United States: Third Circuit Joins With The Seventh, Ninth And Eleventh Circuits In Holding That Plaintiffs Asserting 1933 Act Claims Need Not Plead Compliance With The Statute Of Limitations, Splitting With The First, Eighth And Tenth Circuits

In Pension Trust Fund for Operating Engineers v. Mortgage Asset Securitization Transactions, Inc., No. 12-3454, 2013 WL 5184064 (3d Cir. Sept. 17, 2013), the United States Court of Appeals for the Third Circuit joined the Seventh, Ninth and Eleventh Circuits, holding that Section 13 of the Securities Act of 1933 ("1933 Act"), 15 U.S.C. § 77m, does not require plaintiffs asserting a claim under the 1933 Act to plead with particularity compliance with the statute of limitations.  In doing so, the Third Circuit split from the First, Eighth and Tenth Circuits, potentially triggering review by the United States Supreme Court.

Plaintiffs, purchasers of mortgage-backed securities, sued UBS AG and several of its subsidiaries (collectively, "UBS") for alleged misrepresentations in the securities' offering documents and registration statements.  As of September 18, 2007, when plaintiffs purchased the securities, both Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's ("S&P") had rated the securities AAA.  However, being comprised entirely of loans originated by Countrywide Home Loans, Inc. ("Countrywide") and Indymac Bank, F.S.B. ("Indymac"), the securities rapidly lost value, and were subsequently downgraded — to B2 by Moody's on February 20, 2009, and to B by S&P on August 13, 2009.  Between late 2007 through 2009, as the financial crisis began to unfold, many news articles also highlighted the alarming default rate for Countrywide and Indymac loans.

Plaintiffs filed their original complaint on February 22, 2010, asserting claims under Sections 11, 12(a)(2) and 15 of the 1933 Act, 15 U.S.C. §§ 77k, 77l(a)(2) and 77o.  Plaintiffs subsequently filed an amended complaint, which the United States District Court for the District of New Jersey dismissed without prejudice, ordering plaintiffs to plead with particularity in a further amended complaint that their claims were timely under the applicable statute of limitations set out in Section 13 of the 1933 Act.  Defendants moved to dismiss the second amended complaint (the "SAC") on the basis that the 1933 Act claims were untimely.  The district court agreed, applying an inquiry notice standard to determine that the plaintiffs' claims were untimely, and dismissed the SAC with prejudice.  Plaintiffs appealed.

The Third Circuit first took issue with the district court's ruling that plaintiffs must plead compliance with Section 13.  Section 13 requires 1933 Act claims to be brought "within one year after the discovery of the untrue statement or the omission, or after such discovery should have been made by the exercise of reasonable diligence."  15 U.S.C. § 77m.  The Third Circuit rejected the reasoning adopted by the First, Eighth and Tenth Circuits that plaintiffs asserting 1933 Act claims must affirmative plead in the complaint compliance with Section 13 because "when the very statute which creates the cause of action also contains a limitation period, the statute of limitations not only bars the remedy but also destroys the liability."  Cook v. Avien, Inc., 573 F.2d 685 (1st Cir. 1978).  Instead, the Third Circuit joined with the Seventh, Ninth and Eleventh Circuits, holding that "requiring a plaintiff to plead compliance with a statute of limitations would effectively ensure that a timeliness issue would always appear on the face of a complaint, thereby shifting the burden to the plaintiff to negate the applicability of the affirmative defense."

The Third Circuit next considered the district court's application of the inquiry notice standard to determine when the plaintiffs' limitations period began to accrue.  Under the inquiry notice standard, statutes of limitations start to run when a plaintiff "would have discovered general facts about the fraudulent scheme by the defendant rather than specific facts about the fraud perpetrated on her."  The Court held that the district court failed to apply the discovery standard announced by Supreme Court in Merck & Co. v. Reynolds, 130 S. Ct. 1784 (2010).  In Merck, the Supreme Court held that a claim under Section 10(b) of the Securities Exchange Act of 1934 ("1934 Act"), 15 U.S.C. § 78j(b), accrued "(1) when the plaintiff did in fact discover, or (2) when a reasonably diligent plaintiff would have discovered, 'the facts constituting the violation' — whichever comes first."  Id. at 1789-90, 1793.  The Third Circuit held that Merck, though it dealt with claims under the 1934 Act, was still applicable to the instant 1933 Act claims, because "both statutes incorporate the word 'discovery,' which the Merck Court identified as a term of art representing the discovery rule."  The Third Circuit went on to adopt the Second Circuit's reasoning in City of Pontiac General Employees' Retirement System v. MBIA, Inc., 637 F.3d 169, 174-75 (2d Cir. 2011) [blog article here], holding that "a fact is not deemed 'discovered' until a reasonably diligent plaintiff would have sufficient information about that fact to adequately plead it in a complaint . . . with sufficient detail and particularity to survive a 12(b)(6) motion to dismiss."  Id.

Despite holding for plaintiffs on both the pleading requirements and applicable standard for measuring timeliness, the Third Circuit ultimately upheld the district court's dismissal of the SAC.  Plaintiffs argued that a reasonably diligent plaintiff would not have discovered the misrepresentations regarding the securities until the rating downgrade by Moody's on February 20, 2009.  The Court disagreed, noting that on September 9, 2008, a class of plaintiffs that included the lead plaintiffs in the instant action had "filed an amended class action complaint in the California Superior Court against both Countrywide and UBS Securities, asserting claims under Sections 11, 12(a)(2), and 15 of the [1933] Act that were substantially similar to those in this case."  Given that plaintiffs had been aware of serious issues involving mortgage backed securities sold by UBS and comprised of loans originated by Countrywide and Indymac in September 2008; and that a subsequent investigation that would lead to the discovery that plaintiffs may have viable claims would take no more than two months, plaintiffs were precluded from bringing the instant action any later than November 2009.

Pension Trust has not only placed the burden of testing whether 1933 Act claims are timebarred squarely on defendants, but also has eased the standard for measuring the limitations period in plaintiffs' favor.  Furthermore, there is a clear spilt between the Circuits regarding the issue of pleading timeliness of 1933 Act claims, potentially triggering review by the Supreme Court in the future.

P>The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
3 Dec 2018, Other, Los Angeles, United States

National Contract Management Association’s Government Contract Management Symposium

20 Feb 2019, Seminar, Orange, United States

The annual seminar addressing changes and developments in state and federal wage and hour laws is a unique one-day program and hundreds of California employers, personnel managers, controllers, attorneys, payroll managers, and supervisors attend each year.

21 Feb 2019, Seminar, Orange, United States

The seminar is designed to provide a guide to Human Resource Officials, Personnel Specialists, Consultants, Supervisors and other management officials through the ever-increasing maze of state and federal employment discrimination laws.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions