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(Article from Securities Law Alert, October/November 2019) 

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On September 10, 2019, the District of New Jersey held that plaintiffs who file opt-out actions after the statute of limitations has expired, but before a decision on class certification has been issued, are not entitled to the benefit of American Pipe tolling. Northwestern Mut. Life. Ins. Co. v. Valeant Pharm. Int’l, 2019 WL 4278929 (D.N.J. Sept. 10, 2019) (Shipp, J.).[1] The court explained that holding otherwise would “encourage future plaintiffs to sit back, await developments in the case as the strength of the parties’ positions are tested through Rule 12 motion practice, and if there are favorable determinations, file an otherwise untimely action that is saved by the American Pipe doctrine.” The court determined that “[s]uch a result does not support the efficiency and economy of litigation” that underpins the American Pipe doctrine.

Background

In American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), the Supreme Court 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.” The Supreme Court subsequently “clarified” that “[t]he rule is not dependent on intervening in or joining an existing suit; it applies as well to putative class members who, after denial of class certification, ‘prefer to bring an individual suit rather than intervene . . . once the economies of a class action [are] no longer available.’” China Agritech v. Resh, 138 S. Ct. 1800 (2018) (quoting Crown, Cork & Seal Co. v. Parker, 462 U.S. 345 (1983)).

In China Agritech, the Supreme Court held that “American Pipe does not permit the maintenance of a follow-on class action past expiration of the statute of limitations.” Prior to the China Agritech decision, “the Second[,] Tenth, and Ninth Circuits each held that a putative class member who brings an individual action prior to class certification would receive the benefit of American Pipe tolling,” while the Sixth Circuit reached the opposite conclusion.[2] Northwestern Mut. Life. Ins. Co., 2019 WL 4278929. The Third Circuit has not ruled on this issue, nor has any circuit court addressed this question since the Supreme Court’s decision in China Agritech.

Applying American Pipe Tolling to Untimely Opt-Out Actions Filed Prior to a Decision on Class Certification Would Not Promote Efficiency and Economy of Litigation

“To resolve th[e] issue” of whether a plaintiff who brings untimely opt-out claims prior to a decision on class certification is entitled to the benefit of the American Pipe tolling doctrine, the Northwestern Mutual court “consider[ed] the history and purpose of the American Pipe doctrine.” The court explained that “the American Pipe doctrine encourages efficiency and economy of litigation because without the doctrine potential class members would be induced to file protective motions to intervene or join.” The court also noted that it “protect[s] the interests of putative unnamed class members who ha[ve] not received notice and were unaware of the pending class action.”

The court found that “the expansion of the American Pipe doctrine here would not promote efficiency and economy of litigation,” as it would “encourage additional individual actions to be brought prior to class-certification” and could require the court to “deal with dispositive motions rehashing legal and factual issues [it] previously addressed.” The court also found it significant that the plaintiff in the case before it was “not a putative unnamed class member who never received notice of this action and must rely on the protection of the American Pipe doctrine.” Moreover, the court observed that the plaintiff could “hardly qualify as diligent in asserting claims and pursuing relief” given that the plaintiff “wait[ed] more than two years after the filing of the” class action complaint to bring suit. The court “conclude[d] that application of the American Pipe doctrine to [the plaintiff’s] federal law claims would not further the purposes of the doctrine,” and dismissed the plaintiff’s claims as untimely.