Third Circuit Holds American Pipe Equitable Tolling Applies To Individual Opt-Out Claims Filed Prior To Class Certification Decision
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  • Third Circuit Holds American Pipe  Equitable Tolling Applies To Individual Opt-Out Claims Filed Prior To Class Certification Decision
     

    06/22/2021
    On June 16, 2021, the United States Court of Appeals for the Third Circuit reinstated a securities fraud action brought under Section 10(b) of the Securities Exchange Act of 1934 that had been dismissed as untimely.  Aly v. Valeant Pharm. Int’l Inc., –F.3d–, 2021 WL 2448108 (3d Cir. 2021).  The Third Circuit joined the Second, Ninth, and Tenth Circuits in holding that the doctrine of equitable tolling established by the United States Supreme Court  in American Pipe & Construction Company v. Utah, 414 U.S. 538 (1974), applies to individual claims that are subject to a pending putative class action and are asserted in an opt-out case prior to a decision on class certification.

    Plaintiffs were members of a putative class of investors in a pharmaceutical company.  2021 WL 2448108 at *1.  Although the district court had not yet ruled on whether or not a class should be certified, plaintiffs filed their own complaint for damages that they claimed to have individually sustained as a result of the same misstatements alleged in the class complaint.  Id. at *2.  Because a decision on class certification had not yet been rendered, defendants argued that plaintiffs could not benefit from the tolling doctrine established in American Pipe, which generally tolls the claims of individual plaintiffs that are covered by a class action.  Id.  The district court agreed with defendants and held that plaintiffs’ claims were time-barred because they were filed after the Exchange Act’s two-year statute of limitations had run and were not tolled because they were filed before a decision on class certification was rendered.  Id. at *3.

    The Third Circuit reversed, holding that American Pipe tolling applies to individual claims that are filed even prior to a decision on class certification.  In reaching this conclusion, the Third Circuit agreed with the Second Circuit that the tolling doctrine in American Pipe was primarily “created to protect class members from being forced to file individual suits in order to preserve their claims.”  Id. at *5 (quoting In re WorldCom Sec. Litig., 496 F.3d 245, 256 (2d Cir. 2007)).  The Third Circuit explained that denying tolling in this context, where members filed individual claims after the initial limitations period expired but before a certification decision, would serve no compelling purpose, but instead would require putative class members who intend to pursue their own claims to delay filing a case simply to take advantage of the tolling doctrine.  Id. at *6.

    The Court further observed that following the approach defendants proposed could lead to “counterintuitive results” where claims filed before a decision on class certification could be dismissed as untimely, but suits filed after a decision on class certification could nonetheless proceed.  Id. at *8.  The Court also emphasized that, because the Exchange Act’s five-year statute of repose is not subject to American Pipe tolling, id. at *4 (citing CalPERS v. ANZ Sec., 137 S. Ct. 2042 (2017)), in those cases where a certification decision is not made within five years of the alleged wrongdoing, putative class members may need to file individually before the certification decision or else risk their individual claims being untimely under the repose period if certification is ultimately denied, while also facing the risk that their claims would be considered untimely under the limitations period if they did not receive the benefit of American Pipe tolling by virtue of filing their individual claims before the certification decision.  Id. at *8.  The Court noted that this was far from a hypothetical situation, and that an amicus brief pointed to 92 recent class actions where certification was not decided within five years of the beginning class period.  Id. at *9.  Thus, the Court concluded, denying the benefit of American Pipe tolling to actions filed by individual putative class members before class certification is resolved “would serve no purpose in this context” and did not appear to be a result the Supreme Court “intended or envisioned.”  Id.

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