Commercial Litigation and Arbitration

Class Actions — Do Absent Class Members Forfeit American Pipe Tolling by Filing Suit before Certification Is Denied? — Circuit Split, with 3 Recent Circuit Decisions — and This District Court — Saying No

In re BP plc MDL Secs. Litig., 2014 U.S. Dist. LEXIS 138920 (S.D. Tex. Sept. 30, 2014):

1.  The statute of limitations was tolled by the filing of the related federal class action. [*6]

As described by the Court in the Mondrian Opinion, American Pipe tolling suspends the applicable statute of limitations as to all putative class members until class certification is denied or until the individual member otherwise ceases to be a member of the class. Plaintiffs point to the Court's December 2013 ruling in the related federal class action (the "Class Action")-in which class certification was denied-as the earliest possible date on which the statute of limitations began running again. (New York Opp. at 45-48.) The Exchange Act claims of PME,

In its December 2013 order denying class certification, the Court permitted the class plaintiffs NYCERS, Fire, BERS, and TVF were all filed prior to December 2013. Thus, according to Plaintiffs, they were timely filed. (Id.)  Defendants agree that American Pipe tolling ended for members of the putative class in December 2013, but claim that the Exchange Act Plaintiffs are not entitled to the benefits of American Pipe tolling because they chose not to wait until class certification was denied before filing their lawsuits. (Mot. at 41.) In other words, Defendants contend that unnamed class members must either (1) file their claims within the original statute of [*7]  limitations or (2) wait until class certification is denied.

The Fifth Circuit has not spoken on this question of whether class members who file individual claims prior to a decision on class certification thereby forfeit tolling under American Pipe. The Court has reviewed district court opinions within the Fifth Circuit, as well as circuit and district court cases outside the Fifth Circuit. It is clear that there has long been a split in authority on this issue.

Prior to 2007-as described by Judge Harmon, administering the Enron multi-district litigation-the majority of cases held that tolling was forfeited in such circumstances, including decisions out of: the Sixth Circuit (2005), the First Circuit (1983), the Central District of California (2003), the Southern District of New York5 (2003), the Eastern District of New York (2003), the Northern District of Texas6 (2000), the Southern District of Indiana (1996), and the Northern District of Illinois (1998). See In re Enron Corp. Sec., Deriv., & "ERISA" Litig., 465 F. Supp. 2d 687, 715-16 (S.D. Tex. 2006). At that time, the minority view was represented in two 2006 district court decisions out of the Western District of Missouri and the District of Colorado.  See id. at 716. Judge Harmon sided with the majority view. Id.

5.  This decision [*8]  was subsequently overruled by the Second Circuit in In re WorldCom Securities Litigation, 496 F.3d 245 (2d Cir. 2007).

6.  In its analysis of the issue, the Northern District of Texas cited approvingly to a 1978 D.C. district court decision-a case not included in Judge Harmon's accounting. See Rahr v. Grant Thornton LLP, 142 F. Supp. 2d 793, 800 (N.D. Tex. 2000) (citing Wachovia Bank and Trust Co., N.A. v. Nat'l Student Mktg. Corp., 461 F. Supp. 999 (D.D.C.1978)).

Since Judge Harmon's decision in Enron, the Second Circuit has sided with the so-called "minority" view. In a well-reasoned 2007 decision, the Second Circuit held that the American Pipe doctrine should be accepted at "face value" — i.e., that the statute of limitations is tolled for all putative class members until such time as they are no longer members of the putative class.  See In re WorldCom Sec. Litig., 496 F.3d 245, 255 (2d Cir. 2007). This event can be accomplished by some act of the court, such as when class certification is denied. Id. But it can equally be accomplished by the class member filing its own lawsuit, thereby opting out of the putative class, even if this event predates the court's decision on class certification. Id. The Second Circuit disagreed that American Pipe compelled a different [*9]  result. "The American Pipe tolling doctrine was created to protect class members from being forced to file individual suits in order to preserve their claims. It was not meant to induce class members to forgo their right to sue individually." Id. at 256 (emphasis original).

Even if the position adopted by the Second Circuit in WorldCom still constitutes a "minority" view-as Defendants claim-it clearly has momentum. In 2008, both the Ninth and Tenth Circuits embraced the Second Circuit's position. See State Farm Mut. Auto. Ins. Co. v. Boellstorff, 540 F.3d 1223, 1228-35 (10th Cir. 2008); In re Hanford Nuclear Reservation Litig., 534 F.3d 986, 1009 (9th Cir. 2008). Five district courts outside those circuits have been similarly persuaded-including the Eastern District of Louisiana. See Howard v. Gutierrez, 571 F. Supp. 2d 145, 156 (D.D.C. 2008); In re Processed Egg Prods. Antitrust Litig., 2012 WL 6645533, at *7-8 (E.D. Pa. Dec. 20, 2012); McDavitt v. Powell, 2012 WL 959376, at *2-3 (M.D. Pa. March 21, 2012); Mason v. Long Beach Mortgage Co., 2008 WL 4951228, at *2 (N.D. Ill. Nov. 18, 2008); In re Katrina Canal Breaches Consol. Litig., 2008 WL 2692674, at *2-4 (E.D. La. July 2, 2008) (adopting the reasoning of WorldCom as "persuasive," and rejecting the alternative as "illogical"). No court opinion issued after WorldCom has disagreed with its reasoning or its conclusion.

The Court joins this trend and adopts the persuasive reasoning set forth in WorldCom and the Tenth Circuit's State Farm decision. Because the Exchange Act Plaintiffs [*10]  filed their federal claims while the statute of limitations was tolled under American Pipe, those claims are not time-barred.

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