WorldCom Class Action Defense Case: Second Circuit Holds Class Action Complaint Tolls Statute Of Limitations Of Putative Class Members Who File Individual Suits Prior To Certification Of Class Action
As Matter of First Impression, Second Circuit Holds that American Pipe Tolling Applies to Putative Class Members of Class Action who File Individual Lawsuits Prior to Decision on Class Action Certification
Prior to the filing of putative class action lawsuits and within one year after plaintiffs discovered “the untrue statement or the omission,” see 15 U.S.C. § 77m, certain pension funds filed individual lawsuits against underwriters of WorldCom bonds under Section 11 of the federal Securities Act of 1933 alleging that they had purchased bonds based on registration statements that contained false and misleading information. In re WorldCom Sec. Litig., ___ F.3d ___, 2007 WL 2127874, *1 (2d Cir. July 26, 2007). Numerous putative class action lawsuits also were filed against WorldCom and its bond underwriters, including Caboto-Gruppo Intensa and Caboto Holdings Sim, and these alleged inter alia violations of Section 11, id. After the expiration of the one-year limitations period, the pension funds amended the individual complaints to add Caboto as party-defendants, id. Caboto defense attorneys moved to dismiss the individual actions as time-barred; plaintiffs countered that the class actions tolled the running of the statute of limitations. Id. The district court granted the defense motion, ruling that the class action complaints did not toll the limitations period because plaintiffs had filed suit before a decision on class certification in the class action lawsuits. Id. The Second Circuit reversed.
Briefly, WorldCom falsified financial records to paint an inaccurate picture of the company’s profitability, but in 2002 “the scheme collapsed.” In re WorldCom, at *2. A class action complaint was filed against WorldCom in April 2002, and numerous other class actions soon followed. More than 120 individual lawsuits also were filed against the company, all of which were removed to federal court based on WorldCom’s petition for bankruptcy protection. Id. By May 2003, the individual actions had been consolidated with the class action complaints, id. In October 2003, the district court certified a class action against WorldCom alleging securities violations; that class action complaint included Section 11 claims against Caboto and other bond underwriters. Id., at *3. In analyzing Caboto’s motion to dismiss the class action and individual claims, the district court found that the statute of limitations began to run no later than June 25, 2002, but that Caboto and certain other bond underwriters were not named as defendants until September 24, 2003 - three months after the expiration of the one year limitations period. Id., at *4.