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Romero v. Allstate Insurance, Co.

United States District Court, E.D. Pennsylvania

May 22, 2018

GENE R. ROMERO, et al, Plaintiffs,
v.
ALLSTATE INSURANCE COMPANY, et al., Defendants.

          MEMORANDUM

          KEARNEY, J.

         Allstate Insurance Company agents filed a class action in August 2001 challenging Allstate's November 1999 decision to transition them from employees governed by an employment agreement to independent contractors. We exercised federal question jurisdiction for statutory claims and supplemental jurisdiction over breach of contract and fiduciary duty claims under state law. We never enjoyed diversity jurisdiction. In 2014, Judge Buckwalter denied class certification and within a couple of months, we faced claims from almost 500 insurance agents who either joined or filed related cases in this District including individual state law claims filed as part of the class case. Following our consolidation and phased approach allowing us to resolve common issues of federal law and claims from agents in this District, the parties are now working to resolve the remaining individual issues for persons outside of this District. Allstate now moves for partial summary judgment on the state law claims of twelve agents who did not bring their state law claims until 2010 or 2015 arguing they are barred by Pennsylvania's statute of limitations. We deny Allstate's motion in the accompanying Order.

         Allstate argues we must look to state law and these former employee putative class members should have filed individual state law claims years ago because Pennsylvania does not toll its statute of limitations on the state law claims during the pendency of a class action. Allstate argues since a Pennsylvania court would not toll its statute of limitations on the state law claims based on the pending putative class action alleging both federal and state claims, we must do the same. Allstate relies upon authority barring state law claims in individual lawsuits filed after a federal court denies certification of the state law claims while it enjoyed diversity jurisdiction. Allstate's arguments make sense in the context of the initial class action based on diversity jurisdiction where Congress has not expressly stated otherwise.

         But these arguments do not make sense when we have always enjoyed supplemental jurisdiction over these state law claims in this same case under Congress's 1990 grant of supplemental jurisdiction which requires we shall toll the state statute of limitations while exercising supplemental jurisdiction over the state law claims. Given this federal statutory mandate, we lack discretion to apply Pennsylvania's tolling principles and must apply the federal law of tolling applying to state law claims within our supplemental jurisdiction. No. party presents contrary authority applying state law tolling principles ignoring Congress's supplemental jurisdiction tolling. Absent contrary authority, we follow the United States Court of Appeals for the Sixth Circuit and another district court in holding the state law claims filed under our supplemental jurisdiction in 2001 are tolled by federal law until denial of class certification. The individual state law claims filed in 2010 or 2015 are not barred by Pennsylvania's statutes of limitations.

         I. Undisputed facts related to this statute of limitations argument.[1]

         For many years, Allstate Insurance Company sold insurance through employee agents under an employment agreement.[2] In November 1999, Allstate decided to transition the employee agents to independent contractor status in a "Preparing for the Future Program" (the "Program").[3] Under the Program, Allstate terminated nearly all of its employee agents effective no later than June 30, 2000.[4] The Program included a Release of claims. The Release terms and enforceability are not before us today.

         On August 1, 2001, the original plaintiffs - a group of 27 former Allstate employee agents including two Illinois agents - filed this case as a class action with both federal and state law claims invoking our federal question and supplemental jurisdiction ("Romero I"). Plaintiffs sought declaratory judgment on the invalidity of the Release, alleged the Program violated ADEA[5] and ERISA[6], and alleged the same acts gave rise to common law breach of contract and breach of fiduciary duty claims.[7] Plaintiffs invoked our federal question jurisdiction under 28 U.S.C. § 1331 over the federal claims and supplemental jurisdiction over the state law claims under 28 U.S.C. § 1367.[8] The Romero I action began as a putative class action and the original Romero I plaintiffs included two citizens of Illinois, [9] where Allstate Insurance Company is incorporated and is the principal place of business of Allstate Corporation.[10] No. party claimed diversity subject matter jurisdiction, nor could they.

         After years of litigation, the Romero I plaintiffs moved for class certification on release issues under Federal Rule of Civil Procedure 23(c)(4).[11] On October 6, 2014, the Honorable Ronald L. Buckwalter denied class certification.[12] On January 6, 2015, after considering Plaintiffs' motions to clarify and reconsider his order denying class certification, Judge Buckwalter ordered all statutes of limitations to resume running on March 2, 2015.[13] By March 2, 2015, Allstate employees formerly included as putative class members could no longer argue the class action protected their interests.

         On February 26, 2015, Plaintiffs moved for leave to file a Third Amended Complaint to add over 360 Release-signing former employee agents or their successors-in-interest in Romero 1.[14] Judge Buckwalter granted Plaintiffs' motion to file a Third Amended Complaint on April 20, 2015.[15] Other groups of former Allstate employee agents filed complaints in this District, including Abell v. Allstate Insurance Company[16]on February 27, 2015 and Anzivine v. Allstate Insurance Company[17]on June 1, 2015. Both the Abell and Anzivine complaints allege common law breach of contract and breach of fiduciary duty claims arising out of the Program, mirroring the state law claims asserted in Romero I. After reassignment to us after Judge Buckwalter's retirement, we consolidated the cases and directed Plaintiffs to file a Consolidated Amended Complaint.[18] The Plaintiffs filed the Consolidated Amended Complaint on May 20, 2016. Again, the Plaintiffs did not invoke diversity jurisdiction, nor could they given the Illinois Plaintiffs and Defendants. Plaintiffs invoked federal question and supplemental jurisdiction.

         Of the nearly 500 plaintiffs in the Consolidated Amended Complaint, the parties judicially admit all but thirty-one have now settled in principal with Allstate.[19] Seeking to winnow claims before finalizing the individual cases in a proper venue, Allstate moves for summary judgment to dismiss the state law breach of contract and breach of fiduciary duty claims of twelve of the remaining thirty-one Plaintiffs because they did not file state law claims until 2010 or later.[20]

         II. Analysis

         Allstate moves for partial summary judgment arguing we must apply Pennsylvania law to the state law claims and, as a result, twelve of the remaining Plaintiffs' state law claims are barred by Pennsylvania's two-year and four-year statute of limitations for breach of fiduciary duty and breach of contract claims.[21] Allstate argues the 2001 filing of Romero I did not toll these twelve Plaintiffs' state law claims, and, consequently, the claims were time-barred by the time Plaintiffs either joined or intervened in Romero I in 2010 and 2015.

         Allstate's argues (1) as a federal court sitting in diversity, we must apply Pennsylvania's statute of limitations, borrowing statute, and tolling rules to state law claims; (2) applying Pennsylvania law, a Pennsylvania court would not toll its statute of limitations on state law claims based on the filing of a federal class action and would dismiss Plaintiffs' state law claims as untimely; and, therefore, (3) we must find Plaintiffs' claims untimely and grant Allstate's motion. Allstate additionally argues Plaintiffs' state law claims do not "relate back, " for purposes of Federal Rule of Civil Procedure 15(c), to Romero I.

         Plaintiffs respond Allstate represented at an earlier stage of the litigation Pennsylvania's statute of limitations on state law claims are tolled under Pennsylvania's class tolling rule.[22]Plaintiffs additionally argue Allstate is simply wrong on the law, asserting all Plaintiffs are before the same court and are named plaintiffs or intervenors in the same original putative class action. Plaintiffs argue Rule 15(c)(1) mandates relation back where, as here, Plaintiffs' state law claims arise out of the Program alleged in Romero I. [23]

         Allstate's creative cross-jurisdictional tolling arguments miss the central jurisdictional distinction in this case which does not allow us to apply Pennsylvania law to tolling. We agree we must apply Pennsylvania law on tolling if we enjoyed diversity jurisdiction. But we do not have diversity jurisdiction here. Unlike the authority cited by Allstate, we are not reviewing a former putative class member bringing a later individual case to recover under state law for claims arguably raised in an earlier class action based, at least partially, on diversity jurisdiction. We have a much different issue; from day one in 2001 until now, our subject matter jurisdiction is based on a federal question with supplemental jurisdiction over these same state law claims.

         The question is whether we apply Pennsylvania tolling principles or Congress's specific mandate for tolling of claims filed under our supplemental jurisdiction. Our supplemental jurisdiction - never challenged - is based on the parties' admission the Plaintiffs' state law claims for breach of contract and fiduciary duty are part of the same case and controversy as the federal questions. Congress, in creating supplemental jurisdiction, mandated tolling for all state law claims while we exercise supplemental jurisdiction over the claim. As the state law claims raised today are so akin to federal questions so as to undisputedly be part of the same case and controversy allowing supplemental jurisdiction, we apply the tolling principles for federal claims. Our holding today, consistent with the court of appeals' recent tolling of supplemental jurisdiction class action state law claims until certification is denied, confirms Congress's mandate of tolling state law limitations periods while the state law claims remain in our supplemental jurisdiction. The parties and we agree we must apply Erie to the substantive law and we agree as to the length of the statute of limitations. But we cannot reach so far under Erie to crater Congress defining the tolling principles applying to state law claims filed under our supplemental jurisdiction.

         A. The parties agree American Pipe tolls the federal claims.

         To unravel the parties' prolix arguments, we start with the fundamentals of tolling the statute of limitations for an individual's claims while those claims are part of a class action. Under the Supreme Court's rule in American Pipe & Construction Co. v. Utah, the statute of limitations for federal claims is tolled for unnamed members of a putative class action while a district court determines class certification.[24] In its ruling, "the Supreme Court sought to relieve putative class members of the need 'to file earlier individual motions to join or intervene as parties, ' because such 'multiplicity of activity' would run contrary to two key goals of the class action device: efficiency and judicial economy."[25] The Supreme Court later extended its holding to "all asserted members of the class, not just as to intervenors."[26]

         Under American Pipe, the "filing a federal class action tolls the federal statute of limitations on individual claims pending a decision on class certification in the same federal court based on the facts alleged in the class case."[27] Allstate concedes under American Pipe the filing of Romero I tolled the statute of limitations for the twelve Plaintiffs' federal claims until Judge Buckwalter denied class certification.

         B. Congress tolled state law claims of putative class members under our supplemental jurisdiction.

         Allstate argues American Pipe does not toll Plaintiffs' state law claims within our supplemental jurisdiction, and we must look to Pennsylvania law to determine whether the state law claims are tolled. Where a district court exercises diversity or supplemental jurisdiction, the Erie doctrine requires us to apply the forum state's substantive law for the state law claims, including state statutes of limitations.[28] We agree as to Erie governing our application of substantive law and statutes of limitations. We are not finding any differently. The issue is how we reconcile Pennsylvania's unwillingness to allow cross-jurisdictional tolling in diversity cases with Congress's tolling mandate in creating supplemental jurisdiction. Allstate may also be correct as to cross-jurisdictional tolling when we review state law claims in an initial class action filed under our diversity jurisdiction. But Allstate does not cite, and we are not aware of, authority extending state law tolling analysis when the court exercised supplemental - not diversity -jurisdiction over the state law class action claims before the putative plaintiffs lost the ability to pursue the state law claim in the class action.

         No party disputes our supplemental jurisdiction over the twelve Plaintiffs' state law claims for breach of contract and breach of fiduciary duty.[29] Supplemental jurisdiction, representing Congress's 1990 effort to codify a variety of discretionary concepts under its power to limit our jurisdiction, [30] specifically mandates "the period of limitations for any [state] claim [joined with a claim within federal-court competence] shall be tolled while the claim is pending [in federal court] and for a period of 30 days after it is dismissed unless State law provides for a longer tolling period."[31] There is no discretion. Congress mandates the tolling for state law claims within our supplemental jurisdiction. No. party disputes Congress's authority to do so.[32]Understandably, Allstate concedes Romero I tolls the statute of limitations for the remaining twenty named Romero I Plaintiffs' state law claims until Judge Buckwalter denied class certification.

         The issue today is whether the remaining Plaintiffs - twelve putative class members who, after learning in 2014 they no longer could recover as an absent class member - may benefit from Congress tolling the statute of limitations for breach of contract and breach of fiduciary duty claims before us under our supplemental jurisdiction. If we were to adopt Allstate's argument, all but the original Romero I Plaintiffs would have had to file individual actions in 2001 - 2003 to preserve their breach of contract and breach of fiduciary duty claims notwithstanding the putative class action raising those same claims pending in this District.

         We decline to ignore Congress's tolling mandate for claims within our supplemental jurisdiction. The putative class plaintiffs possessed state law "claims" until Judge Buckwalter denied class certification and restarted the statute of limitations. At that stage, the putative class plaintiffs knew they could no longer rely upon their state law claims preserved in the class action. We find no authority interpreting Congress's use of "claim" in § 1367(d) as excluding a claim included within the named plaintiffs' supplemental jurisdiction. Otherwise, the named plaintiff in a class action asserting supplemental jurisdiction over her state law claims would risk being "atypical" or lacking common questions under Rule 23 - at least as to her state law claims. The parties do not offer, and we cannot find, support for this proposition under either Rule 23 or § 1367(d).

         Congress could not have been clearer in codifying the tolling of statute of limitations for state law claims which are before us only because of its 1990 grant of supplemental jurisdiction. As our court of appeals found in reviewing state law claims compared to FLSA claims in Lyon, Congress could have expressly precluded our supplemental jurisdiction over state law claims, including class state law claims. It chose not to do so.

         Consistent with our court of appeals' deference to Congress's statutory supplemental jurisdiction in Lyons, we are persuaded by the Court of Appeals for the Sixth Circuit's more recent analysis in In re Vertrue Inc. Marketing and Sales Practices Litigation.[33]In Vertrue, plaintiffs first challenged Vertrue's conduct in a 2002 class action in the Southern District of California alleging federal question and supplemental jurisdiction over state law claims.[34] The California district court dismissed the federal claim and declined supplemental jurisdiction before ruling on class certification. In 2009, the named class representatives in California again filed the dismissed federal and state law claims against Vertrue which, after an MDL transfer, ended up in the Northern District of Ohio. Vertrue moved to dismiss both federal and state claims as barred by the statute of limitations. After the district court dismissed RICO and some state law claims in a class action, it allowed other individual state law claims to proceed finding them properly tolled during the class action.[35] On appeal, Vertrue challenged the ...


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