The Second Circuit today rejected a clever but strange application of the American Pipe tolling doctrine. 

American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), and its progeny stop statutes of limitations from running — ties their legs, so to speak — on claims of each member of an on-file class action.  The tolling lasts only so long as the class member remains in the class.  It ends if and when the class member exits the class — either because the court denies class treatment of his claim, because he opts out of the class, or because of a change in the class definition.

The district court held that a class member cannot take advantage of American Pipe tolling if he sues before the court rules on class treatment (or not) of his claim.  The court accordingly dismissed individuals’ claims that couldn’t survive a limitations defense without tolling.

The Second Circuit reversed.  The district court’s main concern — that too many individuals would take advantage of American Pipe tolling regardless of what happened in the class action — didn’t bother the appellate judges:

The district court may be correct that its conception of the American Pipe rule would reduce the number of individual suits filed by class members.  But this is beside the point.  While reduction in the number of suits may be an incidental benefit of the American Pipe doctrine, it was not the purpose of American Pipe either to reduce the number of suits filed, or to force individual plaintiffs to make an early decision whether to proceed by individual suit or rely on a class representative.  Nor was the purpose of American Pipe to protect the desire of a defendant “not to defend against multiple actions in multiple forums.”  Crown, 462 U.S. at 353.  The American Pipe tolling doctrine was created to protect class members from being forced to file individual suits in order to preserve their claims.  It was not meant to induce class members to forgo their right to sue individually.

In re WorldCom Sec. Litig., No. 05-6979, slip op. at 19-20 (2d Cir. July 26, 2007).

Shew!  Thank goodness for the Second Circuit! 

Blawgletter imagines that the district court’s rule would have had weird effects.  Such as?  Such as giving extraordinary control to class counsel; forcing class members to monitor class proceedings; and producing even more litigation of limitations issues.

Barry Barnett