Commercial Litigation and Arbitration

American Pipe Unclogged

Under the Supreme Court’s opinion in American Pipe v. Utah, 414 U.S. 538 (1974), the pendency of a class action tolls the applicable statute of limitations for class members. In the Southern and Eastern Districts of New York, however, precedent held that American Pipe’s tolling of the applicable statutes of limitations for absent class members did not apply to those who filed individual actions before a class had been certified (or certification had been rejected), on the theory that they have not really been relying on the class action in any event. See, e.g., Alaska Dept of Revenue v. Ebbers (In re WorldCom, Inc. Sec. Litig.), 2003 U.S. Dist. LEXIS 20955, at *53-55 (S.D.N.Y. Nov. 21, 2003), rev'd, 2007 U.S. App. LEXIS 17797 (2d Cir. July 26, 2007); In re Ciprofloxacin Hydrochloride Antitrust Litig., 261 F. Supp. 2d 188, 221 (E.D.N.Y. 2003). The Second Circuit rejected this Southern & Eastern District Corollary on July 26, 2007, when it reversed the WorldCom decision cited above, in In re WorldCom, Inc. Sec. Litig., 2007 U.S. App. LEXIS 17797 (2d Cir. July 26, 2007).

The Second Circuit stressed, first, that ‛[n]othing in the Supreme Court decisions [in American Pipe and Eisen Carlisle & Jacquelin, 417 U.S. 156 (1974)] suggests that the rule should be otherwise for a plaintiff who files an individual action before certification is resolved.“ Second, it reasoned that ‛It would not undermine the purposes of statutes of limitations to give the benefit of tolling to all those who are asserted to be members of the class for as long as the class action purports to assert their claims. As the Supreme Court has repeatedly emphasized, the initiation of a class action puts the defendants on notice of the claims against them.“ Held, ‛As we understand the rule of American Pipe, it provides that the filing of a class action tolls the statute of limitations for all members of the asserted class, regardless of whether they file an individual action before resolution of the question whether the purported class will be certified.“

This elimination of the Southern & Eastern District Corollary ameliorates a problem created by the 2003 amendment to Federal Rule of Civil Procedure 23(e)(1)(A). That amendment dispensed with the requirement of judicial approval of any settlement or voluntary dismissal of the claim prior to class certification. This created the risk that absent class members abiding by the Southern & Eastern District Corollary (and awaiting adjudication of a class certification motion before filing their own suit) could have lost their right to sue if they sat on the sidelines to await the Court’s class certification decision, only to learn after the fact that there had been a secret settlement, no certification decision would be forthcoming, and the statute had run. At least now, no one need wait for the certification motion or decision. Keeping an eye on the docket, though, is no less important.

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