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In American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), the Supreme Court held “the commencement of a class action suspends the applicable statute of limitations as to all asserted members of the class who would have been parties had the suit been permitted to continue as a class action.”

On May 19, 2016, the Sixth Circuit held American Pipe tolling does not apply either to the three-year statute of repose for claims brought under Sections 11 and 12 of the Securities Act of 1933, or the five-year statute of repose for claims brought under Section 10(b) of the Exchange Act. Stein v. Regions Morgan Keegan Select High Income Fund, 2016 WL 2909333 (6th Cir. 2016) (Clay, J.). Agreeing with the Second Circuit’s decision in Police & Fire Retirement System of the City of Detroit v. IndyMac MBS, 721 F.3d 95 (2d Cir. 2013), the Sixth Circuit found American Pipe tolling inapplicable to statutes of repose because “they confer on defendants a right to be free of liability by imposing a temporal bar on claims.” The Sixth Circuit expressly disagreed with the Tenth Circuit, which reached the opposite conclusion in Joseph v. Wiles, 223 F.3d 1155 (10th Cir. 2000).

Adopting the Second Circuit’s Reasoning in IndyMac, Sixth Circuit Holds American Pipe Tolling Inapplicable to Statutes of Repose

In IndyMac, the Second Circuit determined American Pipe tolling does not apply to statutes of repose, including the three-year statute of repose for claims brought under Sections 11 and 12 of the Securities Act. The Second Circuit reasoned that “while statutes of limitation are often subject to tolling principles, a statue of repose extinguishes a plaintiff’s cause of action after the passage of a fixed period of time, usually measured from one of the defendants’ acts.” IndyMac, 721 F.3d 95. The court found “statutes of repose create[ ] a substantive right in those protected to be free from liability after a legislatively-determined period of time.”

Several years earlier, the Tenth Circuit held American Pipe tolling does in fact apply to statutes of repose, including those applicable to securities fraud claims. The Tenth Circuit found that if a class action is commenced before the expiration of a statute of repose, then the claims of all asserted members of that class should be deemed timely because claims on behalf of those plaintiffs were brought (in the form of the class action) before defendants’ liability for those claims was extinguished.

The Sixth Circuit found the Second Circuit’s decision in IndyMac provided “the more cogent and persuasive rule.” Stein, 2016 WL 2909333. The Sixth Circuit also determined the IndyMac decision was “more consistent with” the Supreme Court’s decision in CTS Corp. v. Waldburger, 134 S.Ct. 2175 (2014). There, the Court “discussed at length the incompatibility of equitable tolling and statues of repose” and 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 the liability will no longer exist and will not be tolled for any reason.’” Id. (quoting CTS, 134 S.Ct. 2175).

The Sixth Circuit further found that American Pipe tolling would be inapplicable to statutes of repose even if it was “a form of class-action tolling deriving its authority from Rule 23” rather than equitable tolling. Agreeing with the Second Circuit, the Sixth Circuit reasoned that applying American Pipe tolling to statutes of repose could run afoul of the Rules Enabling Act, which “forbids interpreting Rule 23 to ‘abridge, enlarge, or modify any substantive right.’” The Sixth Circuit underscored that “statutes of repose vest a substantive right in defendants to be free of liability” after a specified period of time.

The Sixth Circuit concluded that “regardless of whether American Pipe tolling is derived from courts’ equity powers or from Rule 23, it does not apply to statutes of repose.”