Recently, the Sixth Circuit was compelled to take a side of the jurisdictional split on the issue of whether a statute of repose can be tolled by a pending class action certification. The split arises out of the 1974 Supreme Court decision in American Pipe& Constr. Co. v. Utah, 414 U.S. 538 (1974), which held that pending certification of a class tolled a statute of limitations for members of the purported class, preserving the individual right to file suit for a limited time after the class action ended. The Tenth Circuit extended American Pipe to allow the tolling of statutes of repose. Joseph v. Wiles, 223 F.3d 1155, 1167 (10th Cir. 2000). The Second Circuit, though, held that a judicial expansion of a statute of repose would violate the Rules Enabling Act, and refused to extend American Pipeline. See Police & Fire Ret. Sys. Of City of Detroit v. IndyMac MBS, Inc., 721 F.3d 95, 107-108 (2d Cir. 2013).
Last month, in Stein v. Regions Morgan Keegan Select High Income Fund, Inc., the Sixth Circuit confronted the same issue. In that case, the plaintiffs-investors attempted to file suit after the Securities Act’s statute of repose had run, relying on American Pipeline to argue that the statute had been tolled while their class certification was pending. The Sixth Circuit, however, was persuaded by the Second Circuit’s reasoning and refused to extend the American Pipeline holding to a statute of repose.The Court found that because statutes of repose confer a substantive right on “defendants… to be free of liability after a certain absolute period of time” it could not endorse the contrary view that a defendant’s “potential liability should not be extinguished simply because the district court left the class certification unresolved.” (quoting Joseph).
This decision could incentivize potential class members to opt out of a class, out of a fear that if the class is not certified, they will lose their individual claim due to the expiration of a statute of repose (or at a minimum, they should monitor class proceedings closely). It will be interesting to see if Stein will affect courts’ decisions to certify classes late in the game, knowing that plaintiffs may be unable to subsequently file individually, or if it will generally speed up the certification process. In any event, this case again highlights the significance of the distinction between statutes of limitations and statutes of repose.
This post was written by Taylor Gamm, a summer associate in SPB’s Cincinnati office.