(Article from Securities Law Alert, September 2021)
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On September 2, 2021, the Third Circuit affirmed the Middle District of Pennsylvania’s decision to allow amendment of a pleading after the expiration of a repose period in a securities fraud class action alleging claims under the Securities Act and the Exchange Act. Se. Pa. Transp. Auth. v. Orrstown Fin. Servs., 2021 WL 3923389 (3d Cir. 2021) (Ambro, J.). The court held that Federal Rule of Civil Procedure 15(c) allows amendment of a pleading after the expiration of a repose period because Rule 15(c)’s “relation-back” doctrine leaves the legislatively mandated deadline intact and does not disturb any of defendants’ vested rights to repose.
Background and Procedural History
In 2012, plaintiff filed suit in federal court bringing claims under the Securities Act and the Exchange Act alleging that a bank, its officers, and its parent company (the “Bank Defendants”) had made material misrepresentations in the bank’s financial disclosures. Subsequently, plaintiff moved for leave to file a Third Amended Complaint in 2019, which reasserted previously dismissed claims from the Second Amended Complaint, including claims against some parties[1] who had previously received a dismissal of all claims against them.
Plaintiff argued that it should be permitted to reinstitute the claims “because it found further evidence to support them through discovery after the partial dismissal of the Second Amended Complaint.” Defendants argued that the reasserted claims were time barred because plaintiff sought to file the Third Amended Complaint outside the repose periods for Securities Act and Exchange Act claims. The district court granted plaintiff’s motion and then granted defendants’ motion to file an interlocutory appeal. Subsequently, the Third Circuit granted defendants’ request to appeal.
The Relation-Back Doctrine Applies Because the Amended Complaint Restates the Original Claim with Greater Particularity and Amplifies the Factual Circumstances
The court began its analysis by explaining that, consistent with Rule 15’s liberal approach to pleading, “the relation-back doctrine under Rule 15(c) allows a court to treat a later-filed amended pleading as if it had been filed at the time of the initial pleading.” The court stated that Rule 15(c) “applies here as long as the Third Amended Complaint restates the original claim with greater particularity or amplifies the factual circumstances surrounding the pertinent conduct.” The Third Circuit determined that the Third Amended Complaint “both restates claims with greater particularity and amplifies the factual circumstances surrounding the relevant conduct by adding significantly more factual detail to [plaintiff’s] existing claims.”
In response to defendants’ argument that plaintiff’s previously dismissed claims were extinguished by the expiration of the repose period even though the action continued, the Third Circuit pointed out that plaintiff brought both Securities Act and Exchange Act claims against all defendants before the applicable repose periods expired. The court then explained that “under Rule 54(b), any order that decides fewer than all the claims or the rights and liabilities of fewer than all the parties does not end the action as to any of the claims or parties.” The Third Circuit stated that because the district court had not decided all claims as to all parties at the time of the repose period’s expiration, none of plaintiff’s claims in the action ended (except, as the court noted, for the dismissal of all claims against certain individual bank officers).
Relation Back Is Consistent with the Purpose of Statutes of Repose
As to whether the relation-back doctrine is consistent with the purpose of statutes of repose, the court explained that even if “a repose statute’s purpose is to give defendants protection after a certain amount of time, it does not defeat that purpose for a plaintiff to bring an action within the time allotted—even if the plaintiff later amends the precise form of its pleadings.” The court found that plaintiff brought its action initially within the applicable repose periods, and reiterated that “under Rule 54(b), reinstatement of dismissed claims cannot constitute the filing of a new action until a court has decided all claims against all parties to the initial action.” The court also pointed out that while plaintiff did wish to expand its complaint with additional facts, it was “not bringing any new legal claims or adding new parties that were not included in the First Amended Complaint.”
[1] These parties were the underwriters of the bank’s 2010 offering, the bank’s independent auditor, and certain individual bank officers.