New Securities Opinion Highlights How Poorly We Deal with Long Term Torts
Here is an AmLaw Daily article describing a district court ruling that highlights logical inconsistencies in the tactics and law related to long term torts. The ruling is that the filing of a class action securities lawsuit does NOT toll statutes of repose for all class members. The defensive argument was advanced by directors and officers seeking to avoid fraud claims arising from sales of mortgage-backed securities.
The logical consequence of that ruling is that would-be members of a possible class that may be certified should not sit back and wait to see what happens with the class. Instead, they should file their own suit to make sure time bar statutes do not later preclude their claims.
Years ago, the US Supreme Court considered a similar issue in the American Pipe class action litigation. The reached the correct result of holding that the filing of the class action action tolled the statute of limitations for all class members. The rationale was that the tolling rule was needed in order to avoid deluges of lawsuits.
Today, the same issue is resurfacing, but the time bar rules at issue are statutes of repose instead of statutes of limitation. Some defendants rightfully argue the two forms of statute are "different," and claim that the difference means that American Pipe tolling than statutes of limitation. In this case, Judge Kaplan accepted that reasoning, in a bare bones ruling which mainly cites to another case that reached the same outcome.
In view of Judge Kaplan’s ruling, plaintiff’s securities lawyers could take the most conservative view and file a suit for each plaintiff they know about in order to stop the statute of repose from running. But, if that were to happen, imagine the headlines and complaints that will flow out defendants and the US Chamber of Commerce. All will complain bitterly that "greedy plaintiff’s lawyers are piling on in search of fees," and that answering all the complaints will cost defendants way too much money. And, if the securities law plaintiff’s bar goes to Congress for relief, the headlines will be similar.
The bottom line ? The US legal system and existing legal rules are lousy at coping with massive claims that arise over several years. That reality was first proved in mass tort personal injury litigation. The reality is being proved again by claims arising out of the massive financial fraud on Wall Street, and the dysfunctional approach to mortgage foreclosure cases.