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.

Multiple actions involving the same subject matter and the same defendant are a common feature of the U.S. class action landscape. In this series of blog posts, we’ll examine the problem of competing class actions, which presents a variety of challenges and options for the defendant. There is no one-size-fits-all response, but knowing the tools available will give defense counsel and the defendant the best opportunity to tailor a successful strategy to deal with a multiplicity of class litigation involving overlapping or repetitive claims.

Race to Judgment

Dealing with Competing Class Actions, Part One – Race to Judgment and First-to-File RuleOne option, of course, is to simply defend each action separately. In this scenario, the first action to reach judgment on the merits, whether by settlement or litigation, will generally be conclusive as to all class members despite any competing litigation that remains pending, by virtue of res judicata and claim preclusion principles and the Full Faith and Credit Clause of the United States Constitution. It should be noted that the preclusive effect of the first judgment may well depend on how close the overlap is between the classes and claims asserted in the two actions.

The preclusive effect of settlement creates an undeniable incentive among competing class counsel to be the first to reach settlement. Critics of this phenomenon argue that it undercuts the interests of class members by setting up opportunities for a defendant to pursue a so-called “reverse auction,” forcing class counsel to bid against each other to see who is willing to offer the cheapest overall class settlement. From the defense perspective, simultaneous negotiation with class counsel in multiple cases is inadvisable, and can lead to unnecessary difficulties in obtaining approval of the resulting settlement in the face of inadequate representation claims and other objections by counsel with whom settlement is not reached. However, the fact remains that a defendant facing numerous class actions has strong express or implied bargaining leverage with whichever set of counsel the defendant chooses to negotiate: Be the first to cut a deal, class counsel, or risk being left out entirely.

This leverage is certainly not unchecked. All requirements of Fed. R. Civ. P. 23 other than manageability must still be satisfied by whatever settlement is reached, and the settlement must still be found fair and reasonable to the class on independent review by the trial court after the class is provided with the best practicable notice and the opportunity to object (see Amchem Products, Inc. v. Windsor, 521 U.S. 591 (1997)). The settlement must also survive any appeal, and would-be class counsel whose cases are being settled out from under them are highly likely to appeal. To avoid this, defendants sometimes try to bring all would-be class counsel into the settlement by agreement once a deal has tentatively been struck with one set of class counsel.   Further, it is not unheard of for courts in first-filed class actions to enjoin settlements, or even settlement negotiations, in subsequently filed class actions, though the scope of their authority to do so is far from settled.

The “race to judgment’ scenario has shortcomings. If class settlement is not the client’s goal, the defendant’s ability to control which case goes to judgment first can be quite limited.  Often, the cases in the venues that are the worst from the defendant’s perspective are the cases that are put on the fastest tracks by plaintiff-friendly judges. Moreover, the cost of defending multiple class actions at once can be prohibitive for all but the largest defendants. Worse yet, defeating class certification in one jurisdiction will generally not have preclusive effect in another jurisdiction, particularly as between state and federal court class actions, a subject we will discuss later in this series  (see Smith v. Bayer, 131 S. Ct. 2368, 2381-82 (2011)).

First-to-File Rule

Where the competing class actions are each within the same state or are each filed in or removable to federal court, traditional principles of comity between courts can often provide an opportunity to effectively limit the litigation to the first-filed case, or at least consolidate all of the litigation before the judge with the first-filed case. How attractive this option is will depend, of course, on the defendant’s evaluation of the desirability of the venue and trial judge in the first-filed case.

First, there is a longstanding rule of comity whereby a federal court in which a substantially identical action is filed has discretion to stay, dismiss or transfer the second-filed action in deference to the first-filed action. This is known as the “first-to-file” or “first-filed” rule (see, e.g., Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co., 342 U.S. 180 (1952)). The rule provides that when actions involving nearly identical parties and issues have been filed in two different district courts, the court in which the first suit was filed should generally proceed to judgment. The potential use of the rule is less settled when one action is pending in state court. However, the Class Action Fairness Act (CAFA) and the Securities Litigation Uniform Standards Act (SLUSA) now make it easier to get most class actions removed to federal court than once was the case, mitigating this problem to a large degree.

Most states have similar principles of comity among courts of equal jurisdiction which, as a matter of jurisdiction, discretion or statute, can give precedence to the court first seized of jurisdiction.

In subsequent posts, we’ll address other strategies for dealing with competing class actions, including venue transfers, MDL consolidation, and anti-suit injunctions.