Amicus Curiae Brief — Cal. Pub. Employees' Ret. Sys. v. ANZ Sec., Inc., 137 S. Ct. 811 (2017) (No. 16-373)

we ‘

7.

FILED

MAR ~6 2016

No. 16-373 OFFICE OF THE CLERK

IN THE

Supreme Court of the Anited States

CALIFORNIA PUBLIC EMPLOYEES’ RETIREMENT SYSTEM,

Petitioner,

Vv.

ANZ SECURITIES, INC., et ai.,

Respondents.

On Writ of Certiorari to the

United States Court of Appeals

for the Second Circuit

BRIEF OF RETIRED FEDERAL JUDGES AS

AMICI CURIAE IN SUPPORT OF PETITIONER

ANDREW N. GOLDFARB

Counsel of Record

GRAEME W. BUSH

JOHN J. CONNOLLY

ZUCKERMAN SPAEDER LLP

1800 M Street, NW, Ste. 1000

Washington, DC 20036

(202) 778 1800

agoldfarb@zuckerman.com

Counsel for Amici

March 6, 2017

WILSON-EPES PRINTING Co., INC. — (202) 789-0096 -— WASHINGTON, D.C. 20002

i

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES ...............:ccsccese0ese00e- ii

INTEREST OF THE AMICI CURIAE -....0.0..00.000-« 1

SUMMARY OF ARGUMENT. ...........ccccccsccsecceseeeee 1

EEA SS SER ED. We eres SIE: 3

I. Federal Securities Class Actions Present

Difficult Case Management Probleme............. 3

Il. The IndyMac Rule Followed Below Is

Likely To Increase Protective Filings.............. 7

Ill. Applying the Rule of American Pipe

Would Minimize Case Management

Issues and Promote a Fair Resolution of

Securities Class Actions. ...............ccsccssceececeees 14

SEIN ssicecinresccplensidnisiendecndageiwdiniinnbasdneheticns 20

ll

TABLE OF AUTHORITIES

Page

CASES

American Pipe & Constr. Co. v. Utah, 414 U.S.

ae ueiabemmmanianiiaiened passim

Aronson v. McKesson HBOC, Inc., 79 F. Supp.

ee eS I, BI kecisecnescccusimbusieininansnesion 12

Burke v. Ruttenberg, 102 F. Supp. 2d 1280 (N.D.

en numsininmnneidon 15

Chill v. Green Tree Fin. Corp., 181 F.R.D. 398

i I III nina sas dn adcbbaenaucededeasennennoniannanete 12

City of Detroit v. Goldman, Sachs & Co., No. 10

Civ. 4429 (MGC), 2014 WL 1257782 (S.D.N.Y.

Se ho edgeauabaapeedon 8

Crown, Cork & Seal Co. v. Parker, 462 U.S. 345

EE VE A OIE eRe aE as RD St Ser eae ee 7

DeJulius v. New England Health Care Emps.

Pension Fund, 429 F.3d 935 (10th Cir. 2005) .... 16

Devlin v. Scardelletti, 536 U.S. 1 (2002).................. 8

Haines v. Kerner, 404 U.S. 519 (1972)................... 17

In re Baan Co. Sec. Litig., 186 F.R.D. 214

SEE RLS ER a Se cS 5, 12

In re Cendant Corp. Sec. Litig., 109 F. Supp. 2d

SS eee 15

lil

In re Cendant Corp. Sec. Litig., 404 F.3d 173 (3d

EASA RE I: TARA RANT MS apt hal 5, 13

In re Citigroup Inc. Bond Litig., 296 F.R.D. 147

gg RRS ARIS OR ONT SU ee Oe 1

In re Cmty. Bank of N. Va., 418 F.3d 277 (3d

ER it ets Ale e Erte A lads le ae 17

In re Enron Corp. Sec. Litig., 206 F.R.D. 427

ne, Mr a 5, 15

In re First Union Corp. Sec. Litig., 157 F. Supp.

Be Ns III siiccccsecseceececeuseuicoseucsennéuces 15

In re Gen. Motors Corp. Pick-Up Truck Fuel

Tank Prods. Liab. Litig., 55 F.3d 768 (3d Cir.

NE hiatnipeitenasoteuniniitncabichitnisrgihitinieKeacidllanddiiamianesdockancius 13

In re Initial Pub. Offering Sec. Litig., 499 F.

Supp. 2d 415 (S.D.N.Y. 2007) 200.0... cccc ccc eeeeeceee 17

In re Milken & Assocs. Sec. Litig., 150 F.R.D. 46

eR EP SER Re le ce 1

In re Network Assocs., Inc. Sec. Litig., 76 F.

Supp. 2d 1017 (N.D. Cal. 1999) ...00000.. ec. 5, 12

In re Oxford Health Plans, Inc., Sec. Litig., 182

ee Me NI Ts Dc ietiaig ves chcaecndvnceacnccaenans 5

In re Telxon Corp. Sec. Litig., 67 F. Supp. 2d 803

I Se HE cach cotonsercdveitsincsicsisadediintedeecannos-sn 14, 15

Jenkins v. Missouri, 78 F.3d 1270 (8th Cir.

ERE Tere ENDS BR vy Ie a CNS ee eS 17

iv

Joseph v. Wiles, 223 F.3d 1155 (10th Cir. 2000)...... 8

Lampf, Pleva, Lipkind, Prupis & Petigrow v.

Gilbertson, 501 U.S. 350 (1991) .0.0000.. occ ccc. 8

Odle v. Wal-Mart Stores, Inc., 747 F.3d 315 (5th

a 8

Police & Fire Ret. Sys. of City of Detroit v.

IndyMac MBS, Inc., 721 F.3d 95 (2d Cir.

2013), cert. granted sub nom., Pub. Emps.’ Ret.

Sys. of Miss. v. IndyMac MBS, Inc., 134 S. Ct.

1515 (2014), cert. dismissed as improvidently

granted, 135 S. Ct. 42 (2014)...................... passim

Sakhrani v. Brightpoint, Inc., 78 F. Supp. 2d

845 (S.D. Ind. 1999) ................ BS Pa 2. PNT 4,5

Simmons v. Spencer, No. 13 Civ. 8216 (RWS),

2014 WL 1678987 (S.D.N.Y. Apr. 25, 2014)......... 5

Stein v. Regions Morgan Keegan Sel. High Inc.

Fd., 821 F.3d 780 (6th Cir. 2016) .....0.....0000000.. 11

Takeda v. Turbodyne Techs., Inc., 67 F. Supp. 2d

SIN PII CII i siinsdascersagisesetomncsitensieeianinndelaiemee 12

Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551

i ERE AS Sa a Re SN 6

Wyser-Pratte Mgmt. Co. v. Telxon Corp., 413

pg) EER ee 11

STATUTES

ees Oe PID vv oncnncicssvcednnicsocescooctceuvess 3

15 U.S.C. § 78u-4(a)(3)(B)...ccccccecececcecesccesceseseseceseeees 3

Vv

15 U.S.C. § 78u-4(a)(3)(B) (ii) ......ccecesceceseeceseceeeseeeeeee 5

15 U.S.C. § 78u-4(b)(1)-(2) .....c.cccecesceeesseceseessveeseesen 16

15 U.S.C. § 78u-4(b)(2)(A).....cceccccesececeescesscseseseseseeees 6

H.R. Conf. Rep. No. 104-369 (1995) .......0.0:.ccccc00seeee: 4

Private Securities Litigation Reform Act of

1995, Pub. L. No. 104-67, 109 Stat. 737..... passim

TREATISES

3 WILLIAM B. RUBENSTEIN ET AL., NEWBERG ON

CLASS ACTIONS (5th ed. 2013).........0...0..... 9, 18, 19

5 ALBA CONTE & HERBERT B. NEWBERG,

NEWBERG ON CLASS ACTIONS (4th ed. 2002)......... 8

7B CHARLES ALAN WRIGHT & ARTHUR R. MILLER,

FEDERAL PRACTICE AND PROCEDURE (3d ed.

ee iiiitindisthasasineneniametenenniased fo EOE EO a Doone Oe 16

7C WRIGHT & MILLER, FEDERAL PRACTICE AND

yp te Te Ay : 18

OTHER AUTHORITIES

BARBARA J. ROTHSTEIN & THOMAS E. WILLGING,

MANAGING CLASS ACTION LITIGATION: A

POCKET GUIDE FOR JUDGES (3d ed. 2010)............. 8

Cornerstone Research, Securities Class Acticn

Settlements — 2015 Review and Analysis

(2016), available at http://securities.stanford.

edu/research-reports/ 1996-20 15/Settlements-

vl

Elhott J. Weiss, The Lead Plaintiff Provisions of

the PSLRA After a Decade, or “Look What’s

Happened to My Baby,” 61 VAND. L. REv. 543

RE RETR a eae Ree ee ae eC 5

J. Rosenbloom, Exploring Methods to Improve

Management and Fairness in Pro Se Cases: A

Study of the Pro Se Docket in the Southern

District of New York, 30 FORDHAM URB. L.2J.

a se caasisenddnbabannidieein 21

Lawsuit News, Business Wire,

https://www.Businesswire.com/portal/site/

home/news/subject/?vnsIld=31361 (last visited

ids ccrcisinliesi nies neeedalceipacidocadaitionabiieviaasuiosipe 4

Restatement (Second) of Trusts § 177 (1959)........ 15

Stefan Boettrich & Svetlana Starykh, Recent

Trends in Securities Class Action Litigation:

2016 Full-Year Review 21 (2017), available at

http://www.nera.com/content/dam/nera/public

ations/2017/PUB_2016 Securities_Year-

End_Trends_Report_0117.pdf....................02.. 7,12

INTEREST OF THE AMICI CURIAE!

Amict curiae are former federal district court

judges who have experience adjudicating class action

cases under securities and other laws. The attached

Appendix contains a list of the amici along with

biographical information for each. Amici are

interested in this case because of their years of

service to the federal judiciary and their ongoing

commitment to ensure that federal judges have the

means to manage their caseloads and dispense equal

justice under law to all litigants.

Amici urge the Court to reverse the decision below

and to hold that the rule announced in American Pipe

& Construction Co. v. Utah, 414 U.S. 538 (1974),

applies to the three-year time limitation in § 13 of the

Securities Act of 1933 for asserted class members.?

SUMMARY OF ARGUMENT

Securities class actions are among the most

complicated and time-consuming actions that come

before federal district courts. See, e.g., In re Citigroup

Inc. Bond Litig., 296 F.R.D. 147, 155 (S.D.N.Y. 2013);

In re Milken & Assocs. Sec. Litig., 150 F.R.D. 46, 53

(S.D.N.Y. 1993). In the judgment of amici, the rule of

' All parties have consented to the filing of this brief. No

counsel for any party authored this brief in whole or in part and

no person or entity other than amici or their counsel made a

monetary contribution for the preparation or submission of this

brief.

2 Amici take no position on the merits of this or other

securities class actions.

2

American Pipe has had a salutary effect on

management of securities class actions, and a

substantial erosion of that rule would burden federal

judges and federal courts without materially

improving justice to the parties. In particular, amici

envision an increase in “protective filings” if the

decision below is affirmed. That is, a holding by this

Court that the American Pipe rule does not apply to

the three-year time limitation in § 13 of the

Securities Act could cause unnamed class members in

pending and future securities class actions to move to

intervene in class cases, or file their own independent

actions, simply to preserve their claims. These filings

will complicate the already difficult process of

choosing a lead plaintiff in a securities class action.

They may also create competing factions of plaintiffs

who may burden federal courts with duplicative

filings and intra-party disputes. Further, a

substantial increase in multidistrict litigations could

ensue if unnamed class members choose to file

independent suits in districts most convenient for

them, but which might differ from the district in

which the class case is proceeding. A _ single,

consolidated class action could thus become subject to

an MDL procedure that would expend more of the

judiciary’s time and resources than necessary. Amici

also envision an increase in pro se filings by

investors, which create special burdens for the court

system. Applying American Pipe to § 13’s three-year

period (and similar provisions in the federal

securities laws),* by contrast, will promote an orderly

3 This Court has likened § 13 to certain time-for-suit

provisions in the Securities Exchange Act of 1934. See Lampf,

Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350,

359-61 (1991).

3

procedure through which the court can determine

whether the claims are suitable for class-based relief,

and manage the case thereafter toward a fair

resolution based on the facts and the law.

ARGUMENT

I. FEDERAL SECURITIES CLASS ACTIONS

PRESENT DIFFICULT CASE

MANAGEMENT PROBLEMS.

Securities class actions present unique challenges

that make them among the most difficult cases for

federal district courts to manage. Amici are

concerned about any change in class action procedure

that threatens to exacerbate those difficulties.

In the Private Securities Litigation Reform Act of

1995 (“PSLRA”), Pub. L. No. 104-67, 109 Stat. 737,

Congress created a special set of procedures to govern

a federal securities class action suit. The earliest

stage of the case often is dominated by selection of a

“lead plaintiff,” a process intended to ensure that the

litigation is managed for the class by an investor with

a large financial interest in the relief sought by the

class. See 15 U.S.C. § 78u-4(a)(3)(B). To ensure

selection of an appropriate lead plaintiff, the plaintiff

who files a securities class-action complaint has 20

days to “cause to be published, in a widely circulated

national business-oriented publication or wire

service, a notice advising members of the purported

plaintiff class” of “the pendency of the action, the

claims asserted therein, and the purported class

period.” 15 U.S.C. § 78u-4(a)(3)(A)G). The notice also

provides that any member of the purported class has

60 days to move the court to serve as lead plaintiff.

Id.

A

These provisions were intended in part to

encourage sophisticated institutional investors to

serve as lead plaintiffs. E.g., H.R. Conf. Rep. No. 104-

369, at 34 (1995). The notices are not sent solely to

institutional investors, of course; they are published

in business media and are read by individual

investors, financial advisors, and _ class-action

lawyers, who must decide what action to take when

they or their clients bought or sold securities in the

defendant company during the relevant period.

Scores of these notices are available for review on

sites such as Business Wire.* They typically provide a

summary of the claims and the deadline for filing a

motion to serve as lead plaintiff. Many also indicate

that class members need not take any action to be a

member of the class, and they invite class members to

call the named plaintiffs law firm if they have

questions. Law firms often form an ad hoc “group of

persons” from the investors who contact them, and

then move the court to appoint the group as lead

plaintiff. See Sakhrani v. Brightpoint, Inc., 78 F.

Supp. 2d 845, 850-51 (S_D. Ind. 1999) (volunteers for

lead plaintiff “are often collected by inviting investors

who read the national notice under the PSLRA to

send in a form to a law firm”); Elliott J. Weiss, The

Lead Plaintiff Provisions of the PSLRA After a

Decade, or “Look What’s Happened to My Baby,” 61

VAND. L. REV. 543, 560 (2008).

In many cases multiple plaintiffs using different

law firms file similar securities class-actions against

4 See Lawsuit News, Business Wire, https://www.Business

wire.com/portal/site/home/news/subject/?vnsId=31361 (last

visited Mar. 6, 2017).

5

the same defendant. E.g., In re Cendant Corp. Sec.

Litig., 404 F.3d 173, 196 (3d Cir. 2005) (noting that

62 complaints were filed on behalf of the class); Jn re

Network Assocs., Inc. Sec. Litig., 76 F. Supp. 2d 1017,

1019 (N.D. Cal. 1999) (noting that 19 class actions

were filed promptly after decline in stock prices).

These competing complaints are often the subject of a

motion for consolidation, which the district judge

must adjudicate before appointing a lead plaintiff.

See 15 U.S.C. § 78u-4(a)(3)(B) (ii).

The appointment of a lead plaintiff is often

contested by competing factions of plaintiffs. E.g., In

re Enron Corp. Sec. Litig., 206 F.R.D. 427, 439-40

(S.D. Tex. 2002) (considering motions for

appointment of lead counsel). District judges,

consistent with the intent of the PSLRA, generally

try to manage these early skirmishes by limiting the

number of lead plaintiffs. E.g., Sakhrani, 78 F. Supp.

2d at 854 (maming only one lead plaintiff—the

individual investor with the largest losses during the

class period); compare In re Oxford Health Plans,

Inc., Sec. Litig., 182 F.R.D. 42, 47 (S.D.N.Y. 1998)

(concluding interests of the proposed class would be

best served by a group of three co-lead plaintiffs). In

In re Baan Co. Securities Litigation, 186 F.R.D. 214,

217 (D.D.C. 1999), for instance, the district judge

observed that “a small committee will generally be

far more forceful, effective and efficient than a larger

aggregation.” Consequently, “(t]he Lead Plaintiff

decision should be made under a rule of reason but in

most cases three should be the initial target, with five

or six as the upper limit.” /d.; e.g., Simmons v.

Spencer, No. 13 Civ. 8216 (RWS), 2014 WL 1678987

(S.D.N.Y. Apr. 25, 2014) (appointing two lead plaintiff

6

applicants, a total of six individuals, to serve as co-

lead plaintiffs).

Many additional complexities arise after the lead

plaintiff is selected. Motions to dismiss are filed in

roughly 94 percent of securities class actions, Stefan

Boettrich & Svetlana Starykh, Recent Trends in

Securities Class Action Litigation: 2016 Full-Year

Review 21 (2017), available at http://www.nera.com/

content/dam/nera/publications/2017/PUB_2016_Secur

ities_Year-End_Trends_Report_0117.pdf, and_ the

heightened pleading standards under the PSLRA,

which apply to fraud-based claims, often result in

hotly contested disputes at the pleading stage.

Moreover, those motions to dismiss often turn on

whether plaintiffs have satisfied the PSLRA’s

requirement that, with respect to each allegedly

fraudulent act or omission, they “state with

particularity facts giving rise to a strong inference

that the defendant acted with the required state of

mind.” 15 U.S.C. § 78u-4(b)(2)(A). Resolving that

question often requires that the district judge take a

hard look at the plaintiffs’ allegations and, where

appropriate, materials subject to judicial notice. See

Tellabs, Inc. v. Makor Issues & Rights, Lid., 551 U.S.

308, 322-23 (2007). If the case proceeds after the

initial motions are resolved, the district judge must

structure and monitor discovery, rule on a motion for

certification, adjudicate motions for summary

judgment, design and manage a trial (in the

comparatively few cases that are tried), review and

approve settlement agreements—including

conducting fairness hearings—address objections

from class members, and address questions of

attorneys’ fees. In high-stakes class actions, many of

these events are intensely litigated. Others, such as

7

settlement and attorneys’ fees, may not be contested

at all, and the district judge must perform an

independent analysis to ensure compliance with the

letter and spirit of Federal Rule of Civil Procedure 23.

See generally BARBARA J. ROTHSTEIN & THOMAS E.

WILLGING, MANAGING CLASS ACTION LITIGATION: A

POCKET GUIDE FOR JUDGES 1-3 (3d ed. 2010). District

judges themselves may have duties to absent class

members, particularly at the settlement stage. See id.

at 12.

Il. THE INDYMAC RULE FOLLOWED

BELOW IS LIKELY TO INCREASE

PROTECTIVE FILINGS.

In American Pipe and Crown, Cork & Seal Co. v.

Parker, 462 U.S. 345 (1983), this Court concluded

that the running of a statute of limitations should be

suspended for the claims of absent class members

during the pendency of a class action complaint. Fach

of those decisions was grounded in part on the

concern that a contrary rule would induce potential

class members “to file protective motions to intervene

or to join in the event that a class was later found

unsuitable.” American Pipe, 414 U.S. at 553; see also

Crown, Cork & Seal, 462 U.S. at 353-54. In essence,

the American Pipe rule vindicates the case

management principles embedded in Rule 23. As the

Court observed in American Pipe, a “federal class

action is no longer ‘an invitation to joinder’ but a

truly representative suit designed to avoid, rather

than encourage, unnecessary filing of repetitious

papers and motions.” 414 U.S. at 550.

8

Scores of appellate and district judges have

endorsed that reasoning in securities class actions.

E.g., Odle vy. Wal-Mart Stores, Inc., 747 F.3d 315, 323

n.45 (5th Cir. 2014); Joseph v. Wiles, 223 F.3d 1155,

1167 (10th Cir. 2000); Police & Fire Ret. Sys. of City

of Detroit v. Goldman, Sachs & Co., No. 10 Civ. 4429

(MGC), 2014 WL 1257782, at *8 (S.D.N.Y. Mar. 27,

2014). Indeed, this Court has consistently adhered to

that reasoning, including in at least one case decided

after Lampf, Pleva, Lipkind, Prupis & Petigrow v.

Gilbertson, 501 U.S. 350, 359-61 (1991). In Devlin v.

Scardelletti, 536 U.S. 1 (2002), the Court noted that

nonnamed class members are “parties in the sense

that the filing of an action on behalf of the class tolls

a statute of limitations against them.” Jd. at 10.

“Otherwise,” the Court added, “all class members

would be forced to intervene to preserve their claims,

and one of the major goals of class action litigation—

to simplify litigation involving a large number of

class members with similar claims—would be

defeated.” Jd.

Over the decades the American Pipe doctrine

crystallized into a settled expectation that potential

class members need not intervene in a class action or

file their own complaint to preserve their claims, at

least until class certification has been denied. In

2002, the Fourth Edition of the leading treatise on

class actions stated, “Because the filing of the class

complaint tolls the statute of limitations for the class,

class members may simply await the outcome of the

suit.” 5 ALBA CONTE & HERBERT B. NEWBERG,

NEWBERG ON CLASS ACTIONS § 16:6, at 146 (4th ed.

2002) (footnote omitted). But by the time the Fifth

Edition was published in 2013, that statement had

become a “general rule” followed by 16 sections of

9

caveats and exceptions, as the lower courts

considered the bewildering permutations of the

American Pipe rule in the class action context. See 3

WILLIAM B. RUBENSTEIN, NEWBERG ON CLASS ACTIONS

§§ 9:53 to 9:68 (5th ed. 2013). The 2016 supplement

adds a new section addressing the issue raised by

Petitioner; the authors conclude with the observation

that the dismissal of the writ in Police & Fire Ret.

Sys. of City of Detroit v. IndyMac MBS, Inc., 721 F.3d

95 (2d Cir. 2013), cert. granted sub nom., Pub. Emps.’

Ret. Sys. of Miss. v. IndyMac MBS, Inc., 134 S. Ct.

1515 (2014), cert. dismissed as improvidently granted,

135 S. Ct. 42 (2014), left “the split in the circuits to be

resolved another day.” Id. § 9:69, at 58 (Supp. 2016).

In IndyMac, the Second Circuit held that the

American Pipe tolling rule does not apply to § 13’s

three-year period. 721 F.3d at 101. In the decision

below, the court of appeals followed IndyMac to

dismiss claims that the plaintiff had filed, after

opting out of a putative class action, outside of § 13’s

three-year period. Pet. App. la-6a. If upheld by this

Court, the IndyMac rule will contribute to the

growing confusion about American Pipe tolling in

class action cases. The effect, amici believe, will be a

trend toward duplicative filings in securities class

action cases, which will complicate their management

and administration. Amici believe this based on their

experience and judgment, for the following reasons.

First and foremost, potential class members will

have a strong incentive to file motions to intervene or

separate complaints to ensure that any time

limitation characterized as a “statute of repose” is not

later held to bar their claims. One research firm

reports that the median time from the filing of a

10

securities class action complaint to a decision on class

certification is about 2.5 years. Boettrich & Starykh,

supra, at 23. (The median time between the end of

the class period and the filing of the first complaint is

only 13 days, but the mean is 69 days. Jd. at 18.)

Another researcher reports that the median time to

settlement was three years in 2015, with longer

periods for larger cases. Cornerstone Research,

Securities Class Action Settlements — 2015 Review

and Analysis 19 (2016), available at http://securities

.stanford.edu/research-reports/1996-2015/Settlements

-Through-12-2015-Review.pdf. Thus, sophisticated

parties know that a three-year statutory period may

expire well before the rights of absent class members

are adjudicated. Indeed, under the rule followed by

the court of appeals below, even if a class is certified

within the three-year period, absent class members

are not protected if the class is later decertified

outside the three-year period.

The Second Circuit appears to embrace, or at least

be agnostic to, the prospect of multitudinous,

duplicative litigation resulting from potential class

members’ filing motions to intervene or separate

actions to protect their rights. As the court put it in

IndyMac, “through minimal diligence, [the proposed

intervenors] could have avoided the operation of the

Section 13 statute of repose simply by making timely

motions to intervene in the action as named

plaintiffs, or by filing their own timely actions and, if

prudent, seeking to join their claims under Federal

Rule of Civil Procedure 20 (joinder).” Jd. at 112. Amici

believe that such a regime would place an undue

11

burden on district courts, and is both unwarranted

and undesirable.5

Second, as a result of the PSLRA’s publication

requirement, potential members of securities class

actions may receive early notice of the litigation and

ready access to counsel. Federal securities class

actions are filed and litigated by a plaintiffs’ bar that

tends to be sophisticated and highly competitive.

These lawyers stay abreast of major events in the

capital markets, and they are immediately made

aware of class action complaints filed by competing

plaintiffs’ firms. When a securities class action is

filed, plaintiffs’ lawyers have an obligation, as well as

an incentive, to notify potential class members of the

action. Many of these potential class members contact

one or more of the plaintiffs’ firms who are competing

to represent the iead plaintiff. Even before the court

of appeals’ decision in IJndyMac, law firms

representing investors have sometimes “signed up”

5 Amici note that, in the Sixth Circuit, the incentive for

potential class members to act before the statute of limitations

runs, either through early intervention or filing a separate

action, is particularly acute. [n Stein v. Regions Morgan Keegan

Select High Income Fund, Inc., 821 F.3d 780 (6th Cir. 2016), the

Sixth Circuit followed IndyMac. However, that circuit has also

declined to extend American Pipe tolling to a potential class

member who files her own action beyond the statute of

limitations but before the trial court rules on class certification.

Wyser-Pratte Mgmt. Co. v. Telxon Corp., 413 F.3d 553 (6th Cir.

2005). As the court recognized in Stein, to nrotect her rights in

the Sixth Curcuit, a potential class member currently must

either file before the limitations period expires or hope that the

district court decides class certification before the “statute of

repose” period runs. 821 F.3d at 795 n.6. Any rational potential

class member will choose the former, which will lead to more

protective filings.

12

thousands of potential class members as part of the

initial process of choosing a lead plaintiff. See, e.g.,

Network Assocs., 76 F. Supp. 2d at 1019 (noting that

one law firm claimed to represent a group of more

than 1,725 investors, and another claimed over 100

institutions and “thousands” of individuals); Aronson

v. McKesson HBOC, Inc., 79 F. Supp. 2d 1146, 1154

(N.D. Cal. 1999) (“groups as large as 4,000 plaintiffs

strong are vying for appointment” as lead plaintiff);

Takeda v. Turbodyne Techs., Inc., 67 F. Supp. 2d

1129, 1135 (C.D. Cal. 1999) (two competing groups of

“several hundred investors”); In re Baan Co., 186

F.R.D. at 217 (group of 466); Chill v. Green Tree Fin.

Corp., 181 F.R.D. 398, 408-09 (D. Minn. 1998)

(roughly 300). If the IndyMac rule followed below

prevails, it seems likely that plaintiffs’ counsel will

need to inform potential class members that they

cannot merely sit by and assume that their rights are

protected.

Third, many securities are held through funds

operated by professional managers. Investment

managers are fiduciaries who have a duty to keep

investors informed of rights and opportunities

associated with their investments. See RESTATEMENT

(SECOND) OF TRUSTS § 177 (1959) (“The trustee is

under a duty to the beneficiary to take reasonable

steps to realize on claims which he holds in trust.”).

As a result, they are likely to monitor Business Wire

and other sites that publish notices of class action

filings. After learning of a class action involving

securities held by their investors, investment

professionals may feel obligated to tell their clients

that they should analyze the pleadings to form a legal

judgment about whether intervention is advisable. At

minimum, this imposes additional costs on investors,

13

and it could impose substantial burdens on the courts

if investment professionals push investors to protect

their rights by filing complaints or motions to

intervene.

Finally, a lead plaintiff in a securities class action

owes a fiduciary duty to the class. In re Cendant, 404

F.3d at 198. Class counsel likewise owes a fiduciary

duty to putative class members upon the filing of a

class complaint. Jn re Gen. Motors Corp. Pick-Up

Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 801

(3d Cir. 1995). Whether that duty extends to

notifying class members about the possible

imposition of a time bar is not clear, but again, under

the IndyMac rule the safer course for a fiduciary may

be to notify class members that their claims are not

protected against the time limitation unless they file

a complaint or motion to intervene. Such an outcome

would impose additional costs on plaintiffs or their

counsel, who must pay for such notice. Also, adding

another notice obligation to those required by the

PSLRA and Rule 23 may confuse potential class

members about the substance and import of the

different notices they receive during a securities class

action.

To be sure, under the IndyMac rule putative class

members could still delay filing a complaint or motion

to intervene until just before expiration of the three-

year period. However, plaintiffs may decide that the

wiser course is to make a protective filing early in the

case, rather than monitor the litigation, calendar key

dates, and form periodic judgments about whether

intervention is advisable. In any case, motions to

intervene and separate complaints substantially

burden the courts, regardless of whether they are

14

filed shortly after a complaint or immediately before

the expiration of a limitations period.

Amici cannot say how many additional motions to

intervene or separate complaints will be filed if the

IndyMac rule followed below stands. Under the

American Pipe rule regularly applied prior to the

Second Circuit's decision in IJndyMac, however,

virtually none of these putative class members file

papers with the court or otherwise participate in the

proceedings if they are not selected as lead plaintiff.

They have had little reason to do so in light of the

longtime understanding that their claims would not

be extinguished while the class action proceeds.

III. APPLYING THE RULE OF AMERICAN

PIPE WOULD MINIMIZE CASE

MANAGEMENT ISSUES AND PROMOTE

A FAIR RESOLUTION OF SECURITIES

CLASS ACTIONS.

As noted supra, district judges presiding over

securities class actions frequently conclude that the

interests of justice and efficiency are served by

limiting the number of representative plaintiffs. In Jn

re Telxon Corp. Securities Litigation, 67 F. Supp. 2d

803 (N.D. Ohio 1999), for instance, 27 parties filed

class action complaints. All agreed that the cases

should be consolidated, but three groups competed for

lead plaintiff status. One group consisted of 18

individual plaintiffs who alleged collective losses of

some $3 million during the class period. Although

this amount exceeded the loss of the other

candidates, the court declined to name the group as

lead plaintiff, reasoning that “[{t]he larger the group,

the less incentive any single member of the group—

15

and certainly the group as a whole—will have to

exercise any supervision or control over the

litigation.” [d. at 815. Moreover, the court added,

“[t]he greater the number of persons comprising the

group, the more difficult it is for those persons to

communicate with each other, and to speak with a

single, coherent voice when making decisions about

the conduct of the litigation... .” Jd. at 815-16; see

also In re Cendant Corp. Sec. Litig., 264 F.3d 201, 267

(3d Cir. 2001) (“At some point, a group becomes too

large for its members to operate effectively as a single

unit.”); Enron, 206 F.R.D. at 442; Burke ov.

Ruttenberg, 102 F. Supp. 2d 1280, 1336-37 (N.D. Ala.

2000) (“the larger the group, the greater the costs”),

vacated on other grounds, 317 F.3d 1261 (11th Cir.

2003).®

If the Second Circuit’s approach to § 13 is

sustained, the problem in finding a “single, coherent

voice” for the class could become more difficult. The

IndyMac court foresaw two options for absent class

members to preserve their claims: filing a separate

complaint (and possibly moving for joinder), or filing

a timely motion to intervene. See 721 F.3d at 112.

Few pro se investors have the training and experience

to draft a complaint that satisfies the PSLRA’s

6 To be sure, a number of courts have allowed multiple

parties to serve in a group as lead plaintiffs. but these cases

appea. to turn on the cohesiveness of the group. See, e.g., Jn re

First Union Corp. Sec. Litig., 157 F. Supp. 2d 638 (W.D.N.C.

2000). When there are “multiple groups of plaintiffs and

institutional investors all vying against each other for

appointment as lead plaintiff,” then “concerns regarding contro]

of the litigation vis-a-vis the best interests of the class members

{are] a relevant inquiry.” Id. at 643.

16

standards. See 15 U.S.C. § 78u-4(b)(1)-(2); Tellabs,

551 U.S. at 313 (“The PSLRA requires plaintiffs to

state with particularity both the facts constituting

the alleged violation, and the facts evidencing

scienter ....”). Moreover, the fee for filing a complaint

in federal court is currently $400—a significant

impediment for someone who is simply trying to

preserve a claim—whereas there is no fee for filing a

motion to intervene. It thus stands to reason that

putative class members would be more likely to file

motions to intervene.

But motions to intervene are themselves subject to

a complex procedure and analysis, and adjudicating

scores of them in the class action context could

consume substantial resources of the court and the

parties. The motion must “state the grounds for

intervention and be accompanied by a pleading that

sets out the claim or defense for which intervention is

sought.” FED. R. Civ. P. 24(c). The movant must meet

the standard for intervention, of right or permissive,

under Rule 24(a) or (b), respectively. E.g., DeJulius v.

New England Health Care Emps. Pension Fund, 429

F.3d 935, 942-43 (10th Cir. 2005).”7 Although motions

to intervene tend to be granted liberally in class

actions, defendants can and do oppose them, and the

7 Under Rule 23(c)(2)(B)(iv), for classes certified under Rule

23(b)(3), the notice provided to class members after class

certification must include a statement that “a class member may

enter an appearance through an attorney if the member so

desires.” This does not mean, however, that absent class

members have an automatic right to intervene in Rule 23(b)(3)

classes. See 7B CHARLES ALAN WRIGHT & ARTHUR R. MILLER,

FEDERAL PRACTICE AND PROCEDURE § 1799, at 252-53 (3d ed.

2005).

17

case law reflects the many issues that can arise. E.g.,

In re Cendant Corp. Sec. Litig., 109 F. Supp. 2d 273,

276-79 (D.N.J. 2000) (movant not member of class

and thus could not intervene as of right, although

permissive intervention granted for limited purpose),

aff'd, 264 F.3d 286 (3d Cir. 2001); In re Initial Pub.

Offering Sec. Litig., 499 F. Supp. 2d 415 (S.D.N.Y.

2007) (intervention to challenge lead counsel would

cause undue delay); Jenkins v. Missouri, 78 F.3d

1270, 1275 (8th Cir. 1996) (no intervention as of right

in civil rights class action when named plaintiffs were

adequately representing interests of proposed

intervenors); In re Cmty. Bank of N. Va., 418 F.3d

277, 315 (3d Cir. 2005) (the “goals of Rule 23 would

be seriously hampered” if absent class members “who

merely express dissatisfaction with specific aspects of

the proposed settlement ... have the right to

intervene’).

That many of these putative intervenors are likely

to be pro se will add to the case management

difficulty. In any proceeding, pro se parties consume

more than their share of judicial and administrative

resources. They are often unfamiliar with electronic

case filing and local and federal rules designed to

expedite litigation; they are difficult to notify; and

their papers often must be reviewed with a

heightened degree of interpretive leniency, see, e.g.,

Haines v. Kerner, 404 U.S. 519, 520 (1972). See J.

Rosenbloom, Exploring Methods to Improve

Management and Fairness in Pro Se Cases: A Study

of the Pro Se Docket in the Southern District of New

York, 30 FORDHAM URB. L.J. 305, 306-09 & nn. 5-19

(2002) (discussing judicial and administrative

problems with pro se cases). In a complex class action,

managing an influx of pro se motions to intervene or

18

separate complaints could occupy substantial judicial

resources. Handling pro se matters is part of a federal

court’s function, of course, but it hardly seems a good

use of resources when the pro se parties’ interests are

already represented by counsel specifically chosen for

their expertise.

The IndyMac rule followed below also could

complicate discovery and other procedural aspects of

litigation that are sometimes awkward and

cumbersome in class actions. Typically, discovery

from absent class members is “disfavored” (although

not flatly prohibited), in part because such discovery

would “threaten{] to undermine the efficiency of

representative litigation.” See 3 WILLIAM OB.

RUBENSTEIN ET AL., NEWBERG ON CLASS ACTIONS §

9:11, at 419, 417 (5th ed. 2013) (footnotes omitted).

The test for permitting discovery from absent class

members is itself complex and nuanced, and

frequently disputed. See id. §§ 9:12-9:17, at 420-429.

But even absent class members “can lose their

effective immunity from most discovery by becoming

actively involved in the litigation.” Id. § 9:12, at 423.

Class members who intervene or file their own

complaints presumably would be subject to the full

range of discovery devices, just as they could utilize

those devices offensively to develop their cases. See

7C WRIGHT & MILLER, FEDERAL PRACTICE AND

PROCEDURE § 1920 (3d ed. 2007), at 611 (“the

intervenor is entitled to litigate fully on the merits

once intervention has been granted”). Many proposed

intervenors would have little interest in propounding

discovery, but they will incur considerable cost and

risk if, for instance, they are obligated to make initial

disclosures under Rule 26(a) and respond to

19

interrogatories under Rule 33 or document requests

under Rule 34.

In addition, courts often treat absent class

members differently from class representatives with

respect to counterclaims—a wrench in the class

action machinery. Many courts disfavor

counterclaims against absent class members for case

management and other reasons, including questions

of personal jurisdiction over absent members. 3

WILLIAM B. RUBENSTEIN ET AL., NEWBERG ON CLASS

ACTIONS §§ 9:24-9:28, at 456-77. By contrast, courts

often permit (and may even require) counterclaims

against representative parties. See id. § 9:29, at 478-

81. If absent class members feel impelled to intervene

or file separate complaints to preserve their claims,

class action defendants will likely react by filing

counterclaims against the intervening plaintiffs,

where warranted. This can only complicate the

litigation for both the parties and the courts.

Finally, the Second Circuit’s rule, if upheld, may

require district courts to give additional scrutiny to

the timing and content of notices required under Rule

23. Members of a class certified under Rule 23(b)(3)

must receive notice that the court will exclude from

the class any member who requests exclusion. FED. R.

Civ. P. 23(c)(2)(B)(v). Likewise, a court may refuse to

approve a potential settlement of a class action with a

certified Rule 23(b)(3) class unless the proposed

settlement “affords a new opportunity to request

exclusion to individual class members” who

previously did not de so. FED. R. Civ. P. 23(e)(4).

Given that one or both of these notices may, and often

do, occur after the three-year period in § 13, courts

will need to consider whether to accelerate the pace of

20

securities class action litigation to ensure that any

Rule 23 notice occurs in time to make a class

member's opt-out rights meaningful. At minimum,

when notice goes out to a class beyond the three-year

period in § 13, a district court will need to assess

whether the notice must alert class members that

opting out of the class would end any chance for

recovery under the Securities Act because those

rights have expired.

Amici reiterate that they are neutral about the

substantive issues of securities law raised by the

parties in this litigation. Based on their collective

experience and judgment, however, amici believe that

this Court’s endorsement of the IndyMac rule

followed in the decision below would exacerbate

district courts’ administrative and judicial difficulties

in managing securities class actions.

CONCLUSION

For the reasons stated, the Court should reverse

the decision below.

Respectfully submitted,

ANDREW N. GOLDFARB

Counsel of Record

GRAEME W. BUSH

JOHN J. CONNOLLY

ZUCKERMAN SPAEDER LLP

1800 M Street, NW, Ste. 1000

Washington, DC 20036

202 778 1800

agoldfarb@zuckerman.com

APPENDIX

la

APPENDIX

List of Amici

The Hon. Frank C. Damrell, Jr. (ret.) served on

the United States District Court for the Eastern

District of California from 1997 to 2011. He served on

the Judicial Panel on Multidistrict Litigation from

2008 to 2011. Judge Damrell is currently a principal

at Cotchett, Pitre & McCarthy LLP.

The Hon. William Royal Furgeson, Jr. (ret.)

served on the United States District Court for the

Western District of Texas from 1994 to 2013. He

served on the Judicial Panel on Miultidistrict

Litigation, was President of the Federal Judges

Association, and was a member of the Judicial

Branch Committee of the Judicial Conference of the

United States. Judge Furgeson is currently Dean of

the University of North Texas at Dallas College of

Law.

The Hon. Nancy Gertner (ret.) served on the

United States District Court for the District of

Massachusetts from 1994 to 2011. Judge Gertner is

currently a Professor of Practice at Harvard Law

School.

The Hon. G. Patrick Murphy (ret.) served on the

United States District Court for the Southern District

of Illinois from 1998 to 2013, including serving as

chief judge from 2000 to 2007. Judge Murphy is

currently a partner at Murphy & Murphy, LLC.

2a

The Hon. T. John Ward (ret.) served on the United

States District Court for the Eastern District of Texas

from 1999 to 2011. He served on the Judicial

Conference Committee on Court Administration and

Court Management from 2003 to 2009. Judge Ward is

currently a partner at the Ward & Smith Law Firm.

The Hon. Alexander Williams, Jr. (ret.) served on

the United States District Court for the District of

Maryland from 1994 to 2014. Judge Williams is

currently on the faculty of the Howard University

Law School.