The White House is engulfed in scandal. Prosecutors and congressional investigators tighten their net around a beleaguered President and his inner circle. A constitutional crisis looms, and our nation’s faith in the rule of law hangs in the balance.
As the legal and political drama of our current moment unfolds, it remains to be seen whether today’s Supreme Court will play the same role that it was called upon to play in 1974. The current Court has, however, immersed itself in another 1974 classic: the eponymous tolling rule of American Pipe & Construction Co. v. Utah. Twice in the past two years, the Court has revisited American Pipe tolling: first in California Public Employees’ Retirement System v. ANZ Securities, Inc. (CalPERS) and then in China Agritech, Inc. v. Resh. In the wake of these decisions, Steve Burbank and Tobias Wolff provide a comprehensive and much-needed exploration of “the source, reach, and limits of the tolling rule for federal class actions that originated in American Pipe.” They persuasively argue that the Supreme Court has lost its way, misperceiving the underlying rationale and purpose of American Pipe tolling.
Under American Pipe, the commencement of a class action in federal court tolls the statute of limitations as to all purported class members. This tolling rule means that would-be class members need not overwhelm courts with precautionary individual lawsuits (or motions to intervene in the putative class action) solely to avoid a time bar in the event the federal court denies class certification. And in cases where the federal court does certify a class action, American Pipe means that class members may opt out—a right guaranteed for Rule 23(b)(3) class actions—without fear of their subsequent suits being time-barred.
Burbank and Wolff contend that American Pipe is a federal common law rule that aims to effectuate the provisions and policies of Rule 23. They support this view with a sophisticated examination of the doctrinal thicket that encompasses Erie, Hanna, the Rules of Decision Act (RDA), and the Rules Enabling Act (REA). On their account, the Federal Rules of Civil Procedure have the status of “Acts of Congress” for purposes of the RDA’s allowance that a federal court need not follow “[t]he laws of the several states” when “Acts of Congress otherwise require.” Federal courts, therefore, may “carry into effect the policies of Federal Rules of Civil Procedure through judge-made federal common law.” Properly understood, Rule 23 is not the direct source of American Pipe’s tolling rule—that view could be problematic under the REA and its provision that Federal Rules of Civil Procedure “shall not abridge, enlarge, or modify substantive rights.” Rather, Rule 23 is the source of authority for a federal common law tolling rule—the tolling rule that the Court has articulated in American Pipe and its progeny.
In support of this argument, Burbank and Wolff distinguish between three distinct types of federal judicial lawmaking. One type concerns only “the internal administration of federal court adjudication.” This kind of lawmaking—federal forum non conveniens law is an example—has no preemptive effect in state court proceedings. A second form (sometimes called “substantive” federal common law, although Burbank and Wolff resist that nomenclature) directly addresses “questions of liability or regulatory policy” in areas of “uniquely federal concern,” or where needed to resolve “competing claims of interested states.” This kind of federal common law is binding in both federal court and state court, and it preempts contrary state law.
American Pipe tolling falls into a third category—one that “aims to preserve and promote the provisions of and policies underlying a procedural rule by shaping the behavior and rights of parties in both the same and subsequent proceedings.” Burbank and Wolff point to federal preclusion law—as the Supreme Court described in Semtek—as another example of this third category. Although federal common law will usually borrow state-law preclusion rules for cases that are in federal court based on diversity jurisdiction, “a federal preclusion standard might be necessary to enable district courts to enforce procedural policies like those found in the discovery rules in cases where borrowed state preclusion law would not adequately do so.” This third kind of federal common law can displace contrary state law but in a different way than “substantive” federal common law. States are not obligated to follow American Pipe for class actions filed in state court. They need not allow class actions at all. But state courts must recognize—and state law must defer to—the tolling effect of a federal class action.
Burbank and Wolff then explore the potential distinction between the following kinds of federal class actions that would be the basis for American Pipe tolling: (1) federal class actions based on a federal cause of action with a federal statute of limitations and (2) federal class actions pursuing state-law claims over which federal courts exercise diversity jurisdiction. The first category is in the “wheelhouse” of federal judicial lawmaking. Even for the diversity-jurisdiction class actions, however, Burbank and Wolff argue that subsequent courts—including state courts—must recognize the tolling effect of the federal class action under American Pipe’s federal common law rule. The only situations where a contrary tolling rule provided by state law should apply would be where that state rule is “unambiguously more generous than the suspension rule of American Pipe,” or—perhaps—where there is established state law that “would unambiguously afford absentees in the federal class action adequate time (whether more or less than suspension) either to seek to intervene or to bring independent actions if certification is denied or they opt out of a certified class.”
Finally, Burbank and Wolff turn to the Supreme Court’s recent decisions in CalPERS and Resh. They are especially critical of CalPERS, a 5-4 decision holding that the 3-year deadline imposed by Section 13 of the 1933 Securities Act was a “statute of repose” to which the American Pipe tolling rule does not apply. The CalPERS majority mistakenly viewed American Pipe as a form of “equitable tolling,” based on an “impoverished account of the sources of federal law” and a failure to appreciate the true justification for American Pipe—to carry into effect the provisions and underlying policies of Rule 23. Such a rule of federal common law is distinct from rules based on the power of federal courts to apply general principles of equity.
The Resh decision is—at least partially—“an improvement on the missteps the Court made in CalPERS.” Although Burbank and Wolff take no position on Resh’s ultimate conclusion that American Pipe tolling does not apply to successive class actions, they applaud the Resh Court’s recognition that the American Pipe tolling rule is driven by the “policies of ‘efficiency and economy of litigation’ bound up in Rule 23.” Resh is a “mish-mash,” however, because it also made problematic references to equitable tolling and failed to emphasize the particular need to preserve opt-out rights in Rule 23(b)(3) class actions. In the final analysis, Resh “leaves considerable room for improvement in future cases,” but there is also cause for modest optimism in that Resh “can be read as shifting the primary focus back to the policies of Rule 23.”
There may be more chyrons on today’s screens (and more screens, period), but the parallels between today and 1974 are hard to ignore. Burbank and Wolff provide a compelling critique of the Supreme Court’s contemporary reboot of American Pipe. Their article is a must-read contribution whether readers are interested in the specific relationship between class actions and statutes of limitations or in broader questions about the sources, scope, and propriety of federal judicial lawmaking.