We have twice addressed the issue of American Pipe tolling, whereby the claims of absent class members are tolled during the pendency of a timely filed putative class action. In our most recent examination, we noted an issue that was tangential to our primary focus on cross-jurisdictional tolling—i.e. whether a putative class action pending in one jurisdiction triggers tolling for filing claims in a second jurisdiction.
There is a further complicating issue that is even more easily overlooked than cross-jurisdictional tolling. It would seem that the simple answer is that the best way to preserve the rights of absent class members in a state that has not yet recognized cross-jurisdictional tolling is to simply file a place-holder class action in the state and have it stayed pending resolution of the out-of-state action. Whether that works, however, is an open question. In Stutz v. Minnesota Mining Manufacturing Co., then-Chief Judge of the Southern District of Indiana, Sarah Evans Barker, ruled that American Pipe tolling only applies once class certification has been denied, which meant a case filed before such a ruling was not subject to tolling; the Plaintiff had to continue to wait until class certification was in fact denied. The Federal Circuit Courts have split on the issue. The First and Sixth Circuits have ruled the same as Judge Barker. The Second, Ninth, and Tenth Circuits have rejected that view and held that American Pipe doctrine is applicable to putative class members who file individual suits prior to resolution of class certification question.
Today, we turn our full attention to that side note and take a look at the Third Circuit’s decision in Aly v. Valeant Pharmaceuticals International Inc.
For those not yet clear on the topic and its importance, the opening paragraphs of Aly distill the issue well:
Putative class members may recover as part of the class or seek individual recourse, but they generally cannot do both. Complications tend to arise, however, around the class-certification stage. Members may initially intend to proceed as part of a class, but certification may be denied months or years later for reasons outside their control. Alternatively, during the pendency of a class action, members may discover that their individual claims are more valuable than those of the class and decide to pursue them in an opt-out complaint even if certification is likely. In either case, members are generally allowed to initiate an individual action, but may run into limitations issues given the delay. This is where American Pipe comes in.
When a class complaint is filed, American Pipe tolls the limitations period governing the individual claims of putative members. In the absence of such a rule, members may feel compelled to file duplicative individual suits bringing the same claims to protect their rights in the event certification is later denied. Otherwise, members would risk allowing their individual limitations periods to expire, potentially leaving them with no recourse in the long run. The doctrine is therefore intended to protect the rights of putative members while simultaneously avoiding needless identical lawsuits.
On appeal, the parties dispute whether American Pipe tolling applies to individual claims that are filed before a certification decision is made. Appellants argue that the limitations period is tolled regardless of the point at which individual claims are filed. Appellees respond, and the District Court agreed, that members who wish to benefit from American Pipe must wait to file individual claims until after the court rules on certification, which Appellants did not do.
The Third Circuit began by acknowledging the split in federal circuits, noting also that the First Circuit’s decision in Glater v. Eli Lilly & Co., though expressing favor toward the same view as the Sixth Circuit did so only in dicta and had not adopted the view as precedent. In choosing to side with the Second, Ninth, and Tenth Circuits, the court first found that allowing a party to invoke American Pipe tolling to file an individual claim prior to a ruling on class certification was consistent with the underlying purpose of American Pipe tolling:
Tolling was primarily intended to benefit putative or unidentified members of the class, who are considered “mere passive beneficiaries of the action brought [on] their behalf.” Our conclusion that American Pipe is triggered automatically upon the filing of a class complaint is consistent with the well-founded principle that members need not actively monitor case developments to benefit from Rule 23 protection. The approach we adopt today is also consistent with the function of limitations periods generally. As the Supreme Court affirmed in both American Pipe and Crown, statutes of limitations are intended to prevent the “surprise” revival of old claims that plaintiffs failed to diligently pursue. But surprise is not an issue in this context.
The court rejected the argument that Supreme Court decisions since American Pipe—specifically, California Public Employees’ Retirement System v. ANZ Securities, Inc. and China Agritech, Inc. v. Resh—presented bases to reject the positions of the Second, Ninth, and Tenth Circuits. And the court concluded that pragmatic concerns counselled in favor of its conclusion:
We disagree with the District Court that Appellants would not be prejudiced if their Individual Complaint is dismissed as untimely because there were technically other options available to them. Appellees do not dispute that American Pipe applies to individual claims filed after certification, and they suggest that Appellants could have simply waited until that point if they wanted to avoid any tolling and timeliness issues. But this approach makes little sense for the reasons we have already articulated—it would leave members who decide to proceed individually after the limitations period would have normally run but before certification in limbo for an indefinite period of time. Appellees also suggest that Appellants could have assumed tolling did not apply and brought the Individual Complaint within the initial two-year period to be safe. But the doctrine would serve no purpose if members were expected to file their individual claims within the first two years regardless. In fact, suggesting that members should do so—just to avoid timeliness problems—tends to encourage the duplicative “just in case” litigation that American Pipe seeks to prevent.
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Finally, we also find the District Court’s holding untenable because it would lead to counterintuitive results. Should we affirm that decision, individual claims filed well before certification could be dismissed as untimely, while other claims filed at a much later date would be allowed to proceed. Class members who were “contemplating opting out and filing their own lawsuits would be penalized for giving the defendants and the Court earlier notice.” We have sought to avoid similar outcomes in other contexts and see no compelling reason not to do so here.
In joining the expanding majority of courts on this issue, the reasoning of the Third Circuit appears sound. While the Seventh Circuit has not yet addressed the matter, and practitioners must remain wary of the persuasive power of Judge Barker’s decision in Stutz, it seems a wise wager that the Seventh Circuit, once the opportunities present, will align with those circuits that, like the Third Circuit, have looked at the underlying logic of American Pipe and fully considered the problems caused by a contrary result.
Join us again next time for further discussion of developments in the law.
- American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974) (Stewart, J.).
- Crown, Cork & Seal Co. v. Parker, 462 U.S. 345 (1983) (Blackmun, J.).
- Cal. Pub. Emps.’ Ret. Sys. v. ANZ Sec., Inc., —U.S.—, 137 S. Ct. 2042 (2017) (Kennedy, J.; Ginsburg, J., dissenting).
- China Agritech, Inc. v. Resh, —U.S.—, 138 S. Ct. 1800 (2018) (Ginsburg, J.; Sotomayor, J., concurring).
- Stutz v. Minnesota Mining Mfg. Co., 947 F. Supp. 399 (S.D. Ind. 1996) (Barker, C.J.).
- Aly v. Valeant Pharm. Int’l Inc., 1 F.4th 168 (3d Cir. 2021) (Fuentes, J.).
- Glater v. Eli Lilly & Co., 712 F.2d 735 (1st Cir. 1983) (Bownes, J.).
- In re WorldCom Sec. Litig., 496 F.3d 245 (2d Cir. 2007) (Leval, J.).
- In re Hanford Nuclear Reservation Litig., 534 F.3d 986 (9th Cir. 2008) (Schroeder, J.).
- State Farm Mut. Auto. Ins. Co. v. Boellstorff, 540 F.3d 1223 (10th Cir. 2008) (Ebel, J.).
- Colin E. Flora, Seventh Circuit Addresses Expanding Class Claims in Amended Complaint, Hoosier Litig. Blog (Sep. 7, 2018).
- Colin E. Flora, Cross-Jurisdictional Tolling in Class Actions: Chavez v. Occidental Chemical, Hoosier Litig. Blog (Nov. 13, 2020).
*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, client or otherwise, should act or refrain from acting on the basis of any content included herein without seeking appropriate legal or other professional advice on the particular facts and circumstances at issue.