john hall, et al. v. the variable annuity life...

Case 4:11-cv-03639 Document 60 Filed in TXSD on 05/31/12 of 16

IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

JOHN HALL and BRENDA HALL, On Behalf of Themselves and All Others Similarly Situated,

Plaintiffs,

v.

THE VARIABLE ANNUITY LIFE INSURANCE COMPANY, et al.,

Defendants.

§ § § § § § § § § § § §

CIVIL ACTION NO. H-11-3639

MEMORANDUM OPINION AND ORDER

Pending before the court is Defendants’ Motion to Dismiss the

Class Action Complaint on Statutes of Limitations and Repose

(Docket Entry No. 48). 1 For the reasons stated below, the

Defendants’ Motion will be granted and this action will be

dismissed.

I. Factual and Procedural Background

John Hall and Brenda Hall allege that agents of the Variable

Annuity Life Insurance Company (“VALIC”) violated federal

securities laws when, during a meeting in 2000, the agents

recommended that the Halls purchase deferred annuities. 2

1Defendants’ Motion to Dismiss the Class Action Complaint on Statutes of Limitations and Repose (“Defendants’ Motion”), Docket

Entry No. 48.

2Class Action Complaint, Docket Entry No. 1, p. 32; id. at 33- 34; id. at 37-42.


At no time during the product recommendation or sale

[were the Halls] told that the tax-deferral feature of the deferred annuity was redundant and unnecessary [for them].

[]The agents’ recommendation of the deferred annuity was based neither on [the Halls’] needs and objectives nor on full and fair disclosure of the redundancy of the

product. The agent, as VALIC’s agent, was paid a sales commission substantially larger than any mutual fund commission available. 3

The Halls allege that they “made additional investments into the

contract until the present, including purchases of additional units

of interest in the separate account” and that they did not learn

that the deferred annuity was “redundant and unnecessary” until

December of 2009. 4

The present suit (hereafter: “Hall”) is the third in a string

of related cases. The first case, Drnek v. The Variable Annuity

Life Insurance Company (hereafter: “Drnek”), was filed in April of

2001. 5 The claims the plaintiffs allege in Hall were included in

the claims the plaintiffs alleged in Drnek. 6 The plaintiffs in

Hall and Drnek proposed the same class. 7 The Drnek district court

3Id. at 32; id. at 33-34.

4Id. at 33; id. at 34.

5Complaint and Jury Demand, attached to Notice of Removal to Federal Court, Exhibit A.1 to Defendants’ Motion, Docket Entry No. 48-3.

6Class Action Complaint, Docket Entry No. 1, pp. 37-42; Amended Class Action Complaint and Jury Demand, Exhibit A.2 to Defendants’ Motion, Docket Entry No. 48-5, pp. 47-52. The Drnek complaint alleges claims in addition to those alleged in both Drnek

and Hall.

7Class Action Complaint, Docket Entry No. 1, p. 4; Amended Class Action Complaint and Jury Demand, Exhibit A.2 to Defendants’ Motion, Docket Entry No. 48-5, p. 2.

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certified the class in January of 2004.8 The parties agree that

the Halls were members of that certified class. 9 On August 17,

2004, the Drnek court struck the plaintiffs’ witness list and the

testimony of the plaintiffs’ expert as untimely designated, and on

this basis vacated the class certification order.

[T]he Court finds that Plaintiffs cannot prove a class-wide measure of damages. This conclusion leads to [the]

conclusion that the class certification granted by the Court should be vacated. The Court is uncertain, however, if the lack of testimony from [Plaintiffs’ expert] or other of the Plaintiffs’ witnesses will make it impossible for Plaintiffs to prove damages and

causation. As a result, the Court requests that the parties file simultaneous briefs on the issue of whether this matter may go forward, absent class certification. 10

The order issued by the court stated that “IT IS FURTHER ORDERED

that the Order granting class certification is VACATED . . . .” 11

The plaintiffs appealed the order striking the expert and witness

list, and the Ninth Circuit affirmed on December 21, 2007. Drnek

v. The Variable Annuity Life Ins. Co., 261 F.App’x 50 (9th Cir.

2007). 12 The plaintiffs allege that the Ninth Circuit denied the

plaintiffs’ petition for rehearing on January 29, 2008, and that

8Order [January 9, 2004], Exhibit A.5 to Defendants’ Motion, Docket Entry No. 48-10.

9Plaintiffs’ Response to Defendants’ Motion to Dismiss the

Class Action Complaint on Statutes of Limitations and Repose (“Plaintiffs’ Response”), Docket Entry No. 51, pp. 6-7; Defendants’ Motion, Docket Entry No. 48, pp. 1 & 6.

10Order [August 17, 2004], Exhibit A.3 to Defendants’ Motion,

Docket Entry No. 48-8, p. 3.

11 Id.

12Exhibit D to Defendants’ Motion, Docket Entry No. 48-16.

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the opportunity to file a petition for writ of certiorari to the

Supreme Court expired on March 20, 2008. 13

The second case, Bobbitt v. Milberg, LLP (hereafter:

“Bobbitt”), was filed in November of 2009 and remains pending

before the District Court for the District of Arizona. 14 The

Bobbitt plaintiffs allege malpractice against the plaintiffs’

attorneys in Drnek on the basis of the events leading to the order

vacating the class certification. One issue litigated in Bobbitt

is whether the plaintiffs suffered any injury by the running of the

limitations and repose periods on their claims. 15 The court held

that limitations were tolled by the Drnek class action until the

class certification was vacated in August of 2004, that thereafter

the limitations and repose periods began to run again, and that the

plaintiffs’ claims are now time-barred. 16 However, neither party

in the Hall action argues that the Bobbitt court’s determination of

the limitations and repose issues is binding on this court.

The present suit (Hall) was filed in the District Court for

the District of Arizona on December 21, 2009. 17 The case was

13Plaintiffs’ Response, Docket Entry No. 51, pp. 4-5.

14Class Action Complaint, Exhibit A.6 to Defendants’ Motion, Docket Entry No. 48-11.

15Report & Recommendation, Exhibit A.7 to Defendants’ Motion,

Docket Entry No. 48-12, pp. 6-9; Order [December 23, 2010], Exhibit A.8 to Defendants’ Motion, Docket Entry No. 48-13 (adopting

the Magistrate Judge’s Report and Recommendation).

16Id.

17Class Action Complaint, Docket Entry No. 1.

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transferred to the Southern District of Texas pursuant to an order

granting VALIC’s motion to transfer venue. 18 Shortly after the

Rule 16 scheduling conference, the defendants filed their motion to

dismiss. 19 The plaintiffs responded 20 and the defendants replied. 21

II. Defendants’ Motion and Plaintiffs’ Response

The defendants move to dismiss this action as time-barred on

the basis of the statute of limitations and the statute of repose.

The defendants summarize their argument as follows:

Under the American Pipe tolling doctrine, the Drnek class members’ individual claims were tolled from the date the plaintiffs filed the Drnek complaint until the court vacated class certification on August 17, 2004. On

that date, each member of the class (including the Halls), had—at most—five years under the post-Sarbanes Oxley statute of repose to reassert any claims alleged in Drnek . Thus, the statute of repose expired no later than August 17, 2009 for every member of the putative Drnek class. Because Plaintiffs did not file this lawsuit until December 21, 2009—more than four months after the repose period expired—their individual claims are barred and should be dismissed with prejudice. Moreover, Drnek did not toll the statutes of limitations or repose for the class claims. Under Fifth Circuit precedent, a plaintiff cannot piggyback one class action upon another and thereby indefinitely toll the limitations and repose

periods. 22

18Order Granting Change of Venue, Docket Entry No. 29.

19Defendants’ Motion, Docket Entry No. 48.

20Plaintiffs’ Response, Docket Entry No. 51.

21Reply in Support of Defendants’ Motion to Dismiss the Class Action Complaint on Statutes of Limitations and Repose (“Defendants’ Reply”), Docket Entry No. 55.

22Defendants’ Motion, Docket Entry No. 48, pp. 1-2.

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The plaintiffs argue that the limitations and repose periods

on their claims were tolled until March 20, 2008, when the time

expired for filing a petition for a writ of certiorari from the

Ninth Circuit’s denial of the petition for rehearing. 23 The

plaintiffs’ central argument is that tolling continued past the

order in Drnek vacating certification because the order did not

amount to a denial of certification.

Defendants’ argument fails because the Drnek court never denied certification. To the contrary, the court certified the class and later vacated its order with the

admonishment that the class claims are still viable. By

vacating the order, rather than issuing an order denying certification, the court as a matter of law never addressed certification. And until the court addresses class certification or issues a final judgment on the merits, American Pipe tolling continues under each and every case cited by Defendants. 24

The plaintiffs further contend that

if the court had denied certification the Drnek plaintiffs could have appealed the decision. But there was nothing for them to appeal. The Halls are therefore not attempting to re-litigate class certification. The deficiency, if any, was exclusively with the class representative, in that the representative was unable to

adequately represent the interests of the class. A deficiency in the class representative, however, does not end tolling. 25

The defendants respond that vacating an order certifying a class

and denying class certification are equivalent: “In both instances,

the court has ruled that the lawsuit will not continue as a class

23Plaintiffs’ Response, Docket Entry No. 51, p. 1.

24Id. at 9.

25Id. at 10.

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action—and tolling stops on that date.” 26 The defendants argue

that tolling did not continue through appeal but rather ended when

the district court in Drnek vacated the order certifying the

class. 27

The plaintiffs also contend that the statute of limitations

has not run because they were not on notice of their potential

claim and that whether they were on notice is a fact question

“unsuitable for a motion to dismiss.” 28 The defendants respond that

the fact that the plaintiffs in Drnek filed suit establishes that

a reasonably diligent plaintiff could discover the violation so as

to start the limitations period on the Halls’ claims. 29 The

defendants also argue that even if the limitations period has not

run, the repose period has run irrespective of any questions of

notice. 30

III. Applicable Law

A. Federal Rule of Civil Procedure 12(b)(6)

Rule 12(b)(6) allows dismissal if a plaintiff fails to state

a claim upon which relief may be granted. Fed. R. Civ. P.

26Defendants’ Reply, Docket Entry No. 55, p. 3.

27Id. at 5-6.

28Plaintiffs’ Response, Docket Entry No. 51, p. 6; id. at 15- 16.

29Defendants’ Reply, Docket Entry No. 55, pp. 6-7; Defendants’ Motion, Docket Entry No. 48, p. 10.

30Defendants’ Reply, Docket Entry No. 55, pp. 7-9; Defendants’ Motion, Docket Entry No. 48, pp. 10-11.

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12(b)(6). Dismissal under Rule 12(b)(6) may be appropriate when a

successful affirmative defense appears on the face of the

pleadings. Kansa Reinsurance Co. v. Cong. Mortg. Corp. of Tex., 20

F.3d 1362, 1366 (5th Cir. 1994). Statute of limitations arguments

are such an affirmative defense. Fed. R. Civ. P. 8(c)(1); Neel v.

Rehberg, 577 F.2d 262, 264 (1978) (quoted in HEI Res., Inc. v.

S. Lavon Evans, Jr. Operating Co., No. 5:09-cv-124, 2011

WL 1230338, at *3 (S.D. Tex. March 29, 2011)) (“Failure to file an

action within the time period provided for in the statute of

limitations is an affirmative defense, Fed. R. Civ. P. 8(c), and

may be raised by a motion to dismiss for failure to state a claim

upon which relief can be granted pursuant to Fed. R. Civ. P.

12(b)(6).”).

A Rule 12(b)(6) motion requires the court to “accept the

plaintiff’s well-pleaded facts as true and [to] view them in the

light most favorable to the plaintiff.” Chauvin v. State Farm

Fire & Cas. Co., 495 F.3d 232, 237 (5th Cir. 2007). In reaching

its conclusion “the court may consider documents attached to or

incorporated in the complaint and matters of which judicial notice

may be taken,” United States ex. rel. Willard v. Humana Health Plan

of Tex. Inc., 336 F.3d 375, 379 (5th Cir. 2003), including

“[m]atters of public record [and] items appearing in the record of

the case,” Meador v. Oryx Energy Co., 87 F.Supp.2d 658, 661

(E.D. Tex. 2000); accord Jefferson v. Lead Indus. Ass’n, Inc., 106

F.3d 1245, 1250 n.14 (5th Cir. 1997) (“The Court may take judicial

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notice of the contents of public records on a Rule 12(b)(6)

motion.”).

B. Statute of Limitations and Statute of Repose

The parties agree that the applicable limitations and repose

statute is 28 U.S.C. § 1658(b). 31 The Bobbitt court held that the

Drnek class claims were subject to the three-year statute of repose

in force before the Sarbanes-Oxley Act was passed in 2002 . 32

Because the plaintiffs’ claims would be barred whether the repose

period was three or five years, the court need not decide which

period is applicable here.

Under 28 U.S.C. § 1658(b) an action for securities fraud must

be brought no later than two years after the discovery of the facts

constituting the violation or five years after the occurrence of

the violation, whichever is earlier. The issue presented by

Defendants’ Motion is whether the limitations and repose periods on

the claims that the Halls bring, individually and on behalf of the

class, were tolled during Drnek , and if so, when such tolling

ended.

The period of repose begins to run from the date of the

misrepresentation or omission that forms the basis of the

31Defendants’ Motion, Docket Entry No. 48, p. 8; Plaintiffs’ Response, Docket Entry No. 51, pp. 7 & 15.

32Report & Recommendation, Exhibit A.7 to Defendants’ Motion,

Docket Entry No. 48-12, p. 7; Order [December 23, 2010], Exhibit A.8 to Defendants’ Motion, Docket Entry No. 48-13.

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securities law violation. In re Exxon Mobil Corp. Sec. Litig., 500

F.3d 189, 199-200 (3d Cir. 2007) (“[W]e hold that the repose period

applicable to § 10(b) claims as set out in §§ 9(e) and 1658(b)(2)

begins to run on the date of the alleged misrepresentation.”);

Malhotra v. The Equitable Life Assurance Soc. of the United States,

364 F.Supp.2d 299, 305-06 (E.D.N.Y. 2005) (granting defendants’

12(b)(6) motion on the ground that the statute of repose began to

run on the day of the initial omission and was not affected by

additional purchases made in reliance on that same omission seven

years later).

C. Class Actions and Tolling

The leading case on tolling in the context of class actions is

American Pipe and Construction Co. v. Utah, 94 S. Ct. 756 (1974).

The Supreme Court held that members of the class, whose claims

would have been barred absent tolling, could intervene in the suit

when class action status was denied. Id. at 765-66. The Court

stated the following rule:

[T]he commencement of a class action suspends the applicable statute of limitations as to all asserted members of the class who would have been parties had the suit been permitted to continue as a class action.

Id. at 766. American Pipe tolling applies not only to intervenors,

but also to members of the class bringing separate and individual

actions.

Once the statute of limitations has been tolled, it remains tolled for all members of the putative class until class certification is denied. At that point,

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class members may choose to file their own suits or to intervene as plaintiffs in the pending action.

Crown, Cork & Seal Co. v. Parker, 103 S. Ct. 2392, 2397-98 (1983).

If class certification is denied, the tolling ends. Taylor v.

United Parcel Serv., Inc., 554 F.3d 510, 519 (5th Cir. 2008). An

appeal from the denial of class certification does not extend the

tolling period. Id. (citing Calderon v. Presidio Valley Farmers

Ass’n., 863 F.2d 384 (5th Cir. 1989)). However, tolling does

continue when a case is on appeal from a decision on the merits and

not from a denial of certification.

When a class is certified . . . the district court has necessarily determined that all of the Rule 23 factors are met. From that point forward, unless the district court later decertifies the class for failure to satisfy

the Rule 23 factors, members of the certified class may

continue to rely on the class representative to protect their interests throughout the entire prosecution of the

suit, including appeal.

Id. at 520-21.

American Pipe tolling applies only to the individual claims of

the class members and not to subsequent class actions. The Fifth

Circuit has made it clear that class members may not use American

Pipe and Crown, Cork & Seal to file successive class actions such

that “putative class members may piggyback one class action onto

another and thus toll the statute of limitations indefinitely.”

Salazar-Calderon v. Presidio Valley Farmers Ass’n., 765 F.2d 1334,

1351 (5th Cir. 1985); Dickson v. Am. Airlines, Inc., 685 F.Supp.2d

623, 629-30 (N.D. Tex. 2010) (“The case authorities establish that

even if there were a tolling that could benefit an individual

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plaintiff based on an earlier-filed class action, the tolling would

salvage no more than the plaintiff’s individual claim, and could

not serve as a basis for untimely pursuit by the plaintiff of yet

another class action on behalf of putative class members.”).

IV. Analysis

Neither party has adequately briefed the question of whether

American Pipe tolling applies to the repose provision of 28 U.S.C.

§ 1658(b)(2). 33 Because the Halls’ claims would be barred even if

the repose period were tolled, the court will assume, without

deciding, that the statute of repose is subject to American Pipe

tolling. In addition, because the court concludes that the Halls’

claims are barred by the statute of repose, the court need not

address the question of whether the requirements of the statute of

limitations were met. The court will therefore base its decision

solely on the statute of repose, 28 U.S.C. § 1658(b)(2).

The misrepresentations or omissions underlying the plaintiffs’

claims were made in 2000. 34 The statute of repose therefore began

to run in 2000. In re Exxon Mobil Corp. Sec. Litig., 500 F.3d at

199-200. 35 Under American Pipe the initiation of the Drnek class

33Defendants briefly address this issue in a footnote. Defendants’ Motion, Docket Entry No. 48, p. 11 n.9.

34Class Action Complaint, Docket Entry No. 1, p. 32; id. at 33- 34; id. at 37-42.

35Plaintiffs dispute the conclusion that the statute of repose began to run in 2000: “A statute of repose is triggered when a

(continued...)

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action suspended the statutes of limitations and repose governing

the plaintiffs’ claims. American Pipe, 94 S. Ct. at 766. When the

tolling ended, the repose period began to run again, and the Halls

were free to file their claims in an individual action. Crown,

Cork & Seal, 103 S. Ct. at 2397-98.

American Pipe tolling ends when class certification is denied.

Taylor, 554 F.3d at 519. In this case, class certification was

denied when the Drnek court vacated the order certifying the class.

While the Drnek court used the label “vacated,” the court also made

it clear that the case would not proceed as a class action. The

Drnek court concluded that the plaintiffs could not “prove a class-

wide measure of damages” because its witnesses had been struck. 36

On this basis, the court determined that class certification was no

longer appropriate. 37 The Drnek court left no room for this defect

in the class to be remedied: The only remaining question at that

point was “whether this matter may go forward, absent class

35 (...continued) defendant commits a bad act. But here, the bad acts are continuing and occur each time Defendants accept money from putative class

members without telling them that the annuity provides no tax benefit. Thus, the statute of repose is ongoing.” Plaintiffs’ Response, Docket Entry No. 51, p. 7 n.8. The plaintiffs provide no legal authority for the proposition that the statute of repose begins to run anew with each subsequent purchase, and the court has

found none.

36Order [August 17, 2004], Exhibit A.3 to Defendants’ Motion,

Docket Entry No. 48-8, p. 3.

37 Id.

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certification.” 38 The Drnek court’s order vacating class

certification functioned as a denial of certification. The result

was that any tolling ceased on the date of that order -- August 17,

2004.

Citing to cases from other circuits, the plaintiffs argue that

the Drnek court simply found the class representative deficient and

did not decertify the class on the basis that the case was not

suitable for class action treatment under Rule 23. 39 The plaintiffs

infer from this premise that (1) the tolling on the individual

claims did not end because the August 17, 2004, Order was not a

decertification, and (2) Hall is not a relitigation of the denial

of certification, and a second class action should therefore be

allowed. 40 However, to accept the plaintiffs’ argument would run

counter to Fifth Circuit law. The Fifth Circuit has clearly stated

that tolling ends when the court declares class certification

inappropriate and has clearly disapproved of using tolling to allow

successive class actions. Taylor, 554 F.3d at 519-21; Salazar-

Calderon, 765 F.2d at 1351

The court is not aware of any Fifth

Circuit case that creates an exception to these two general rules

38 Id.

39Plaintiffs’ Response, Docket Entry No. 51, pp. 10, 12-15 (citing Catholic Soc. Services, Inc. v. I.N.S., 232 F.3d 1139 (9th

Cir. 2000), and Yang v. Odom, 392 F.3d 97 (3d Cir. 2004)).

40 Id.

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where the class representative is found to be deficient. The court

therefore rejects this argument.

Because the Drnek court denied certification in its April 17,

2004, Order, the appeal to the Ninth Circuit did not extend the

tolling period. While the Halls’ claims were tolled from the

initiation of Drnek until the class was decertified on August 17,

2004, American Pipe tolling does not preserve the opportunity for

successive class actions. Salazar-Calderon, 765 F.2d at 1351.

Therefore, any tolling due to Drnek cannot “serve as a basis for

untimely pursuit by the plaintiff of yet another class action on

behalf of putative class members.” Dickson, 685 F.Supp.2d at 630.

Even if the Halls’ individual claims were not barred, the case

could not go forward as a class action.

V. Conclusion

Under 16 U.S.C. § 1658(b)(2) the Halls had five years from the

date of the alleged violations of law to bring their claims. The

court concludes that any tolling that Drnek provided ended on

August 17, 2004. The Halls’ claims became barred no later than

August 17, 2009. 41 The Halls filed this action on December 21,

2009, more than four months too late. 16 U.S.C. § 1658(b)(2)

41Because more than five years passed after tolling ended, the

court need not calculate how much of the period of repose ran before the Drnek suit was filed or calculate the exact date of the violation.

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ED STATES DISTRICT JUDGE


therefore bars the Halls’ claims, and the court will dismiss this

action. 42

SIGNED at Houston, Texas, on this the 31st day of May, 2012.

42Because the entire action will be dismissed, the court need not address the defendants’ contention that the plaintiffs’ claims against Kent E. Barrett should be dismissed for failure to serve under Rule 4(m). Defendants’ Motion, Docket Entry No. 48, p. 2.

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john hall, et al. v. the variable annuity life...

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