration will not be delayed by estoppel or tolling.”). As the U.S. Supreme
Court recently reaffirmed, after the legislatively determined period of time for a
statute of repose, “‘liability will no longer exist and will not be tolled for any
reason.’” Waldburger, 134 S. Ct. at 2183 (emphasis added).
This result is consistent with the statutes of repose that govern
Plaintiffs’ federal securities claims: the text of the five-year statutes of repose
provides an absolute outer limit on the time for bringing a private right of action,
and the legislative history confirms that the outer limit cannot be tolled. See 28
U.S.C. § 1658(b)(2) (codifying Section 804(a) of the Sarbanes-Oxley Act of 2002,
Pub. L. No. 107-204, § 804(a), 116 Stat. 745, 801 (2002)); S. Rep. No. 107-146, at
29 (2002) (“Where there is a bifurcated limitations period, with an inner limit
running from the time when the fraud was or should have been discovered, the
Case: 16-1367 Document: 003112256060 Page: 35 Date Filed: 04/06/2016
25
inner limit . . . mak[es] tolling unnecessary. The [outer limit] is a period of repose
inconsistent with tolling.”) (internal quotation marks omitted).
Because American Pipe addressed only a particular statute of
limitations that the Supreme Court determined to be fully consistent with tolling,
the rationale and holding of that case do not justify tolling a statute of repose that is
flatly inconsistent with tolling.
B. American Pipe Tolling Is “Equitable” In Nature
Although no form of tolling can be applied to a statute of repose, it is
especially clear that statutes of repose are immune to “equitable tolling.” See
Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 363 (1991)
(Equitable tolling is fundamentally incompatible with the statute of repose under
the Securities Act, which Congress intended “clearly to serve as a cutoff.” ); Fed.
Hous. Fin. Agency v. UBS Ams. Inc., 712 F.3d 136, 140 (2d Cir. 2013) (Statutes of
repose are impervious to equitable tolling.); Williams v. Wells Fargo Home Mortg.,
Inc., 410 F. App’x 495, 499 (3d Cir. 2011) (Because the right to relief ceases to
exist once a statute of repose has run, equitable tolling does not apply.) (citing
Jones v. Saxon Mortg., Inc., 537 F.3d 320, 327 (4th Cir. 1998)); Del Sontro v.
Cendant Corp., 223 F. Supp. 2d 563, 572-74 (D.N.J. 2002) (Statutes of repose for
securities fraud claims cannot be salvaged by equitable tolling.). American Pipe
tolling is foreclosed here because it constitutes a species of equitable tolling.
Case: 16-1367 Document: 003112256060 Page: 36 Date Filed: 04/06/2016
26
By its very nature, equitable tolling is “judicially created.” See Credit
Suisse Sec. (USA) LLC v. Simmonds, 132 S. Ct. 1414, 1419 n.6 (2012) (internal
quotation marks omitted); Holland v. Florida, 560 U.S. 631, 650 (2010)
(“Equitable tolling . . . asks whether federal courts may excuse a [ ] failure to
comply with federal timing rules.”) (emphasis removed); John Hancock Life Ins.
Co. (USA) v. JP Morgan Chase & Co., 938 F. Supp. 2d 440, 447 (S.D.N.Y. 2013)
(Equitable tolling is “rooted in common law principles and permits a court—after
weighing the equities in the discrete case before it—to authorize plaintiffs to bring
actions outside a limitations period.”). By contrast, legal tolling is a “legislatively
created exception” to a time bar. See P. Stolz Family P’ship L.P. v. Daum, 355
F.3d 92, 102 (2d Cir. 2004) (quoting Calvin W. Corman, LIMITATION OF ACTIONS
§ 1.1, at 4-5 (1991)); Angles v. Dollar Tree Stores, Inc., 494 F. App’x. 326, 331
n.9 (4th Cir. 2012) (Legal tolling is “derived from a statutory source.”); In re
Lehman Bros. Sec. & ERISA Litig., 800 F. Supp. 2d 477, 482 (S.D.N.Y. 2011)
(“[L]egal tolling” is provided for “by statute.”).12
However, nothing in the
Exchange Act or Sarbanes-Oxley provides for tolling the statutes of repose.
12
The federal statute of limitations for seeking a writ of habeas corpus by a person in custody pursuant to a State judgment provides an example of statutory, or legal, tolling. It states expressly: “[t]he time during which a properly filed application for State post-conviction or other collateral review . . . is pending shall not be counted toward any period of limitation under this subsection.” 28 U.S.C. § 2244(d)(2).
Case: 16-1367 Document: 003112256060 Page: 37 Date Filed: 04/06/2016
27
It is true that American Pipe interpreted Rule 23 of the Federal Rules
of Civil Procedure and concluded that tolling the statute of limitations would
promote judicial economy and avoid “unnecessary filing of repetitious papers and
motions.” 414 U.S. at 550-51, 553. But even assuming that Rule 23 constitutes a
“legislative” or “statutory” source, American Pipe did not distill a universal tolling
principle from Rule 23 itself. Rather, the American Pipe court emphasized that
class action tolling “would not in this circumstance” frustrate the statute of
limitations in the Clayton Act, and would be permissible in future cases only when
“consonant with the legislative scheme.” Id. at 555, 558-59. That context-based
analysis would have been unnecessary if Rule 23 set forth a federal tolling rule
applicable to all class actions. See id. at 554 n.24 (noting that the Rule 23
Advisory Committee disclaimed any intention to adopt an across-the-board tolling
rule); see also Chardon v. Fumero Soto, 462 U.S. 650, 658-62 (1983) (rejecting
argument that American Pipe “established a uniform federal procedural rule
applicable to [all] class actions”).
Indeed, it is perfectly clear that Rule 23 does not prescribe a federal
tolling rule. Rule 23 says nothing at all about tolling. That is why American Pipe
expressly invoked “judicial tolling” and the “judicial power to toll statutes of
limitation.” 414 U.S. at 557-59 (citing cases in which the Supreme Court
permitted equitable tolling). And that is why the Supreme Court has continued to
Case: 16-1367 Document: 003112256060 Page: 38 Date Filed: 04/06/2016
28
recognize American Pipe as a decision “specifically grounded in policies of
judicial administration.” Smith v. Bayer Corp., 131 S. Ct. 2368, 2379 n.10 (2011).
The fact that American Pipe tolling was informed by policies underlying class
action procedure does not transform it into a statutory command. See Vaught v.
that (1) opt-out actions were stayed pending resolution of class certification and
preliminary approval of settlement in class action, (2) defendants in opt-out
actions were restricted from moving to dismiss on grounds rejected in the class
action, and (3) parties in opt-out actions agreed to be bound by all discovery
orders and protocols in the class action).
Case: 16-1367 Document: 003112256060 Page: 54 Date Filed: 04/06/2016
44
further depositions or trial preparation long after memories have faded and after
the point at which they and the individual defendants should be able to move on
with their lives, and multiple juries might have to hear duplicative evidence that
could have been presented in a single trial years earlier.
When one compares the relative burdens of coordinated versus
seriatim litigation of identical claims, it is clear that the cost of coordinated
litigation is slight (including to Plaintiffs, who are institutional investors with
financial means and access to counsel), while the cost of seriatim litigation is
substantial. Thus, contrary to Plaintiffs’ assurance that tolling the repose period
will lead to greater efficiencies, this practice would encourage “precisely the
multiplicity of suits and waste of judicial resources which the American Pipe court
wanted to avoid.” Note, Statutes of Limitations and Opting Out of Class Actions,
81 MICH. L. REV. 399, 428-31 (1982) (Opt-out litigation entails “a second trial on
essentially the same facts and issues with all the inefficiencies and inconsistencies
avoided by a class suit.”)
Last, if Plaintiffs had brought their cases on a timely basis,
Defendants could have folded them into the class action resolution and factored
these claims into the amounts paid to the class. Permitting plaintiffs to wait in the
wings without surfacing until after the repose period has run—and after a class
settlement has been reached—would frustrate the ability of defendants to negotiate
Case: 16-1367 Document: 003112256060 Page: 55 Date Filed: 04/06/2016
45
global peace and make class action settlements more difficult, all to the detriment
of class members and the judicial system itself. See generally Kincade v. Gen.
Tire & Rubber Co., 635 F.2d 501, 507 (5th Cir. 1981) (noting that the judicial
system has an overriding public interest in favor of settlement, particularly in class
action suits, and that uncertain future liabilities to opt-out plaintiffs may discourage
defendants from agreeing to class action settlements in the first place).17
B. Applying The Statute Of Repose Is Not Unfair
Finally, applying the statute of repose as written is not unfair, and
would not render the right to opt out “meaningless.” Plaintiffs received notice and
an opportunity to opt out, which they exercised. The right to opt out means that
Plaintiffs cannot be bound by the judgment in the class action; it does not mean
that they have a viable individual claim. See, e.g., Mayfield v. Barr, 985 F.2d
1090, 1092 (D.C. Cir. 1993) (opting out says nothing about “the merits of the[]
individual claims, which remain to be tried”).
17
See also Premier Elec. Constr. Co. v. Nat’l. Elec. Contractors Assoc., Inc., 814 F.2d 358, 366 (7th Cir. 1987) (“The more attractive it is to opt out . . . the fewer settlements there will be, the less the settlements will produce for the class, and the more cases courts must adjudicate. This is not judicial economy at work!”); Mark W. Friedman, Constrained Individualism In Group Litigation: Requiring Class Members To Make A Good Cause Showing Before Opting Out Of A Federal Class Action, 100 YALE L.J. 745, 755 (1990) (Each additional opt out “presents the risk of further litigation, or at least of heightened transaction costs in arriving at so many bilateral settlement agreements, exactly the situation which the defendant sought to avoid” by settling with the class.).
Case: 16-1367 Document: 003112256060 Page: 56 Date Filed: 04/06/2016
46
Nor does fairness require that issuers, shareholders, and employees
remain subject to indefinite lingering liabilities in order to allow sophisticated
entities with experienced counsel to sit on the sidelines for more than five years
and hold out for a premium to the class settlement. Such tactical behavior is
decidedly unfair. Indeed, a “‘no risk, wait-and-see’” approach to opting out after
the class settlement18
implicates the concern about abusive “one-way intervention”
that the 1966 amendments to Rule 23 sought to avoid. “A recurrent source of
abuse under the former Rule” lay in the potential for absent class members to wait
until late in the class action before deciding whether participation would be
“favorable to their interests.” American Pipe, 414 U.S. at 546-47. If developments
in the class action became unfavorable, absent putative class members could
simply exclude themselves from the class without being bound by the judgment.
The drafters of the 1966 amendments deemed it “unfair to allow members of a
class to benefit from a favorable judgment without subjecting themselves to the
binding effect of an unfavorable one.” Id. at 547. This aptly describes the one-
way option that Plaintiffs in these cases seek to exercise.
18
See Wendy Gerwick Couture, Class-Action Tolling, Federal Common Law, and Securities Statutes of Repose, 46 LOY. U. CHI. L.J. 525, 544-45 (2015) (quoting Bernstein Litowitz attorneys, Blair A. Nicholas & Ian D. Berg, Why Institutional Investors Opt-Out of Securities Fraud Class Actions and Pursue Direct Individual Actions, PRACTISING L. INST. at 2, 6 (Oct. 15, 2009)).
Case: 16-1367 Document: 003112256060 Page: 57 Date Filed: 04/06/2016
47
In all events, where—as here—a statutory time-bar is unambiguous,
judicial tolling cannot be used to undermine the legislative intent based on notions
of fairness, efficiency, or public policy. If Plaintiffs believe that five years from
the date of the last alleged violation is too short a period of time to file suit without
resort to judicial tolling, that argument is more appropriately addressed to
Congress—not to this Court. See, e.g., Pinter v. Dahl, 486 U.S. 622, 653 (1988)
(“‘The ultimate question is one of congressional intent, not one of whether this
Court thinks it can improve upon the statutory scheme that Congress enacted into
law.’”).19
Accordingly, neither policy argument cited by the District Court can
override the five-year statutes of repose that bar Plaintiffs’ federal securities claims
in these cases. Those claims should have been dismissed with prejudice.
19
In fact, Congress recently lengthened the statute of repose at issue here from
three years to five years. See Sarbanes-Oxley Act of 2002, Pub. L. No. 107-