Class Actions — Does American Pipe Toll Statutes of Repose? — Circuit Split

In re BP plc MDL Secs. Litig., 2014 U.S. Dist. LEXIS 138900 (S.D. Tex. Sept. 30, 2014):

2.  The statute of repose was also tolled.

Alternatively, Defendants contend that the five-year period of repose found in 28 U.S.C. § 1658(b)(2) is not subject to American Pipe tolling. For the Exchange Act Plaintiffs involved in this case, this argument — if correct — would bar any federal claim based on a statement made before April 17, 2008. (Mot. at 41-42.) Plaintiffs disagree that the statute of repose is not subject to American Pipe tolling. (New York Opp. at 48-49.)

Case law supports both positions. The first question to be addressed is whether American Pipe tolling is properly considered "legal" — i.e., divined from Rule 23 — or "equitable" — i.e., judge made. See Police and Fire Ret. Sys. of City of Detroit v. IndyMac MBS, Inc., 721 F.3d 95, 108 (2d Cir. 2013). If American Pipe is an equitable tolling rule, it would not apply to the statute of repose — as Plaintiffs concede. See Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 363 (1991). Only a minority of courts has viewed American Pipe tolling as judge-made and has refused to apply it to statutes of repose on that basis. See Footbridge Ltd. Trust v. Countrywide Fin. Corp., 770 F. Supp. 2d 618, 625-26 (S.D.N.Y. 2011) (collecting cases and adopting minority view).

The majority view is that American Pipe tolling is legal. See Albano v. Shea Homes Ltd. P'ship, 634 F.3d 524, 535-36 (9th Cir. 2011) (collecting cases); see also In re Enron Corp. Sec., Deriv., & "ERISA" [*11]  Litig., 529 F. Supp. 2d 644, 707-08 (S.D. Tex. 2006). But even if American Pipe tolling is legal rather than equitable, its application to statutes of repose is still unsettled.

Historically, most courts found the equitable/legal distinction to be dispositive of the issue — including Judge Harmon in the Enron MDL. See In re Enron, 465 F. Supp. 2d at 717 (collecting cases); see also Maine State Ret. Sys. v. Countrywide Fin. Corp., 722 F. Supp. 2d 1157, 1166 (C.D. Cal. 2010). The position adopted by these courts is best exemplified by a 2000 decision out of the Tenth Circuit. In that case, the Tenth Circuit reasoned that American Pipe tolling does not violate the policy behind statutes of limitations and repose because it is not really a "tolling" doctrine at all. Instead, American Pipe tolling treats a putative class action as a "pre-filing" of all covered individual claims within the limitations and repose periods. Thus, when an unnamed, putative class member later files its own individual claim, it is not instituting a new action subject to the statute of limitations and statute of repose; it is simply taking over the prosecution of its individual claim from the putative class representative. See Joseph v. Wiles, 223 F.3d 1155, 1167-68 (10th Cir. 2000). Many district courts outside the Tenth Circuit- lacking direct guidance from their own circuit courts-have adopted the reasoning and conclusion of Joseph. See, e.g., [*12]  Hrdina v. World Sav. Bank, FSB, 2012 WL 294447, at *3-4 (N.D. Cal. Jan. 31, 2012).

In 2013, however, the Second Circuit created a split when it disagreed that legal tolling based on a rule of civil procedure — i.e., Rule 23 — could ever abridge a substantive, statutory right such as a statute of repose. See IndyMac, 721 F.3d at 109. The Second Circuit grounded its decision in the Rules Enabling Act, id., and has reaffirmed its holding in subsequent opinions, see Freidus v. ING Groep, N.V., 543 Fed. App'x 92, 93 (2d Cir. 2013); Caldwell v. Berlind, 543Fed. App'x 37, 39-40 (2d Cir. 2013).

The Fifth Circuit has not yet weighed in on the split between the Second and Tenth Circuit on this issue. See Hall v. Variable Annuity Life Ins. Co., 727 F.3d 372, 375 n.5 (5th Cir. 2013) (acknowledging Joseph and IndyMac, but "decid[ing] the case on other grounds"). This Court, however, is persuaded by the Tenth Circuit's conceptualization of the American Pipe tolling doctrine. Viewing the filing of a class action as a "prefiling" of all unnamed class members' claims means that the concern identified by the Second Circuit in IndyMac-that applying American Pipe tolling somehow abridges a defendant's substantive right to be free from suit after a specific period of time-is illusory. So long as the defendant has fair notice of the type and number of claims that could be asserted against it, which should be required for American Pipe tolling in the first instance, [*13]  then there is no unfair surprise when a class member assumes responsibility for its own individual claim during the course of the class action, or after class status has been denied.

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