Eighth Circuit Upholds District Court’s Dismissal of Missouri Second Mortgage Loan Act Class Action

In Thomas v. U.S. Bank National Associationet al., No. 14-2265 (8th Cir. June 18, 2015), the Eighth Circuit affirmed the district court’s order dismissing a putative class action that alleged the defendants violated the Missouri Second Mortgage Loan Act (“MSMLA”) by charging and collecting impermissible fees in connection with plaintiffs’ principal loan amount. The plaintiffs alleged that they represented some 1,600 Missouri homeowners who obtained a second mortgage from FirstPlus (a now-defunct company). After issuing loans, FirstPlus sold and assigned the loans and second mortgages to a myriad of different entities who constituted the defendant class in the case. The district court dismissed the case after concluding that the three-year statute of limitations applied to the MSMLA claims and that class action tolling principles did not save the class.

This case was but one in a long line of cases against various institutions for allegedly charging and collecting fees in connection with second mortgages. In 2000, a different set of named borrowers started a Missouri state court action alleging the same MSMLA claims against FirstPlus. After the trial court granted summary judgment to FirstPlus, the Missouri Court of Appeals affirmed. See Adkison v. First Plus Bank, 143 S.W.3d 29 (Mo. Ct. App. 2004).

The original litigation played important role in the court’s holding that the claims were time-barred because the plaintiffs alleged that they were members of the Adkison putative class, and therefore, their claims against the purchasers and assignees of the FirstPlus loans should have been tolled from the filing of Adkison in 2000 until its dismissal in 2004. Plaintiffs relied on American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), which generally provides that the filing of a class action lawsuit in federal court tolls the statute of limitations for the claims of unnamed class members until class certification is denied or when the member ceases to be part of the class.

The court, however, made short work of plaintiffs’ American Pipe tolling argument. The court explained that federal courts sitting in diversity must apply state law regarding statute of limitations, including state tolling laws. The Missouri Supreme Court clarified just recently that “American Pipe involved the tolling of individual actions while a federal class action was pending to preserve the underlying purpose of the class action procedure” but that in Missouri the “statute of limitations may be suspended or tolled only by specific disabilities or exceptions enacted by the legislature.” Rolwing v. Nestle Holdings, Inc., 437 S.W.3d 180, 184 (Mo. 2014) (en banc). Plaintiffs tried to argue that Rolwing was mere dicta or that its holding was only applicable to the facts in that case, but the Eighth Circuit rejected that argument and found that the Missouri Supreme Court had not limited Rolwing in such a manner and that the Missouri legislature has not permitted equitable tolling in class actions.

This decision is good reminder that federal courts confronted with assessing the timeliness of a state law claim must consult the law of the relevant state to determine whether, and to what extent, the state law statute of limitations can be tolled and whether that state follows American Pipe tolling principles.