PHILADELPHIA – A federal appellate court’s ruling has provided clarifying guidance as to the circumstances by which exceptions are considered and given to the statute of repose under federal law, through an investor dispute action involving a Pennsylvania regional transportation entity.
A panel trio consisting of Third Circuit judges Thomas L. Ambro, Joseph A. Greenaway Jr. and Stephanos Bibas ruled on Sept. 2 that Federal Rule of Civil Procedure 15(c) allows for a pleading to be amended after the statutory time of repose.
Ambro authored the Third Circuit’s opinion in this matter.
“Statutes of limitations, as their name suggests, limit the amount of time in which a plaintiff can bring a particular claim. Once the limitations period has expired, a plaintiff who has not already filed suit is ordinarily out of luck. But statutes of limitations are subject to various carve-outs and exceptions,” Ambro said.
“We must decide whether Rule 15(c) of the Federal Rules of Civil Procedure, which provides a carve-out more commonly applied to statutes of limitations, also applies to statutes of repose. We are persuaded that Rule 15(c) allows amendment of a pleading after the expiration of a repose period here – subject to the Rule’s ordinary constraints – because the Rule’s “relation-back” doctrine leaves the legislatively mandated deadline intact and does not disturb any of the defendants’ vested rights to repose in this case. We therefore affirm the District Court’s decision to allow amendment.”
The Third Circuit’s ruling will permit the Southeastern Pennsylvania Transportation Authority (SEPTA) to once again pursue once-dismissed claims versus Orrstown Financial Services, pertaining to charges it allegedly deceived its investors from the transportation group.
“In March 2010, Orrstown Bank made a stock offering at $27 per share. Plaintiff Southeastern Pennsylvania Transportation Authority invested some of its pension funds in Orrstown stock during this offering. SEPTA also purchased Orrstown stock on the open market after the March 2010 offering. Defendant Sandler O’Neill & Partners, L.P. and Janney Montgomery Scott, LLC underwrote the offering, and defendant Smith Elliott Kearns & Company, LLC served as the Orrstown defendants’ independent auditor,” Ambro said.
“From July 2011 to March 2012, the Orrstown defendants made a series of disclosures concerning the Bank’s financial health. According to SEPTA, the Orrstown defendants revealed they had failed to identify impaired loans and otherwise misrepresented that the Bank was financially stable, resulting in material misrepresentations in its financial disclosures. Orrstown’s stock price dropped following each disclosure; by April 2012, the price had fallen from $27 to just $8.20 per share.”
Ambro recounted that SEPTA alleged the Orrstown defendants had deceived investors about its “internal controls over underwriting of loans, risk management, financial reporting and compliance with banking regulations”, and subsequently sued the bank under both the Securities Act and the Exchange Act.
After three total iterations of complaints were dismissed, SEPTA requested leave to file yet another amended complaint surrounding the same claims, this time on the basis of newly-discovered evidence.
However, the defendants countered that the disputed claims were time-barred because SEPTA looked to bring the newest version of its case beyond the three-year repose period for Securities Act claims and the five-year repose period for Exchange Act claims.
The U.S. District Court for the Middle District of Pennsylvania granted SEPTA’s motion for leave to amend, finding the transportation group began its action within the periods of repose in question, and that Rule 15(c) did not apply – because that Rule only concerned adding new parties or claims to litigation, whereas SEPTA merely wanted to reargue claims which had been previously dismissed.
The Third Circuit ruled along similar lines as the District Court.
“Though it seeks to expand its complaint with additional facts, SEPTA is not bringing any new legal claims or adding new parties that were not included in the first amended complaint. Thus our holding today does not address whether an entirely new claim – one that the plaintiffs did not bring before – may relate back to skirt statutes of repose. Similarly, we do not reach whether a plaintiff may use relation back in this context to add new parties. We leave those tougher questions for another time,” Ambro stated.
“Rule 15(c) encourages courts to decide cases on the merits, rather than a technicality, if a plaintiff merely seeks to amend a timely filed complaint after the statutory deadline has expired. While the defendants insist this principle conflicts with the protection from liability afforded by statutes of repose, we see no such conflict. Moreover, District Courts retain discretion to deny plaintiffs leave to amend outside the repose period, if the circumstances of a particular case would make amendment unjust. Thus statutes of repose themselves are no barrier to relation back under Rule 15(c) here.”
U.S. Court of Appeals for the Third Circuit case 20-2829
U.S. District Court for the Middle District of Pennsylvania case 1:12-cv-00993
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com