American Pipe Tolls Statute of Limitations for Subsequent Class Action — Not Just Individidual Action — If Prior Class Action Was Disposed of Without Resolution of Class Issues

In re: Vertrue Inc. Marketing & Sales Practices Litigation, 2013 U.S. App. LEXIS 7693 (6th Cir. April 16, 2013):

This matter arises from a multidistrict litigation proceeding, encompassing thirteen putative class action suits challenging the sales and marketing practices of Vertrue, Inc. and Adaptive Marketing, LLC. On April 16, 2010, the district court entered an amended Memorandum of Opinion and Order, granting in part and denying in part the defendants' motion to dismiss. The district court dismissed the plaintiffs' claims for negligent representation and for money had and received, all claims asserted under state law consumer protection statutes, all RICO claims, and all claims for which fraudulent concealment tolling is required. It allowed the remaining claims to proceed. The district court denied the defendants' motion to strike the class allegations.***

Vertrue, operating as MemberWorks, Inc. ("MWI"), sells membership programs allowing customers to benefit from discounts on a number of products and services. In their consolidated complaint, the plaintiff-purchasers allege that Vertrue and the other defendants made unlawful charges to customers' accounts, luring them into the membership programs through television advertisement and sale of a so-called "bait" product. When interested customers called the company to purchase the bait product, the company recorded their credit or debit card information and read them a script about the membership program. The complaint alleges that the script deceived customers by indicating that "free" materials would be sent to them in the mail. Vertrue would then mail a membership card and place a recurring annual charge of $60-$170 on the customer's credit card, which would only be removed if the customer called to cancel his membership.

Affected purchasers filed thirteen cases in various jurisdictions challenging this practice. The cases were consolidated in the Northern District of Ohio, and the plaintiff-purchasers filed a consolidated amended complaint, alleging that Vertrue's scheme violates the Electronic Funds Transfer Act ("EFTA"), the Racketeer Influenced and Corrupt Organizations Act ("RICO"), and state consumer protection statutes. The plaintiffs also assert claims for conversion, unjust enrichment, fraud, negligent misrepresentation, and "money had & received." Vertrue filed a Motion to Dismiss and Strike Claims and Class Allegations Under the Statute of Limitations. On April 16, 2010, the district court entered an amended Memorandum of Opinion and Order, granting in part and denying in part the defendants' motion to dismiss. The district court dismissed the plaintiffs' claims for negligent representation and for money had and received, all claims asserted under state law consumer protection statutes, all RICO claims, and all claims for which fraudulent concealment tolling is required. It allowed the remaining claims to proceed, holding that they were properly tolled. The district court denied the defendants' motion to strike the class allegations. Vertrue appeals the district court's conclusion that the remaining claims were timely filed.***

The success or failure of the plaintiffs' case at this stage depends on whether they are entitled to tolling during the pendency of a prior putative class action suit. Therefore, some discussion of that prior litigation is required. On March 28, 2002, a plaintiff filed a lawsuit in the Southern District of California, captioned Sanford v. West, seeking to represent a national class of purchasers who had been enrolled in the MWI membership program. In response to a motion by the defendants, the district court compelled arbitration. The arbitrator, interpreting the district court's order not to include the arbitrator's consideration of the issue of class certification, issued an arbitration award. The district court confirmed that award and denied the plaintiffs' motion to reconsider. The plaintiffs then sought class certification, which the district court denied on the basis that the individual claims had already been compelled to arbitration and the class claims were moot. On appeal, the Ninth Circuit vacated the district court's order compelling arbitration and therefore noted that the class allegations were no longer moot. On remand, the trial court dismissed the plaintiffs' federal claim for the wrongful mailing of unordered merchandise and concluded that the named plaintiffs lacked standing to assert their claim for violation of the EFTA. Sanford v. MemberWorks, Inc., No. 02CV0601, 2008 U.S. Dist. LEXIS 79189, 2008 WL 4482159, at *6 (S.D. Cal. Sept. 30, 2008). The court declined to exercise supplemental jurisdiction over the remaining state law claims. Id. Therefore, because all of the plaintiffs' claims were dismissed, the district court dismissed the action in its entirety without ruling on the motion for class certification. Id. The plaintiffs filed a motion to amend their complaint to include a proposed RICO claim, which the district court ultimately denied as futile. See Sanford v. MemberWorks, Inc., 625 F.3d 550, 555 (9th Cir. 2010).

Subsequently the cases composing this multidistrict litigation were filed. As described by the district court:

On January 15, 2009, the Smiths, named class representatives in Sanford, refiled the dismissed state law claims in Ohio state court. [Waslin], a proposed class representative in Sanford, refiled the dismissed EFTA claim. The remaining actions were filed by previously unnamed class members in Sanford. Upon transfer by the MDL Panel, plaintiffs filed an 11 count consolidated amended complaint. Count one is a claim for violation of the EFTA. Counts two through five allege violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"). Count six alleges violation of the states' consumer protection statutes. Counts seven and eight allege conversion and unjust enrichment, respectively. Count nine is a claim for fraud. Count ten is a claim for negligent misrepresentation and count eleven alleges "money had & received."

In re Vertrue Mktg. and Sales Practices Litig., 712 F. Supp. 2d 703, 710 (N.D. Ohio 2010). The defendants moved to dismiss the complaint as untimely. The district court granted in part and denied in part the defendants' motion, dismissing all claims for negligent misrepresentation, money had and received, and all claims asserted under state law consumer protection statutes, all RICO claims, and all claims for which fraudulent concealment tolling is required. Id. at 726. All other claims remained pending. Vertrue sought certification of the order for interlocutory appeal, which the district court granted. This timely appeal followed. ***

Regarding the purchasers' federal claims, the Supreme Court has held that "the commencement of a class action suspends the applicable statute of limitations as to all asserted members of the class who would have been parties had the suit been permitted to continue as a class action." American Pipe & Constr. Co. v. Utah, 414 U.S. 538, 554, 94 S. Ct. 756, 38 L. Ed. 2d 713 (1974) (footnote omitted). Although that case addressed intervention motions, the Supreme Court subsequently extended the doctrine, holding that "all members of the putative class [may] file individual actions in the event that class certification is denied, provided . . . that those actions are instituted within the time that remains on the limitations period." Crown, Cork & Seal Co. v. Parker, 462 U.S. 345, 346-47, 103 S. Ct. 2392, 76 L. Ed. 2d 628 (1983). As expressed in that case, American Pipe tolling extends to all putative class members, whether seeking to intervene or to initiate their own suit, in order to give full effect to the efficiency and economy goals of class action procedure. Without such protection, putative class members would have an incentive to file unnecessary individual lawsuits to protect their rights in the event of denial of class certification. Id. at 349-51.

Against this backdrop we decided Andrews v. Orr, 851 F.2d 146 (6th Cir. 1988). The district court provided a thoughtful discussion of Andrews and its context which we need not recite here. Rather, we note only the most relevant elements of that history for our purpose. Prior to Andrews, federal employees filed an employment discrimination case pursuant to Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq. (1982). The plaintiffs were black, civilian employees of the Air Force Logistics Command who alleged that they were denied promotions on the basis of their race because the promotion examination had a disparate impact upon blacks. Andrews, 851 F.2d at 147-48. A putative class action claim was commenced in the district court, and on March 15, 1983, the district court denied class certification. On April 18, 1983, the plaintiff in the initial suit filed a second motion for class certification. Id. at 148. Before the court could rule on that motion, the plaintiff settled her individual claim on July 12, 1983, and the suit was dismissed with prejudice. Id. Between July 26 and July 28, the Andrews putative class members individually initiated the Title VII administrative process by contacting their EEO counselor. Ultimately, they filed the Andrews case, asserting both individual and class claims. Id. The defendants argued, and the district court agreed, that there was no tolling under American Pipe for future class actions by putative class members. Id. We approved the district court's reasoning as to American Pipe tolling for the class claims and affirmed their dismissal. Id. We noted that:

We also agree with the district court's conclusions concerning the plaintiffs' attempt to gain classwide relief. The courts of appeals that have dealt with the issue appear to be in unanimous agreement that the pendency of a previously filed class action does not toll the limitations period for additional class actions by putative members of the original asserted class.

Id. at 149. Nevertheless, we reversed the district court's dismissal of the plaintiffs' individual claims. While we agreed with the district court that American Pipe tolling protected these claims only until the point of denial of class certification, id. at 148, we also noted that general principles of equitable tolling applied after that point to preserve the claims. The application of equitable tolling was based on the plaintiffs' lack of knowledge about the settlement of the prior case until after July 19, 1983, the plaintiffs' diligence after that date, and absence of prejudice to the defendant.

Vertrue argues that Andrews stands for the bright line rule that American Pipe tolling never applies to subsequent class actions by putative class members and that, therefore, the plaintiffs here are time-barred from seeking to pursue a subsequent class action. However, we dealt in Andrews with a situation in which class certification had already been denied. Here, no court has definitively ruled on class certification, as the district court dismissed the plaintiffs' actions in Sanford before ruling on the plaintiffs' motion for class certification. Sanford, 2008 U.S. Dist. LEXIS 79189, 2008 WL 4482159, at *6. Because the risk motivating our decision in Andrews--namely, repetitive and indefinite class action lawsuits addressing the same claims--is simply not present here, we hold that the commencement of the original Sanford class action tolled the statute of limitations under American Pipe. The parties agree that if American Pipe tolling is allowed in this case, the plaintiffs' federal claims were timely filed. Because no court ever denied the motion for class certification in the Sanford action, we affirm the district court's conclusion that the plaintiffs' federal claims were timely filed.

Footnote 2. Other courts have followed this same approach when faced with a situation in which a previous court has not made a determination as to the "validity of the class." See Yang v. Odom, 392 F.3d 97, 104, 112 (3d Cir. 2004) (holding that tolling applies to a subsequent class action when the prior denial of class certification was "based solely on Rule 23 deficiencies of the putative representative"); Catholic Social Servs., Inc. v. I.N.S., 232 F.3d 1139, 1149 (9th Cir. 2000) (en banc) (holding that tolling applies to a subsequent class action when class certification was granted in a prior case); cf. Great Plains Trust Co. v. Union Pacific R.R. Co., 492 F.3d 986, 997 (8th Cir. 2007) (assuming without deciding that American Pipe analysis applies in cases where one putative class action suit was dismissed without prejudice and one was voluntarily dismissed). Even those circuits that apply a categorical ban against tolling for the benefit of subsequent class actions have addressed situations in which class certification has been affirmatively denied. See Griffin v. Singletary, 17 F.3d 356, 359 (11th Cir. 1994) (holding that no subsequent class actions may benefit from tolling when class certification has been denied); Salazar-Calderon v. Presidio Valley Farmers Ass'n, 765 F.2d 1334, 1349-50 (5th Cir. 1985); Basch v. Ground Round, Inc., 139 F.3d 6, 7, 11 (1st Cir. 1998); Korwek v. Hunt, 827 F.2d 874, 878 (2d Cir. 1987).

Vertrue argues that the plaintiffs forfeited their opportunity to rely on American Pipe tolling by filing a new action before receiving a determination on the class certification issue in the prior action. This argument is grounded in our decision in Wyser-Pratte Management Company v. Telxon Corporation, 413 F.3d 553 (6th Cir. 2005), in which we held that "a plaintiff who chooses to file an independent action without waiting for a determination on the class certification issue may not rely on the American Pipe tolling doctrine." Id. at 568-69. However, Wyser-Pratte involved a putative class member who initiated a lawsuit four months before a lead plaintiff's motion for certification was granted. Id. at 559. There, we credited the concern that courts would be burdened by multiple lawsuits, noting that "[t]he purposes of American Pipe tolling are not furthered when plaintiffs file independent actions before decision on the issue of class certification, but are when plaintiffs delay until the certification issue has been decided." Id. at 569. Here, the district court's dismissal of the Sanford action, although not a determination of the certification issue, foreclosed the possibility that any decision on the certification issue would be forthcoming. Therefore, the plaintiffs in this action satisfied the dictates of Wyser-Pratte by waiting to file their new action until the district court had confirmed that it would not address the class certification issue.

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