The U.S. Supreme Court on Monday agreed to review another securities class action case: Public Employees’ Retirement System of Mississippi v. IndyMac MBS Inc. The case arose out of the massive collapse of securities that were backed by home mortgage loans.
The issue before the Court is the time limit to sue for false claims in the offer or sale of securities.
IndyMac MBS, Inc., issued an investment vehicle known as mortgage-backed securities that gave investors a portion of the revenue generated by the monthly payments that homeowners made on their mortgage loans. Ultimately, the certificates were downgraded to junk status.
Among the investors who bought these certificates was the Public Employees’ Retirement System of Mississippi. It, along with other investors, joined a class-action lawsuit claiming that IndyMac Bank’s underwriting statements contained false and misleading information and failed to disclose that the lending guidelines used in marketing the mortgage loans to home buyers had not, in fact, been followed.
The lawsuit was filed under the Securities Act of 1933 which sets a one year time limit for filing lawsuits under the Act, and specifies that in no event may any lawsuit be filed more than three years after the security involved had been offered to the public or had been sold.
The investors’ class-action claim was filed in October 2009. A federal judge ruled that the three-year outside filing deadline had been missed. The U.S. Court of Appeals for the Second Circuit agreed.
In American Pipe & Construction Co. v. Utah the Supreme Court held that the filing of a class action complaint “suspends the applicable statute of limitations as to all asserted members of the class …” However, the Second Circuit ruled that “equitable tolling” did not interrupt the running of the time limit in the 1933 Act. Alternatively, the Second Circuit said that if American Pipe did not involve an equitable limit, but rather a form of legal tolling, then it conflicted with federal court rules.
The question now before the Court is whether American Pipe tolling interrupted the running of the three-year time limit.