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Eleventh Circuit Joins Second And Sixth Circuits In Holding That American Pipe Does Not Toll Statutes Of Repose
08/22/2016On August 10, 2016, the Eleventh Circuit affirmed the dismissal of a putative class action alleging that various JPMorgan entities and two JPMorgan employees were liable under federal securities laws and civil RICO for frauds perpetrated by Bernie Madoff’s advisory business, Bernie L. Madoff Investment Securities LLC (“BLMIS”). Dusek v. JPMorgan Chase & Co., —F.3d—, 2016 WL 4205857 (11th Cir. Aug. 10, 2016). Plaintiffs claimed that the defendants were liable under section 20 of the Securities Exchange Act of 1934 (“Exchange Act”) and the federal civil RICO statute based on their banking relationship with Madoff and their access to BLMIS’s bank accounts. The Court held that the securities law claim was barred by the Exchange Act’s five-year statute of repose and that the RICO claim was barred by the Private Securities Litigation Reform Act (“PSLRA”).
Plaintiffs did not file suit until more than five years after Madoff’s arrest. They argued, however, that their Exchange Act claim was not time-barred because the tolling rule of American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974) – which generally provides that the commencement of a class action in federal court suspends the applicable statute of limitations for all members of the proposed class – applied to the Exchange Act’s statute of repose. The Court noted that the Supreme Court, in CTS Corp. v. Waldburger, 134 S. Ct. 2175 (2014), had explained that statutes of repose, unlike statutes of limitations, are not subject to equitable tolling. However, the Tenth Circuit, in Joseph v.Wiles, 223 F.3d 1155 (10th Cir. 2000), applied American Pipe tolling to the repose period of the Securities Act of 1933 on the premise that American Pipe tolling is not equitable but rather is legal because derived from Federal Rule of Civil Procedure 23. Both the Second and Sixth Circuits have rejected this rationale and have declined to extend American Pipe’s tolling rule to statutes of repose, holding that because the Rules Enabling Act, 28 U.S.C. § 2072(b), forbids courts from applying procedural rules so as to modify substantive rights – such as the right provided by a repose period to be free from liability after a fixed period of time – it does not matter whether American Pipe tolling is “legal” or “equitable” in nature. See Police and Fire Ret. Sys. of the City of Detroit v. IndyMac MBS, Inc., 721 F.3d 95 (2d Cir 2013); Stein v. Regions Morgan Keegan Select High Income Fund, Inc., 821 F.3d 780 (6th Cir. 2016). The Dusek Court also noted that the Supreme Court, and the Fourth, Fifth, Seventh, Eighth, and Eleventh Circuits have described American Pipe as equitable in nature. Without expressly adopting one particular rationale as justifying its holding, the Court held that “American Pipe tolling does not apply to the statute of repose at issue in this case.”
The Court also affirmed dismissal of the plaintiffs’ civil RICO claims as barred by the PSLRA, which bars RICO claims based on conduct that would have been actionable as securities fraud. The Court held that because the plaintiffs’ alleged predicate acts of mail and wire fraud were clearly based upon the fraudulent conduct of Madoff and BLMIS relating to securities investments, the federal RICO claim was precluded by the PSLRA.
