Securities Law Alert
In This Edition:• Supreme Court: American Pipe Tolling Is Inapplicable to Section 13’s Three-Year Statute of Repose,
Which Governs Claims Under Sections 11 and 12 of the Securities Act• Supreme Court: Grants Certiorari to Address Whether State Courts Retain Jurisdiction After SLUSA Over
Covered Class Actions Asserting Only Securities Act Claims• Supreme Court: Grants Certiorari to Consider Whether the Dodd-Frank Act Protects Whistleblowers Who
Do Not Report Alleged Misconduct to the SEC• Second Circuit: (1) Individual Morrison Determinations May Preclude Class Certification Where the
Securities Were Not Traded on a Domestic Exchange; and (2) Ascertainability Does Not Require a
Showing of Administrative Feasibility
July 2017

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2017

Supreme Court: American
Pipe Tolling Is Inapplicable
to Section 13’s Three-Year
Statute of Repose, Which
Governs Claims Under
Sections 11 and 12 of the
Securities Act
On June 26, 2017, the Supreme Court held
American Pipe tolling does not apply tothe three-year statute of repose set forth in
Section 13 of the Securities Act of 1933, whichgoverns claims brought under Sections 11 and
12 of that Act. California Public Employees
Ret. Sys. v. ANZ Securities (No. 16-373), 2017
WL 2722415 (2017) (Kennedy, J.) (CalPERS).
The Court’s decision resolves a circuit split,
and affirms the approach adopted by theSecond Circuit in Police & Fire Retirement
System of City of Detroit v. IndyMac MBS,
721 F.3d 95 (2d Cir. 2013) (IndyMac).1

1. Please click here to read our prior discussion of the Second
Circuit’s decision in IndyMac.
Simpson Thacher & Bartlett LLP

Background
Section 13 establishes a one-year statute oflimitations and a three-year statute of repose
for claims under Sections 11 and 12. The
statute provides in relevant part that“[i]n no event shall any … action be brought toenforce a liability created under [Section 11]
or [Section 12(a)(1)] … more than three years
after the security was bona fide offered to the
public, or under [Section 12(a)(2)] … morethan three years after the sale.” 15 U.S.C.
§ 77m.
In 2008, investors filed a timely putative classaction complaint in the Southern Districtof New York asserting Section 11 claims inconnection with offerings made in 2007 and2008. Petitioner in the case before the Court
was a member of the putative class, but was
not a named plaintiff in the suit.
In 2011, more than three years after theofferings at issue, petitioner brought anindividual suit in the Northern District ofCalifornia alleging securities law violations“identical” to those pled in the classcomplaint. Petitioner contended that Section

13’s three-year time bar was tolled during
the pendency of the putative class action
pursuant to the American Pipe doctrine. In
American Pipe & Construction Co. v. Utah,
414 U.S. 538 (1974), the Supreme Court heldthat “the commencement of a class actionsuspends 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.”
The Southern District of New York foundAmerican Pipe tolling inapplicable to Section
13’s three-year time bar, and the Second
Circuit affirmed based on its earlier decisionin IndyMac. The Sixth Circuit followed theSecond Circuit’s approach, while the Tenth
Circuit had previously concluded that therepose period was subject to American Pipetolling.2

Court Holds Section 13’s Three-Year
Statute of Repose Creates a “Fixed
Bar Against Future Liability” That
Cannot Be Altered by American
Pipe Tolling
Justice Kennedy delivered the Court’s 5-4
opinion, joined by Chief Justice Roberts andJustices Thomas, Alito, and Gorsuch. The
Court first reaffirmed that Section 13’s threeyear bar sets forth a statute of repose.3 The
Court reasoned that the statutory language“admits of no exception and on its facecreates a fixed bar against future liability.”
CalPERS, 2017 WL 2722415. The Court foundSection 13’s inclusion of a one-year statute oflimitations supported its view, since “[t]hepairing of a shorter statute of limitations
and a longer statute of repose is a common
feature of statutory time limits.” In addition,
the Court deemed it significant that Congress
shortened Section 13’s previous “outside
limit” from ten years to three years in order“to protect defendants’ financial security in
fast-changing markets by reducing the open
period for potential liability.”
The Court deemed “critical” its“determination that the 3-year period is a
2. Compare Stein v. Regions Morgan Keegan Select High Income
Fund, 821 F.3d 780 (6th Cir. 2016) with Joseph v. Wiles, 223 F.3d
1155 (10th Cir. 2000).
3. The Court noted that it has previously “described [Section 13’s
three-year time bar] as establishing a‘period of repose’ which‘impose[s] an outside limit’ on temporal liability” CalPERS, 2017
WL 2722415 (quoting Lampf, Pleva, Lipkind, Prupis & Petigrow
v. Gilbertson, 401 U.S. 350 (1991)).

statute of repose” because “the question
whether a tolling rule applies to a given
statutory time bar is one of statutory intent.”
The Court emphasized that “[t]he purpose ofa statute of repose is to create ‘an absolute bar
on a defendant’s temporal liability’” that “isin general not subject to tolling.” Id. (quoting
CTS Corp. v. Waldburger, 134 S. Ct. 2175
(2014)). The Court found that tolling a statuteof repose “is permissible only where there isa particular indication that the legislature
did not intend the statute to provide complete
repose but instead anticipated the extensionof the statutory period under certain
circumstances,” such as cases in which “thestatute of repose itself creates an express
exception.”With this framework, the Court held “theAmerican Pipe tolling rule does not apply
to the 3-year bar mandated in § 13.” The
Court explained that “the object of a statuteof repose, to grant complete peace todefendants, supersedes the application ofa tolling rule based in equity” such as theAmerican Pipe tolling doctrine. The Court
found “[n]o feature of § 13 provides thatdeviation from its time limit is permissible ina case such as this one.” The Court rejected
petitioner’s contention that “the filing of aclass-action complaint within three years
fulfills the purposes of” Section 13’s statuteof repose “with regard to later filed suits byindividual members of the class” because “theclass complaint puts a defendant on notice ofthe content of the claims against it and the setof potential plaintiffs who might assert thoseclaims.” The Court found that “permitting
a class action to splinter into individualsuits” would “threaten to alter and expand adefendant’s accountability, contradicting thesubstance of a statute of repose.”

Court Holds the Word “Action” inSection 13 Means a Complaint, Not
a Claim
The Court rejected petitioner’s argumentthat “an ‘action’ is ‘brought’ when substantive
claims are presented to any court, rather
than when a particular complaint is filed ina particular court.” The Court observed that
adopting this approach would mean that “anindividual action would be timely even if itwere filed decades after the original securities
offering—provided a class-action complaint
had been filed at some point within the initial
3-year period.”
2

The Court also found meritless petitioner’scontention that dismissal “would eviscerate
its ability to opt out.” The Court explainedthat the “privilege to opt out” does notencompass the right to file suit “without
regard to mandatory time limits set bystatute.”Justice Ginsburg, Dissenting,States the Majority’s Rule Will
Have Adverse Consequences for
Unsophisticated Investors Who Failto File a Timely Protective Claim
Justice Ginsburg filed a dissenting opinion,joined by Justices Breyer, Sotomayor, andKagan. The dissent asserted that petitioner’s
claim “was timely launched when the classrepresentative filed a complaint … on behalfof all members of the described class,”
including petitioner. The dissent stated that
petitioner’s “statement of the same allegationsin an individual complaint could not disturb
anyone’s repose, for respondents could
hardly be at rest once notified of the potential
claimants and the [claims] at issue” by theclass complaint.
The dissent opined that “[t]he harshestconsequences” of the majority’s decision“will fall on those class members, often least
sophisticated, who fail to file a protective
claim within the repose period … [and] standto forfeit their constitutionally shielded rightto opt out of the class.”

Supreme Court: Grants
Certiorari to Address
Whether State Courts Retain
Jurisdiction After SLUSAOver Covered Class Actions
Asserting Only Securities Act
ClaimsOn June 27, 2017, the Supreme Court
granted certiorari in Cyan v. Beaver County
Employees Retirement Fund (No. 15-1439)
to consider whether the Securities Litigation
Uniform Standards Act of 1998 (“SLUSA”)
eliminated state court jurisdiction over
covered class actions alleging only claims
under the Securities Act of 1933.

After the Private Securities Litigation ReformAct of 1995 imposed heightened pleading
requirements for federal securities fraudclass actions, plaintiffs began filing securities
fraud class actions in state courts asserting
violations of state law. Congress responded
by enacting SLUSA, which provides that “[n]ocovered class action based upon the statutory
or common law of any state … may be
maintained in any State or Federal court byany private party alleging” securities fraud.
15 U.S.C. § 77p(b). SLUSA further provides
that “[a]ny covered class action brought in any
State court involving a covered security, as set
forth in subsection (b), shall be removable toFederal district court.” 15 U.S.C.§ 77p(c).
Prior to SLUSA’s enactment, federal andstate courts had concurrent jurisdiction overactions asserting claims under the Securities
Act of 1933 pursuant to 15 U.S.C. § 77v(a).
SLUSA amended Section 77v(a) to add theitalicized language: “The district courts of
the United States … shall have jurisdiction …
concurrent with State and Territorial courts,
except as provided in [S]ection 77p of thistitle with respect to covered class actions.”
SLUSA also amended Section 77v(a)’sremoval bar as follows: “Except as provided
in [S]ection 77p(c) of this title, no case arisingunder” the Securities Act of 1933 “shall be
removed to any court of the United States.”
Courts have differed on the meaning of thereference to Section 77p in Section 77v(a)’s
concurrent jurisdictional provision. In
Luther v. Countrywide Financial Corp.,
125 Cal. Rptr. 3d 716 (Cal. Ct. App. 2011),
the California Court of Appeal rejected
defendants’ contention that Section 77v(a)precludes concurrent jurisdiction over all“covered class actions” as defined in Section
77p(f)(2). The California Court of Appeal
reasoned that Section 77v(a) does not refer to
Section 77p(f)(2) but instead “refers to[S]ection 77p without limitation.” Section 77p
addresses “covered class actions” assertingstate law claims. The California Court ofAppeal concluded that even as amended
by SLUSA, Section 77v(a) provides state
courts with concurrent jurisdiction overclass actions asserting only claims under the
Securities Act.
Most district courts in the First, Seventh,Ninth and Eleventh Circuits have remandedclass actions alleging only Securities Act

3

claims.4 However, district courts in theSecond, Third, Fourth, Fifth, and Tenth
Circuits have largely denied remand on the
grounds that federal courts have exclusive
jurisdiction over such actions.
In Cyan, the Court granted certiorari toaddress the question of whether Section
77v(a) provides state courts with concurrent
jurisdiction over “covered class actions” (asdefined in Section 77p(f)(2)) that allege only
Securities Act claims.

Supreme Court: Grants
Certiorari to Consider
Whether the Dodd-FrankAct Protects Whistleblowers
Who Do Not Report Alleged
Misconduct to the SEC
On June 27, 2017, the Supreme Court granted
certiorari in Digital Realty Trust v. Somers(No. 16-1276) to determine whether the antiretaliation provisions of the Dodd-Frank
Wall Street Reform and Consumer Protection
Act of 2010 (the “Dodd-Frank Act”) protect
whistleblowers who report potential
misconduct internally but do not alert the
SEC to that misconduct.
The Dodd-Frank Act defines a“whistleblower” as “any individual who
provides … information relating to a violationof the securities laws to the [SEC].” 15 U.S.C.
§ 78u-6(a)(6). However, the anti-retaliation
provisions of the Dodd-Frank Act apply to a“whistleblower” who makes “disclosures thatare required or protected under the SarbanesOxley Act.” 15 U.S.C. § 78u-6(h)(1)(A)(iii).
The Sarbanes-Oxley Act protects those who
provide information regarding potential
securities law violations to “a person withsupervisory authority over the employee.”
18 U.S.C. § 1514A(a).
4. See Brief of Amici Curiae Law Professors in Support ofPetitioners, Cyan v. Beaver County Employees Retirement Fund
(No. 15-1439), 2016 WL 3538388 (June 27, 2016).

The SEC’s Dodd-Frank Act implementing
regulations do not limit the term
“whistleblower” to an individual who
reports to the SEC but instead define theterm “whistleblower” to include individuals
who make disclosures that are required orprotected under the Sarbanes-Oxley Act. 17
C.F.R. § 240.21F-2(b)(1).
The circuits are divided on whether anindividual who reports alleged misconduct
internally but does not report that misconduct
to the SEC qualifies for the Dodd-Frank
Act’s anti-retaliation protections. In Asadi
v. G.E. Energy (USA), 720 F.3d 620 (5th Cir.
2013), the Fifth Circuit held the Dodd-Frank
Act’s definition of “whistleblower” “expressly
and unambiguously requires that anindividual provide information to the SEC.”5
The court “reject[ed] the SEC’s expansive
interpretation of the term ‘whistleblower’” in
its implementing regulations.
Both the Second and Ninth Circuits havereached the opposite conclusion. In Berman
v. Neo@Ogilvy, 801 F.3d 145 (2d Cir. 2015),
the Second Circuit found the tension between
the two relevant provisions of the DoddFrank Act “creates sufficient ambiguity” torequire the court‘s deference to the definitionof “whistleblower” in the SEC’s implementing
regulations.6
In Somers v. Digital Realty Trust, 850
F.3d 1045 (9th Cir. 2017), the Ninth Circuit
similarly held that the Dodd-Frank Act“necessarily bars retaliation against an
employee of a public company who reports
violations to the boss” but not to the SEC.7
The court determined that the Dodd-Frank
Act’s definition of the term “whistleblower”“should not be dispositive of the scope of”
the Act’s anti-retaliation provision because“[t]erms can have different operative
consequences in different contexts.”
The Supreme Court granted defendant’s
petition for a writ of certiorari to review theNinth Circuit’s decision in Digital Realty
Trust to address the question of who qualifies
as a “whistleblower” for purposes of the
Dodd-Frank Act’s anti-retaliation provisions.
5. Please click here to read our prior discussion of the Fifth
Circuit’s decision in Asadi.
6. Please click here to read our prior discussion of the Second
Circuit’s decision in Berman.
7. Please click here to read our prior discussion of the Ninth
Circuit’s decision in Digital Realty Trust.
4

Second Circuit: (1) Individual
Morrison Determinations
May Preclude Class
Certification Where the
Securities Were Not Tradedon a Domestic Exchange;and (2) Ascertainability Does
Not Require a Showing of
Administrative Feasibility
On July 7, 2017, the Second Circuit relied on
Morrison v. National Australia Bank, 561
U.S. 247 (2010) to vacate certification of twoclasses to the extent they included purchasersof notes that were not traded on a domestic
exchange.8 In re Petrobras Securities, 2017
WL 2883874 (2d Cir. 2017) (Garaufis, J.).
The Second Circuit held the district court“erred in conducting its predominanceanalysis without considering the need forindividualized Morrison inquiries” as to the“domesticity” of each note purchase.
The Second Circuit also held that Rule 23’s
implied ascertainability requirement does
not demand “a showing of administrative
feasibility at the class certification stage.”

When Securities Are Not Tradedon a Domestic Exchange,
Individual Morrison Questions
May Predominate Over Common
Questions
Rule 23(b)(3) requires that “questionsof law or fact common to class members
predominate over any questions affecting
only individual members.” The Second
Circuit explained that “[a] proper assessmentof predominance in this action involves
two predicate questions about the role ofMorrison inquiries.” The first is whether“the determination of domesticity [is]material to” the class claims. The second
is whether “that determination [is] subject
to generalized class-wide proof such that it
represents a common question rather than an
individual one.”

8. “[T]he Supreme Court held in Morrison that the reach of
U.S. securities law is presumptively limited to (1) ‘transactions
in securities listed on domestic exchanges,’ and (2) ‘domestictransactions in other securities.’” Petrobras, 2017 WL 2883874(quoting Morrison, 561 U.S. 247).

With respect to the first question, the Second
Circuit found the district court properly
recognized that “a putative class member
only has a viable cause of action if the specific[securities] sued upon were purchased ina qualifying ‘domestic transaction.’” The
district court therefore limited the classdefinitions to those who purchased securities
in “domestic transactions.”
However, the Second Circuit held “the district
court failed to meaningfully address thesecond question” of whether domesticity issusceptible to class-wide proof. The Second
Circuit explained that “a plaintiff may
demonstrate the domesticity of a particulartransaction by producing evidence ‘including,but not limited to, facts concerning theformation of the contracts, the placement ofpurchase orders, the passing of title, or theexchange of money.’” Id. (quoting Absolute
Activist Value Master Fund v. Ficeto, 677
F.3d 60 (2d Cir. 2012)). The Second Circuit
found “[t]hese transaction-specific facts
are not obviously susceptible to class-wide
proof, nor did [p]laintiffs suggest a formof representative proof that would answer
the question of domesticity for individualclass members.”
The Second Circuit determined that “[o]nthe available record, the investigation ofdomesticity appears to be an individualquestion requiring putative class members
to present evidence that varies from member
to member.” In reaching this conclusion,
the Second Circuit found it significant thatthe district court had “already adjudicatedseveral individualized Morrison inquiries.”
The Second Circuit held “the potential forvariation across putative class members—who
sold them the relevant securities, how thosetransactions were effectuated, and whatforms of documentation might be offered insupport of domesticity” would likely “generate
a set of individualized inquiries that must
be considered within the framework of Rule23(b)(3)’s predominance requirement.” Thecourt vacated the district court’s order to theextent it included investors who purchased
securities in “domestic transactions.”

Third Circuit’s “Heightened” TwoStep Ascertainability Test Does Not
Apply in the Second Circuit“Rule 23 contains an implicit thresholdrequirement that the members of a5

proposed class be readily identifiable,
often characterized as an ascertainability
requirement.”
The Second Circuit recognized that the Third
Circuit has “formally adopted a ‘heightened’
two-part ascertainability test under whichplaintiffs must not only show that ‘theclass is defined with reference to objective
criteria,’ but also that ‘there is a reliable
and administratively feasible mechanism
for determining whether putative classmembers fall within the class definition.’” Id.
(quoting Byrd v. Aaron’s, 784 F.3d 154 (3dCir. 2015)). The Second Circuit joined the
Sixth, Seventh, Eighth and Ninth Circuits inholding that the ascertainability requirement
does not demand a showing of administrative
feasibility.9
9. See Rikos v. Procter & Gamble, 799 F.3d 497 (6th Cir. 2015);
Mullins v. Direct Digital, 795 F.3d 654 (7th Cir. 2015); Sandusky
Wellness Center v. MedTox Scientific, 821 F.3d 992 (8th Cir.
2016); Briseno v. ConAgra Foods, 844 F.3d 1121 (9th Cir. 2017).

The Second Circuit noted that in Brecher
v. Republic of Argentina, 806 F.3d 22 (2dCir. 2015), it previously stated that “[a] classis ascertainable when defined by objective
criteria that are administratively feasible
and when identifying its members would not
require a mini-hearing on the merits of eachcase.” Id. (quoting Brecher, 806 F.2d 22).
The Second Circuit found the Brecher court’s“language about ‘administrative feasibility’and ‘mini-hearings’ was not strictly part of
the holding, and was not intended to create an
independent element of the ascertainability
test.” “[R]ather, that language conveyed
the purpose underlying the operativerequirements of definiteness and objectivity.”
The Second Circuit “conclude[d] that afreestanding administrative feasibility
requirement is neither compelled by [Second
Circuit] precedent nor consistent with Rule23.”

The Securities Law Alertis edited by Paul C. Gluckow
pgluckow@stblaw.com /+1-212-455-2653, Peter E. Kazanoffpkazanoff@stblaw.com /+1-212-4553525 and Jonathan K. Youngwood
jyoungwood@stblaw.com /+1-212-455-3539.

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