Lit Alerts — September 2023

Securities Litigation: Amended Claims Are Timely if Original Complaint Filed Within Statute of Repose

In 2018, Patrick Hogan brought a putative securities-fraud class action against Pilgrim’s Pride Corp., a poultry producer, alleging violations of Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. The U.S. District Court for the District of Colorado dismissed his complaint in 2018, and Hogan filed an amended complaint nearly two years later, in 2020. He did not add any new parties or causes of action, nor did he allege any additional “false or misleading” statements. The amended complaint bolstered the original claims through additional factual allegations. The district court dismissed the amended complaint as untimely under the five-year statute of repose in 28 U.S.C. § 1658(b)(2), which requires a claim alleging a securities violation be filed within five years of the violation. All alleged misrepresentations occurred more than five years before the 2020 amendment.

The U.S. Court of Appeals for the Tenth Circuit recently reversed, ruling that the amended complaint was timely because the initial complaint had been filed within the five-year window required by the statute of repose. The court reasoned that statutes of repose limit only the ability to initiate a suit, and it “would therefore be a peculiar interpretation of bring a right of action that involves a claim to say that it encompasses continuing to pursue a claim.” The court referenced FRCP 15(c)(1)(B)’s “relate back” requirement and noted that it could “think of no reason” a statute of repose would be treated differently than that rule governing pleadings. Further, the court noted that dismissals of complaints were ordinarily nonfinal, non-appealable orders, indicating further proceedings are often anticipated. Consistent with that logic, the case did not end when the district court dismissed the complaint in 2018, and the 2020 amended filing was a continuation of the same case.

Consumer Class Actions: Untimely Pre-Suit Notice Deflates Illinois Breach of Implied Warranty Claim

Recently, Judge David W. Dugan of the U.S. District Court for the Southern District of Illinois awarded Walmart summary judgment on breach of implied warranty claims brought by a consumer alleging that Walmart sold diluted helium tanks that failed to keep balloons afloat for a “sufficiently long period of time.” The four helium kits the plaintiff purchased represented on the box that inflated balloons would have a float time of five to seven hours. The plaintiff alleged that no balloon inflated from the helium kits stayed afloat more than two hours. Walmart contended it was entitled to summary judgment because the plaintiff failed to provide timely pre-suit notice. The court agreed and dismissed the plaintiff’s claims with prejudice.

The court explained that Illinois law requires a buyer who discovers a breach of warranty to notify the seller “or be barred from any remedy.” This requirement protects a seller’s ability to investigate the breach, gather evidence, and cure the defect or minimize damages. The notice requirement also encourages pre-suit settlement. There was no evidence that the plaintiff had provided notice within a reasonable time after she allegedly discovered the breach. Although the plaintiff claimed she “probably” mailed a letter to Walmart seeking a refund, the letter was allegedly sent nearly 22 months after her purchase. Furthermore, she provided no evidence that the letter was actually mailed, the address to which it was mailed, or that it was delivered, and the letter provided no information for Walmart to be able to contact the plaintiff or identify the relevant transactions. These deficiencies were fatal to the plaintiff’s proposed class action.

False Claims Act: Second Circuit Applies Supreme Court Guidance on Legal Standard for Government Dismissal of FCA Actions

Recently, the U.S. Court of Appeals for the Second Circuit affirmed the dismissal of a False Claims Act (FCA) suit initially brought by Brutus Trading against Standard Charter Bank based on alleged transactions in violation of economic sanctions on Iran. In Brutus Trading LLC v. Standard Chartered, et al., the United States intervened in a qui tam FCA suit initiated by Brutus Trading, and moved to dismiss the case on the basis that Brutus’ factual allegations were inadequate and unsupported. The district court granted the motion on the papers without an evidentiary hearing, and Brutus appealed. The appeal was held in abeyance until the United States Supreme Court issued its decision resolving a circuit split on the proper legal standard for dismissal when the government intervenes and elects to dismiss the suit.

While the appeal was pending, the Supreme Court held in Polansky v. Executive Health Resources Inc. that the standard for dismissal of an FCA action is the same as Federal Rule of Civil Procedure 41(a) governing voluntary dismissals. The Second Circuit noted that Polansky affirmed that “the government does not have an unfettered right to dismiss a qui tam action.” Namely, “in order to comply with the FCA's ‘hearing’ requirement, a district court must exercise some degree of scrutiny in evaluating the government's motion to dismiss.” However, the Second Circuit held that the “district court [had] met the hearing requirement by carefully considering the parties’ written submissions,” and therefore affirmed the dismissal. 

© Arnold & Porter Kaye Scholer LLP 2023 All Rights Reserved. This newsletter is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.