KT Class Action Blog

Category: Statutes of limitation

Posted on Wednesday, December 13 2017 at 2:58 pm by
The U.S. Supreme Court grants class defendants’ petition for certiorari in Ninth Circuit American Pipe tolling case (Resh v. China Agritech)

by John Neeleman

As we discussed at length last June [Ninth Circuit extends tolling doctrine to allow successive class actions, subject only to preclusion and “comity” defenses], the Ninth Circuit in Resh v. China Agritech, Inc., 857 F.3d 994, 999 (9th Cir. 2017), extended the American Pipe tolling rule (see American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), and Crown, Cork & Seal Co. v. Parker, 462 U.S. 345 (1983)) – providing that the statute of limitations is tolled for claims of unnamed members of a putative class during the pendency of a class action – by ruling that the limitations period had been tolled for unnamed plaintiffs for a third class action after two prior class actions involving the same allegations had failed to win certification. Prior to Resh, no court, including the Ninth Circuit, had held that under this precedent the statute would be tolled for class actions as well as individual claims. Now, last Friday, the Supreme Court granted the class defendants’ petition for writ of certiorari and agreed to review the Ninth Circuit’s decision in Resh.

Given the political makeup of the Supreme Court, and its recent decision in California Public Employees’ Retirement System v. ANZ Securities, Inc., 137 S.Ct. 2042 (U.S. 2017), holding that the filing of a putative class action does not toll the statute of repose for actions brought under Section 11 of the Securities Act of 1933, which we discussed at length last July [U.S. Supreme Court rejects application of American Pipe tolling to statutes of repose], a reversal seems a good bet. But the Supreme Court will have to address the central issue that occupied the Ninth Circuit—what legal or public policy basis would support distinguishing between individual and class actions in this context.

The crux of the Ninth Circuit’s reasoning was that there is no principled legal or public policy basis for distinguishing between individual actions and class actions in this context. Rule 23 is, after all, a procedural rule that, the Supreme Court has held, authorizes a district court to certify a class in every single case that satisfies Rule 23’s criteria—by its nature Rule 23 is not supposed to impact the adjudication of a claim on the merits. Moreover, while the Ninth Circuit was sensitive to the problem of serial efforts to certify class actions that were pending or previously failed to gain certification in state or federal courts, legal mechanisms exist to prevent such abuses in the class context (as in individual litigation), including claim preclusion and comity doctrines.

Among the cases upon which the Ninth Circuit relied was Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co., 559 U.S. 393 (2010), where the Supreme Court held that Rule 23 authorizes a district court to certify a class in every case that satisfies Rule 23’s criteria, regardless of the cause of action. In Resh, the Ninth Circuit reasoned that Shady Grove means that as a procedural rule, Rule 23 cannot abridge a claimant’s existing rights under a limitations statute. Resh, 857 F.3d at 1002 (“There is nothing in the certification criteria of Rule 23 that tells us to look to whether the statute of limitation has, or has not, been tolled.”)

The Ninth Circuit also addressed the defendants’ argument that “serial relitigation of class certification” was unfair to defendants, and that defendants “would be forced in effect to buy litigation peace by settling.” Id. at 1003. The quotations are from Smith v. Bayer Corp., 564 U.S. 299 (2011), wherein the Supreme Court refused to allow a federal district court to enjoin a state court from certifying a class after the federal court had denied class certification of a class involving the same transaction or occurrence. The Ninth Circuit relied on Smith v. Bayer’s reasoning that “there was no basis to apply formal preclusion principles against them, and thus no basis to enjoin the state court from certifying the class action.” Id. The Ninth Circuit followed Bayer’s holding that “traditional principles of stare decisis and comity, combined with the possibility of removal under the Class Action Fairness Act or consolidation by the Panel on Multidistrict Litigation, [are] adequate to the task of protecting defendants.” Id. (citing Smith v. Bayer, 564 U.S. at 316–18).

If it desires to reverse Resh, the Supreme Court will have to find that the legal and public policy issues identified and addressed by the Ninth Circuit compel an opposite result.

Posted on Friday, July 7 2017 at 11:57 am by
U.S. Supreme Court rejects application of American Pipe tolling to statutes of repose

by Joe Reynolds

Takeaway: In California Public Employees’ Retirement System v. ANZ Securities, Inc., No. 16-373, 2017 WL 2722415 (U.S. June 26, 2017), the Supreme Court issued its closely-watched decision regarding whether the filing of a putative class action tolls the statute of repose for actions brought under Section 11 of the Securities Act of 1933. The Supreme Court held that the equitable tolling principles announced in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), cannot supersede the purpose of a statute of repose, which is “to grant complete peace to defendants.” CalPERS, 2017 WL 2722415, at *11. For the defense bar, this is a welcome restriction on American Pipe tolling, at least where a statue of repose is involved. As we discussed last month, the Ninth Circuit recently expanded American Pipe tolling to successive class actions, rejecting the argument that serial relitigation of class certification would force defendants “to settle to buy peace.” Resh v. China Agritech, Inc., No. 15-55432, 2017 WL 2261024 (9th Cir. May 24, 2017) (quoting Phipps v. Wal-Mart Stores, Inc., 792 F.3d 637, 653 (6th Cir. 2015)).     

The CalPERS case arises out of certain securities offerings by Lehman Brothers in 2007 and 2008. In 2008, a putative class action was filed in the Southern District of New York on behalf of all persons who purchased these securities, alleging claims under Section 11 of the Securities Act of 1933. More than three years after the securities offerings at issue, CalPERS – a member of the putative class – filed a separate complaint alleging identical claims under § 11. Shortly thereafter, the putative class reached a proposed settlement, CalPERS opted out of the class, and the defendants moved to dismiss CalPERS’ complaint as time barred.

The statutory time bar at issue – Section 13 of the Act – provides that “[i]n no event shall any such action be brought to enforce a liability created under [§11] more than three years after the security was bona fide offered to the public … .” 15 U.S.C. § 77m. CalPERS argued its complaint was timely under American Pipe tolling principles, where the Supreme Court held “the commencement of a class action suspends the applicable statute of limitations as to all asserted members of the class.” American Pipe, 414 U.S. at 554. The District Court and the Second Circuit rejected CalPERS’ argument, however, holding that American Pipe tolling does not apply to § 13’s three-year bar—which the appellate court denominated a statute of repose. Writing for the majority, Justice Kennedy agreed, relying primarily on the “nature and purpose” of the statutory time bar at issue and of American Pipe tolling more generally. CalPERS, 2017 WL 2722415, at *6.

Justice Kennedy recognized that statutory time bars fall into two categories with two “distinct” purposes: statutes of limitations and statutes of repose. While statutes of limitations encourage “diligent prosecution of known claims,” statutes of repose provide “more explicit and certain protection to defendants.” Id. at *6-*7. Put another way, statutes of repose grant “complete peace to defendants,” give defendants “full protection after a certain time,” and offer defendants “full and final security.” Id. at *8, *11. American Pipe tolling, on the other hand, is grounded in the “the judicial power to promote equity” or the “traditional equitable powers of the judiciary.” Id. at *10. Ultimately, CalPERS holds that these principles of equity cannot modify a statutory time bar designed to grant peace to defendants. Id. at *11.

In her dissent, Justice Ginsburg notes the potential for opportunistic behavior by class action defendants: “Defendants will have an incentive to slow walk discovery and other precertification proceedings so the clock will run on potential opt outs.” Id. at *16. But this concern likely will be limited to Securities Act cases, given that most statutes of repose are much longer than three years. Nevertheless, and particularly given the Ninth Circuit’s recent decision allowing American Pipe tolling across successive class actions, CalPERS reiterates the importance of carefully evaluating any applicable statutes of repose, in addition to the preclusion and “comity” defenses potentially applicable in any repetitive class action.

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