United States: ANZ Securities And Opting Out Of Securities Fraud Class Actions

Last Updated: October 3 2017
Article by John E. Clabby

Late-stage opt-outs by investors are relatively infrequent, but ANZ might invite experimentation with earlier, protective opt-outs.

The most likely class member to "opt-out" of a securities fraud class is an institutional investor. The size of its investment loss helps the institutional investor absorb the risks and costs of going it alone. If an institutional investor is going to opt out, it usually does so at settlement, when the investor would file a separate action or attempt a separate peace.

But a recent Supreme Court case, California Public Employees' Retirement System v. ANZ Securities, Inc., 137 S. Ct. 2042 (2017), may force institutional investors and others to opt out sooner.

The circuits have disagreed whether a pending securities fraud class action suit tolls the time to file an opt-out action. Under American Pipe tolling, named after a 1974 Supreme Court case, American Pipe & Construction Co. v. Utah, 414 U.S. 538, 550 (1974), the filing of a class action can suspend the applicable statute of limitations for all class members.

In June 2017, the ANZ Securities Court held that American Pipe's equitable tolling did not extend the time for filing opt-out claims from a class action under Section 11 of the Securities Act of 1933, which is subject to a three-year statute of repose. 137 S. Ct. at 2055. An investor who opts out of a long-running class action — at settlement, for example — would be barred from proceeding with a new case if she files it more than three years after the securities issuance.

This holding might encourage "protective," earlier opt-outs, by which the investor seeks to preserve her ability either to join or opt out of any later class settlement. This, in turn, could increase the cost and complexity of securities litigation.

Perhaps the impact is overstated. The Second, Sixth, and Eleventh Circuits have already rejected this sort of tolling. Police & Fire Ret. Sys. of Detroit v. IndyMac MBS, Inc., 721 F.3d 95, 101 (2d Cir 2013); Stein v. Regions Morgan Keegan Select High Income Fund, 821 F.3d 780, 794 – 95 (6th Cir. 2016); Dusek v. JPMorgan Chase & Co., 832 F.3d 1243, 1249 (11th Cir. 2016). And no parade of horribles has followed. As such, the ANZ Securities majority gave this short shrift: "Petitioner has not offered evidence of any recent influx of protective filings in the Second Circuit, where the rule affirmed here has been the law since 2013." ANZ Sec., 137 S. Ct. at 2054.

But the consequences in those circuits have hardly had time to take root and bloom. Securities Act class actions are few, and they can take years to litigate. Although the ANZ Securities majority did not address it, one amicus brief stated that in the long-running Petrobras securities-fraud action in the Second Circuit, approximately 500 institutional investors filed or joined individual actions.

The ANZ dissent noted the impact on the least-sophisticated investors, who may lack the resources to monitor the class proceedings or to opt out: "Absent a protective claim . . . those members stand to forfeit their constitutionally shielded right to opt out of the class and thereby control the prosecution of their own claims for damages." Id. at 2057 (Ginsburg, J., dissenting).

Late-stage opt-outs by investors are relatively infrequent, but the Supreme Court's recent decision in ANZ Securities might invite experimentation with earlier, protective opt-outs.

Originally published by The Hillsborough County Bar Association Lawyer.

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.

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