April 14, 2017

As Justice Neil Gorsuch takes his seat on the U.S. Supreme Court for the first time Monday to hear oral arguments over the time limits on securities class actions, experts said they'll be watching closely for hints of whether he'll hew closely to the letter of the law or be wrapped up in policy concerns over limiting opt-out litigation.

The case, an appeal brought by the California Public Employees' Retirement System over whether a three-year time limit on certain securities claims can be tolled by the filing of a class action, may not have the same cachet as more controversial cases the Supreme Court has taken up or is considering over immigration, religion and First Amendment rights.

But experts said CalPERS’ appeal, along with another securities case scheduled for Tuesday over time limits on the U.S. Securities and Exchange Commission's ability to collect disgorgement, are the kinds of cases where the newly minted justice can make an impact.

The Supreme Court granted CalPERS' petition to review the case in January, but limited the case to the question of whether filing a proposed class action serves under American Pipe to toll the '33 act's three-year time limitation.

“I think the case does present some interesting ideological concerns to the approaches of the justices, whether they are more on the conservative side or more on the liberal side,” said Daniel S. Sommers, the co-chair of Cohen Milstein Sellers & Toll PLLC's securities litigation and investor protection practice group.

Sommers explained that the case presents a tension between the strict statutory interpretation advocated by the underwriters, an approach he said would typically be appealing to conservative justices, and CalPERS' request for deference to Supreme Court precedent in the American Pipe case — another principle of "great significance" to the conservative side of the court.

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CalPERS has warned that upholding the Second Circuit's decision could “generate tremendous waste and inefficiency for district courts” by creating an incentive for unnamed class members to file individual pleadings and premature opt-outs in order to preserve their claims. The fund also argued that, with their ability to opt-out constrained, class members will lose “the principal check they have” to ensure class counsel and class members vigorously represent them, harming smaller investors.

Although Sommers cautioned against putting too much stock into a paper Gorsuch wrote as a private attorney, he said the threat of increased litigation could play into the justice's thinking. “If one were concerned about increasing the number of cases that are filed, obviously deviating from the American Pipe precedent would of course create that result,” Sommers said.

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