Landmark Ruling Holds American Pipe Tolling Does Not Apply to the Statute of Repose in Section 13 of the Securities Act of 1933

March 28, 2011

In a landmark ruling, the United States District Court for the Southern District of New York held that the class action tolling rule established in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), does not apply to the three-year statute of repose in Section 131 of the Securities Act of 1933. Footbridge Ltd. Trust, v. Countrywide Financial Corp., et al., 2011 WL 907121 (S.D.N.Y. Mar. 16, 2011). This decision could have a significant impact given the number of securities lawsuits currently pending in courts across the nation against financial institutions that securitized residential mortgages. If Judge P. Kevin Castel’s opinion is adopted by other courts, investors will no longer be able to opt out of a class action and file individual complaints long after the statute of repose has run. Bingham McCutchen LLP took a leading role in this significant victory for issuers of securities.

Plaintiffs in Footbridge argued that their claims were not barred because the three-year statute of repose was “tolled” by the so-called American Pipe doctrine. Under American Pipe, the filing of a class action tolls a statute of limitations for all members of the purported class until the class certification issue is resolved or a member opts out the class. Following American Pipe, the Court held in Crown, Cork & Seal Company, Inc. v. Parker, 462 U.S. 345 (1983), that American Pipe’s equitable tolling extended not just to intervenors in the original action, but also to separately filed suits. Thus, as a result of American Pipe and its progeny, class action tolling was assumed to apply to “all asserted members” who later file actions of their own. 462 U.S. at 350. However, in Lampf v. Gilbertson, the Supreme Court held that equitable tolling is not applicable to the three-year statue of repose in the Securities Exchange Act of 1934, having construed Rule 10(b)-5 as subject to the same one- and three-year statutes of limitations and repose in the ’33 Act.2 

Prior to Judge Castel’s holding in Footbridge, a number of district courts and the Tenth Circuit held that American Pipe tolling is not the equitable tolling precluded in Lampf, but a form of legal or statutory tolling.3 Judge Castel, however, concluded that American Pipe tolling is a form of equitable tolling because it is not provided for in the text of the ’33 Act or any governing statute. Rather, “it is a judicially created rule premised on ‘traditional equitable considerations’ of fairness, judicial economy and needless multiplicity of lawsuits.”4 

Judge Castel held that by using the phrase “in no event,” Congress made clear that the statute of repose was absolute and could not be tolled. He noted that “the issue presented is not one of policy but of enforcement of the statute as written” and “[l]awmakers are free to adjust the repose period as they have in the past.”5

The ruling is likely to have a wide-ranging impact on the large number of existing cases against issuers of mortgage-backed securities. Courts that were unwilling to be the first to hold that class action tolling does not apply to the statute of repose now have a well-reasoned opinion on which to base their conclusion. In addition, if the United States Court of Appeals for the Second Circuit affirms Judge Castel’s ruling, there will be a split among the circuits and, given the prevalence of this type of litigation, the Supreme Court may take the opportunity to resolve the conflict.

For more information about the subject matter of this alert, please contact the lawyers listed below:

Michael Blanchard, Partner, Securities and Financial Institutions Litigation

Jordan D. Hershman, Co-chair, Securities and Financial Institutions Litigation


1 Section 13 contains both a one-year statute of limitations and a three-year statute of repose. The statute of repose provides that: “In no event shall any such action be brought…more than three years after the security was bona fide offered to the public.” 15 U.S.C. § 77m (emphasis added).

2 See 501 U.S. 350, 363 (1991). 

3 Seee.g., Joseph v. Wiles, 223 F.3d 1155, 1166-67 (10th Cir. 2000); Maine State Ret. Sys. v. Countrywide Fin. Corp., 722 F. Supp. 2d 1157, 1166 (C.D. Cal. 2010); Arivella v. Lucent Techs., Inc., 623 F. Supp. 2d 164, 176 (D. Mass. 2009); In re Flag Telecom Holdings, Ltd. Secs. Litig., 352 F. Supp. 2d 429, 455 n. 19 (S.D.N.Y. 2005).

4 See Footbridge, 2011 WL 907121 at *6, citing Albano v. Shea Homes Ltd. P’ship, 2011 WL 339207, at *12 (9th Cir. Feb. 3, 2011).

5 See Footbridge, 2011 WL 907121 at *7.

This article was originally published by Bingham McCutchen LLP.