For Whom the Statute Tolls? A California Court Refuses Equitable Tolling for RMBS Claims

Map and gavel

A recent decision dismissing an RMBS lawsuit in the Los Angeles County Superior Court highlights the critical importance of filing your claims in the correct court whenever there is a jurisdictional issue.  By rejecting the plaintiff’s equitable tolling arguments and applying the appropriate statutory limitations periods, the decision is notable because it arguably conflicts with similar decisions by other state courts involving similar RMBS claims.  We have previously written about the application of statutes of limitations to RMBS claims, which may be viewed here.

Massachusetts Mutual Life Insurance Company, an insurance company that allegedly purchased over $300,000,000 worth of RMBS issued by various Countrywide entities, filed a complaint in Massachusetts federal court for violations of Massachusetts securities laws, against four former Countrywide officers that had no ties to Massachusetts.  That case was then transferred to the multi-district litigation proceeding in California federal court where dozens of Countrywide RMBS-related cases are currently being overseen.  The MDL court then subsequently granted the former Countrywide executives’ motions to dismiss for lack of personal jurisdiction in Massachusetts.
Mass Mutual then attempted to refile its claims against the former Countrywide executives, this time in California Superior Court in April 2012.  (Mass. Mutual Life Ins. Co., v. Mozilo, et. al., No. BC482950)  However, the “misguided decision” to initiate the suit in Massachusetts resulted in plaintiff’s claims being dismissed on timeliness grounds on March 10, 2014.  Superior Court Judge Amy D. Hogue, sitting in the Los Angeles County Superior Court’s complex civil department by temporary assignment, held that plaintiff had filed its California complaint too late and had no valid reason for doing so.  A copy of the ruling may be viewed here.  Notably, the court explained that a plaintiff is not entitled to invoke California’s equitable tolling doctrine for the time its claims are pending in a court that does not have jurisdiction to hear them.  Judge Hogue rejected several tolling arguments that plaintiff hoped would save its untimely RMBS misrepresentation claims asserted against the four former Countrywide executives, reaching a different conclusion than some other courts that have stated that equitable tolling should be allowed under similar circumstances. (E.g., Valenzuela v. Kraft, Inc., 801 F.2d 1170 (9th Cir. 1986); Shafnacker v. Raymond James & Assocs., Inc., 425 Mass. 724 (1997); Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d 1380 (3d Cir. 1994)).

This recent decision underscores what a defendant can do to successfully rebut a plaintiff’s attempt to invoke California’s equitable tolling doctrine.  In this case, the plaintiff did not, and was not able to, affirmatively plead specific facts to justify any delayed discovery of its claims as required for equitable tolling.  The ruling affirmed that a plaintiff cannot simply ask the court to presume these facts based on findings in other actions involving the same underlying events.  Also, a defendant may be able to use a plaintiff’s early litigation tactics to bolster its own arguments.  By choosing an improper court at the outset, a plaintiff does not only risk being thrown out of that court for lack of personal jurisdiction, but also delays proceedings even further and may not automatically receive any future benefit of the original forum’s statute of limitations, equitable tolling doctrine, or saving statute.

An important lesson for plaintiffs from this decision is that litigation tactics concerning where to file a lawsuit may later affect tolling-related arguments if there are statute of limitations arguments at issue.  As Judge Hogue stated in her order sustaining defendants’ demurrer:  “[t]he point is that [plaintiff] could have sued and obtained jurisdiction over Countrywide and the individual Defendants in California at the outset . . . [and] there is no equity in tolling the statute of limitations to allow plaintiff to correct the error by filing suit in a jurisdictionally appropriate forum after the statute [of] limitations has run.”