Island Insteel Systems, Inc. v. Waters ( 2002 )

Opinions of the United
2002 Decisions States Court of Appeals
for the Third Circuit
7-17-2002
Island Insteel Sys v. Waters
Precedential or Non-Precedential: Precedential
Docket No. 00-2713
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PRECEDENTIAL
Filed July 17, 2002
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 00-2713
ISLAND INSTEEL SYSTEMS, INC.;
ISLAND INSTEEL CONSTRUCTION, INC.;
PETER W. CLARK; THE PETER W. CLARK FAMILY
TRUST; ALAN R. FEUERSTEIN, Appellants
v.
DARRIN WATERS; TAMMY WATERS; TAMMY MOST;
PANELS, INC.; CONCRETE PANELS CONSTRUCTION,
INC.; POOL VILLAS CONDOMINIUM ASSOCIATION,
AN UNINCORPORATED ASSOCIATION UNDER THE LAWS
OF THE UNITED STATES VIRGIN ISLANDS; UNKNOWN
DEFENDANTS A THROUGH Z
On Appeal From the District Court of the Virgin Islands
(D.C. Civ. No. 99-cv-00017)
District Judge: Honorable Raymond L. Finch, Chief Judge
Argued December 3, 2001
Before: BECKER, Chief Judge, NYGAARD and
COWEN, Circuit Judges.
(Filed July 17, 2002)
ALAN R. FEUERSTEIN, ESQUIRE
(ARGUED)
Feuerstein & Smith, LLP
17 St. Louis Place
Buffalo, NY 14202-1502
Counsel for Appellants
JAMES M. DERR, ESQUIRE
(ARGUED)
28-29 Norre Gade
P.O. Box 664
St. Thomas, VI 00804
DANIELLE C. COMEAUX, ESQUIRE
Hodge & Francois
1340 Taarnederg Road
Charlotte Amalie, St. Thomas
United States Virgin Islands 00802
Counsel for Appellees
OPINION OF THE COURT
BECKER, Chief Judge.
In this Lanham Act trademark infringement action,
plaintiffs appeal from an order of the District Court of the
Virgin Islands granting defendants’ motion to dismiss under
Federal Rule of Civil Procedure 12(b)(6). Plaintiffs allege
that defendants’ unauthorized use of their "Insteel" trade
name, which refers to a panel system of building
construction, violates S 43(a) of the Lanham Act, 15 U.S.C.
S 1125(a). The District Court held that it was clear from the
complaint that plaintiffs’ claims are subject to the two-year
statute of limitations governing actions for fraud under
Virgin Islands law and that their filing of an earlier identical
action in the United States District Court for the District of
Puerto Rico, which was dismissed for lack of personal
jurisdiction, did not equitably toll the statute of limitations.
Since the complaint in this case was not filed within the
two-year limitations period, the District Court dismissed
plaintiffs’ claims as time-barred.
2
This appeal presents two main questions. First, we must
determine the appropriate limitations period for these
trademark infringement claims under S 43(a) of the Lanham
Act. Second, we must determine whether filing suit in a
court that lacks personal jurisdiction may equitably toll the
statute of limitations if plaintiffs refile the lawsuit in a court
that has jurisdiction. Both parties agree that because the
Lanham Act lacks a statute of limitations, we must borrow
a statute of limitations from Virgin Islands law. Plaintiffs
submit that the most appropriate statute of limitations
under Virgin Islands law is the catch-all six-year statute of
limitations for "[a]n action upon a liability created by
statute" that does not fall within any of the specifically
enumerated limitations periods. 5 V.I.C. S 31(3)(B).
Defendants respond that the cause of action under Virgin
Islands law most analogous to plaintiffs’ trademark
infringement claims is either an action for common law
fraud or an action for deceptive trade practices in violation
of 12A V.I.C. S 101, both of which are subject to a two-year
limitations period.
Because plaintiffs have failed to identify a specific
statutory cause of action under Virgin Islands law that is
analogous to their Lanham Act claim and is subject to the
catch-all six-year limitations period for actions upon a
liability created by a statute that lacks a statute of
limitations, we decline to apply the six-year statute of
limitations. That conclusion relegates us to a choice
between an action for fraud and an action for deceptive
trade practices, both subject to a two-year statute of
limitations under Virgin Islands law. But we still must
decide which cause of action more closely resembles
plaintiffs’ claims since the statute of limitations for fraud
begins running on the date plaintiffs discovered the fraud,
whereas the statute of limitations for deceptive trade
practices begins running on the date the actionable
conduct occurred.
We hold that the cause of action under Virgin Islands law
most analogous to a claim for trademark infringement
under S 43(a) of the Lanham Act is the cause of action for
deceptive trade practices in violation of 12A V.I.C.S 101.
Like a trademark infringement action under S 43(a), but
3
unlike an action for common law fraud, an action for
deceptive trade practices does not require proof of scienter.
Moreover, while a common law fraud claim requires a
plaintiff to prove actual reliance, an action for deceptive
trade practices simply requires proof that the practice at
issue has the "tendency or effect of deceiving or misleading
consumers," which more closely resembles the"likelihood of
confusion" element that is the touchstone of aS 43(a) claim.
Accordingly, plaintiffs’ claims in this case are subject to a
two-year statute of limitations, which began running on the
occurrence of the actionable conduct.
While plaintiffs concede that the allegedly unlawful
conduct occurred more than two years before the date they
filed this suit, invoking the doctrine of equitable tolling,
they submit that even under this statute of limitations their
suit is not time-barred since they filed an identical action in
the District of Puerto Rico within the two-year limitations
period. That suit was dismissed for lack of personal
jurisdiction. Defendants respond that because the first
action was dismissed for lack of personal jurisdiction, the
District Court properly held that the filing of that action did
not equitably toll the statute of limitations. Whether filing
suit in a court that lacks personal jurisdiction over a
defendant may equitably toll the statute of limitations
presents us with a question of first impression under Virgin
Islands law. Because: (1) there is no statute on point; (2)
the American Law Institute Restatements of the Law are
silent on the issue, see 1 V.I.C. S 4; and (3) there is a split
of authority among those courts that have addressed the
question under the common law of other states, we must
select the rule that we believe to be better and more
consistent with Virgin Islands jurisprudence and policy. See
Polius v. Clark Equip. Co., 802 F.2d 75, 77 (3d Cir. 1986).
We hold that under Virgin Islands law, the statute of
limitations for a second action may be equitably tolled by
the filing of an earlier action dismissed for lack of personal
jurisdiction if: (1) the first action gave the defendant timely
notice of plaintiff ’s claim; (2) the lapse of time between the
first and second actions will not prejudice the defendant;
and (3) the plaintiff prosecuted the first action in good faith
and diligently filed the second action. This doctrine of
4
equitable tolling preserves the protections that statutes of
limitations are intended to afford to defendants. At the
same time, it avoids the unfairness to plaintiffs that would
occur if plaintiffs who diligently but mistakenly prosecute
their claims in a court that lacks personal jurisdiction find
their claims time-barred when they refile in a proper
jurisdiction.
Application of this equitable tolling doctrine, like most
equitable doctrines, is committed to the discretion of the
district court in the first instance. Moreover, how the issue
should be resolved in this case is far from clear. Therefore,
we will vacate the order of the District Court and remand
the case to the District Court to determine whether the
plaintiffs satisfy the elements of this equitable tolling
doctrine.
I.
Plaintiffs are Island Insteel Systems, Inc., Island Insteel
Construction, Inc., and individual shareholders of those
corporations, who allege that defendants unlawfully used
the "Insteel" trade name. The defendants are Panels, Inc.,
Concrete Panels Construction, Inc., and their individual
officers and shareholders, who were also officers and
shareholders of the plaintiff corporations. In May 1994, the
individual plaintiffs and individual defendants, then in
business together, formed the plaintiff corporations to
market in the U.S. Virgin Islands and the Caribbean the
"Insteel" panel system of building construction distributed
by Insteel Construction Systems, Inc., of Brunswick,
Georgia ("Insteel Georgia"), which is not a party to this suit.
In September of 1995, Hurricane Marilyn devastated the
Virgin Islands, causing severe property destruction. Homes
constructed using the "Insteel" panel system, however,
withstood the hurricane with little damage. Due to the
"Insteel" buildings’ survival of the hurricane, the plaintiff
corporations were able to secure more than $500,000 worth
of building contracts in St. Thomas and elsewhere.
Plaintiffs were unable to begin work on these contracts
until they obtained approval of their construction system
under the new building code adopted by the U.S. Virgin
5
Islands in response to the severity of damage caused by the
hurricane. The delay in plaintiffs’ construction pending
their approval caused a backlog of construction work, so
that by early 1996, the plaintiff corporations’ work
calendars were completely full.
Plaintiffs allege that in January 1996, the individual
defendants formed the defendant corporations, and,
unbeknownst to plaintiffs, began to use the Insteel trade
name to promote the business of the defendant
corporations. On November 17, 1997, having learned of this
usage, plaintiffs filed a complaint against defendants in the
District Court for the District of Puerto Rico alleging that
defendants’ unauthorized use of the Insteel trade name
violated S 43(a) of the Lanham Act. In an order docketed on
October 30, 1998, that court dismissed the complaint for
lack of personal jurisdiction. On January 28, 1999,
plaintiffs refiled their action in the District Court of the
Virgin Islands.
The District Court granted defendants’ 12(b)(6) motion to
dismiss plaintiffs’ claims as time-barred under the two-year
statute of limitations governing actions for fraud under
Virgin Islands law. Although plaintiffs had filed suit in the
District of Puerto Rico within the two-year limitations
period, the District Court held that the filing of that action
did not equitably toll the statute of limitations, since the
action was dismissed for lack of personal jurisdiction.
Plaintiffs appeal from the District Court’s order granting
defendants’ motion to dismiss. The District Court had
jurisdiction over this matter pursuant to 28 U.S.C.S 1331.
We have appellate jurisdiction pursuant to 28 U.S.C.
S 1291. We review de novo the District Court’s order
dismissing plaintiffs’ claims under Rule 12(b)(6). See A.D.
Bedell Wholesale Co. v. Philip Morris Inc., 263 F.3d 239, 249
n.25 (3d Cir. 2001).
II.
We must first determine the statute of limitations for
trademark infringement claims under S 43(a) of the Lanham
Act, 15 U.S.C. S 1125(a). Plaintiffs’ claims are predicated on
defendants’ allegedly unlawful use of the "Insteel" trade
6
name, a "trade name" being "any name used by a person to
identify his or her business or vocation." Lanham Act S 45,
15 U.S.C. S 1127. In referring to plaintiffs’ claims as claims
for "trademark" infringement, we adopt the common usage
of the term "trademark" to refer generically to "the entire
field of trademarks, service marks, trade names, and trade
dress," Platinum Home Mortgage Corp. v. Platinum Fin.
Group, Inc., 149 F.3d 722, 726 n.1 (7th Cir. 1998), all of
which a business may appropriate to its exclusive use
under S 43(a).
Under the trademark infringement prong of S 43(a):
Any person who, on or in connection with any goods or
services, or any container for goods, uses in commerce
any word, term, name, symbol, or device, or any
combination thereof, or any false designation of origin,
false or misleading description of fact, or false or
misleading representation of fact, which . . . is likely to
cause confusion, or to cause mistake, or to deceive as
to the affiliation, connection, or association of such
person with another person, or as to the origin,
sponsorship, or approval of his or her goods, services,
or commercial activities by another person . . . shall be
liable in a civil action by any person who believes that
he or she is or is likely to be damaged by such act.
15 U.S.C. S 1125(a)(1)(A).1
A.
Because the Lanham Act does not contain an express
statute of limitations, we follow the traditional practice of
borrowing the most analogous statute of limitations from
state law. See Beauty Time, Inc. v. VU Skin Sys., Inc., 118
F.3d 140, 143 (3d Cir. 1997) ("The Lanham Act contains no
express statute of limitations and the general rule is that
when a federal statute provides no limitations for suits, the
_________________________________________________________________
1. The law governing trademark infringement underS 43(a), which
protects trademarks that are not federally registered, generally follows
the law governing infringement of registered trademarks, which are
protected under S 32 of the Lanham Act, 15 U.S.C. S 1114. See A.J.
Canfield Co. v. Honickman, 808 F.2d 291, 296, 299 n.9 (3d Cir. 1986).
7
court must look to the state statute of limitations for
analogous types of actions."). See generally Wilson v.
Garcia, 471 U.S. 261, 266-67 (1985) ("When Congress has
not established a time limitation for a federal cause of
action, the settled practice has been to adopt a local time
limitation as federal law if it is not inconsistent with federal
law or policy to do so.").
This "implied absorption of State statutes of limitation
within the interstices of . . . federal enactments is a phase
of fashioning remedial details where Congress has not
spoken but left matters for judicial determination .. . ."
Holmberg v. Armbrecht, 327 U.S. 392, 395 (1946)."By
adopting the statute governing an analogous cause of
action under state law, federal law incorporates the State’s
judgment on the proper balance between the policies of
repose and the substantive policies of enforcement
embodied in the state cause of action." Wilson, 471 U.S. at
271.
To be sure, it is inappropriate to "mechanically appl[y] a
state statute of limitations simply because a limitations
period is absent from the federal statute." Occidental Life
Ins. Co. v. EEOC, 432 U.S. 355, 367 (1977). In rare cases,
the Supreme Court has held that the absence of an express
limitations period may indicate a Congressional intent to
impose no time limitation at all upon a federal cause of
action. See id. at 366 (holding that there is no statute of
limitations applicable to the EEOC’s ability to bring Title VII
enforcement proceedings in federal district court).
Moreover, if borrowing an analogous statute of limitations
from state law would "frustrate or interfere with the
implementation of national policies," courts must look to
federal law for an analogous limitations period. DelCostello
v. Int’l Bhd. of Teamsters, 462 U.S. 151, 161, 163 (1983)
(applying the NLRA statute of limitations to suits under
S 301 of the LMRA for breach of a collective bargaining
agreement); see also Agency Holding Corp. v. Malley-Duff &
Assocs., 483 U.S. 143, 156 (1987) (applying the Clayton Act
statute of limitations to civil RICO actions). See generally
Occidental Life Ins. Co., 432 U.S. at 367 ("State legislatures
do not devise their limitations periods with national
interests in mind, and it is the duty of the federal courts to
8
assure that the importation of state law will not frustrate or
interfere with the implementation of national policies.").
In this case, however, neither party argues that
borrowing the most analogous statute of limitations from
state law would frustrate the achievement of federal
policies, and we can see no reason for departing from the
traditional practice of turning to state law as the"primary
guide" in this area. See Agency Holding Corp. , 483 U.S. at
147 ("Given our longstanding practice of borrowing state
law, and the congressional awareness of this practice, we
can generally assume that Congress intends by its silence
that we borrow state law."). We must therefore determine
which cause of action under Virgin Islands law is most
analogous to a trademark infringement action underS 43(a)
of the Lanham Act, and borrow the corresponding statute of
limitations.
B.
Plaintiffs argue that the most analogous statute of
limitations under Virgin Islands law is the catch-all six-year
period for "[a]n action upon a liability created by statute"
that does not fall within any of the specifically enumerated
limitations periods. 5 V.I.C. S 31(3)(B). Defendants respond
that the most analogous statute of limitations is the two-
year limitations period for fraud claims, which the District
Court applied in granting defendants’ motion to dismiss.
See 5 V.I.C. S 31(5)(A) (establishing a two-year statute of
limitations period for "[a]n action for . . . any injury to the
person or rights of another not arising on contract and not
herein especially enumerated"); Lawaetz v. Bank of Nova
Scotia, 653 F. Supp. 1278, 1282 (D.V.I. 1987) ("Under
Virgin Islands law, fraud is governed by a two-year
limitations period . . . .") (citing 5 V.I.C.S 31(5)(a)).
Alternatively, defendants submit that we should borrow the
two-year limitations period applicable to actions under 12A
V.I.C. S 108 for deceptive trade practices in violation of 12A
V.I.C. S 101. See 12A V.I.C. S 108(j) ("An action under this
section must be brought within two years after the
occurrence of a violation of this chapter . . . .").
In defendants’ view, this question is controlled by our
9
decision in Beauty Time, Inc. v. VU Skin Sys., Inc., 118 F.3d
140 (3d Cir. 1997), which applied Pennsylvania’s two-year
statute of limitations for fraud to plaintiff ’s claim under
S 38 of the Lanham Act, 15 U.S.C. S 1120, for fraudulent
procurement of a trademark registration.2 The Court
explained that "[o]n this claim, it is undisputed that
Pennsylvania’s two-year statute of limitations for fraud
actions would apply." 118 F.3d at 143. Because plaintiffs
allege trademark infringement in violation of S 43(a) of the
Lanham Act, however, our holding in Beauty Time as to the
appropriate statute of limitations to apply to claims for
fraudulent procurement of a trademark registration in
violation of S 38 of the Lanham Act is not controlling. Cf.
Marshak v. Treadwell, 240 F.3d 184, 194-95 (3d Cir. 2001)
(holding that Beauty Time does not govern the statute of
limitations applicable to claims under S 14 of the Lanham
Act, 15 U.S.C. S 1064, for cancellation of a trademark
registration).
We believe that the Virgin Islands statute of limitations
for fraud and the Virgin Islands statute of limitations for
deceptive trade practices govern actions that are more
analogous to plaintiffs’ claims than the Virgin Islands
catch-all statute of limitations for "a liability created by
statute." The problem that we see with plaintiffs’ argument
in favor of applying the limitations period for"liabilit[ies]
created by statute" is that it focuses on the source of law
to the exclusion of the substance of the cause of action.
That is, the statute of limitations period that plaintiffs urge
on us would apply in this case because the source of
plaintiffs’ cause of action is a statute (the Lanham Act), but
would not apply if plaintiffs brought a common law cause
of action whose elements were identical to the elements of
their Lanham Act cause of action. We conclude that it is
_________________________________________________________________
2. Section 38 provides:
Any person who shall procure registration in the Patent and
Trademark Office of a mark by a false or fraudulent declaration or
representation, oral or in writing, or by any false means, shall be
liable in a civil action by any person injured thereby for any
damages sustained in consequence thereof.
5 U.S.C. S 1120.
10
more appropriate to borrow a limitations period under state
law on the basis of the substantive elements of the
analogous state cause of action, rather than on whether the
cause of action is created by common law or statute. 3
The six-year statute of limitations could apply if plaintiffs
identified a particular cause of action under Virgin Islands
law governed by that limitations period. Plaintiffs, however,
have failed to identify with particularity an analogous
"liability created by statute" under Virgin Islands law that
would justify applying the six-year residual statute of
limitations. To be sure, neither a cause of action for fraud
nor a cause of action for deceptive trade practices supplies
a perfect analogue to S 43(a). For example, under both
common law fraud and the Virgin Islands deceptive trade
practices statute, a seller who misrepresents the source of
_________________________________________________________________
3. We do not gainsay that plaintiffs’ Lanham Act claims fall within the
plain language of the residual six-year statute of limitations under Virgin
Islands law. Plaintiffs’ claims would therefore be subject to this six-year
limitations period if state statutes of limitations applied of their own
force as a matter of state law to federal causes of action that lack an
express statute of limitations provision, as is the case when federal
courts apply state law under the Rules of Decision Act, 28 U.S.C. S 1652,
and Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938). See Agency Holding
Corp. v. Malley-Duff & Assocs., 483 U.S. 143, 158 (1987) (Scalia, J.,
concurring in the judgment) ("In its original form, during what I term the
‘first phase’ of the borrowing doctrine, our practice of applying state law
in reality involved no borrowing at all; rather, we applied state
limitations periods to federal causes of action because we believed that
those state statutes applied of their own force, unless pre-empted by
federal law."). The Supreme Court has made clear, however, that state
statutes of limitations do not apply of their own force to federal causes
of action that lack an express limitations period; rather, the
characterization of the appropriate statute of limitations is a matter of
federal, not state law. See Wilson v. Garcia, 471 U.S. 261, 269-70 (1985)
("In borrowing statutes of limitations for . . . federal claims, this Court
has generally recognized that the problem of characterization is
ultimately a question of federal law."); Holmberg v. Armbrecht, 327 U.S.
392 (1946) (holding that Erie does not require federal courts to apply
state tolling doctrines to federal causes of action). Thus, when borrowing
a statute of limitations from state law, we ask not which limitations
period plaintiffs’ claims would fall under if state law limitations periods
governed of their own force, but rather which state law cause of action
is most analogous to the federal cause of action at issue.
11
goods is liable only to consumers, not competitors. See 12A
V.I.C. S 108 (creating a private remedy for violations of
S 101 for consumers who are injured by deceptive trade
practices). In contrast, S 43(a) creates a cause of action for
competitors, not consumers. See Serbin v. Ziebart Int’l
Corp., 11 F.3d 1163, 1164-65 (3d Cir. 1993) (holding that
consumers who purchase goods or services in reliance on
the vendor’s false advertising lack standing to sue under
the false advertising prong of S 43(a)). However, even though
consumers lack standing to sue under S 43(a), one of the
Lanham Act’s underlying purposes, like that of the Virgin
Islands deceptive trade practices statute and common law
fraud, is to protect consumers from confusion as to the
source of goods and services. See Inwood Labs., Inc. v. Ives
Labs. Inc., 456 U.S. 844, 854 n.14 (1982) (characterizing
the two goals of the Lanham Act as protecting the
trademark owner’s "goodwill which he spent energy, time,
and money to obtain" and ensuring consumers’"ability to
distinguish among the goods of competing manufacturers").
Because both common law fraud and the Virgin Islands
deceptive trade practices statute generally impose liability
on sellers who misrepresent the source of their goods in a
manner that misleads consumers and harms competitors,
causes of action for fraud and violations of the deceptive
trade practices statute bear substantial similarities, in both
their elements and underlying purpose, to a cause of action
for trademark infringement under S 43(a) of the Lanham
Act. See Kason Indus., Inc. v. Component Hardware Group,
Inc., 120 F.3d 1199, 1203 (11th Cir. 1997) ("It should be
apparent that S 43(a) of the Lanham Act andS 10-1-
372(a)(2) of the [Georgia Uniform Deceptive Trade Practices
Act] provide analogous causes of action . . . ."); Conopco,
Inc. v. Campbell Soup Co., 95 F.3d 187, 191 (2d Cir. 1996)
("As the language of the Act makes clear, there is an
intimate relationship between fraud and injury under the
Lanham Act.").
We therefore conclude that causes of action for fraud and
deceptive trade practices are more analogous to aS 43(a)
cause of action for trademark infringement than is"[a]n
action upon a liability created by statute," 5 V.I.C.
S 31(3)(B), and accordingly hold that the two-year statute of
12
limitations is the more appropriate limitations period to
apply to plaintiffs’ claims for trademark infringement under
S 43(a). The weight of authority supports this view. See
Lyons P’ship, L.P. v. Morris Costumes, Inc., 243 F.3d 789,
796-97 (4th Cir. 2001) (applying the statute of limitations
for the North Carolina Unfair Trade Practices Act, N.C. Gen.
Stat. S 75-16.2, to plaintiffs’ trademark infringement claims
under the Lanham Act); Kason Indus., Inc., 120 F.3d at
1203-04 (holding that the Georgia Uniform Deceptive Trade
Practices Act, O.C.G.A. S 10-1-370 et seq. , provides the
most analogous cause of action under state law to plaintiffs’
trademark infringement claims under S 43(a) of the Lanham
Act, for purposes of borrowing a statute of limitations);
Eppendorf-Netheler-Hinz GmbH v. Enterton Co., 89 F. Supp.
2d 483, 486 (S.D.N.Y. 2000) (borrowing the statute of
limitations for fraud claims to create a presumption of
laches applicable to plaintiff ’s trademark infringement
claims); cf. Conopco, 95 F.3d at 191-92 (drawing on the
statute of limitations for fraud to presume that plaintiffs’
false advertising claims under S 43(a) are barred by laches).
C.
Plaintiffs contend that even under a two-year statute of
limitations period, their claims are viable because their
discovery of defendants’ allegedly actionable conduct
occurred within two years before the filing of this suit.
Whether the limitations period begins running from the
date that plaintiffs discovered the actionable conduct, as
would be the case under a "discovery rule," or whether the
limitations period begins running from the date the
actionable conduct occurred, depends on the state law
governing the most analogous cause of action. See Beauty
Time, Inc. v. VU Skin Sys., Inc., 118 F.3d 140, 144 (3d Cir.
1997) ("Because we look to state law for the appropriate
statute of limitations, we also look to Pennsylvania law on
the closely related questions of tolling and application.").4
_________________________________________________________________
4. In urging us to apply the discovery rule to their claims, plaintiffs rely
on the Supreme Court decisions in Bailey v. Glover, 88 U.S. 342 (1874),
and Holmberg v. Armbrecht, 327 U.S. 392 (1946). Bailey held that the
federal statute of limitations under the Bankruptcy Act was tolled where
13
Under Virgin Islands law, the statute of limitations for
fraud begins running at the time the plaintiff discovered the
_________________________________________________________________
the defendant’s fraud concealed from plaintiffs the existence of their
cause of action. See Bailey, 88 U.S. at 348 ("[W]here the party injured by
the fraud remains in ignorance of it without any fault or want of
diligence or care on his part, the bar of the statute does not begin to run
until the fraud is discovered, though there be no special circumstances
or efforts on the part of the party committing the fraud to conceal it from
the knowledge of the other party."). Similarly, the Court in Holmberg held
that state law rejecting the discovery rule did not apply to actions in
equity to enforce a federal right that lacked a statute of limitations. See
Holmberg, 327 U.S. at 397 ("It would be . . . incongruous to confine a
federal right within the bare terms of a State statute of limitation
unrelieved by the settled equitable federal doctrine as to fraud . . . .").
We are of course bound under our Internal Operating Procedures, see
Third Circuit IOP 9.1, by Beauty Time. We are not uncomfortable with
this posture, because while we acknowledge a possible tension between
Beauty Time and these cases, we believe that they are reconcilable. In
particular, Bailey addressed only the application of the discovery rule to
an express federal statute of limitations, which is absent from the
provisions of the Lanham Act at issue in this case and Beauty Time.
Although Holmberg held that the discovery rule applied to a cause of
action under a federal statute that, like the Lanham Act, lacked an
express statute of limitations, Holmberg is reconcilable with Beauty Time
on the ground that the statute at issue in Holmberg created only "a
federal right for which the sole remedy is in equity." Holmberg, 327 U.S.
at 395 (emphasis added). In contrast, the Lanham Act creates federal
rights for which both legal and equitable remedies are available. See
Dairy Queen, Inc. v. Wood, 369 U.S. 469, 477 (1962) ("[A]n action for
damages based upon a charge of trademark infringement . . . [is] subject
to cognizance by a court of law."). Accordingly, we comfortably follow the
holding of Beauty Time that where a court borrows a statute of
limitations from state law, the court must also borrow from state law the
relevant tolling principles. See Hardin v. Straub, 490 U.S. 536, 539
(1989) ("Limitations periods in S 1983 suits are to be determined by
reference to the appropriate state statute of limitations and the
coordinate tolling rules . . . ."); Bd. of Regents v. Tomanio, 446 U.S. 478,
486 (1980) ("In virtually all statutes of limitations the chronological
length of the limitation period is interrelated with provisions regarding
tolling, revival, and questions of application. In borrowing a state period
of limitation for application to a federal cause of action, a federal court
is relying on the State’s wisdom in setting a limit, and exceptions
thereto, on the prosecution of a closely analogous claim.") (quoting
Johnson v. Ry. Express Agency, Inc., 421 U.S. 454, 464 (1975)).
14
fraud, whereas the statute of limitations for deceptive trade
practices begins running from the date the defendant
committed the unlawful conduct. Compare 5 V.I.C. S 32(c)
("In an action upon a . . . fraud, . . . the limitation shall be
deemed to commence only from . . . the discovery of the
fraud . . . ."), with 12A V.I.C. S 108(j) ("An action under this
section must be brought within two years after the
occurrence of a violation of this chapter [governing
deceptive trade practices] . . . ."). To determine whether the
discovery rule applies to plaintiffs’ Lanham Act claims, it is
therefore necessary to decide whether claims for trademark
infringement under S 43(a) of the Lanham Act are more
analogous to common law fraud claims or claims for
violations of the VI’s deceptive trade practices statute.
The courts addressing the question are divided on
whether common law fraud claims or claims under state
unfair business practices statutes are more analogous to
Lanham Act claims for trademark infringement. Compare
Lyons P’ship, L.P. v. Morris Costumes, Inc., 243 F.3d 789,
796-97 (4th Cir. 2001) (applying the statute of limitations
for the North Carolina Unfair Trade Practices Act, N.C. Gen.
Stat. S 75-16.2, to plaintiffs’ trademark infringement claims
under the Lanham Act), Kason Indus., Inc. v. Component
Hardware Group, Inc., 120 F.3d 1199, 1203-04 (11th Cir.
1997) (holding that the Georgia Uniform Deceptive Trade
Practices Act, O.C.G.A. S 10-1-370 et seq. , provides the
most analogous cause of action under state law to plaintiffs’
trademark infringement claims under S 43(a) of the Lanham
Act, for purposes of borrowing a statute of limitations), and
Federal Express Corp. v. United States Postal Serv. , 75 F.
Supp. 2d 807, 816-17 (W.D. Tenn. 1999) (applying the
statute of limitations for the Tennessee Consumer
Protection Act, T.C.A. S 47-18-104, to plaintiffs’ claims
under S 43(a) of the Lanham Act), with Eppendorf-Netheler-
Hinz GmbH v. Enterton Co., 89 F. Supp. 2d 483, 486
(S.D.N.Y. 2000) (borrowing the statute of limitations for
fraud claims to create a presumption of laches applicable to
plaintiff ’s trademark infringement claims), Harley-
Davidson, Inc. v. Estate of O’Connell, 13 F. Supp. 2d 271,
279 (N.D.N.Y. 1998) (same), Derrick Mfg. Corp. v.
Southwestern Wire Cloth, Inc., 934 F. Supp. 796, 804-05
(S.D. Tex. 1996) (applying the fraud statute of limitations to
15
plaintiffs’ trademark infringement claims underS 43(a)),
and Johannsen v. Brown, 797 F. Supp. 835, 839-40 (D. Or.
1992) (same).5
An analysis of whether fraud claims or deceptive trade
practices claims are more analogous to trademark
infringement claims under S 43(a) of the Lanham Act must
begin with a comparison of the elements of these causes of
action. To establish trademark infringement under
S 43(a)(1)(A) of the Lanham Act, a plaintiff must show that
the defendant:
use[d] in commerce any word, term, name, symbol, or
device, or any combination thereof, or any false
designation of origin, false or misleading description of
fact, or false or misleading representation of fact, which
. . . is likely to cause confusion, or to cause mistake,
or to deceive as to the affiliation, connection, or
association of such person with another person, or as
to the origin, sponsorship, or approval of his or her
goods, services, or commercial activities by another
person . . . .
15 U.S.C. S 1125(a)(1)(A).
The Restatement (Second) of Torts defines the elements of
common law fraudulent misrepresentation as follows:
One who fraudulently makes a misrepresentation of
fact . . . for the purpose of inducing another to act or
to refrain from action in reliance upon it, is subject to
liability to the other in deceit for pecuniary loss caused
_________________________________________________________________
5. Those decisions addressing claims under the false advertising prong of
S 43(a) have similarly divided on whether common law fraud or state
deceptive trade practices statutes provide the appropriate limitations
period. Compare Conopco, Inc. v. Campbell Soup Co., 95 F.3d 187, 191-
92 (2d Cir. 1996) (drawing on the statute of limitations for fraud to
presume that plaintiffs’ false advertising claims under S 43(a) of the
Lanham Act are barred by laches), with Hot Wax, Inc. v. Warsaw Chem.
Co., 45 F. Supp. 2d 635, 647 (N.D. Ill. 1999) (holding that the state law
cause of action most analogous to plaintiffs’ false advertising claims
under S 43(a) of the Lanham Act is the Illinois Consumer Fraud and
Deceptive Business Practices Act, 815 ILCS 505/10a(e)), aff ’d on other
grounds sub nom. Hot Wax, Inc. v. Turtle Wax, Inc. , 191 F.3d 813 (7th
Cir. 1999).
16
to him by his justifiable reliance upon the
misrepresentation.
Restatement (Second) of Torts S 525;6 see also Smith v.
Commercial Banking Corp., 866 F.2d 576, 583 (3d Cir.
1989) ("[T]he elements of common law fraud . . . require
that a party make a material misrepresentation that
another reasonably relies upon to his or her detriment.").
Common law fraud also includes a scienter element:
A misrepresentation is fraudulent if the maker
(a) knows or believes that the matter is not as he
represents it to be,
(b) does not have the confidence in the accuracy of
his representation that he states or implies, or
(c) knows that he does not have the basis for his
representation that he states or implies.
Restatement (Second) of Torts S 526.
Under the Virgin Islands deceptive trade practices law,
"[n]o person shall engage in any deceptive or
unconscionable trade practice in the sale . . . of any
consumer goods or services . . . ." 12A V.I.C.S 101. The
statute defines a "deceptive trade practice" as "any false . . .
or misleading oral or written statement, visual description
or other representation of any kind made in connection
with the sale . . . of consumer goods or services, .. . which
has the capacity, tendency or effect of deceiving or
misleading consumers." 12A V.I.C. S 102(a). The private
remedy for violations of S 101 provides that"a consumer
who suffers a loss as a result of a violation of this chapter
may recover actual damages or $250, whichever is greater."
12A V.I.C. S 108(b).
The most salient difference between S 101 of the Virgin
Islands deceptive trade practices law and trademark
_________________________________________________________________
6. The Virgin Islands legislature has provided that "[t]he rules of the
common law, as expressed in the restatements of the law approved by
the American Law Institute . . . shall be the rules of decision in the
courts of the Virgin Islands in cases to which they apply, in the absence
of local laws to the contrary." 1 V.I.C. S 4.
17
infringement under S 43(a) of the Lanham Act is that
whereas S 43(a) applies to "uses in commerce" of infringing
marks "in connection with any goods or services," 15
U.S.C. S 1125(a) (emphasis added), S 101 prohibits only
deceptive trade practices "in the sale . . . of any consumer
goods or services," (emphasis added), which are defined as
"foods, services, credit and debts which are primarily for
personal, household or family purposes." 12A V.I.C.
S 102(c). Cf. Kason Indus., Inc. v. Component Hardware
Group, Inc., 120 F.3d 1199, 1204 (11th Cir. 1997) (noting
that the Georgia Fair Business Practices Act, O.C.G.A. S 10-
1-390 et seq., "is significantly different from . . . the
Lanham Act, because of the former statute’s focus on the
consumer (as opposed to the commercial) marketplace").
Like the scope of the Lanham Act, the scope of common law
fraud is not limited to transactions involving consumers,
but rather extends to any purchase in the commercial
marketplace, such as transactions between wholesalers and
retailers.
Although the scope of transactions covered by the Virgin
Islands prohibition against deceptive trade practices is
more limited than the scope of transactions covered by
common law fraud and the Lanham Act, we believe that the
differences between the elements of common law fraud and
trademark infringement under S 43(a) are significant. In
particular, the scienter requirement for common law fraud
is absent from S 43(a). That is, unlike a defendant in a
common law fraud case, a defendant may be liable for
trademark infringement under S 43(a) even if he or she
innocently used an infringing mark and lacked any intent
to confuse consumers as to the source of the goods. See
Parkway Baking Co. v. Freihofer Baking Co., 255 F.2d 641,
648 (3d Cir. 1958) ("The fact that the [infringing mark]
appeared on [defendant’s product] because of a mistake is
not a defense to an action under this section for there is no
requirement that the falsification occur wilfully and with
intent to deceive."); see also Johnson & Johnson v. Carter-
Wallace, Inc., 631 F.2d 186, 189 (2d Cir. 1980) (noting that
S 43(a) "does not require proof of intent to deceive").
Similarly, there is nothing in S 101’s prohibition against
deceptive trade practices or S 102’s definition of deceptive
trade practices that requires an intent to deceive.
18
Common law fraud further differs from trademark
infringement under S 43(a) and the deceptive trade
practices prohibited by Virgin Islands statute in that
common law fraud requires actual reliance on the
defendant’s misrepresentation, whereas S 43(a) simply
requires a designation that is "likely to cause confusion,"
and a deceptive trade practice simply requires a
representation that has the "tendency or effect of deceiving
or misleading." 12A V.I.C. S 102(a); cf. Kason Indus., Inc.,
120 F.3d at 1204 ("[W]hile the standard of the [Georgia
Uniform Deceptive Trade Practices Act] and the Lanham Act
is ‘likelihood of confusion,’ the standards for an arguably
analogous claim under the [Georgia Fair Business Practices
Act] is ‘actual confusion.’ ").
Finally, the statutory definition of "deceptive trade
practices" specifically includes "representations . . . that the
supplier has a sponsorship, approval, status, [or]
affiliation," which have the "tendency . . . of misleading
consumers." 12A V.I.C. S 102(a)(1). This prohibition against
representations that tend to mislead consumers as to the
source or affiliation of goods or services strongly resembles
the prohibition under S 43(a) against any designation that
"is likely to cause confusion . . . as to the affiliation,
connection, or association of [defendant] with another
person, or as to the origin, sponsorship, or approval of
[defendant’s] goods, services, or commercial activities by
another person."
Thus, although the Virgin Islands deceptive trade
practices statute applies to a narrower range of
transactions than common law fraud, within the range of
covered transactions the conduct that renders a seller liable
under the Virgin Islands deceptive trade practices statute
bears a strong resemblance to the conduct that renders a
seller liable for trademark infringement under S 43(a). In
contrast, the doctrine of common law fraud renders a seller
liable for misrepresenting the source of goods only if the
seller possessed the requisite scienter and purchasers
actually relied to their detriment on the misrepresentation.
Neither of these elements is required under the deceptive
trade practices statute or S 43(a).
19
We therefore hold that the cause of action under Virgin
Islands law most analogous to a trademark infringement
claim under S 43(a) of the Lanham Act, for purposes of
borrowing a statute of limitations, is a cause of action
under 12A V.I.C. S 108 for deceptive trade practices in
violation of 12A V.I.C. S 101. This cause of action is subject
to a two-year statute of limitations that begins running
from the date the violation of the statute occurred, not the
date the violation was discovered, as would be the case
under the statute of limitations for fraud. 12A V.I.C. S 108(j).7
This holding makes it unnecessary for us to resolve the
disputed question whether plaintiffs discovered the conduct
complained of more than two years before filing this suit.
Because plaintiffs do not argue that they commenced this
action within two years of the allegedly actionable conduct,
plaintiffs’ claims were properly dismissed as time-barred
unless the statute of limitations was equitably tolled.8
_________________________________________________________________
7. Under 12A V.I.C. S 108(j), "[a]n action under this section must be
brought within two years after the occurrence of a violation of this
chapter, within one year after the last payment in a consumer
transaction involved in a violation of this chapter, or within one year
after the termination of proceedings by the Director with respect to a
violation of this chapter, whichever is later." The extension of the two-
year limitations period to "one year after the last payment in a consumer
transaction involved in a violation of this chapter" or "one year after the
termination of proceedings by the Director with respect to a violation of
this chapter" is clearly inapplicable in this case.
8. Plaintiffs do not argue that defendants’ allegedly unlawful conduct
continued during the two-year period prior to filing this suit and that
their claims therefore survive the two-year statute of limitations under
the continuing wrong doctrine. See Hot Wax, Inc. v. Turtle Wax, Inc., 191
F.3d 813, 821 (7th Cir. 1999) ("The notion of a‘continuing wrong’ . . .
is . . . prevalent in Lanham Act cases . . . . Under the notion of a
continuing wrong, only the last infringing act need be within the
statutory period."); see also Lyons P’ship, L.P. v. Morris Costumes, Inc.,
243 F.3d 789, 797 (4th Cir. 2001) ("[A]lthough the district court was
correct to hold that [plaintiff] could not recover for claims that accrued
outside the limitations periods, it erred to the extent that it dismissed
[plaintiffs’ Lanham Act] claims that were premised upon acts that
occurred within the applicable periods.") (internal quotation marks and
citations omitted).
20
III.
Plaintiffs argue that their filing of a similar action in the
District Court for the District of Puerto Rico within the two-
year limitations period equitably tolled the statute of
limitations. Defendants respond that the doctrine of
equitable tolling is inapplicable because plaintiffs’ Puerto
Rico suit was dismissed for lack of personal jurisdiction.
According to defendants, the filing of a lawsuit in a court
that lacks personal jurisdiction over the defendants does
not toll the running of the limitations period.
There appears to be no binding case law on the question
whether, under Virgin Islands law, a lawsuit filed in a court
that lacks personal jurisdiction over the defendants may
equitably toll the statute of limitations. In such a case, we
are instructed by 1 V.I.C. S 4 that:
The rules of the common law, as expressed in the
restatements of the law approved by the American Law
Institute, and to the extent not so expressed, as
generally understood and applied in the United States,
shall be the rules of decision in the courts of the Virgin
Islands in cases to which they apply, in the absence of
local laws to the contrary.
But there is neither a Virgin Islands statute nor a
Restatement rule deciding the question of equitable tolling
in this case, and hence we must look to the common law
"as generally understood and applied in the United States."
See Abdallah v. Callender, 1 F.3d 141, 147 (3d Cir. 1993)
("[T]he common law as generally understood and applied in
the United States applies in the Virgin Islands absent a
statute or Restatement rule to the contrary . . . .").
Because many states have "savings statutes," under
which the filing of an action later dismissed for reasons
unrelated to the merits tolls the statute of limitations, there
are few decisions addressing this question as a matter of
common law. See Hosogai v. Kadota, 700 P.2d 1327, 1334
(Ariz. 1985) ("[A] clear majority of the states -- thirty-one --
presently have general savings statutes in civil actions."); 4
Charles Alan Wright & Arthur R. Miller, Federal Practice
and Procedure S 1056 at 273 n.44 (3d ed. 2002) (noting that
over half the states have savings statutes of some kind).
21
Among those courts that have addressed the question,
there appears to be a split of authority. Compare Mayes v.
Leipziger, 729 F.2d 605, 608 (9th Cir. 1984) (holding that
under California common law, the filing of an action that is
dismissed for lack of personal jurisdiction may equitably
toll the statute of limitations with respect to a subsequently
filed identical action), Hosogai v. Kadota, 700 P.2d 1327
(Ariz. 1985) (same holding, under Arizona common law),
and Mitzner v. W. Ridgelawn Cemetery, Inc., 709 A.2d 825,
826 (N.J. Super. Ct. App. Div. 1998) (same holding, under
New Jersey common law), with Young v. Clantech, Inc., 863
F.2d 300, 300 (3d Cir. 1988) (per curiam) (holding that
under New Jersey common law, a lawsuit filed in a court
that lacked personal jurisdiction over the defendant cannot
equitably toll the statute of limitations), and Johnson v. City
of Raleigh, 389 S.E.2d 849, 850 (N.C. Ct. App. 1990)
(holding that under North Carolina common law, "a
voluntarily dismissed suit which is based on defective
service does not toll the statute of limitations").
As there is no majority common law rule governing this
question, we must therefore select the more appropriate
rule as a matter of policy. See Polius v. Clark Equip. Co.,
802 F.2d 75, 77 (3d Cir. 1986) ("Where the Restatement is
silent and a split of authority exists, courts should select
the sounder rule" in resolving questions of Virgin Islands
law.). In choosing the better rule, we are guided by the
policy rationale underlying statutes of limitations generally:
Statutes of limitations are primarily designed to assure
fairness to defendants. Such statutes 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. The theory is that even if one has a just
claim it is unjust not to put the adversary on notice to
defend within the period of limitation and that the right
to be free of stale claims in time comes to prevail over
the right to prosecute them. Moreover, the courts
ought to be relieved of the burden of trying stale claims
when a plaintiff has slept on his rights.
Burnett v. N.Y. Cent. R.R. Co., 380 U.S. 424, 428 (1965)
(internal quotation marks and citations omitted).
22
Similarly, in Sperling v. Hoffman-La Roche, Inc. , 24 F.3d
463 (3d Cir. 1994), we identified "three basic purposes a
statute of limitations serves":
They are first a practical and pragmatic device to spare
the courts from litigation of stale claims, and the
citizen from being put to his defense after memories
have faded, witnesses have died or disappeared, and
evidence has been lost. . . . Secondly, limitations
periods are intended to put defendants on notice of
adverse claims. Finally, limitations periods prevent
plaintiffs from sleeping on their rights.
Id. at 471-72 (internal quotation marks, citations, and
alterations omitted).
Defendants rely on our decision in Young v. Clantech,
Inc., 863 F.2d 300 (3d Cir. 1988) (per curiam), which held
that under New Jersey law, a lawsuit filed in a court that
lacks personal jurisdiction over the defendant cannot
equitably toll the statute of limitations. Young , however, is
not controlling here, since we must look to Virgin Islands
law, not New Jersey law, to determine whether filing suit in
a court that lacks personal jurisdiction may equitably toll
the statute of limitations. See Beauty Time, Inc. v. VU Skin
Sys., Inc., 118 F.3d 140, 144 (3d Cir. 1997) ("Because we
look to state law for the appropriate statute of limitations,
we also look to Pennsylvania law on the closely related
questions of tolling and application.").
Nor do we find Young persuasive on the question whether
the sounder rule as a matter of policy permits the filing of
a first action in a court that lacks personal jurisdiction to
toll the statute of limitations for purposes of a second
action. Young gave only cursory treatment to the policy
questions implicated by its holding, and rested its
prediction of how the New Jersey Supreme Court would
decide the question of New Jersey law primarily on the New
Jersey Supreme Court’s case law in this area. See Young,
863 F.2d at 301 ("Traditionally, the filing of a case against
a defendant in a court which did not have jurisdiction over
the action tolled New Jersey’s statute of limitations only if
the court in which the case was originally filed had
authority to transfer the case to the proper court.") (citing
23
Kaczmarek v. N.J. Turnpike Auth., 390 A.2d 597 (N.J.
1978)). Whereas in Young we were writing against a
backdrop of New Jersey Supreme Court precedent, in this
case we write on a clean slate, as there is no relevant
binding authority on this point of Virgin Islands law.
We also note that the New Jersey Superior Court
Appellate Division in Mitzner v. West Ridgelawn Cemetery,
Inc., 709 A.2d 825 (N.J. Super. Ct. App. Div. 1998),
disapproved Young’s distinction between filing suit in a
court that lacks subject matter jurisdiction, which tolls the
statute of limitations under New Jersey law, see Galligan v.
Westfield Ctr. Serv., Inc., 412 A.2d 122, 123 (N.J. 1980),
and filing suit in a court that lacks in personam
jurisdiction, which Young held does not toll the statute of
limitations under New Jersey law but Mitzner held does:
Although the [Young] court suggested that significant
policy arguments support a distinction between the two
types of defects, it did not spell them out. We do not
perceive any. Indeed, if there is a distinction, the filing
in a court without subject matter jurisdiction would
seem to be the greater defect.
Mitzner, 709 A.2d at 828; cf. Burnett , 380 U.S. at 429
(holding that an action filed in an improper venue tolled the
FELA statute of limitations, and noting that "venue
objections may be waived by the defendant"). We therefore
do not believe that Young is either controlling or persuasive
on the question whether, purely as a matter of policy, the
sounder rule is to permit equitable tolling where a plaintiff
files an initial action in a court that lacks in personam
jurisdiction over the defendants.
We believe that the rule adopted by the Arizona Supreme
Court in Hosogai v. Kadota, 700 P.2d 1327 (Ariz. 1985),
makes more sense than the rule of New Jersey common law
adopted by Young. Hosogai held that a statute of limitations
is equitably tolled for a second action by the filing of a
procedurally defective first action if there is:"1) timely
notice to the defendant in filing the first claim; 2) lack of
prejudice to the defendant in gathering evidence to defend
against the second claim; [and] 3) reasonable and good
faith conduct by the plaintiff in prosecuting the first action
24
and diligence in filing the second action." Hosogai, 700 P.2d
at 1333; see also Mayes v. Leipziger, 729 F.2d 605, 608
(9th Cir. 1984) ("California equitably tolls its statutes of
limitation during the pendency of an earlier case provided
there is timely notice, and lack of prejudice to the
defendant, and reasonable and good faith conduct on the
part of the plaintiff.") (internal quotation marks and citation
omitted).
In our view, the equitable tolling rule articulated in
Hosogai avoids the unfairness that would occur if a plaintiff
who diligently and mistakenly prosecuted his claim in a
court that lacked personal jurisdiction were barred under
the statute of limitations from promptly refiling in a proper
jurisdiction. Cf. Goldlawr, Inc. v. Heiman, 369 U.S. 463,
466 (1962) (recognizing "the injustice" that would result "in
plaintiff ’s losing a substantial part of its cause of action
under the statute of limitations merely because it made a
mistake in thinking that the respondent corporations could
be found or that they transact business" in the forum
venue) (internal quotation marks and alterations omitted).
At the same time that the Hosogai rule avoids unfairness
to plaintiffs who diligently prosecute their claims, it
preserves the policies underlying statutes of limitations
which, as the Supreme Court explained in Burnett , "assure
fairness to defendants . . . . 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." 380 U.S. at 428. In
Burnett, the Court held that an action dismissed for
improper venue equitably tolled the FELA statute of
limitations. The Court’s holding rested on the conclusion
that the policies underlying statutes of limitations would
not be served by holding plaintiffs’ claims time-barred:
Petitioner here did not sleep on his rights but brought
an action within the statutory period in a state court of
competent jurisdiction. Service of process was made
upon the respondent notifying him that petitioner was
asserting his cause of action. . . . Respondent could not
have relied upon the policy of repose embodied in the
limitation statute, for it was aware that petitioner was
actively pursuing his FELA remedy; in fact, respondent
25
appeared specially in the Ohio court to file a motion for
dismissal on grounds of improper venue.
Burnett, 380 U.S. at 429-30.
Similarly, the Hosogai rule protects defendants by
permitting equitable tolling only if the filing of the first
action put the defendant on notice within the limitations
period, there was no prejudice to the defendant in
defending the second action, and the plaintiff acted
reasonably and in good faith in prosecuting the first action
and exercised diligence in prosecuting the second action.
To be sure, the fact-specific, multi-factored nature of this
equitable tolling test will consume more judicial resources
than an easily applied bright-line rule that the filing of an
action in a court that lacks personal jurisdiction over the
defendants does not toll the statute of limitations.
Moreover, application of the Hosogai rule, because it is so
fact-specific, may undermine predictability to some degree.
These problems, however, are inherent in all equitable
doctrines, which demand flexibility in order to avoid the
arbitrariness of rigid rules. See Holmberg v. Armbrecht, 327
U.S. 392, 396 (1946) ("Equity eschews mechanical rules; it
depends on flexibility.").
Thus, we hold that under Virgin Islands law, the statute
of limitations for a second action may be equitably tolled by
the filing of a first action dismissed for lack of personal
jurisdiction if: (1) the first action gave defendant timely
notice of plaintiff ’s claim; (2) the lapse of time between the
first and second actions will not prejudice the defendant;
and (3) the plaintiffs acted reasonably and in good faith in
prosecuting the first action, and exercised diligence in filing
the second action. Application of this test to the record
before us does not yield a clear-cut answer. On the one
hand, the suit filed in the District Court for the District of
Puerto Rico within the two-year limitations period afforded
defendants timely notice of plaintiffs’ claims. Moreover, at
oral argument, defendants were unable to identify any
prejudice caused by plaintiffs’ delay in bringing this suit
following the dismissal of the first suit. On the other hand,
plaintiffs’ failure to request the District Court for the
District of Puerto Rico to transfer the case to the Virgin
26
Islands, pursuant to 28 U.S.C. S 1631, if that court found
that it lacked personal jurisdiction, may have been
unreasonable.9 Furthermore, in waiting nearly three
months to refile a substantially similar complaint in the
Virgin Islands, plaintiffs may not have exercised sufficient
diligence in prosecuting this action.
Application of this equitable doctrine is generally
committed to the discretion of the trial court in the first
instance. The record is not fully developed with respect to
these issues, and the record that has been developed does
not, as explained above, cut clearly in favor of plaintiffs or
defendants. Accordingly, we will vacate the District Court’s
order dismissing plaintiffs’ claims as time-barred, and
remand the case to the District Court further proceedings
consistent with this opinion.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
_________________________________________________________________
9. The Puerto Rico District Court had authority, if it found that it lacked
in personam jurisdiction, to transfer plaintiffs’ first action to the District
Court of the Virgin Islands. See 28 U.S.C.S 1631 ("Whenever a civil
action is filed in a court . . . and that court finds that there is a want
of jurisdiction, the court shall, if it is in the interest of justice, transfer
such action or appeal to any other such court in which the action or
appeal could have been brought at the time it was filed or noticed, and
the action or appeal shall proceed as if it had been filed in or noticed for
the court to which it was transferred on the date upon which it was
actually filed in or noticed for the court from which it is transferred.").
Plaintiffs, however, did not request the Puerto Rico District Court, if it
found that it lacked personal jurisdiction over the defendants, to transfer
the case to the District of the Virgin Islands, and the Court apparently
did not recognize that authority sua sponte.
27