Chairs_99804207On July 7, the Sixth Circuit decided Phipps v. Wal-Mart Stores, Inc., No. 13-6194, 2015 WL 4079441 (6th Cir. July 7, 2015), an interlocutory appeal in one of the regional progeny of the U.S. Supreme Court’s famous decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011). Dukes and Phipps both involved allegations of “gender discrimination in pay and promotions,” though the Phipps plaintiffs allege that the discrimination stems from “regional Wal-Mart management policies and decisions” rather than national policies. See Phipps, 2015 WL 4079441, at *1 (emphasis added). That distinction proved critical for the thousands of women who did not pursue individual claims following the Dukes decision, which reversed an order certifying a nationwide class of female employees.

Phipps examined the scope of the American Pipe tolling doctrine. The basic rule of American Pipe is that the statutes of limitations for absent class members’ individual claims are tolled while the putative class action makes its way to a Rule 23 determination. See American Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974); Crown, Cork & Seal Co. v. Parker, 462 U.S. 345, 346-47 (1983). Phipps examined the extent to which American Pipe also tolled otherwise time-barred class claims. At base, Phipps appears to permit follow-on or “stacked” class actions when the new class is, in effect, a sub-class of the prior class—even when the Supreme Court has famously decertified the prior class for want of Rule 23(a) commonality.

In Andrews v. Orr, 851 F.2d 146 (6th Cir. 1988), the Sixth Circuit recognized that its sister circuits were “in unanimous agreement that the pendency of a previously filed class action does not toll the limitations period for additional class actions by putative members of the original asserted class.” Id. at 149. The Phipps court, however, read Andrews in light of an intervening decision that applied American Pipe to save class claims on the grounds that the court in the prior class action had dismissed the case before considering class certification. See Phipps at *7-8 (discussing In re Vertrue Inc. Mktg. & Sales Litig., 719 F.3d 474, 478-80 (6th Cir. 2013)). Further, the prior court must have “affirmatively denied” class certification for Andrews to bar the follow-on class claims. Id. at *8 (quoting Vertrue, 719 F.3d at 480 n.2).

On that basis, the court found that the putative Rule 23(b)(3) class’s claims survived. The only Dukes class before the Supreme Court was a class of then-current employees seeking primarily equitable relief under Rule 23(b)(2); a proposed class of former employees seeking damages under Rule 23(b)(3) was not before the Court. Id. at *5 (quoting Dukes, 131 S. Ct. at 2549 n.2). Thus, formally, the Court had not “affirmatively denied” certification of the Rule 23(b)(3) class. This was true even though, as Justice Ginsburg emphasized in her dissent, the Supreme Court majority resolved Dukes on Rule 23(a)(2) commonality grounds that applied to all Dukes classes because the Rule 23(a) prerequisites apply to all forms of class actions. See Dukes, 131 S. Ct. at 2562.

Next, the Phipps court found that the Rule 23(b)(2) class could proceed as well—notwithstanding that they had been before the Supreme Court when it affirmatively denied certification of the national class. (Judge Cook dissented from this holding.) The court grounded the Andrews bar on stacking class actions in “the preclusive effect of a judicial decision in the initial suit applying the criteria of Rule 23”—binding the subsequent class to the earlier Rule 23 determination even when the court finds that class treatment is inappropriate. Phipps at *12 (quoting Sawyer v. Atlas Heating & Sheet Metal Works, Inc., 642 F.3d 560, 563 (7th Cir. 2011)). The preclusion rationale, it reasoned, is inapplicable where the subsequent class is narrower and raises narrower claims and bases for class certification. The problem, however, is that the court elsewhere reasoned that under “preclusion law,” as applied to class actions, absent class members “may benefit from, even though they cannot be bound by, former litigation.” Id. at *11 (emphasis added). Indeed, the purpose of Rule 23 is to determine whether the action can fairly bind absent class members—to both their benefit and their detriment.

In the end, the court settled on policy-based rationale: Refusing to toll class claims would give putative class members “an incentive to multiply litigation by filing protective suits or motions to intervene at the outset of the initial class action suit.” Id. at *13. Moreover, the concerns that animate the anti-stacking rule—that defendants may face the same Rule 23 issues over and again—are not present when the class is narrower and raise at least somewhat different Rule 23 issues. But while new plaintiffs cannot represent the same class, Phipps may incentivize plaintiffs’ counsel to first bring as broad a class as possible, and then assert narrower classes later.

The Phipps decision will likely prove a challenge for class action defendants seeking to defeat reliance on American Pipe. Its precise application will depend on how the district courts interpret the policy rationale and the critical distinctions between the decertified Dukes class and the Phipps class. Phipps deals with a narrower subset of the Dukes class and a correspondingly narrower argument for class treatment. But it is unclear how much narrower the second class must be to avoid being bound by the prior denial of class certification. Further, if courts read Phipps as rejecting the preclusive effect of Dukes based on mere difference between the two classes—the absence of perfect identity of issues—the practical limits on American Pipe’s application to successive class actions are even less clear.