Usually lawsuits must be filed within a few years after the wrongful acts, or when one knew or should have known of the wrongdoing. For example, federal and most state securities laws require lawsuits to be filed by 2 or 3 years after the problem is known or made public, but no later than 5 years in any event.
However, if a class action is filed on behalf of shareholders, this “tolls” the limit for filing a case for those the case seeks to represent. If, for example, if a shareholder decides to “opt out” of the class action, or it is later decided the class action can not be maintained, the “window” for such shareholders to file their own cases remains open. (Caution: The remaining time to file a case may then be quite short.)
WorldCom Inc. bondholders were in this position. A class action was filed, including a class of bondholders. Some of these bondholders decided to file their own case before the class was “certified” (when the court decides whether the class members have claims common to all of them, etc.) Using strange reasoning, the federal judge presiding over their case decided that, because these bondholders did not wait for the class to be certified, they could not use the tolling benefit of the class action. Because the case was otherwise filed too late, it was dismissed.
The U.S. Court of Appeals for the Second Circuit disagreed and reversed that decision. (In re WorldCom Securities Litigation, 2d Cir., No. 05-6979-cv, 7/26/07). The appeals court said that the initiation of a class action puts defendants on notice of the claims, whether or not plaintiffs choose to become part of the class and whether or not they file their cases before the class is certified.
Victims of securities fraud are often included in class actions without their knowledge. Often they are notified of class actions years later. Either way, class actions can keep the window open to file lawsuits for as long as a decade. Currently Enron shareholders await word from the U.S. Supreme Court whether the recent dismissal of their case against Merrill Lynch and others will become final. If so, they could individually or in small groups sue Merrill Lynch and the other defendants. All Enron shareholders should already be in contact with an attorney.
Shepherd Smith and Edwards represents victims of securities fraud. If you, your company or pension fund, or someone you know lost in Enron, it is worthwhile to learn whether it is too late to act. For more information contact us today to arrange a free consultation with one of our attorneys.