In Sawyer v. Atlas Heating and Sheet Metal Works, Inc., 2011 WL 2039663 (7th Cir. May 26, 2011), the Seventh Circuit held that, under the so-called American Pipe rule, statutes of limitations are tolled during the pendency of a putative class action that the plaintiff voluntarily dismisses before a determination of whether a class may be certified. Although the court allowed the class action in the case before it to go forward, its analysis is of importance to businesses that may be targeted by successive class-action lawsuits because it explains that the denial of class certification may preclude later attempts to bring additional class actions.

In the original putative class action at issue in Sawyer, Park Bank sued Atlas Heating and Sheet Metal Works in Wisconsin state court, alleging that Atlas had violated the Telephone Consumer Protection Act (TCPA) by sending unsolicited faxes. The lawsuit was filed six months before the expiration of the four-year statute of limitations under the TCPA. Subsequently, Park Bank voluntarily dismissed the complaint, more than four years after Park Bank’s claim had arisen and before the state court had considered the possibility of class certification. As the Seventh Circuit put it, the dismissal had the effect of “leaving the putative class in the lurch.” One putative class member, Isaac Sawyer, sought to intervene in order to continue Park Bank’s lawsuit, but the state court rejected that request. Sawyer thereafter filed his own lawsuit in state court. Atlas removed the case to federal court and then moved to dismiss the case as time-barred because it was filed after the statute of limitations would have run. The district court denied the motion, but certified the issue for interlocutory appeal.

The Seventh Circuit affirmed. The court explained that, under the American Pipe tolling rule, “the commencement of a class action suspends the applicable statute of limitations as to all asserted members of the class who would have been parties had the suit been permitted to continue as a class action.” Am. Pipe & Constr. Co. v. Utah, 414 U.S. 538, 554 (1974). Atlas contended that, under a number of cases, a plaintiff who relies on tolling of a statute of limitations pursuant to American Pipe may only bring a subsequent individual action rather than a successive class action. But the Seventh Circuit explained that those cases “actually hold … that a decision declining to certify a class in the first suit binds all class members, who cannot try to evade that decision by asking for a second opinion from a different judge.” Under these principles, Sawyer was free to pursue a class action, because the first plaintiff had voluntarily dismissed his complaint before the class-certification stage.

Thus, Sawyer rejected a per se bar against maintaining otherwise time-barred successive suits as class actions. But the Seventh Circuit’s analysis should help defendants that face “Whac-a-Mole” class actions, in which members of the plaintiffs’ bar re-file a rejected class action in another court in the name of another plaintiff.

The Supreme Court is considering a related but distinct issue in Smith v. Bayer Corp., No. 09-1205. In that case, after a federal court denied class certification of a class action against a drug maker, another consumer filed an equivalent lawsuit in state court. The issue presented in Smith is whether the federal court may enjoin the state class action under the re-litigation exception to the federal Anti-Injunction Act. The Court is expected to issue a decision in Smith shortly, and we will provide an alert discussing the opinion when it does.

For more information about the issues raised in this Legal Update, please contact Archis A. Parasharami or Kevin Ranlett.

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