The U.S. Court of Appeals for the Fifth Circuit recently held that putative class members were not entitled to tolling under Florida’s statute of limitations because the federal rule of tolling for putative class members did not override the Florida statute.

A copy of the opinion in Patsy Weatherly, et al v. Pershing, L.L.C. is available at: Link to Opinion.

Investors “purchased what they thought were low-risk CDs” from an offshore bank controlled by “Allen Stanford, now serving a 110-year prison term, [who] sold billions of dollars’ worth of bogus CDs to unwitting investors, many of them retirees seeking ‘safe’ investments for their life savings, paying each new investor-victim ‘profits’ out of funds solicited from newly-duped investor-victims.”

In 2009, a group of these “swindled investors” filed a class action in the U.S. District Court for the Northern District of Texas against the company that “provided clearing services” for one of Stanford’s companies that in turn referred investors to Stanford’s bank. This case “had a putative class of all persons who bought Stanford CDs. But counsel … eventually offered to narrow its Florida subclass to exclude plaintiffs who did not transfer money directly through [the clearing services company].”

On Nov. 20, 2013, the investors that were excluded from the Texas class action filed the first of six cases against the clearing company in the U.S. District Court for the Southern District of Florida. “The cases were transferred to the Northern District of Texas, home of the Stanford multidistrict litigation.”

The plaintiffs alleged that the clearing company “committed indirect fraud under Florida law … [and] aided and abetted Stanford’s breaches of fiduciary duty under Florida law.”

The defendant moved for summary judgment, arguing that the claims were barred by Florida’s four-year statute of limitations. The trial court granted the motion, reasoning that plaintiffs “should have known of their claims, at the latest, by November 18, 2009, when the [Texas] class action was filed. Because the Investors filed the first of these cases on November 20, 2013—four years and two days later—these cases were untimely. The district court rejected the argument that the limitations period tolled while the Investors were putative members” of the Texas class action.

On appeal, the Fifth Circuit began by discussing Florida law, noting that “[t]he Florida Supreme Court has not decided whether a statute of limitations is tolled during a putative class action.” Thus, the Court “must make ‘an Erie guess as to what the [Florida] Supreme Court would most likely decide.’ … When making an Erie guess, we do not ‘adopt innovative theories of state law’ but aim simply “to apply that law as it currently exists.”

Turning to the applicable Florida statute, the Court explained that “Florida law happens to provide a statutory list of grounds for tolling its statutes of limitations.” However, “putative class actions are not on the list.” In addition, the statute provides that the “list is exclusive—explicitly disclaiming any other grounds for tolling[.]” Florida’s Supreme Court has also “held that ‘the tolling statute specifically precludes application of any tolling provision not specifically provided therein.’”

The plaintiff investors argued that despite the statute’s “clear language … and the Florida Supreme Court’s insistence that all other tolling provisions are excluded,” “two Florida Supreme Court cases—Lance v. Wade and Engle v. Liggett Group, Inc.—have essentially added class actions to the statutory list.”

The Fifth Circuit rejected this argument because “the Florida Supreme Court did not actually announce this rule in either case, and we are not inclined to find innovative theories of state law while making an Erie guess.” The Court explained that “[u]nlike the case before us, both Lance and Engle involved certified classes that were later decertified on appeal. And plaintiffs in both cases had already tried their cases to favorable jury verdicts. The Florida Supreme Court did not cite Florida’s tolling statute or even use the word ‘toll’ in either case. That silence is not dispositive. But it is curious. If the court was creating a new tolling rule applicable to all future putative class actions, why not use the word ‘toll’?”

“Neither Lance nor Engle announced a broadly applicable rule that putative class action claimants are entitled to tolling. The Florida Supreme Court’s holding in each case appears, in the plain language of each opinion, to tailor the relief dispensed to the equitable needs of the particular plaintiffs. And nothing more. Nothing in Engle or Lance suggests that the Florida Supreme Court would depart from the plain language of § 95.051 when dealing with Plaintiffs here—who were never certified as a class by a lower court and never tried their case to a favorable jury verdict in reliance on a court’s class certification.”

Next, the Fifth Circuit pointed out that “we are not the first federal court to consider this question. The Second Circuit, the D.C. Circuit, and one federal district court in Florida have held unequivocally that Florida does not recognize class action tolling. One federal appellate court, the Eleventh Circuit, appears to differ, but its provocative statement is not actually a holding. In Raie v. Cheminova, Inc., the Eleventh Circuit observed: ‘There is no dispute that American Pipe[‘s federal policy of tolling for class actions] has been followed in Florida state courts. But that proposition was not part of the holding in Raie. The court ultimately rejected tolling because the plaintiff was not a member of the class he relied on. So the weight of federal appellate authority is that Florida law does not recognize class action tolling.”

Because “it is far from clear that Florida law recognizes class action tolling, and, as an Erie court, we decline to announce such a rule before the Florida Supreme Court has done so[,]” the Court found that “under Florida law, class action claimants are not entitled to tolling.”

However, the plaintiffs argued that “even if Florida law rejects class action tolling, federal law should govern.” The Fifth Circuit also rejected this argument because while “federal law does toll limitations during a putative class action[,] [i]n a diversity case, we apply federal procedural rules and state substantive law.” And, the Court explained, we have already answered the question before us: whether to apply American Pipe tolling or state tolling rules. In Vaught v. Showa Denko K.K., we found that ‘the Supreme Court has stated that generally, for diversity actions, a federal court should apply not only state statutes of limitation but also any accompanying tolling rules.’”

The Court explained that “the U.S. Supreme Court has made clear that American Pipe is not meant to displace statutes. In American Pipe, the Court held that its court-made rule would only function ‘under certain circumstances not inconsistent with the legislative purpose.’” Thus, the Court concluded that “[f]ederal law is unavailing to the [plaintiff investors] because the only federal rule they can point to is one grounded on ‘the traditional equitable powers of the judiciary.’ But equity does not empower judges to contravene the plain language of a statute.”

Finally, the Fifth Circuit rejected the plaintiffs’ argument that “if Florida law doesn’t recognize class action tolling and if federal law is unavailing, they are still entitled to approximately eight months of ‘equitable tolling’ for a period when [the first Texas class action] was stayed.”

The Court reasoned that “[f]irst, tolling due to a stay is not on the exclusive list in § 95.051. Second, the [plaintiffs’] state-court authority, [Machules v. Department of Administration] is distinguishable because it tolled an administrative rule—not a statute of limitations. Third, an adverse district court decision on appeal is not the kind of event that invokes equitable tolling. This was not a situation where a plaintiff ‘ha[d] been misled or lulled into inaction, ha[d] in some extraordinary way been prevented from asserting his rights, or ha[d] timely asserted his rights mistakenly in the wrong forum.’ Plus, even if adverse binding precedent could invoke equitable tolling, district court decisions are not binding precedent, even in the same district court.”

The Fifth Circuit thus concluded that “equitable tolling is not available to the [plaintiff investors]” and affirmed the trial court’s summary judgment ruling in favor of the defendant.