In its September 17, 2013 opinion in Pension Trust Fund for Operating Engineers v. Mortgage Asset Securitization Transactions, Inc., the US Court of Appeals for the Third Circuit held that:

In February 2010, a plaintiff filed the original complaint in this class action, alleging that multiple defendants had violated the Securities Act in connection with the issuance of mortgage-backed securities. The district court later appointed the Pension Trust Fund for Operating Engineers (Operating Engineers) as lead plaintiff.

After the Operating Engineers filed two amended complaints, one of the defendants moved to dismiss the second amended complaint. The defendant argued that the Operating Engineers had failed to plead compliance with the statute of limitations contained in Section 13 of the Securities Act. The district court agreed and dismissed the complaint. The Operating Engineers appealed. The Third Circuit disagreed with the district court's analysis but affirmed on other grounds.

The Third Circuit first held that a plaintiff need not plead compliance with Section 13. It noted that the First, Eighth and Tenth Circuits had previously held that, because the Securities Act simultaneously creates a cause of action and a statute of limitations, timeliness of the complaint is a substantive requirement that plaintiffs must explicitly plead. The Seventh, Ninth, and Eleventh Circuits, however, rejected this idea when construing the statute of limitations in the Securities Exchange Act of 1934 (Exchange Act). Those courts held that a plaintiff need not plead the timeliness of a statutory claim.

The Third Circuit agreed with the Seventh, Ninth and Eleventh Circuits's analysis. The court explained that, because the statute of limitations is an affirmative defense, the defendant bears the burden of establishing its applicability. Requiring the plaintiff to affirmatively plead compliance with Section 13 would unfairly shift this burden onto the plaintiff. Therefore, the court concluded that under the Securities Act, plaintiffs need not explicitly plead compliance with Section 13.

The Third Circuit next held that courts should use a discovery standard when determining the timeliness of a plaintiff's Securities Act claim. Under a discovery standard, the statute of limitations does not begin to run until the plaintiff actually discovers, or a reasonably diligent plaintiff should have discovered, facts constituting a Securities Act violation. Instead of a discovery standard, the District Court had applied an "inquiry notice" standard, under which the statute of limitations is triggered when a plaintiff learns, or should have learned, facts sufficient to warrant further inquiry into whether a violation occurred. The Third Circuit agreed with the plaintiffs that this was error.

In so doing, the court extended the Supreme Court's reasoning in Merck & Co. v. Reynolds, an Exchange Act case, to actions brought under the Securities Act. In Merck, the Supreme Court had looked to the language of the Exchange Act, which states that actions must be brought within two years of "discovery" of facts constituting a violation. According to the Supreme Court, the use of the word discovery in the statute was a clear signal that courts should apply a discovery standard when determining the timeliness of a cause of action. In adapting this reasoning to a Securities Act case, the Third Circuit noted the use of parallel language in the Securities Act, and highlighted the Supreme Court's treatment of both Acts' statutes of limitations as intertwined and interchangeable.

However, on the facts the Third Circuit found that the plaintiffs' claims were untimely. Examining the record before it, the court concluded that a reasonably diligent plaintiff would have been able to plead viable Securities Act claims as early as November 2008. The Section 13 statute of limitations therefore expired in November 2009. This made the plaintiffs' original complaint, filed in February of 2010, untimely.

Counsel should be aware that the Third Circuit has made it easier for plaintiffs to comply with the Securities Act's statute of limitations. The burden is now clearly on defendants to assert untimeliness themselves and to prove it under a more plaintiff-friendly standard. By splitting from the First, Eighth and Tenth Circuits, the Third Circuit may also have invited Supreme Court review of the issue.