Academic journal article Journal of Corporation Law

Leave Time for Trouble: The Limitations Periods under the Securities Laws

Academic journal article Journal of Corporation Law

Leave Time for Trouble: The Limitations Periods under the Securities Laws

Article excerpt

  I. INTRODUCTION  II. THE LIMITATIONS PERIODS UNDER THE SECURITIES LAWS      A. The Purposes of the Securities Laws ' Limitations Periods         1. Allowing Sufficient Time to Investigate and File a            Securities-Fraud Case         2. The "Stale Evidence" Rationale         3. The "Litigation Uncertainty" Rationale      B. The General Models of Limitations Periods.         1. Statutes of Limitations         2. Statutes of Repose.         3. Jurisdictional Time Limits      C. The Securities Laws ' Hybrid Limitations Periods         1. The One- and Three-Year Limitations Period Under Section 13            of 1933 Act         2. The Two- and Five-Year Limitations Period for Section 10(b)            of the 1934 Act III. TOLLING PRINCIPLES TO ARREST THE SECURITIES LAWS' LIMITATIONS      PERIODS      A. Equitable Tolling      B. Equitable Estoppel      C. Forfeiture and Waiver  IV. SPECIAL TIMELINESS RULES APPLICABLE TO PUTATIVE SECURITIES CLASS      ACTIONS      A. American Pipe's Common-Law Rule for Putative Class Members         1. Opt-Outs After Class Certification         2. Opt-Outs Before Class Certification      B. American Pipe's Questionable Application to Statutes of Repose         1. Federal Courts Applying American Pipe to the Securities            Laws' Repose Provisions         2. Federal Courts Refusing to Apply American Pipe to the            Securities Laws' Statutes of Repose      C. American Pipe's Relevance to Securities Litigation         1. The Securities Laws Build in Delay Before Class            Certification         2. Institutional Investors Rely on American Pipe         3. A World Without American Pipe.   V. REMEDYING THE UNCERTAIN APPLICATION OF LIMITATIONS PERIODS WITH      TOLLING AGREEMENTS  VI. CONCLUSION 

I. INTRODUCTION

In securities-fraud cases, the stakes are high and the litigation is costly, complicated, and time-consuming. Many people invest in the markets, directly or indirectly, to help buy a home, save for retirement, or send children to college. Thus, allegations that fraud tampered with these investments are serious. For these investors, a legitimate securities -fraud suit may present the opportunity to recover these savings, retirement nest eggs, or children's college funds that were lost, not because of risk attendant to investment generally, but because of fraud. A securities-fraud suit is serious for companies as well. For companies, the threat of a securities-fraud suit stands out as a nasty attack on business reputation and a significant litigation risk. Companies have every interest in getting these suits dismissed at the earliest practical time.

Whether a securities-fraud suit is timely is an elementary and crucial question for both sides because failing to file within the limitations periods can be case dispositive. The securities laws set time limits for bringing lawsuits based on when a reasonable investor would have discovered the fraud and when the fraud occurred. If investors do not comply with these time limits, then they are barred from the courthouse--no matter how egregious the scheme or how great their loss. The seemingly draconian result is justified by limitations periods' salutary purposes. For one, deadlines ensure that evidence is relatively fresh, which promotes resolution on the merits. In addition, a time limit allows defendants and others to rest easy knowing that after a certain time, their past transactions will not unravel with a lawsuit.

Legal deadlines are supposed to set clear rules for what is timely and what isn't. (1) Far from easy to apply, however, the law of limitations periods for securities cases is a collection of unsettled questions. This Article discusses the securities laws' legal deadlines and finds that the uncertainty with which they apply renders them less effective than they otherwise could be. Questions linger about whether the securities laws' limitations periods afford any room for equitable exceptions, like tolling, estoppel, or forfeiture. …

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