Multi-District Litigation

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.

Part two of our series on competing class actions will address strategies intended to “corral” multiple cases: venue transfer under the federal forum non conveniens statute, and seeking multidistrict litigation (MDL) consolidation. Such strategies, while not necessarily eliminating competing cases, can be useful in lodging such cases in fewer forums, often resulting in discovery and other efficiencies for the defendant. Such strategies, in particular MDL consolidation, are not without downside, however.

Transfer of Venue

Dealing with Competing Class Actions, Part Two – Venue Transfer and MDL ConsolidationComplementing the first-filed rule and similar state court principles (addressed in our last post) are the transfer of venue tools available both in the federal system and in most state systems. Transfer of venue pursuant to 28 U.S.C. § 1404(a) is at the discretion of the court, considering all relevant factors to determine whether or not on balance the litigation would more conveniently proceed and the interests of justice be better served by transfer to a different forum. The factors normally considered under this discretionary venue transfer statute include a number of private and public interest factors, none of which is given dispositive weight.

While the plaintiff’s choice of forum is also normally accorded some weight, numerous courts have said that it is accorded less weight when the suit is brought as a class action, partly because the interests and convenience of the class as a whole are at stake. Moreover, courts have frequently found that the pendency of a prior similar action in the proposed transferee forum strongly militates in favor of a 1404(a) transfer. A recent amendment to 28 U.S.C. allows a court to transfer even to a venue where the action could not have been filed originally if all parties consent. Otherwise, transfer is only available under 1404(a) if the proposed transferee forum is one in which venue would have been proper. Most states, by statute or rule of civil procedure, have transfer or dismissal options under principles similar to those of § 1404(a).  

Venue transfers of class actions can be an effective response to competing or overlapping actions, particularly if transfer to a district in which one or more cases are already pending can be obtained. Often the next step in such a strategy will be to seek consolidation of all cases pending in that district, which again can result in significant efficiencies in the litigation, as well as the avoidance of inconsistent rulings.

MDL Consolidation

Dealing with Competing Class Actions, Part Two – Venue Transfer and MDL ConsolidationAnother option available to a defendant facing competing class actions with overlapping issues is to seek a transfer and pretrial consolidation of all cases into multidistrict litigation (MDL) pursuant to 28 U.S.C. § 1407. Unlike the first-filed rule of comity, substantial identity of parties is not required. The mere presence of one or more common issues is enough.  Also, unlike a motion under the first-filed rule, a motion for transfer to MDL is not ruled upon by any of the judges assigned to any of the pending class actions. In contrast with a 1404(a) transfer motion, whether the forum chosen for pretrial MDL consolidation is a venue in which each of the actions could have been filed originally is not an issue. And unlike the “race-to-judgment” strategy, the object of MDL treatment is to bring all cases together for coordinated discovery and pretrial proceedings, including determination of class certification issues.

28 U.S.C. §1407 provides that, “[w]hen civil actions involving one or more common questions of fact are pending in different districts, such actions may be transferred to any district for coordinated or consolidated pretrial proceedings.” The decision on whether to order MDL treatment with respect to overlapping actions is made by the Judicial Panel on Multidistrict Litigation (JPML), based upon considerations of public and private convenience and efficiency. Cases transferred for MDL treatment are transferred and consolidated for pretrial purposes only, and must each be remanded to the original forum for any trial.

Whether the JPML will grant MDL treatment depends in large part on the number of overlapping actions facing the defendant. In general, the fewer the number of overlapping cases, the more complex the common issues will have to be to justify MDL treatment. MDL transfer is also more likely when cases are young than when they are nearing trial.

There is no way for a defendant to know for certain what judge will end up with the MDL if multidistrict transfer and consolidation are granted. Where cases are pending and which are further along are certainly factors, as are the preferences of the parties, but factors such as relative court congestion, the experience of potential judges with MDLs generally and the subject matter at issue in particular, and the geographic proximity of the potential forum to key evidence and witnesses are all considered as well. Although the forum chosen does not have to be a forum where any of the actions was originally filed, over 90 percent of the time it is. Daniel A. Richards, An Analysis of the Judicial Panel on Multidistrict Litigation’s Selection of Transferee District and Judge,  78 Fordham L. Rev. 311, 331 (2009).

MDL treatment affords several advantages for the defendant:

  • It has the potential to lessen the overall costs of defense of a multiplicity of litigation.
  • It avoids inconsistent rulings on pretrial matters, discovery, dismissal and summary judgment motions, and class certification.
  • It brings all relevant players to the same bargaining table for purposes of settlement, and thereby enhances the prospects for an effective global resolution of the controversy.
  • Counsel for all plaintiffs are forced to coordinate their discovery efforts, so that the defendant does not have to deal with an endless series of different but overlapping discovery requests in each case, nor tender the same witnesses for deposition multiple times. This can substantially reduce the disruption of the defendant’s business.

At the same time, MDL treatment also carries disadvantages:

  • Plaintiffs’ counsel forced to pool their resources often become a much more formidable collective adversary than the individual counsel would be if left to fend for themselves.
  • Collectively, the combined mass of a large number of plaintiffs tends to enhance the leverage exerted, even by claims with relatively questionable merit.
  • Among the  consequences of this are that discovery often proceeds at a much faster pace, and discovery battles often become more difficult for the defendant to win, because any given discovery request is more likely to be relevant in some respect when several different cases are at issue than when there is only one. Consequently, the promise of overall cost savings that led the defendant to seek MDL treatment in the first place can often vanish in an ever-expanding quagmire of broadened discovery.
  • MDLs also tend to generate publicity and a large amount of “copycat” or “tagalong” litigation that might not otherwise have been filed.
  • Finally, cases not originally filed in the MDL court must be tried in the transferor courts in which they were originally filed, rather than in the MDL transferee court.
  • All of these factors combine to result in an increased likelihood that the end result of the litigation in an MDL setting will be a class action settlement.

Our last post in this series will address the rare – though still potentially possible – strategy of enjoining the prosecution of a competing class action.