When it quietly removed a case from its fall docket last year, the Supreme Court robbed investors of the ability to rely on long-time precedent that once a class action was filed, investors could sit back and wait to see what happens before they needed to be concerned about any time-based deadlines. Rather, because the parties settled just before oral argument, the Court opted not to resolve the circuit split created by the Second Circuit’s decision in Public Employees Retirement System of Mississippi v. IndyMac.

In IndyMac the Second Circuit held that the filing of a class action does not suspend Section 11’s statute of repose. This decision went against principles outlined by the U.S. Supreme Court in American Pipe. Principles that circuit courts relied on for years.

The circuit split means that investors cannot safely rely on American Pipe to preserve their claims in the event that class certification is denied. Instead, the Court burdened plaintiffs and fiduciaries with another layer of vigilance to their securities litigation monitoring – watching for the expiration of statutes of repose.

To understand why the split of authority left in place after IndyMac is important requires knowledge of the time limits at play in shareholder litigation, and the difference between a statute of limitations and a statute of repose.

The Securities Act of 1933 and the Exchange Act of 1934 provide the framework for most securities class actions. The three most common claims, those under Sections 11 and 12 of the Securities Act and under Section 10(b) of the Exchange Act are all subject to two types of time limits: the statute of limitations and the outer time limit, called a statute of repose. In the most basic sense, the distinction is that the statute of limitations creates a soft time limit for bringing a suit. It begins with the plaintiff’s actual knowledge of the conduct or the date when the plaintiff should have learned of the act which creates a right of action. In contrast, a statute of repose is an “outer limit” that functions as a hard cut off on a plaintiff’s right to bring an action even if never discovered. It begins to run from the date of a defendant’s act, and gives the defendant complete peace that once it expires, they are immune from claims. In every case, plaintiffs must file before these time limits run out or they will forfeit their claims.

Section 11 and 12 claims are subject to a one-year limitations period which begins to run when the plaintiff discovers “the untrue statement or the omission, or after such discovery should have been made by the exercise of reasonable diligence.” Section 11’s three-year statute of repose begins running when a security is offered to the public, usually in an IPO. Similarly, Section 12(a)(2)’s statute of repose begins to run with “the sale” of the security.

Section 10(b) is subject to a two year limitations period which begins to run when a plaintiff discovers the “facts constituting the violation,” and Section 10(b) claims are subject to a five-year statute of repose that begins to run after “such violation.” To muddy the waters further, a split exists between circuit courts as to what constitutes a violation – some calculate from the statement of omission, and some from the transaction.

Historically, once a securities class action was filed, investors could choose a passive role and wait to see if a class were certified, and if not, still have some time to file its own action.

Because under American Pipe, courts uniformly suspended both the statutes of limitations and repose for all class members when a class action is filed, the only time limit investors needed to worry about was filing of the class action before the earliest of the statute limitations or repose passed.

IndyMac drastically changed that protection. The Second Circuit in IndyMac split from the norm when it held that American Pipe tolling applies only to statutes of limitation and does not extend to statutes of repose. In contrast, the Tenth Circuit in Joseph v. Wiles found the class members’ later-filed individual suit “commenced” when the original class suit was filed. Wiles highlighted the practical benefit of tolling statutes of repose in order to avoid a flood of precautionary case filings. After IndyMac, investors cannot rely on Wiles, because even in the Tenth Circuit, claims are not protected from the possibility that any given case might be the one taken up to resolve the circuit split. With Supreme Court review comes the possibility that the Court will uphold IndyMac.

The reach of IndyMac continues to expand within the Second Circuit. Judge Sweet held in In re Bear Stearns Companies, Inc. Securities, Derivative, and ERISA Litigation that IndyMac’s prohibition on tolling statutes of repose has been extended to actions brought under Section 10(b). In In re Puda Coal Securities Litigation, the Southern District of New York relied on the rationale of IndyMac to deny tolling of the statute of limitations where the initial plaintiff did not purchase the actual security in question and therefore lacked standing.

Thus, Plaintiffs must be vigilant. A current example where IndyMac could have serious consequences is the In re Petrobras Securities Litigation, filed in the Southern District of New York. Petrobras involves a large number of securities, offerings, statements and claims. The court applied IndyMac and dismissed Section 11 claims for 2012 notes. The Petrobras court found that none of the plaintiffs named in the consolidated class action complaint could demonstrated that they purchased 2012 notes before the 3 years statute of repose expired because more than three years had run from the offering. Of the offerings that remain in the case, there are statutes of repose deadlines on May 15, 2016 (for 2013 offerings) and Mar. 11, 2017 (for 2014 offerings). Plaintiffs holding securities from those offerings must consider whether to: (1) file an individual action, (2) seek to intervene in a pending class action, or (3) remain as a passive member of the class and hope for the best. Even more important, the Section 11 claims must be filed one year from the time of discovery. The Judge in Petrobras has opined that the date of discovery is not later than the date of the first filed case, which was Dec. 8, 2015. For section 10b claims the deadline would be no later than. Dec. 8, 2016.

The bottom line is that investors must now be mindful of both statutes of repose and limitations, regardless of whether of where a class action is filed. There are serious ramifications of simply letting the statutes run and, in the event a case is filed, hoping that your claims are covered by a class. Most severely, your claims could be dismissed entirely if a class is not certified within the three year repose period. Even if the case settles, if the statute of repose has run, plaintiffs may be left without an option to opt out and seek a more favorable resolution. It is critical to contact your portfolio monitoring counsel to review IndyMac deadline tracking for cases that impact your portfolio.