The District Court for the Southern District of Ohio recently limited the American Pipe tolling doctrine in a fraud suit arising out of the sale of residential mortgage-backed securities (“RMBS”). Plaintiffs’ 2011 Ohio complaint alleged that defendants’ offering materials upon which they relied more than three years earlier violated the Federal Securities Act. Defendants moved to dismiss based on the three year statute of repose contained in 15 U.S.C. §77m. Plaintiffs responded that the Supreme Court’s 1974 American Pipe decision tolled of statute of limitations because they were putative members of a class sought to be certified in a 2008 New York action relating to some of the identical RMBS.
In their reply, defendants argued that even if American Pipe tolling did apply to the New York action, plaintiffs waived the tolling benefit by filing their Ohio lawsuit while two motions to dismiss were still pending in the earlier New York case. Defendants relied on the Sixth Circuit’s Wyser-Pratte exception, which holds that a plaintiff who files an independent action without waiting for a determination on the class certification issue may not benefit fromAmerican Pipe tolling. 413 F.3d 553, 569 (6th Cir. 2005). Plaintiffs countered that Wyser-Pratte did not apply because the New York motions were based on lack of standing, not class certification issues.
The Ohio district court agreed with defendants. The court held that the Wyser-Pratteexception should be extended to circumstances when motions to dismiss were pending, even if not based on class certification issues, because the New York court never determined whether class certification would be decided in that case. Therefore, filing the Ohio action during the pendency of two New York motions to dismiss constituted a forfeiture of the benefits of American Pipe tolling.