John Hall v. Variable Annuity Life Ins Co. , 727 F.3d 372 ( 2013 )

Case: 12-20440 Document: 00512343069 Page: 1 Date Filed: 08/15/2013
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
August 15, 2013
No. 12-20440 Lyle W. Cayce
Clerk
JOHN HALL and BRENDA HALL, on behalf of themselves and all others
similarly situated,
Plaintiffs-Appellants
v.
VARIABLE ANNUITY LIFE INSURANCE COMPANY; VARIABLE
ANNUITY MARKETING COMPANY; VARIABLE ANNUITY LIFE
INSURANCE COMPANY SEPARATE ACCOUNT A; VALIC FINANCIAL
ADVISORS INCORPORATED; JOHN A. GRAF; ROBERT A. DEVLIN;
KENT E. BARRETT; BRUCE R. ABRAMS; M. KATHLEEN ADAMSON;
MARY L. CAVANAUGH; CARL J. SANTILLO; ROBERT P. CONDON;
REBECCA G. CAMPBELL; UNKNOWN PARTIES, named as Does 1 - 100
inclusive,
Defendants-Appellees
Appeal from the United States District Court
for the Southern District of Texas
Before STEWART, Chief Judge, and DAVIS and WIENER, Circuit Judges.
W. EUGENE DAVIS, Circuit Judge:
Plaintiffs-Appellants John and Brenda Hall (“the Halls”) were members
of a certified class of securities fraud plaintiffs whose certification order was
vacated in 2004. When the Halls attempted to re-file their class action in 2009,
the district court dismissed it as barred by the statute of repose. Because the
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No. 12-20440
statute of repose ceased to be tolled when the class certification order was
vacated, we AFFIRM.
I.
The facts relevant to the instant case begin with an identical lawsuit
brought against the Variable Annuity Life Insurance Company (“VALIC”) by
another set of plaintiffs. In April 2001, James Drnek and Maureen Tiernan filed
a class action complaint (“the Drnek action”) against VALIC alleging that VALIC
had committed securities fraud by misrepresenting the prospective tax benefits
of its annuities. In January 2004, the Drnek court certified a nationwide class
of purchasers of VALIC deferred annuities. The plaintiffs in the instant case, the
Halls, had purchased a VALIC deferred variable annuity in 2000 and were
members of the Drnek class.
Following class certification, class counsel allowed the district court’s
expert and fact witness disclosure deadline to expire without identifying any
expert witnesses or producing any expert reports. When class counsel finally
filed an expert and fact witness list nearly six months after the disclosure
deadline, VALIC immediately moved to strike the plaintiffs’ witness list and
exclude the witnesses’ testimony. The district court agreed that class counsel’s
lapse was inexcusable and granted the motion on August 17, 2004. Without any
expert or witness testimony, the court reasoned, the Drnek plaintiffs would not
be able to prove a class-wide measure of damages, so the district court vacated
its prior order granting class certification.1 The Drnek class representatives
appealed the district court’s decision to exclude their witnesses, which the Ninth
Circuit affirmed.2
1
See Drnek District Court’s August 17, 2004 Order granting summary judgment in
part and vacating order granting class certification.
2
Drnek v. Variable Annuity Life Ins. Co., 261 F. App’x 50 (9th Cir. 2007) (affirming
district court’s exclusion of class plaintiffs’ proposed witnesses).
2
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On December 21, 2009, the Halls filed the instant class action against
VALIC in the Southern District of Texas reciting the same claims previously
outlined in the Drnek action.3 VALIC promptly moved to dismiss the Hall
complaint, arguing that the five-year statute of repose applicable to securities
fraud actions had expired before the Halls filed their complaint. Although the
parties agreed that the filing of the Drnek class action “tolled,” or temporarily
suspended, the running of the statute of repose against putative class members,
they disagreed about whether the Drnek court’s vacatur of class certification
caused the tolling to cease. Agreeing with VALIC, the district court found that
the statute of repose resumed running against putative members of the Drnek
class when the Drnek court vacated its certification order. Because the Halls
filed their class action more than five years after the Drnek court vacated its
certification order, the district court concluded that the Halls’ claim had been
extinguished. The district court then entered an order dismissing the action, and
the Halls now appeal.
II.
“We review a district court’s grant of a motion to dismiss de novo.” Bowlby
v. City of Aberdeen, Miss., 681 F.3d 215, 219 (5th Cir. 2012).
III.
On appeal, the Halls first contend that the district court erred in its
conclusion that their claim has been extinguished by the applicable statute of
repose.4 Specifically, the Halls contend that the Drnek court’s order vacating
3
To be clear, the Halls actually filed their suit in the District of Arizona, but VALIC
transferred venue to the Southern District of Texas.
4
Because the Halls have asserted securities fraud claims under Sections 10(b) and
20(a) of the Securities Exchange Act and Securities and Exchange Commission Rule 10b-5, the
applicable limitations and repose statute is 28 U.S.C. § 1658(b): “[A] private right of action
that involves a claim of fraud . . . may be brought not later than the earlier of– (1) 2 years
after the discovery of the facts constituting the violation; or (2) 5 years after such violation.”
3
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class certification did not cause the tolling of the statute of repose to cease.
Arguing that the statute of repose on their claim remained tolled following the
vacatur of class certification, the Halls maintain that their claim never expired.5
Class action lawsuits, like any other lawsuit, are subject to statutes of
limitation and repose that limit the time within which a suit must be brought.6
However, the class action mechanism would not succeed in its goal of reducing
repetitious and unnecessary filings if members of a putative class were required
to file individual suits to prevent their claims from expiring if certification of the
class is denied. As a result, the Supreme Court in American Pipe & Construction
Co. v. Utah created a special rule to “freeze the clock” for putative class members
once a class action lawsuit was filed. 414 U.S. 538, 550–52 (1974). Now called
“American Pipe tolling,” later decisions of the Supreme Court have distilled a
brightline rule: The filing of a class action tolls the running of a statute of
limitations for “‘all asserted members of the class.’” See Crown, Cork & Seal Co.,
Inc. v. Parker, 462 U.S. 345, 350 (1983) (quoting American Pipe, 414 U.S. at 554).
However, this tolling does not continue indefinitely. Under American Pipe,
the statute of limitations for the putative class members resumes running when
class certification is denied or when a certified class is decertified. See id. at
5
While § 1658(b)’s 2-year deadline is a statute of limitation, its 5-year deadline is a
statute of repose that completely “eliminate[s] the underlying right[] when [it] lapse[s].” See
Margolies v. Deason, 464 F.3d 547, 551 (5th Cir. 2006). As a result, there is some debate about
whether § 1658(b)’s statute of repose can be extended by tolling. Compare Joseph v. Wiles, 223
F.3d 1155, 1167–68 (10th Cir. 2000) (finding Securities Exchange Act statute of repose subject
to legal tolling in class action context), with Police & Fire Ret. Sys. of City of Detroit v.
IndyMac MBS, Inc., Nos. 11-2998-cv, 11-3036-cv, 2013 WL 3214588, at *6 (2d Cir. June 27,
2013) (finding Securities Exchange Act statute of repose not subject to tolling). Because the
parties have not briefed this issue, we decide the case on other grounds.
6
“Statutes of limitations speak to matters of remedy, whereas statutes of repose
eliminate the underlying rights when they lapse.” Margolies, 464 F.3d at 551.
4
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354.7 Once the district court denies certification or decertifies a class, “the
putative class members ha[ve] no reason to assume that their rights [a]re being
protected.” Taylor v. United Parcel Serv., Inc., 554 F.3d 510, 520 (5th Cir. 2008).
Although the denial of class certification or the decertification of the class might
potentially be reversed on appeal, such a ruling nonetheless serves as notice to
the once-putative class members that they are “no longer parties to the suit and
. . . [a]re obliged to file individual suits or intervene.” See id.8 Accordingly, the
unsuccessful appeal of either a decertification or a denial of certification does not
extend the tolling period. See id. at 519.
In the instant case, the district court found that the Drnek court’s vacatur
of certification was the functional equivalent of a denial of certification. As the
district court pointed out, “While the Drnek court used the label ‘vacated,’ the
court also made it clear that the case would not proceed as a class action.”
Because the Drnek court’s vacatur order “un-certified” the class and left no room
for the action to proceed as a class, it had effectively denied certification.
The Halls assert that the district court erred by determining that a
vacatur of certification is equivalent to a denial of certification. As the Halls
emphasize, the requirements for certifying a class action are set forth in Federal
7
Decertification under Rule 23(c)(1)(C) is ordinarily accomplished by an order
modifying the original grant of certification and changing it to a denial of certification, and
denials of certification cause American Pipe tolling to cease. See Crown, Cork, & Seal, 462 U.S.
at 354; see also Birmingham Steel Corp. v. Tenn. Valley Auth., 353 F.3d 1331, 1343 n.12 (11th
Cir. 2003) (“[T]he statute of limitations, tolled during the class action, has begun running upon
the decertification of the class.”); Culver v. City of Milwaukee, 277 F.3d 908, 914–15 (7th Cir.
2002) (reaching same conclusion).
8
If a denial of certification is reversed on appeal, the putative class members can claim
the benefit of uninterrupted tolling from the original class action filing date. See Deposit Guar.
Nat’l Bank, Jackson, Miss. v. Roper, 445 U.S. 326, 330 n.3 (1980) (“Reversal of the District
Court’s denial of certification by the Court of Appeals may relate back to the time of the
original motion for certification for the purposes of tolling the statute of limitations on the
claims of the class members.”); see also Calderon v. Presidio Valley Farmers Ass’n, 863 F.2d
384, 390 (5th Cir. 1989).
5
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Rule of Civil Procedure 23(a–b). But in this case, the Halls argue, the Drnek
court vacated certification not because the class failed to meet the Rule 23
requirements, but to prevent the class members from being handicapped by the
witness exclusion caused by class counsel. Because the court vacated
certification without finding that the class should not be certified, the Halls
contend that the court never addressed certification. As a result, the Halls argue,
the Drnek class’s original motion for certification was effectively reinstated and
remained pending, entitling the putative class members to American Pipe
tolling.
While the Halls’ argument does have some theoretical appeal, it is
ultimately unpersuasive for several reasons. First, although the Halls are correct
that the vacatur of a certification order has the effect of nullifying that order, it
is not necessarily true that a vacatur completely reinstates the parties’ pre-
existing procedural and temporal statuses. As many of our own supervisory
instructions recognize, the vacatur of a judgment and the reinstatement of a pre-
existing judgment are conceptually distinct actions.9 Moreover, the instant case
illustrates the unfairness of finding that a vacatur of class certification implicitly
reactivates a pending motion for certification. Here, the Drnek plaintiffs’ years-
old motion for certification would silently perpetuate tolling for putative class
members, leaving VALIC indefinitely exposed to the stale claim of an uncertified
class.
Second, the Halls have offered us no real reason to distinguish between a
decertification order and a vacatur of certification. Although the Halls insist that
the vacatur of certification is different from decertification because vacatur does
9
See, e.g, United States v. Ross, 557 F.3d 237, 243 (5th Cir. 2009) (vacating district
court’s judgment modifying sentence and remanding with instructions to reinstate the original
sentence); United States v. Kirkpatrick, 184 F. App’x 421, 424 (5th Cir. 2006) (finding that in
reversing a district court’s second judgment where its first judgment was also defective, the
court should “VACATE it, not ‘reinstate’ it, and REMAND.”).
6
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not involve a consideration of Rule 23’s requirements, the Halls ignore the fact
that the basis of the Drnek court’s vacatur was fundamentally a Rule 23 class
certification issue. The record verifies that the Drnek court vacated its class
certification order because the plaintiffs could not “prove a class-wide measure
of damages,” a classic issue of common question predominance under Rule
23(b)(3).10 Though a district court normally decertifies a class—and re-initiates
the running of the statute of limitations or repose—when it determines common
questions do not predominate, the Halls ask that we give different treatment to
a vacatur of certification on the same grounds. Because the vacatur of
certification in this context is the functional equivalent of a decertification, the
actions should have equivalent tolling consequences under American Pipe.11
Recognizing that a vacatur of class certification causes tolling to cease is
also most consistent with our reasoning in similar cases. In Taylor v. UPS, we
considered how long the statute of limitations remained tolled for an
employment discrimination plaintiff who had been a member of a certified class
of similarly situated plaintiffs. 554 F.3d at 513. Although the class’s claims were
dismissed on the merits in 2000, the dismissal was not affirmed on appeal until
2004. Id. After delving into American Pipe, its Supreme Court progeny, and
finally its Fifth Circuit progeny, we found that “it is clear from the[] cases that
if the district court denies class certification under Rule 23, tolling of the statute
of limitations ends.” Id. at 519. We reasoned,
10
See, e.g., In re Wilborn, 609 F.3d 748, 755 (5th Cir. 2010).
11
The Halls have also asserted that the Drnek court’s action in vacating certification
involved a consideration of a merits issue (weighing of evidence relevant to damages) and was
therefore a dismissal on the merits. If this were the case, American Pipe tolling would have
continued until the dismissal was affirmed on appeal. See Taylor, 554 F.3d at 519–20.
However, the Supreme Court squarely foreclosed this argument in Wal-Mart Stores, Inc. v.
Dukes, 131 S.Ct. 2541, 2551–52 (2011), where the Court reiterated that the district court’s
“rigorous analysis” under Rule 23 inevitably “will entail some overlap with the merits of the
plaintiff’s underlying claim. That cannot be helped.”
7
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In those cases, the district court’s refusal to certify the class was
tantamount to a declaration that only the named plaintiffs were
parties to the suit. Thus, those cases logically concluded that after
the district court’s denial of certification, the putative class
members had no reason to assume that their rights were being
protected. Stated differently, they were notified that they were no
longer parties to the suit and they should have realized that they
were obliged to file individual suits or intervene in the class action.
Id. at 520.
When a class is certified, however . . . . , unless the district court
later decertifies the class for failure to satisfy the Rule 23 factors,
members of the certified class may continue to rely on the class
representative to protect their interests throughout the entire
prosecution of the suit, including appeal. A contrary rule would
require certified class members to immediately intervene or file
individual suits in the event of a merits dismissal of the class action
in the district court. Such a rule would not work to prevent
“needless multiplicity of actions,” and would ignore the intended
benefit of certification—efficient representation of a class of
claimants.
Id. at 520–21 (quoting Crown, Cork & Seal, 462 U.S. at 351). Because the Taylor
plaintiff was still a member of a certified class even after a merits dismissal, we
determined that he retained the right to rely on the class representatives to
protect his interest—and American Pipe tolling—until 2004 when the dismissal
was finally affirmed. Id. at 521. Such a conclusion honors both Rule 23’s purpose
as a vehicle of efficient group representation and limitation statutes’ role in
providing timely notice of adverse claims and preventing harmful delay. See id.;
Crown, Cork & Seal, 462 U.S. at 352.
The principles enunciated in Taylor weigh in favor of finding that
American Pipe tolling ceases when a certification order is vacated. In the words
of the Taylor court, the Drnek court’s decision to vacate certification was
“tantamount to a declaration that only the named plaintiffs were parties to the
suit.” 554 F.3d at 520. Through this lens, a vacatur of certification is no different
8
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than a decertification or a denial of certification. Plaintiffs whose class
certification has been vacated simply have no reason to think that the ex-class
representative will continue to protect their interests. While a putative class
representative might later succeed in overturning the vacatur of certification, we
have consistently deemed reliance upon the possibility of reversal as irrelevant
for purposes of tolling.12
As evidenced by the instant case, a contrary rule would allow non-class
members to sit on their rights indefinitely while awaiting full appellate review
of a decision that does not legally apply to them. In contrast, the resumption of
a statute of repose after a vacatur of certification puts the onus of filing
individual claims only on those putative class members who have officially lost
their status as a class. Accordingly, we hold that the Drnek court’s vacatur of
certification caused American Pipe tolling to cease and the statute of repose to
resume running. Because the Halls brought this action after the statute of
repose expired, their claim has been extinguished.13
IV.
For the reasons stated above, the judgment of the district court is
AFFIRMED.
12
See Taylor, 554 F.3d at 519 (“[T]he denial of certification ends the tolling period
without regard to any appeal from that decision.”).
13
Because the Halls’ claim is extinguished, we need not decide whether putative class
members can rely upon American Pipe tolling to toll the statute of limitations during a first
class action so as to make a successive class action possible.
9