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

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0709%3A18

## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2017

## Text

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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.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0709%3A18. Public record. Not legal advice.