'American Pipe' and Tolling For Individual Claims

Finally, Chardon v. Fumero Soto¹² explained how tolling operates in practice.

In Chardon, the dispute was whether American Pipe suspended the limitations period or, in the alternative, whether the effect of tolling would be determined by the same source of law (i.e., federal or state) that provided the applicable statute of limitations (and may have available savings statutes). The Court held that the statute of limitations and the effect of any tolling should be controlled by the same source of law. Thus, Chardon directs courts not only to look to whatever time remains in the statute of limitations period, but also to the applicable state savings statutes.

The Policies

American Pipe tolling attempts to further the policies of Rule 23 without undermining the functions of statutes of limitations.¹³

The 1966 amendments to Rule 23 replaced the old rule of “one-way intervention,” under which putative class members could wait until very late stages of the proceedings (up to final judgment) before deciding whether to intervene. American Pipe observed that this rule was a “recurrent source of abuse” and allowed plaintiffs “to benefit from a favorable judgment without subjecting themselves to the binding effect of an unfavorable one.” Under the new system of Rule 23 “opt-out” classes, a putative class member is bound by the ruling, for better or worse, unless she affirmatively opts out of the class by a prescribed date.

Tolling is, by its nature, in tension with the policies behind statutes of limitations. The question in American Pipe was whether these policies – “of ensuring essential fairness to defendants and of barring a plaintiff who has ‘slept on his rights’” – would be undermined through tolling.¹⁴

The Court said no, principally reasoning that the filing of the class action puts defendants on notice of the nature of the claims and identity of the class of claimants. Thus, the later filing of a motion for intervention (or a separate suit) would not be an undue surprise to the defendant. Moreover, by removing plaintiffs’ incentives to file “placeholder” suits, tolling also protects defendants against multiple, duplicative actions and their attendant costs.

Crown and Eisen effectuated the purposes and protected the policies behind class action tolling (and, in turn, Rule 23). In Crown, the Court observed that if the statute of limitations was not tolled for the purposes of individual actions,

The Circuit Split

Just a month after Crown, the First Circuit considered whether the class action doctrine extends to plaintiffs who file those actions before a decision on certification, but after the statute of limitations had otherwise run.

In Glater v. Eli Lilly & Co.,¹⁶ the plaintiff filed an individual action while a motion for class certification was still pending. The court noted that American Pipe did not reach this situation, and found that “[t]he policies behind Rule 23 and American Pipe would not be served, and in fact would be disserved, by guaranteeing a separate suit at the same time that a class action is ongoing.”

The Sixth Circuit found the same reasoning persuasive in Wyser-Pratte Management Co. v. Telxon Corp.¹⁷ Contrasting the case to American Pipe and Crown, the court found that the plaintiff’s premature filing of its individual action, i.e., before the class certification ruling, had “forfeited” the benefit of class action tolling: “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.”

This remained the overwhelmingly majority position¹⁸ until the Second Circuit’s decision in In re WorldCom Inc. Sec. Litig. Although the Second Circuit did not cite or otherwise refer to Wyser-Pratte or the plethora of district court opinions agreeing with it, the Circuit explicitly rejected the contention that tolling in the circumstance presented by these cases was inconsistent with American Pipe.

The district court had adopted the majority position, holding that the individual plaintiffs could not rely on the class action tolling doctrine when they did not wait for a ruling on class certification.¹⁹ The Second Circuit reversed, noting that the Supreme Court framed the tolling rule broadly: