Seventh Circuit Addresses Expanding Class Claims in Amended Complaint

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by: Colin E. Flora

     This week we take a look at a portion of what is a fascinating case coming from the Seventh Circuit addressing the propriety of an amended complaint that, the court concluded, substantially expanded the scope of the litigation and the proposed class. The case is Supreme Auto Transport, LLC v. Arcelor Mittal USA, Inc.

     The allegations of the case are, if true, that the most powerful steel producers in the nation have engaged in a concerted effort to drive prices of steel through the roof. The veracity of those allegations, however, were not at issue in the appeal. Instead, the issue in the appeal was whether the district court erred when it dismissed the amended complaint as time-barred and as lacking proximate cause. Here, we will just discuss the timeliness aspect.

     There were two cases addressing these allegations. The first was filed in September 2008 and brought by direct purchasers of steel who are alleged to have paid higher prices. The second case is the one that we discuss and found its way up on appeal. That case dealt with indirect purchasers of steel—that is, people who ultimately paid higher prices for steel-containing goods due to the alleged up-the-chain price fixing. The second case was also filed in September 2008. As the Court summarized:

The original complaint did not include a formal class definition. It simply alleged that Supreme Auto was injured when it “purchased several items of steel tubing [at an inflated price] indirectly from one or more of the defendants ... for end use” and indicated that Supreme Auto was bringing suit on behalf of “all others similarly situated.” Supreme Auto's original complaint included a definition of the types of steel products at issue. Its description mirrored the language from the direct-purchaser suit:

“Steel products” means any consumer steel product including but not limited to produced flat steel sheets and coils; galvanized steel products; tin mill products; steel plates; steel beams, rails and other structural shapes; steel bars and rods; steel wire and wire rod; steel pipes and other tubular products;and a variety of other products derived from raw steel.

Supreme Auto stated that it was seeking relief under federal antitrust law, as well as under the antitrust, consumer protection, and unjust enrichment laws of 28 states. . . .

* * * * *

In March 2016, defendants moved to dismiss the indirect-purchaser complaint. They argued that Supreme Auto failed to allege any injuries outside of its home state (Michigan), that it failed to allege that the steel it purchased was manufactured by any one of the named defendants, and that Supreme Auto’s complaint therefore failed to state a plausible claim for relief.

Supreme Auto did not respond to defendants’ motion to dismiss. Instead, Supreme Auto—which was, at the time, the only named plaintiff—filed an amended complaint adding 15 new plaintiffs from 11 states who purchased “one or more steel products containing steel purchased from one or more of the Defendants during the Class period.” . . . [T]he amended complaint dropped the federal antitrust claims and alleged only state-law antitrust injuries in 21 states, consumer-protection injuries in 19 states, and unjust enrichment injuries in 48 states and the District of Columbia. It also changed the definition of “steel products” from the definition that appeared in the original complaint to the following:

“Steel products” means any consumer steel product for end use and not for resale, including clothes washers, clothes dryers, refrigerators, freezers, dishwashers, microwave ovens[,] regular ovens, automobiles, semi-tractor trailers, farm and construction equipment, room air conditioner units, hot water heaters, snow blowers,barbeque grills, lawn mowers, and reinforcing bars used in patios, driveways, swimming pools and sidewalks.

     Asserting the same arguments about proximate causation as they had against the original complaint, the defendants also argued that the amended complaint was barred by the applicable statute of limitations. The district court agreed and dismissed the amended complaint. On appeal, the Seventh Circuit agreed.

     A few months ago, we discussed the issue of how an amended complaint may be able to bring claims that would otherwise be time barred if the requirements of Indiana Trial Rule 15(C) are satisfied. Here, the matter turned on application of Federal Rule 15(c), on which the Indiana rule is based. Under Rule 15(c), “[a]n amended pleading relates back to the original if ‘the amendment asserts a claim or defense that arose out of the conduct, transaction, or occurrence set out—or attempted to be set out—in the original pleading.’” Whether the rule will apply turns on “whether the original complaint ‘gave the defendant enough notice of the nature and scope of the plaintiff’s claim that he shouldn’t have been surprised by the amplification of the allegations of the original complaint in the amended one.’” It does not matter if the change is “significant” “so long as the defendant had fair notice of the substance of the new allegations from the outset.” The Rule 15(c) analysis applies equally to both new legal theories as well as expansions of class definitions.

     The issue in Supreme Auto was that the statute of limitations passed, at the latest, in the summer of 2014. So the amendment in April 2016 was barred by the statute of limitations unless Rule 15(c) applied. Neither the district court nor, more importantly, the Seventh Circuit thought Rule 15(c) should apply in this circumstance:

The district court held that the plaintiffs’ amended complaint did not satisfy the fair-notice standard, because the transactions at issue in the first complaint (the indirect purchase of steel pipes, tubing, and sheets) were wholly distinct from the transactions at issue in the amended complaint (the purchase of washing machines, cars, swimming pools, and the like). We agree. The original complaint defined “steel products” by illustrating the meaning of that term through a list of examples, such as steel sheets, rods, and tubing. All of the examples listed in plaintiffs’ definition are mill output—that is to say, they are steel products manufactured at steel plants. No reasonable defendant, upon reading the original definition, would have imagined that plaintiffs were in fact suing over the thousands of end-use household and commercial goods manufactured by third parties—a reading so broad that it would transform nearly every person in the country into a potential class member.

     The plaintiffs argued that their original complaint had provided a non-exhaustive list and “included ‘any’ product ‘derived from raw steel.’” The Seventh Circuit agreed that the list was clearly meant to be illustrative, not exhaustive, but that did not govern the inquiry. Instead, the court had to look at the original ist and “ask [ ] what general category the list was designed to illustrate.” The court found that the original list included “steel sheets, tubes, pipes, and rods”—i.e., “steel products manufactured at steel mills”—but that was a far cry from “the much broader category of ‘all consumer goods that include any steel component.’”

     The court also found it significant that the plaintiff “gave no indication during the first seven years of litigation that its suit included any products other than mill output.” And, quite interestingly, the court looked to the similarities between the complaint in the direct-purchaser lawsuit, which only applied to mill output, and, based upon the similarities between that case’s complaint and the original complaint in the indirect-purchasers case, to find that it “further buttressed the already-intuitive inference that Supreme Auto’s suit was also about products made by the defendants at their steel mills.”

     Finally, the court took up the issue of whether there was tolling under American Pipe & Construction Co. v. Utah. It seems readily apparent that American Pipe tolling would not apply, because there is no way to rely upon a pending class action to protect claims that are not covered in that action so it would not make sense that American Pipe could allow the class action on which others would be induced to rely to expand its own scope. And the court had little more trouble than that rejecting the argument:

We also see no basis for tolling the statute of limitations. Tolling is not available under American Pipe & Construction Co. v. Utah, which suspends the applicable statute of limitations in class action suits to all members of the purported class, because the plaintiffs named in the amended complaint were not “asserted members of the class” defined in the original complaint and their claims were not encompassed by the original suit. If there were any doubt about this (and we have none), the Supreme Court’s recent decision in China Agritech, Inc. v. Resh—to the effect that upon denial of certification, a putative class member may not commence a new class action beyond the time allowed by the applicable statute of limitations—also supports our reasoning. The substantial prejudice to defendants—who had no reason to think in 2008 that they should preserve evidence relating to the gargantuan number of consumer products now at issue—further counsels against applying any form of equitable tolling.

     There are three primary takeaway from this. First, that the old rule of thumb that you can easily contract a class definition but not expand it without great difficulty is a sound rule of thumb routed in the difficulties of invoking Rule 15(c). Second, that all changes to class allegations beyond the applicable statute of limitations are subject to Rule 15(c). And, third, that non-exhaustive lists in complaints only govern to the degree that the subsequently added allegations are within the same general category as the illustrated components of the list.

            Join us again next time for further discussion of developments in the law.

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*Disclaimer: The author is licensed to practice in the state of Indiana. The information contained above is provided for informational purposes only and should not be construed as legal advice on any subject matter. Laws vary by state and region. Furthermore, the law is constantly changing. Thus, the information above may no longer be accurate at this time. No reader of this content, clients or otherwise, should act or refrain from acting on the basis of any content included herein without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue.