Third Circuit Decision Hands Plaintiffs a Victory Regarding the Relation-back Doctrine

In Southeastern Pennsylvania Transportation Authority v. Orrstown Financial Services, Inc., 2021 WL 3923389 (3d Cir. 2021), the Third Circuit Court of Appeals held that the relation-back doctrine outlined in Federal Rule of Civil Procedure 15(c) applies to statutes of repose, in addition to statutes of limitations. 

The case began in 2012 when Southeastern Pennsylvania Transportation Authority (“SEPTA”) filed suit against defendant Orrstown Bank, its officers, and its parent company Orrstown Financial (collectively “Orrstown”) on behalf of investors who purchased stock in connection with a March 2010 stock offering by Orrstown for violation of the Securities Act. There was also a second class of investors which consisted of those that bought Orrstown stock on the open market during the class period. 

The First Amended Complaint, which added claims against Underwriter and Auditor entities, was dismissed with leave to amend.  The only claims from the Second Amended Complaint that ultimately survived were Exchange Act claims against Orrstown. 

In April 2019, after discovery, SEPTA moved for leave to file a Third Amended Complaint, seeking to assert previously dismissed Securities Act and Exchange Act claims originally brought in the Second Amended Complaint based on evidence uncovered in discovery. SEPTA also sought to revive claims against some parties that were previously dismissed from the action, including the Underwriters and Auditors. Defendants opposed the motion, arguing that the reasserted claims were timed barred because they were filed outside the applicable statutes of repose. 

The District Court granted SEPTA’s motion, ruling that the statute of repose governs when an action must be “brought.” The Court explained SEPTA brought the action within the statute of repose, initially by the First Amended Complaint and then by the Second Amended Complaint. The Court reasoned that for the statute of repose to apply, SEPTA’s action must have ended. It held that because its dismissal of the Second Amended Complaint did not decide all of SEPTA’s claims, that action had not “ended” pursuant to Rule 54(b) of the Federal Rules of Civil Procedure. However, the District Court ruled that FRCP 15(c), providing for relation back of amendments, did not apply as in the Court’s opinion, that rule concerned only the addition of a new party or claim, and SEPTA merely sought reinstatement of a claim. The defendants appealed.

On appeal, the Third Circuit Court of Appeals affirmed the District Court’s decision but disagreed with the District Court’s ruling that FRCP 15(c) did not apply. Applying prior case law, the Court reiterated that FRCP 15(c) applies where any amended complaint seeks to expand or amplify pleadings in the initial pleading. The Court explained that because SEPTA’s Third Amended Complaint restated prior claims in greater detail and amplified the factual circumstances at issue, FRCP 15(c) applied. 

The Court then considered whether FRCP 15(c) permitted amendment outside a statutory repose period. The Court found that the relation-back doctrine was consistent with the purpose and nature of repose statutes because the action had been brought within the applicable time period. The relation-back doctrine allows plaintiffs to alter the details of an already filed complaint, which is not barred by the statute of repose. 

The Court also rejected the defendant’s argument that allowing relation-back would violate the Rules Enabling Act. The Court reasoned that since the Third Amended Complaint only included parties that had been original parties to the case and only dismissed without prejudice, there was no violation of substantive rights. The Court stated that statutes of repose create a deadline for filing claims rather than resolving them. Since the original action commenced prior to the statute of repose had not ended, the defendants had no substantive rights to repose. 

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About Robert W. Killorin

Robert W. Killorin is a Partner Faruqi & Faruqi, LLP's Atlanta Office and is a member of the firm's Institutional Investor Practice Group and Co-Chair of the firm's Securities Litigation Practice Group.

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