Chavez v. Occidental Chem. Corp.: A Banana Flavored Toll House Recipe

In an opinion with significant ramifications for the plaintiffs' bar, the New York Court of Appeals yesterday recognized the tolling of statutes of limitation for absent class members stemming from class actions filed in other jurisdictions. At the same time, the court also held that such tolling ceases as soon as the out-of-state class action is dismissed for any reason – including non-merits dismissals.

The facts and procedural history underlying yesterday's opinion of the Court of Appeals are as long and difficult to navigate as a jungle trek. Making an extremely long story far too short, the facts start way back in 1965, when workers on banana plantations outside of the U.S. began, allegedly, to become injured by a chemical called dibromochloropropane (mercifully abbreviated to DBCP). In 1993, several plaintiffs launched a putative class action against Occidental Chemical Corporation (“Occidental”) and other defendants in Texas state court. Defendants removed the case to federal court where, in 1995, it was dismissed for forum non conveniens. The order dismissing the case, however, included a “return jurisdiction” clause which stated that, if the plaintiffs were to bring actions in the defendants' home countries, only to have those actions dismissed for lack of jurisdiction, the district court would resume jurisdiction over the action as if it had never been dismissed.

Subsequently, some of the original plaintiffs in the Texas action tried their luck in the courts of Costa Rica, only to have their case thrown out on jurisdictional grounds. In 1996, some of these plaintiffs returned to federal district court in Texas seeking reinstatement. Eventually, their action was remanded to Texas state court where, in 2010 (that “eventually” packs a lot of punch), their motion for class certification was denied and the action was dismissed.

A year later, some absent class members belonging to the putative class from the Texas action started parallel actions in federal district courts in Louisiana and Delaware. The Louisiana case was dismissed on statute of limitations grounds, while the Delaware action was transferred to the Southern District of New York (where Occidental is incorporated). In the Southern District, Occidental swiftly moved for judgment on the pleadings, arguing, in part, that New York did not recognize cross-jurisdictional tolling (i.e. tolling of the statute of limitations in New York based on litigation in another jurisdiction). In January 2018, Judge Engelmayer of the Southern District issued an order dismissing Occidental's motion, predicting that the New York Court of Appeals would hold that New York law does recognize cross-jurisdictional tolling, and that the limitations period at issue had been tolled from 1993 to 2010 due to the Texas litigation, despite the fact that the Texas case had been dismissed in 1995 for forum non conveniens.

Based on a split in authority in the Southern District on the question, the district court certified an interlocutory appeal to the Second Circuit, which then certified two questions for the New York Court of Appeals: 1) Does New York law recognize cross-jurisdictional class action tolling?; 2) Can a non-merits dismissal of class certification terminate class action tolling, and if so, did that happen in the procedural history at issue in Chavez?

Judge Stein, writing for a majority of the court, answered the first of these questions in the affirmative without too much fuss. In essence, the majority simply adopted the decision of the United States Supreme Court in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), which held (in substance, and in combination with Crown, Cork & Seal Co., Inc. v Parker, 462 US 345 (1983)) that the commencement of a class action pursuant to Federal Rule of Civil Procedure 23 tolls the running of the statute of limitations for all asserted members of the class. New York's class action statute, CPLR article 9, was modeled on Rule 23 and, as the Court of Appeals noted, seeks to avoid “a multiplicity of litigation that squanders resources and undermines judicial economy.”

The Court of Appeals reasoned (quite sensibly), that it would defeat the purpose of New York's class action mechanism if absent class members could not benefit from the tolling of statutes of limitation in other jurisdictions. As the court noted, if absent class members could not take advantage of such tolling, putative class members in New York would be incentivized to file individual claims in New York as the limitation period neared in another jurisdiction where an identical case had already started. Such a result would defeat the goal of New York's class action statute, which seeks to minimize the amount of litigation stemming from a common set of facts.

Chavez gets particularly interesting when the court addresses the second question put to it by the Second Circuit: whether, under New York law, a non-merits dismissal of a putative class action tolls the statute of limitations. The court recognized, and accepted (kind of), the parties' shared understanding that tolling ends “when it is no longer objectively reasonable for absent class members to rely upon the putative class action to vindicate their rights.” The court even accepted that “it generally will be clear when tolling ends under the objectively reasonable standard.” Nevertheless, the court decided it was time to enunciate a “bright-line rule” to determine when tolling ends, and it settled on the following: “tolling ends—as a matter of law—when there is a clear dismissal of a putative class action, including a dismissal for forum non conveniens, or denial of class certification for any reason.”

This is a significant development in New York class action law, and one that is a little surprising. While bright-line rules unquestionably bring certainty, that certainty can come at the cost of flexibility and, somewhat counter-intuitively in this case, efficiency. As Judge Rivera wrote in dissent, under the majority's rule, if the facts of Chavez had been identical except that the Texas state court had granted class certification in 2010, absent class members in New York would have had to file individual suits by 1998 to avoid any risk of forfeiting their claims. Those lawsuits would have then spent 12 years idling in New York courts until they could finally have been resolved in Texas. A rule resulting in such a scenario seems like an odd way to interpret a set of laws designed to promote litigation efficiency. Judge Rivera proposed a rule whereby a non-merits dismissal would only lead to an end in tolling if it were “unconditional and unaccompanied by judicial directives that permit for continued pursuit of the class action.” In other words, it would be fine to stop tolling once it is clear that there is no hope that the case can be revived.

How Chavez will be greeted in the halls of the great plaintiffs firms remains to be seen. On the one hand, it definitively enshrines the principles of American Pipe and its progeny, recognizing cross-jurisdictional tolling in New York law. On the other hand, the bright-line rule that it draws to determine when a non-merits dismissal will stop tolling puts a burden on plaintiffs lawyers to instigate possibly superfluous actions in New York as limitations periods come to a close in other jurisdictions.