Chapter 15 - § 15.6 • STATUTE OF LIMITATIONS, § 13

• Jurisdiction: Colorado

§ 15.6 • STATUTE OF LIMITATIONS, § 13

§ 15.6.1—The Statute

Section 13 of the 1933 Act requires that an action under § 12(a)(1) be brought within one year of the transaction, but not more than "three years after the security was bona fide offered to the public." The three-year statute of limitations begins to run when the first bona fide public offer of the disputed securities is made — not the last offer.⁶⁴

Based on § 13, an action under § 12(a)(2) must be brought within one year after the discovery of the untrue statement or omission, or after such discovery should have been made by the exercise of reasonable diligence, but not more than three years after the sale.⁶⁵ In determining the applicability of the 1933 Act § 13 statute of limitations, each sale must be considered separately.⁶⁶

§ 15.6.2—No Tolling Of The Limitations Period

Most courts have held that the three-year limitation is absolute, and that the doctrine of "equitable tolling" is not applicable to § 12(a)(2) actions.⁶⁷

For example, a plaintiff argues that the statute of limitations could be tolled under American Pipe & Construction Co. v. Utah.⁶⁸ In an extensive opinion, the Second Circuit confirmed certain lower courts' analysis⁶⁹ and determined that the § 13 statute of limitations was absolute and not subject to equitable or legal tolling. The Second Circuit panel noted that courts have repeatedly recognized that the three-year limitations period of § 13 is a statute of repose and therefore absolute and not subject to equitable tolling. Furthermore, equitable tolling would be barred by Lampf.⁷⁰ The panel further analyzed the issue by saying that even if the American Pipe tolling rule is assumed to be "legal," extending the rule to the statute of repose in § 13 would be barred by the Rules Enabling Act,⁷¹ which forbids interpreting F.R.C.P. 23 to abridge, enlarge, or modify any substantive right — in this case "to be free from liability after a legislatively-determined period of time."⁷²

§ 15.6.3—Storm Warnings Commence The Limitations Period — Inquiry Notice

[T]he complaint must set forth (1) the time and circumstances of the discovery of the fraudulent statement; (2) the reasons why it was not discovered earlier (if more than one year has lapsed); and (3) the diligent efforts which plaintiff undertook in making or seeking such discovery. . . . Failure to plead compliance with the statute of limitations requires dismissal without prejudice to replead.⁷³

In DeBruyne v. Equitable Life Assurance Society of the U.S.,⁷⁴ the court found the statute of limitations in a § 12(a)(2) claim had been exceeded when plaintiffs "selectively ignored" the investment manager's continued and open disclosures. Also see Nerman v. Alexander Grant & Co.,⁷⁵ in which a post-investment disclosure commenced the statute of limitations period.

In Jackson National Life Insurance Co. v. Merrill Lynch & Co., Inc.,⁷⁶ the court found that the public offering prospectus had contained sufficient "storm warnings" that should have put investors on inquiry notice more than one year before the action was filed. Thus, the litigation was not timely. When the company "undertook a concerted effort to counter the effect" of unfavorable analyst reports in an attempt to "conceal and deny the existence of accounting improprieties," the press coverage did not constitute a sufficient "storm warning" to investors.⁷⁷

What constitutes the "exercise of reasonable diligence" depends on the facts and circumstances. For example, in In re Qwest Communications International, Inc. Securities Litigation, the court said:

The complaints filed in In re Qwest in

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