Opinion ID: 184203
Heading Depth: 2
Heading Rank: 2

Heading: Application of American Pipe to Statutes of Repose

Text: Moreover, even if we were able to conclude confidently that the Supreme Court of Arizona would adopt the rule of American Pipe, the more difficult question is whether and to what extent the Supreme Court of Arizona would apply the rule of American Pipe to a statute of repose, specifically the statute of repose for construction defects. Because Arizona courts consider federal cases interpreting Federal Rule of Civil Procedure 23 as authoritative, the plaintiffs believe that Arizona courts likely would follow the lead of the majority of federal courts, which hold that American Pipe tolling is legal tolling and applies to statutes of repose. The defendants believe, however, the district court's approach is more indicative of the approach that Arizona courts would follow. They note that the federal courts have not been consistent in categorizing American Pipe tolling as either equitable or legal. They argue that the rule is an equitable one grounded in concepts of fairness, an idea that seems to have been accepted by the Supreme Court of Arizona. [6] Consequently, Arizona courts would treat American Pipe tolling as a type of equitable tolling. Because it is equitable, the defendants conclude that American Pipe tolling may be applied to toll a statute of limitations, but not a statute of repose.
Although the general rule of class action tolling is well established, as are some applications of the American Pipe rule, [7] others still are being vetted in the courts of appeals and district courts. [8] Among the issues on which there is no consensus is whether American Pipe tolling should be characterized as a legal tolling doctrine or as an equitable one. Because it is generally accepted that [s]tatutes of repose are not subject to equitable tolling, Munoz v. Ashcroft, 339 F.3d 950, 957 (9th Cir. 2003), [9] whether American Pipe sets forth a legal or equitable tolling doctrine takes on special importance in the context of a statute of repose. The majority of the lower federal courts that have addressed the issue have held that American Pipe tolling is not equitable, but legal. In Joseph v. Wiles, 223 F.3d 1155 (10th Cir.2000), for example, the court considered whether the filing of a class action tolled the three-year statute of repose for securities fraud under 15 U.S.C. § 77m. Relying on Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 363, 111 S.Ct. 2773, 115 L.Ed.2d 321 (1991), the defendants argued that American Pipe could not be invoked to toll the three-year statute of repose. The Tenth Circuit, however, held that Lampf was not relevant in the present context because the tolling that Mr. Joseph seeks is legal rather than equitable in nature.... [T]he tolling Mr. Joseph claims is the legal tolling that occurs any time an action is commenced and class certification is pending. Cf. Korwek v. Hunt, 827 F.2d 874, 879 (2d Cir.1987) (tolling no longer appropriate after court ruled definitively to deny class certification). The Supreme Court addressed this type of tolling in American Pipe & Const. Co. v. Utah, 414 U.S. 538 [94 S.Ct. 756, 38 L.Ed.2d 713] (1974), where it held in the context of a statute of limitation that the commencement of the original class suit tolls the running of the statute for all purported members of the class who make timely motions to intervene after the court has found the suit inappropriate for class action status. Id. at 553 [94 S.Ct. 756]. The Court expanded this rule in Crown, Cork & Seal Co. v. Parker, 462 U.S. 345 [103 S.Ct. 2392, 76 L.Ed.2d 628] (1983), to include putative class members who later seek to file independent actions. See id. at 353-54 [103 S.Ct. 2392] (statute of limitations remains tolled for all members of putative class until class certification is denied). Lampf did not overrule or even mention these cases, and we are not persuaded the three are incompatible. In fact, Lampf states that the litigation ... must be commenced within one year after the discovery of the facts constituting the violation and within three years after such violation, indicating that the commencement of the action is the event which triggers tolling. Lampf, 501 U.S. at 364 [111 S.Ct. 2773] (emphasis added). Tolling the limitations period for class members while class certification is pending serves the purposes of Rule 23 of the Federal Rules of Civil Procedure governing class actions. Rule 23 encourages judicial economy by eliminating the need for potential class members to file individual claims. If all class members were required to file claims in order to insure the limitations period would be tolled, the point of Rule 23 would be defeated. Joseph, 223 F.3d at 1166-67 (footnote omitted) (parallel citations omitted); see also Bright v. United States, 603 F.3d 1273, 1287-88 (Fed.Cir.2010) (characterizing class action tolling as statutory and holding that this type of tolling is not triggered by equitable considerations); Arivella v. Lucent Techs., Inc., 623 F.Supp.2d 164, 176 (D.Mass.2009) (noting differences between American Pipe and equitable tolling and stating that [l]egal tolling is [ ] distinct from equitable tolling, which is a judicially created doctrine that stops the running of a statute of limitations in certain situations involving unfairness or excusable mistake). According to these courts, applying statutory tolling to statutes of repose does not frustrate the policies reflected in a statute of repose. In Joseph, the Tenth Circuit explained: Tolling the limitations period while class certification is pending does not compromise the purposes of statutes of limitation and repose. Statutes of limitation are intended to protect defendants from being unfairly surprised by the appearance of stale claims, and to prevent plaintiffs from sleeping on their rights. See Crown, Cork, 462 U.S. at 352 [103 S.Ct. 2392]. [T]hese ends are met when a class action is commenced. Id. In this case, because a class action complaint was filed, defendants were on notice of the substantive claim as well as the number and generic identities of potential plaintiffs. Defendants cannot assert Mr. Joseph's claim was stale or that he slept on his rights. Statutes of repose are intended to demarcate a period of time within which a plaintiff must bring claims or else the defendant's liability is extinguished. Here, the claim was brought within this period on behalf of a class of which Mr. Joseph was a member. Indeed, in a sense, application of the American Pipe tolling doctrine to cases such as this one does not involve tolling at all. Rather, Mr. Joseph has effectively been a party to an action against these defendants since a class action covering him was requested but never denied. Defendants' potential liability should not be extinguished simply because the district court left the class certification issue unresolved. Consequently, we conclude that American Pipe tolling applies to the statute of repose governing Mr. Joseph's action. 223 F.3d at 1167-68 (internal and parallel citations omitted). Similarly, in Arivella v. Lucent Techs., Inc., 623 F.Supp.2d 164 (D.Mass.2009), the district court stated: The differences between the forms of tolling is crucial because the animating principles of legal tolling are compatible with tolling a statute of repose, while the reasoning behind equitable tolling is not.... [T]he purpose of a statute of repose is to demarcate a period in which a plaintiff must place a defendant on notice of his or her injury, regardless of whether the plaintiff himself is aware that he has suffered an injury. The filing of a class action, which is the only conduct that can trigger American Pipe tolling, accomplishes the exact same goal, rendering the statute of repose superfluous for the period of time that the class action is pending.... In contrast to legal tolling, equitable tolling would frequently work to frustrate statutes of repose by extending the time in which a plaintiff could file suit without providing the defendants with any notice of the potential claims against them. Id. at 177 (emphasis added).
There also is support for the contrary propositionthat American Pipe tolling is equitable. Indeed, the Supreme Court indicated that, in fashioning the existing rule, it took into account traditional equitable considerations. The Court noted that, in the case before it, certification had not been denied for reasons of bad faith or frivolity, but for lack of numerosity. American Pipe, 414 U.S. at 553, 94 S.Ct. 756 (internal quotation marks omitted). Furthermore, the Court observed that, [i]n recognizing judicial power to toll statutes of limitation in federal courts we are not breaking new ground. Id. at 558, 94 S.Ct. 756 (emphasis added). Among the examples of the Court's prior invocation of this power were cases where the plaintiff ha[d] refrained from commencing suit during the period of limitation because of inducement by the defendant ... or because of fraudulent concealment, id. at 559, 94 S.Ct. 756 (internal citation omitted), in other words, cases involving equitable tolling. Equitable considerations also prompted the three concurring Justices in Crown, Cork to issue the following caution: It seems important to reiterate the view expressed by Justice BLACKMUN in American Pipe & Constr. Co. v. Utah, 414 U.S. 538 [94 S.Ct. 756, 38 L.Ed.2d 713] (1974). He wrote that our decision must not be regarded as encouragement to lawyers in a case of this kind to frame their pleadings as a class action, intentionally, to attract and save members of the purported class who have slept on their rights. Id. at 561 [94 S.Ct. 756] (concurring opinion). The tolling rule of American Pipe is a generous one, inviting abuse. It preserves for class members a range of options pending a decision on class certification. The rule should not be read, however, as leaving a plaintiff free to raise different or peripheral claims following denial of class status. 462 U.S. at 354, 103 S.Ct. 2392 (Powell, J., concurring) (parallel citations omitted). [10] Furthermore, in circumstances where the distinction between legal and equitable tolling was not dispositive, courts regularly have referred to American Pipe tolling as equitable. See supra note 10; Bridges, 441 F.3d at 211 (characterizing the rule of American Pipe/Crown, Cork as an equitable tolling rule); Ellis v. City of San Diego, Cal., 176 F.3d 1183, 1189 n.3 (9th Cir.1999) (citing American Pipe in support of the proposition that [e]quitable tolling of the statute of limitations is a defense to all federal statutes of limitations, even those expressly contained within a given cause of action, unless tolling would be inconsistent with the legislative purpose).
Although the weight of federal authority favors the view that American Pipe/Crown, Cork rule should be characterized as a rule of statutory tolling, it is not at all clear whether the Supreme Court of Arizona would adopt that view. The Arizona case that discusses American Pipe in the greatest detail is Hosogai v. Kadota, 145 Ariz. 227, 700 P.2d 1327 (1985). In Hosogai, the Supreme Court of Arizona addressed the following issue: May the statute of limitations for a second wrongful death action be equitably tolled by the filing of a first action dismissed because of a procedural defect? Id. at 1329. In resolving this issue, the court stated: A court has a legitimate interest in the procedural rules that govern lawsuits, especially to prevent such rules from becoming a shield for serious inequity. Accordingly, a court may under certain circumstances make narrow equitable exceptions to statutes of limitations. See American Pipe & Constr. Co. v. Utah, 414 U.S. 538, 552-59 [94 S.Ct. 756, 38 L.Ed.2d 713] (1974); Burnett v. New York Central R.R., [380 U.S. 424, 426-30, 85 S.Ct. 1050 (1965)]. The history of the equitable tolling doctrine evidences this claim. Id. at 1331 (parallel citations omitted). After reviewing some of the history of the equitable tolling doctrine, the court set forth the circumstances under which equitable tolling was appropriate: Equitable tolling is appropriate when it would effectuate: 1) the policies underlying the statute, and 2) the purposes underlying the statute of limitations. Burnett v. New York Central R.R., supra, 380 U.S. at 427-28 [85 S.Ct. 1050]; American Pipe & Constr. Co. v. Utah, supra, 414 U.S. at 554-56 [94 S.Ct. 756]. Equitable tolling has been found to effectuate the policies underlying a number of remedial federal statutes, including: the Federal Employer's Liability Act (FELA), Burnett v. New York Central R.R., supra ; Annot., 16 A.L.R.3d 637 (1967) (equitable tolling of statute of limitations in FELA cases); Title VII actions for unlawful discrimination in violation of the Civil Rights Act of 1964; Zipes v. Trans World Airlines, 455 U.S. 385 [102 S.Ct. 1127, 71 L.Ed.2d 234] (1982) (timely filed claim with administrative agency which was dismissed after the expiration of the statute of limitations equitably tolls second action in federal court); ... antitrust actions under the Clayton and Sherman Acts, see American Pipe & Constr. Co. v. Utah, supra (where class action suit is dismissed because class action status denied, the timely filing of technically deficient first action equitably tolls the statute of limitations); the Railway Labor Act, Order of Railroad Telegraphers v. Railway Express Agency, 321 U.S. 342, [64 S.Ct. 582, 88 L.Ed. 788] (1944) (statute of limitations equitably tolled during pendency of lengthy administrative proceedings). Id. at 1331-32 (parallel citations omitted). The court then went on to determine that the policies underlying the wrongful death statute were consistent with equitable tolling. Similarly, the requirements for equitable tollingtimely notice to the defendant, lack of prejudice to the defendant in gathering evidence to defend against the later claim, and reasonable and good faith conduct by the plaintiff in prosecuting the initial actionhad been met. Consequently, the court concluded that equitable tolling should apply to save the plaintiff's claim. [11] Hosogai, as support for the proposition that American Pipe tolling is equitable, cannot be dismissed as easily as the federal authorities that employ that characterization. The federal cases refer to American Pipe in passing and make no distinction between equitable and legal tolling. The same is not true of Hosogai. First, Hosogai did not simply reference American Pipe in support of a general proposition; the Supreme Court of Arizona mentioned American Pipe several times in direct reference to equitable tolling. Second, in Hosogai, the court incorporated concepts of legal tolling into its requirements for equitable tolling. The court held that, before equitable tolling could apply, there must be a determination as to whether tolling was consistent with the policies underlying the statute and the purposes underlying the statute of limitations. 700 P.2d at 1331. In this respect, the Supreme Court of Arizona's considerations in Hosogai are strikingly similar to those of the Supreme Court in American Pipe, in which the Court observed: [T]he mere fact that a federal statute providing for substantive liability also sets a time limitation upon the institution of suit does not restrict the power of the federal courts to hold that the statute of limitations is tolled under certain circumstances not inconsistent with the legislative purpose.  American Pipe, 414 U.S. at 559, 94 S.Ct. 756 (emphasis added). The Supreme Court of Arizona's characterization of American Pipe tolling as equitable, coupled with its articulated concern that tolling be applied in a manner consistent with the statute's purpose, suggests that Arizona may not apply American Pipe to toll all statutes of limitations and repose. Pertinent to the present action, the Arizona legislature has crafted a detailed procedure for addressing construction defects and has set forth a specific time within which claims must be brought. It is possible that the Supreme Court of Arizona may agree with the district court in Arivella that, as a general proposition, the filing of a class action complaint satisfies the purpose of a statute of repose ... to demarcate a period in which a plaintiff must place a defendant on notice of his or her injury, regardless of whether the plaintiff himself is aware that he has suffered an injury. 623 F.Supp.2d at 177. It also is possible, however, that the Arizona court would determine that class action tolling is not consonant with the detailed statutory scheme. The Supreme Court of Arizona also might be persuaded that the statute of repose incorporates a policy determination that tolling of any kind, but especially class action tolling, is not appropriate in the context of litigation over construction defects. As explained by the Court in American Pipe, statutory limitation periods are designed to promote justice by preventing surprises through the revival of claims that have been allowed to slumber until evidence has been lost, memories have faded, and witnesses have disappeared. 414 U.S. at 554, 94 S.Ct. 756 (internal quotation marks omitted). However, assuming construction claims involve habitable residences, the defendant developer/contractor/subcontractor will not be in a position to preserve evidence critical to proving or disproving the claim. Additionally, construction litigation frequently does not involve the commonality of facts and issues necessary for class certification. See, e.g., Becker v. McMillin Constr. Co., 226 Cal.App.3d 1493, 1496, 277 Cal.Rptr. 491 (1991) (recounting that class action was denied in earlier litigation for lack of commonality). [12] Thus, the Supreme Court of Arizona may conclude that the Arizona legislation, in enacting the statute of repose, was of the view that class-action construction claims are uniquely capable of bringing about the abuse identified by the concurrence in Crown, Cork : It seems important to reiterate the view expressed by Justice BLACKMUN in American Pipe & Constr. Co. v. Utah, 414 U.S. 538 [94 S.Ct. 756, 38 L.Ed.2d 713] (1974). He wrote that our decision must not be regarded as encouragement to lawyers in a case of this kind to frame their pleadings as a class action, intentionally, to attract and save members of the purported class who have slept on their rights. Id., at 561 [94 S.Ct. 756] (concurring opinion). The tolling rule of American Pipe is a generous one, inviting abuse. It preserves for class members a range of options pending a decision on class certification. The rule should not be read, however, as leaving a plaintiff free to raise different or peripheral claims following denial of class status. 462 U.S. at 354, 103 S.Ct. 2392 (parallel citations omitted). In short, application of American Pipe to toll Arizona's statute of repose for construction defects involves important public policy decisions for that state. Given the paucity of Arizona case law in this area, and the concomitant uncertainty in discerning the path the Arizona courts would follow, we believe the most prudent and respectful course is to certify these questions to the Supreme Court of Arizona.