FYI: 3rd Cir Hold American Pipe Tolling Does Not Apply to Named Plaintiff in Failed Putative Class Action

The U.S. Court of Appeals for the Third Circuit recently held that the tolling doctrine set forth in American Pipe & Constr. Co. v. Utah does not apply where the named plaintiff in a failed class action commences a subsequent lawsuit outside the statute of limitations. 

 

In so ruling, the Court held that American Pipe only tolls the statute of limitations for unnamed members of the putative class.

 

A copy of the opinion is available at:  Link to Opinion

 

In April 2004 and March 2005, a doctor received two unsolicited faxes from a pharmaceutical company and a healthcare supplier (Defendants).  Shortly thereafter, the doctor filed a putative class action against the Defendants in state court (State Court Action), alleging that the Defendants transmitted thousands of similar faxes in violation of the federal Telephone Consumer Protection Act, 47 U.S.C. § 227 (TCPA). 

 

On June 27, 2008, the judge presiding over the State Court Action entered an order denying class certification.  Since that time, the State Court Action has proceeded on an individual basis, and has yet to result in a final judgment.

 

On June 26, 2011, the Doctor and his professional corporation (Corporation) filed a separate class action against the Defendants in federal court, alleging violations of the TCPA based on the same April 2004 and March 2005 faxes at issue in the State Court Action.

 

The Defendants subsequently moved for summary judgment, contending that the four-year federal "default" statute of limitations set forth in 28 U.S.C. § 1658 barred the complaint in its entirety.  The trial court agreed, rejecting the Plaintiffs' argument that the denial of certification in the State Court Action tolled the statute of limitations on their individual and class claims.

 

This appeal followed.

 

As you may recall, American Pipe provides that a timely-filed class action complaint tolls the applicable statute of limitations for unnamed putative class members until the court issues a ruling on class certification.  Under this doctrine, unnamed individual members of a failed class can either intervene in the existing case or file their own suits.

 

The Third Circuit began its analysis by noting that a recent Supreme Court of the United States ruling resolved any issues as to whether the State Court Action tolled the statute of limitations on the Plaintiffs' class claims.  During the pendency of the appeal, the Supreme Court issued its opinion in China Agritech v. Resh, which made clear American Pipe tolling does not allow putative class members to bring a "follow on" class action once the statute of limitation expires.  584 U.S. ___, 138 S. Ct. 1800, 1804 (2018). 

 

Next, the Third Circuit addressed whether American Pipe tolling applies where the named plaintiff in a failed class action, such as the Doctor, asserts new individual claims outside the statute of limitations.  Although the Supreme Court had not directly confronted the issue, the Third Circuit determined that the two policy rationales underlying American Pipe made clear that the doctrine only applied to unnamed class members.

 

First, American Pipe tolling reinforced the principles of judicial economy embodied in Rule 23, as it obviated the need for putative class members to intervene in the class case or file duplicative individual actions.  In the Third Circuit's eyes, this concern was inapplicable "to named plaintiffs, who have already filed their claims; neither efficiency nor economy would be advanced by allowing named plaintiffs to rely on their own filings."

 

Second, American Pipe protects the interests of putative class members who are unaware of the pending class case, and have no obligation to take any action with respect to the suit prior to the ruling on class certification.  The Third Circuit reasoned that this policy rationale was clearly inapplicable to named plaintiffs, who are "necessarily aware of any denial of class certification such that tolling is unnecessary to protect their interests." 

 

Drawing further support for its conclusion, the Third Circuit noted that the named plaintiff's claims always remain viable following the denial of class certification, as the failed class case simply transforms into an individual suit.  Given this, allowing the named plaintiff to file repetitive individual suits would undermine the purpose of American Pipe by squandering judicial resources.

 

Thus, the Third Circuit refused to extend American Pipe tolling to the Doctor's individual claims.

 

Finally, the Court explained that the same policy rationales weighed against extending American Pipe tolling to the Corporation's individual claims.

 

Although the Corporation was not a party to the State Court Action, the Third Circuit rejected the notion that it qualified as the "type of unaware, absent class member that American Pipe was designed to protect."  To the contrary, as the Doctor had at always been the sole shareholder of the Corporation, there was no real debate that the Corporation was fully aware of the State Court Action and the order denying class certification in that case. 

 

The Third Circuit also emphasized that any judgment in favor of the Corporation would only benefit the Doctor, its sole shareholder.  As a result, tolling the Corporation's claims would subvert the purpose of American Pipe by permitting the Doctor to pursue his individual claims "for a second time" outside the statute of limitations. 

 

Accordingly, the Third Circuit concluded that American Pipe tolling was inapplicable to all of the Plaintiffs' claims, and affirmed the trial court's order granting summary judgment in favor of the Defendants.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: 3rd Cir Limits Title Insurer's Duty to Defend

The U.S. Court of Appeals for the Third Circuit held that a title insurer under Pennsylvania state law only had a duty to defend its insured lender for the covered claims alleged in the four corners of a borrower's complaint, not for all alleged claims under the "in for one, in for all" rule.

 

A copy of the opinion is available at:  Link to Opinion

 

A Pennsylvania borrower (Borrower) refinanced his home loan and mortgage with a lender.  The loan transferred several times finally ending up with the current holder (Holder).  A title insurer (Insurer) provided title insurance.

 

Relevant to this appeal, the Title Policy (Policy) covered "loss or damage" resulting from, among other things: "[a]]ny defect in or lien or encumbrances to the title" and "Forgery after Date of Policy of any assignment, release or reconveyance (partial or full) of the Insured Mortgage."

 

For a covered claim, the Policy paid the "costs, attorneys' fees and expenses incurred in defense of the title or the lien of the Insured Mortgage, as insured, but only to the extent provided in the Conditions and Stipulations."  The Policy only provided a defense for "those stated causes of action . . . insured against by this policy" and not "those causes of action which allege matters not insured against by this policy."

 

After defaulting the Borrower sued the Holder to void the loan.  The Borrower initially did not allege that the loan documents were forged in his Third Amended Complaint or any prior complaints, instead attacking the MERS transfer system.  The Borrower claimed the lender forged the loan documents in his discovery answers, but he did not allege this until his Fourth Amended Complaint which also still included the MERS transfer claims.  The court dismissed all the Borrowers' claims with prejudice and the Borrower did not appeal.

 

After the court dismissed the Borrower's complaint, the Holder sued the Insurer in the federal trial court seeking to recover its attorneys' fees and costs incurred to defend the Borrowers' complaint. 

 

The parties each moved for summary judgment.  The Holder argued that the Policy covered all the Borrower's claims, and the Insurer argued that it only had a duty to defend the covered claims alleged in the Fourth Amended Complaint.  The trial court applied the "four corners" rule and held that the Insurer had no duty to defend the claims in the Third Amended Complaint.  However, the trial court applied the "in for one, in for all" rule to the Fourth Amended Complaint finding that that, because the Insurer had a duty to defend against one claim, it had a duty under Pennsylvania law to defend all claims alleged in the Complaint.

 

Both parties timely appealed the trial court's ruling.

 

The Third Circuit first noted that the rule in Pennsylvania is that an insurer's duty to defend its insured is "determined solely by the allegations of the complaint in the action."  Wilson v. Md. Cas. Co., 105 A.2d 304, 307 (Pa. 1954).  Thus, the "question of whether a claim against an insured is potentially covered is answered by comparing the four corners of the insurance contract to the four corners of the complaint."  American & Foreign Ins. Co. v. Jerry's Sport Center, 2 A.3d 526, 541 Pa. 2010). 

 

The Third Circuit observed that Pennsylvania's approach is the minority rule contrary to thirty-one jurisdictions that have left the "four-corners" rule behind in cases where the insurer knows or should know that facts providing coverage conflict with the complaint's allegations. 

 

Nevertheless, in 2006 in Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 908 A.2d 888 (Pa. 2006), Pennsylvania declined to adopt this exception to the "four corners" rule.  In doing so the Pennsylvania Supreme Court reaffirmed that "the allegations of the complaint" alone determine an insurer's duty to defend.  Kvaerner, 908 A.2d at 896. 

 

The Third Circuit examined whether Kvaerner precluded using facts outside the pleadings that a third-party like the borrower here introduced into the litigation from triggering the duty to defend, but rejected this approach in favor of the "simple, bright-line rule" because "Kvaerner's unequivocal holding leaves no room for such a distinction." 

 

The Holder argued that the Policy covers the entire litigation given that the Borrower's interrogatory responses contained facts that trigger coverage because in Heffernan & Co. v. Hartford Insurance Co. of America 614 A.2d 295 (Pa. Super. Ct. 1992), the Superior Court held that the information disclosed in the interrogatories triggered the duty to defend even though the operative complaint had include this information.  The Third Circuit acknowledged that although it must give "due regard" to this Superior Court opinion, it conflicts with the Pennsylvania Supreme Court's ruling Kvaerner.  In this situation "Kvaerner controls, and we must follow it."  Thus, the Third Circuit held, "we may not look for a covered claim beyond the four corners of" the complaint.

 

Examining the Third Amended Complaint, the Third Circuit agreed with the trial court that the Policy did not cover the allegations challenging the MERS transfer system as the Policy "generally covers claims that the original mortgage is invalid or forged."  As such, the Insurer's "duty to defend arose when [the Borrower] filed the Fourth Amended Complaint, including there the forgery allegations he had referred to earlier in response to interrogatories." 

 

The Third Circuit then evaluated whether the "in for one, in for all" rule required the Insurer to provide the Holder with a defense to all the claims alleged in the Fourth Amended Complaint or whether the Insurer only owed the Holder a defense for the covered forgery claim.  The Third Circuit first looked to the nature of Title insurance finding that it is only designed to cover defects or clouds on title.  Title insurance looks backward whereas liability insurance looks forward to a future occurrence.  This allows a title insurer to search public records before issuing a policy, decreases the title insurer's risk, and keeps premiums low.

 

Here, the Policy "disclaims a duty . . . to defend non-covered claims."  The Policy only covers and agreed to defend against "stated causes of action . . . insured against by this policy."  The Policy's plain meaning controls unless it is against public policy.  The Holder argued that the "in for one, in for all" rule prevents insurers from covering only part of a claim and avoids the waste and difficulty of a bifurcated defense.  However, no opinion in Pennsylvania has applied this rule "when a title insurance policy is at issue."  Here, the Policy "expressly contemplates" only a "partial defense of a lawsuit."

 

Additionally, the Third Circuit noted, other jurisdictions have rejected applying the "in for one, in for all" rule to title insurance. Title insurance fundamentally differs "from general liability insurance because (1) the risk covered is limited, specific, and retrospective, (2) the premium is a relatively modest one-time charge, and (3) the duration of coverage is indefinite."  The Third-Circuit therefore predicted "that the Pennsylvania Supreme Court would also create a title-policy exception to the 'in for one, in for all' rule."

 

As the trial court applied the "in for one, in for all" rule to the Fourth Amended Complaint, it did not determine which claims in the Fourth Amended Complaint come within the scope of the Policy.  Although the Policy may only cover one alleged claim, the Third Circuit instructed the trial court to make this determination.

 

Accordingly, the Third Circuit affirmed in part and reversed in part, the trial court's judgment and remanded for further proceedings consistent with its opinion.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia   |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

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