Se. Pa. Transp. Auth. v. Orrstown Fin. Servs. Inc.

• Decision Date: 02 September 2021
• Docket Number: No. 20-2829,20-2829
• Parties: SOUTHEASTERN PENNSYLVANIA TRANSPORTATION AUTHORITY, on behalf of itself and all others similarly situated v. ORRSTOWN FINANCIAL SERVICES INC.; Orrstown Bank ; Anthony F. Ceddia; Jeffrey W. Coy; Mark K. Keller; Andrea Pugh ; Thomas R. Quinn, Jr.; Gregory A. Rosenberry; Kenneth F. Shoemaker; Glenn W. Snoke; John S. Ward; Joel R. Zullinger; Bradley S. Everly; Jeffrey W. Embly; Smith Elliott Kearns & Co; Andler O'Neill & Partners, LP; Janney Montgomery Scott, LLC Appellants
• Court: U.S. Court of Appeals — Third Circuit

12 F.4th 337

SOUTHEASTERN PENNSYLVANIA TRANSPORTATION AUTHORITY, on behalf of itself and all others similarly situated

v.ORRSTOWN FINANCIAL SERVICES INC.; Orrstown Bank ; Anthony F. Ceddia; Jeffrey W. Coy; Mark K. Keller; Andrea Pugh ; Thomas R. Quinn, Jr.; Gregory A. Rosenberry; Kenneth F. Shoemaker; Glenn W. Snoke; John S. Ward; Joel R. Zullinger; Bradley S. Everly; Jeffrey W. Embly; Smith Elliott Kearns & Co; Andler O'Neill & Partners, LP; Janney Montgomery Scott, LLC Appellants

No. 20-2829

United States Court of Appeals, Third Circuit.

Argued on February 10, 2021

Opinion filed: September 2, 2021

David J. Creagan, David E. Edwards, Justin K. Fortescue, White & Williams, 1650 Market Street, One Liberty Place, Suite 1800, Philadelphia, PA 19103, Counsel for Appellants Orrstown, Financial Services, Inc., Orrstown Bank, Anthony F. Ceddia, Jeffrey W. Coy, Mark K. Keller, Andrea Pugh, Thomas R. Quinn, Jr., Gregory A. Rosenberry, Kenneth F. Shoemaker, Glenn W. Snoke, John S. Ward, Joel R. Zullinger, Bradley S. Everly, Jeffrey W. Embly, Smith Elliott, Kearns & Co, Sandler, O'Neill & Partners, LP, and Janney Montgomery Scott, LLC.

Seth L. Laver, Michael P. Luongo, Jonathan S. Ziss, Goldberg Segalla, 1700 Market Street, Suite 1418, Philadelphia, PA 19103, Counsel for Appellant Smith Elliott Kearns & Co.

Bradley R. Wilson (Argued), Wachtell Lipton Rosen & Katz, 51 West 52nd Street, New York, NY 10019, Counsel for Appellants Sandler O'Neill & Partners, LP and Janney Montgomery Scott, LLC

Nicholas E. Chimicles, Kimberly M. Donaldson Smith, Benjamin F. Johns, Timothy N. Mathews (Argued), Chimicles Schwartz Kriner & Donaldson-Smith, 361 West Lancaster Avenue, One Haverford Centre, Haverford, PA 19041, Counsel for Appellee Southeastern Pennsylvania Transportation Authority

Before: AMBRO, GREENAWAY, Jr., and BIBAS, Circuit Judges

OPINION OF THE COURT

AMBRO, Circuit Judge

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 carveouts and exceptions.

Statutes of repose are statutes of limitations’ more severe cousins. They "protect[ ] the defendant from an interminable threat" of a lawsuit by "creat[ing] an absolute bar on a defendant's temporal liability." Cal. Pub. Emps.’ Ret. Sys. v. ANZ Sec., Inc. , ––– U.S. ––––, 137 S. Ct. 2042, 2050, 198 L.Ed.2d 584 (2017) (internal quotation marks omitted) (hereinafter " CalPERS "). "[S]tatutes of repose pursue similar goals as do statutes of limitations (protecting defendants from defending against stale claims), but strike a stronger defendant-friendly balance." In re Exxon Mobil Corp. Sec. Litig. , 500 F.3d 189, 199–200 (3d Cir. 2007). Thus statutes of repose are not as flexible as statutes of limitations. See, e.g. , CalPERS , 137 S. Ct. at 2055 (holding that statutes of repose are not subject to equitable tolling).

We must decide whether Rule 15(c) of the Federal Rules of Civil Procedure, which provides a carveout 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.

I. BACKGROUND

A. Factual Background

We summarize the facts as alleged in the operative complaint. Defendant Orrstown Bank, a wholly owned subsidiary of defendant Orrstown Financial Services, provides "community banking and bank[-]related services" in Pennsylvania and Maryland. J.A. 478–79. In March 2010, Orrstown Bank (collectively, with its officers and Orrstown Financial, the "Orrstown Defendants") made a stock offering at $27 per share. Plaintiff Southeastern Pennsylvania Transportation Authority ("SEPTA") 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 (collectively, the "Underwriters") underwrote the offering, and Defendant Smith Elliott Kearns & Company, LLC (the "Auditor") served as the Orrstown Defendants’ independent auditor.

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.

B. Procedural Background

SEPTA filed suit in federal court in May 2012, bringing claims against the Orrstown Defendants on behalf of two classes. The first, the "Securities Act Class," consisted of investors who purchased Orrstown stock "in connection with, or traceable to," Orrstown's Registration Statement for the March 2010 offering. J.A. 119. As the name suggests, SEPTA asserted claims on behalf of this class under Sections 11, 12(a), and 15 of the Securities Act of 1933. The second, the "Exchange Act Class," consisted of investors who purchased Orrstown stock on the open market between March 2010 and October 2011.¹ SEPTA asserted claims on behalf of this class under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.

1. First and Second Amended Complaints

In March 2013, before the Orrstown Defendants moved for dismissal, SEPTA filed its First Amended Complaint. Defendants concede this complaint was timely filed. It renewed SEPTA's claims against the Orrstown Defendants and added both Securities Act and Exchange Act claims against the Underwriters and the Auditor. The Orrstown Defendants, Underwriters, and Auditor (collectively, "Defendants") then moved to dismiss the amended complaint in full for failure to meet pleading requirements, and the District Court granted the motion without prejudice. The Court's dismissal order provided that SEPTA could seek leave to file another amended complaint within thirty days.

With the permission of the Court, SEPTA filed its Second Amended Complaint against Defendants in February 2016, again asserting both Securities Act and Exchange Act claims on behalf of the two classes. Unlike the First Amended Complaint, which cast its factual net more broadly, the Second Amended Complaint "focused exclusively on alleged materially false and/or misleading statements" the Orrstown Defendants made concerning their "internal controls over underwriting of loans, risk management, financial reporting[,] and compliance with banking regulations." J.A. 8 (internal quotation marks omitted). Defendants again moved for dismissal.

The Court granted the Orrstown Defendants’ motion in part and granted the Underwriters’ and Auditor's motions in full. As to the Orrstown Defendants, the Court dismissed all Securities Act claims but did not dismiss the Exchange Act claims except for a handful of individual Orrstown officers.² The Court also dismissed all claims against the Underwriters and the Auditor. Thus the only remaining claims from the Second Amended Complaint were Exchange Act claims against certain Orrstown Defendants (including all institutional defendants and some individual officers).

The parties began discovery in January 2017, but shortly thereafter the Orrstown Defendants notified SEPTA of their intent to withhold certain documents containing confidential supervisory information. This triggered a lengthy process in which the parties sought to have federal and state regulators review the relevant documents. The parties ultimately moved to continue the case-management deadlines until the regulators finished their review, and the Court granted the motion.

2. Third Amended Complaint

In April 2019, SEPTA moved for leave to file a Third Amended Complaint. According to the District Court, this complaint reasserted "previously dismissed" Securities Act and Exchange Act claims from the Second Amended Complaint, including claims against some parties who had previously enjoyed dismissal of all claims against them (the Underwriters, the Auditor, and certain individual Orrstown officers). J.A. 14. SEPTA argued it should be entitled to reinstitute the claims because it found further evidence to support them through discovery after the partial dismissal of the Second Amended Complaint. Defendants countered that, among other things, the reasserted claims were time barred because SEPTA sought to file the Third Amended Complaint outside the three-year repose period for Securities Act claims and the five-year repose period for Exchange Act claims. Thus, Defendants argued, the Court should not grant leave to amend because amendment would be futile.

The District Court granted SEPTA's motion, concluding that amendment would not be futile notwithstanding the expiration of the repose periods. Se. Pa. Transp. Auth. v. Orrstown Fin. Servs., Inc. , 335 F.R.D. 54, 82 (M.D. Pa. 2020) (hereinafter " Orrstown "). It observed that both applicable statutes of repose limit the time in which an "action" must be "brought." Id. at 79. It further noted that SEPTA initially brought the action at issue (first in the First Amended Complaint, then in the Second Amended Complaint³ ) within the repose period. Id. at 80. The Court thus reasoned that for the statutes of repose to bar the reasserted claims in the Third Amended Complaint, SEPTA's first action must have ended. Id. at 81. The Court looked to Rule 54(b) of the Federal Rules of Civil Procedure, which states that "any order ... that...