Competing Class Actions

American Pipe? No Cigar: Third Circuit Rejects Tolling for Claims of Named PlaintiffsEarlier this year, the Supreme Court in China Agritech Inc. v. Resh conclusively established that equitable tolling of the statute of limitations for putative class members – known as American Pipe tolling – applies only to class members’ individual claims, and not to later-filed class claims (sometimes referred to as “piggyback” class actions). (We discussed China Agritech and its import in a previous blog post.) Last week, the Third Circuit applied China Agritech and upheld the dismissal of an attempted piggyback class claim in Weitzner v. Sanofi Pasteur, Inc. Of interest, the court also rejected a novel argument advanced by the plaintiffs: that American Pipe tolling can be used to save otherwise time-barred claims by plaintiffs who were named plaintiffs in a previous failed class action.

Weitzner involved a Pennsylvania physician and his wholly owned professional corporation, which were sent two unsolicited faxes in 2004 and 2005. The physician filed a state court class action alleging violation of the Telephone Consumer Protection Act (TCPA); the state court denied class certification in 2008. Rather than continue to pursue his individual claim in state court (a claim that apparently was never finally dismissed), Dr. Weitzner and his P.C. instead filed a TCPA class action in federal court in 2011 against the same defendants and involving the same unsolicited faxes. Recognizing that plaintiffs’ claims were time-barred unless American Pipe tolling applied, the district court granted summary judgment for defendants on limitations grounds, and plaintiffs appealed.

The Third Circuit held that China Agritech foreclosed any argument that the statute of limitations could be tolled as to plaintiffs’ class claims and that summary judgment was properly granted as to those claims. China Agritech requires this result, but we remain gratified that the Supreme Court’s clear rule applies even in courts (such as the Third Circuit) that had allowed piggyback class actions prior to China Agritech.

In light of prior jurisprudence, the Third Circuit’s additional holding is also noteworthy. The court rejected plaintiffs’ arguments that the statute of limitations could be tolled for Dr. Weitzner’s and his P.C.’s individual claims. The court acknowledged that certain language from American Pipe arguably supported plaintiffs’ position. After all, Weitzner and his P.C. were putative class members in the state court class action, and American Pipe ostensibly applies to “all asserted members of the class who would have been parties had the suit been permitted to continue as a class action.” Despite this broad language, the court recognized that applying tolling to a named plaintiff served neither of the rationales for the American Pipe rule, efficiency and protection of the interests of unknowing class members. In the end, the court held, tolling the statute of limitations for a named plaintiff – who had already asserted his claim, and could have pursued it in the earlier litigation – “serves no legitimate purpose.” As for the P.C., the Third Circuit noted that the doctor was its sole shareholder, and held that it was “not the type of unaware, absent class member American Pipe was designed to protect.”

Standing alone, Weitzner can be seen as an unremarkable case: How many plaintiff’s lawyers would try to argue with a straight face that asserting claims on a class basis tolls the statute of limitations and allows for the reassertion of those same claims by the same named plaintiff individually in another case? Still, seeking a second bite at the apple in a different court is far from unheard of, and this argument – illogical as it seems – has been made before.

Even beyond the specifics of the arguments and holdings of Weitzner, the early impact of China Agritech is positive. The Third Circuit got the Supreme Court’s message and quite rightly declined the invitation to expand American Pipe far beyond its original purpose and rationale. We are optimistic that further creative adventures in class action equitable tolling will receive similar treatment in other courts.

Supreme Court puts Kibosh on Piggybacked Class ActionsThe Supreme Court’s decision in China Agritech Inc. v. Resh means that class action plaintiffs can no longer rely on serial class actions to toll their statute of limitations indefinitely. Instead, the Supreme Court held that the judicially created rule which tolls the statute of limitations for putative class members—called American Pipe tolling—applies to individual claims only, and it only lasts until class certification is denied. This ruling is great news for class action defendants.

We blogged about the importance of this case last year, but here is a refresher on the background. American Pipe tolling allows individuals who fall within the definition of a proposed class action to wait until a court decides whether to certify the class before filing individual claims. This judge-made doctrine serves judicial economy: Class actions exist to litigate a multitude of claims in one action. If absent class members’ limitations periods were not tolled, those absent class members would face a dilemma: Either get in the game and file a lawsuit, or sit on the sidelines and bet that the class will be certified. The first choice encourages needless, duplicative lawsuits, which is wasteful and burdensome for defendants. (Defending a class action is a heavy load.  Defending a class action and a slew of individual cases is worse.) The second choice could cause potentially meritorious claims to expire while the class member waits on the result of a class certification decision the class member does not control, which is unfair. American Pipe tolling avoids the dilemma by tolling the class members’ limitations period until class certification is denied. It is a clumsy judge-made solution with no basis in the text of the rule, but it addresses a practical problem.

As often happens with clumsy solutions, however, fixing one problem created more problems. If, as some circuits held, American Pipe tolling applied to class claims in addition to individual claims, the balance struck by the rule collapses: As soon as class certification is denied, another class representative could file suit elsewhere proposing to certify a new class (or the same class), which would keep the tolling rolling. This process potentially could continue forever, until the plaintiffs found a receptive judge to certify the class.

Most circuits—including the Second, Fifth, and Eleventh—limited American Pipe tolling to individual claims. But other circuits—such as the Ninth, where China Agritech arose—allowed continuous, indefinite tolling from piggybacked class actions. The Supreme Court took the case to resolve the split, and did so decisively with a welcome, bright-line rule.

China Agritech holds that  American Pipe tolling applies to individual claims only, full stop.  Justice Ginsburg’s opinion focuses on efficiency: Plaintiffs who intend to file a class action must file within the original limitations period, and courts should rule on class certification quickly.  This rule encourages early filings, and Justice Ginsburg seemed to contemplate an almost Darwinian process where the better class representatives with better counsel and better-pleaded complaints (or perhaps the more strategic choice of forum) would be the ones whose claims would have the best chance to be certified. The majority rejected Justice Sotomayor’s suggestion in her concurrence that American Pipe tolling should apply to class claims if class certification were denied because of some problem with the class representative (such as poorly trained class counsel or an indifferent, lazy or otherwise inadequate class representative). No matter the reason for the denial of class certification, there is no statute of limitations tolling for subsequent class claims.

What does this mean?  Four things stand out to us:

Many companies’ exposure just went down. Defendants in California or those facing stale claims or claims with relatively short statutes of limitations will face fewer claims going forward.  The retroactive effect of this decision could perhaps still be litigated, but China Agritech immediately helps extinguish stale claims.

Get ready for competing class actions. We expect plaintiffs will heed the Supreme Court’s admonition and file their class claims sooner. While the ultimate number of class filings may not increase, those filings will become more front-loaded, and companies may face more of them at the same time. Again, the Supreme Court was aware of this incentive, and it expressed faith in lower courts’ abilities to use available procedures to consolidate, stay, or otherwise manage these cases. If we had to pick out two likely trends to watch here, look for a yet-further uptick in the use of multidistrict litigation and for more robust application of the first-to-file rule. For a more in-depth look, we dedicated a three-part series to handling competing class actions last year; you can find them here: part one, part two, and part three.

Where there are no competing class actions, the value of individual settlements just went up. When faced with a lone class action on a given claim, the expiration of the statute of limitations becomes a very important date. As it approaches (and especially after it passes), defendants have an incentive to pay a premium for an individual settlement with the named plaintiff because doing so extinguishes class risk on the claim.

Disaster avoided. Lastly, China Agritech is not a landmark case because most circuits already applied American Pipe tolling to individual claims only. But had the case come out the other way, making piggybacked class actions the law of the land, then a multitude of expired class claims could have been revived and companies would be scrambling today. Even though this case came out the right way, we recognize again that the Supreme Court probably plays an outsized role in making class action doctrine, and that role creates uncertainty. Creating and defining a tolling doctrine should be legislative work.

For Whom the Pipe Tolls: SCOTUS to Decide Whether <i>American Pipe</i> Tolling Applies to “Piggyback” Class ActionsFederal courts generally agree that when certification of a class action is denied or the case is dismissed, the statute of limitations on the claim asserted on behalf of the would-be class is deemed to have been tolled during the pendency of the class claims for all individual members of the putative class action, at least for purposes of a subsequent individual action. The reason the federal courts agree on this much is that the United States Supreme Court so ruled in American Pipe and Construction Co. v. Utah, 414 U.S. 538 (1974), and Crown, Cork & Seal Co. v. Parker, 462 U.S. 345 (1983).

But from that single point of origin, the American Pipe tolling rule branched out into a fair amount of controversy. One of the many circuit splits was resolved a few months ago when the Supreme Court ruled that American Pipe tolling does not apply to statutes of repose (California Public Employees’ Retirement System v. ANZ Securities, Inc., et al., 137 S. Ct. 2042 (2017)). Other disagreements have festered over questions such as whether a person who opts out can assert the tolling effect in a subsequent individual action prior to denial of certification or dismissal in the first action, and how the rule applies cross-jurisdictionally to successive actions in the state and federal systems.

But yet another circuit split concerning American Pipe will not be a circuit split much longer—whether American Pipe tolling applies to save an otherwise untimely successive class action. The Supreme Court last week granted certiorari to resolve that question in China Agritech, Inc. v. Resh, Dkt. No. 17-432.

The Courts of Appeal are sharply split on the issue. The First, Second, Third, Fifth, Eighth, and Eleventh Circuits have held, more or less, that allowing so called “piggyback” class actions would undermine the very judicial efficiency goals upon which the judicially created American Pipe tolling rule is based: avoiding duplicative litigation. They also point out that allowing tolling to save successive class actions would all but eliminate the utility and purpose of statutes of limitations in the class context. But since 2011, the Sixth, Seventh and Ninth circuits—the staunchest advocates of the class action device and its expansion in recent years—have brushed those concerns aside and embraced tolling for successive class actions. They argue that if claims are already tolled individually, then Rule 23 applies as much to tolled individual claims as to claims that are timely on their own. Because the Supreme Court has already ruled that denial of certification has no preclusive effect in a subsequent class action on the same claims, Smith v. Bayer, 564 U.S. 299 (2011), piggyback class action tolling seemingly would allow unsuccessful would-be class counsel to “try, try again” with new class representatives in another court as many times as necessary until they find a court willing to certify their class.

The many circuit splits American Pipe has generated illustrate the pesky problem with judicially created rules: They almost always lead to years of uncertainty and unforeseen consequences. Rule 23 contains no tolling rule, and neither did the statute of limitations at issue in American Pipe, yet the judiciary, ultimately the Supreme Court, chose to create one. Numerous circuit splits have resulted, likely to the surprise of nobody. One day, presumably, all those circuit splits will be resolved, with the rule’s application to “piggyback class actions” being the next in line. But in the years it takes for the splits to be resolved, the rights of numerous plaintiffs or defendants will have already been permanently lost because of the mistaken views of the courts on whatever proves to be the wrong side of the split. Real dollars will have been spent in error, and real rights will have been lost.

This tolling rule would have been better left to Congress or the rulemaking process. Though often incomplete, inefficient and otherwise wanting in themselves, those processes almost always result in a more comprehensive effort to address all foreseeable ramifications of the rule being created than legislating from the bench ever can. After all, Article III ripeness, standing and justiciability considerations actually prevent federal judges from addressing issues not yet presented in the case before the court. That constitutional limitation almost guarantees that judicially created rules will produce more collateral damage to the rights of individual litigants while the uncertainties are worked out in subsequent cases in different circuits at different times.  So while we wait for the Supreme Court to fix this particular glitch, the larger lesson will remain immutable: Courts should exercise restraint in creating ad hoc exceptions to timeliness or other legislatively promulgated rules, whether they be substantive or procedural.