Current Print Issue

Vol. 167, Issue 1

  December 2018


Featured Article

Class Actions, Statutes of Limitations and Repose, and Federal Common Law

By
Stephen B. Burbank & Tobias Barrington Wolff
167 U. Pa. L. Rev. 1 (2018)

After more than three decades during which it gave the issue scant attention, the Supreme Court has again made the American Pipe doctrine an active part of its docket. American Pipe addresses the tolling of statutes of limitations in federal class action litigation. When plaintiffs file a putative class action in federal court and class certification is denied, absent members of the putative class may wish to pursue their claims in some kind of further proceeding. If the statute of limitations would otherwise have expired while the class certification issue was being resolved, these claimants may need the benefit of a tolling rule. The same need can arise for those who wish to opt out of a certified class action. American Pipe and its progeny provide such a tolling rule in some circumstances, but many unanswered questions remain about when the doctrine is available.

In June 2017, the Court decided CalPERS v. ANZ Securities, holding that American Pipe tolling was foreclosed to a class member who opted out of a certified class in an action brought to enforce a federal statute (the Securities Act of 1933) that contained what the Court labeled a “statute of repose.” In June 2018, the Court decided Resh v. China Agritech, which held that American Pipe tolling is not available when absent members of a putative class file another class action following the denial of certification in the first action rather than pursuing their claims individually in subsequent proceedings.

In this Article we develop a comprehensive theoretical and doctrinal framework for the American Pipe doctrine. Building on earlier work, we demonstrate that American Pipe tolling is a federal common‐law rule that aims to carry into effect the provisions and policies of Federal Rule of Civil Procedure 23, the federal class action device. Contrary to the Court’s assertion in CalPERS, American Pipe is not an “equitable tolling doctrine.” Neither is it the product of a direct mandate in Rule 23, which is the source of authority, not the source of the rule. Having clarified the status of American Pipe tolling as federal common law, we explain the basis on which the doctrine operates across jurisdictions, binding subsequent actions in both federal and state court. We argue that the doctrine applies whether the initial action in federal court was based on a federal or state cause of action—a question that has produced disagreement among the lower federal courts. And we situate American Pipe within the framework of the Court’s Erie jurisprudence, explaining how the doctrine should operate when the putative class action was in federal court based on diversity jurisdiction and the courts of the state in which it was filed would apply a different rule. Finally, we discuss how CalPERS should have been decided if the Court had recognized the true nature of the American Pipe rule and if it had engaged the legislative history of the Securities Act rather than relying on labels.


Featured Comment

Securities Liability and the Role of D&O Insurance in Regulating Initial Coin Offerings

By
Adrian Parlow
167 U. Pa. L. Rev. 211 (2018)

We are in the midst of a revolution in financial markets, as cryptocurrencies based on blockchain technology promise a smart, decentralized, secure, and flexible means of conducting transactions. Since Bitcoin was introduced in 2009, cryptocurrencies have been steadily gaining in prominence and economic significance, shifting from fringe instruments linked to illicit drug marketplaces and money laundering to mainstream financial products used across the globe to store wealth, facilitate marketplaces, and provide platforms that support the development of new technologies. Bitcoin can now be readily converted to cash through a growing network of “Bitcoin ATMs,” can be hedged against using Bitcoin Futures that trade on derivatives markets, and is forcing major banks to adapt through direct investments in blockchain technologies and policies regarding the use of their funds in consumer cryptocurrency investments.

The year 2016 brought major changes to the cryptocurrency market, including the rise to prominence of utility‐focused blockchain applications that offer greater functionality such as the operation of smart contracts. The most prominent of these, Ethereum (and its currency “Ether”), has become the second most widely traded cryptocurrency, with a market capitalization of approximately $53 billion (as compared to Bitcoin’s $117 billion) as of June 2018. Around this time the industry also saw the rise of Initial Coin Offerings (ICOs), funding mechanisms that resemble a hybrid of crowdfunding and venture capital (VC) financing, in which a set number of “coins” or “tokens” in a new crypto venture are offered for sale to the public. Individuals can then buy in using fiat currency or other cryptocurrencies such as Bitcoin and Ether. While in 2015 an exceptionally successful ICO might have raised only a few million dollars, in 2016 ICO raises of $150 million or more began appearing, conducted by what were essentially seed‐stage companies that would have been unlikely to raise more than a few million dollars from venture capital firms or angel investors (the typical fundraising sources for such companies). In 2017, total ICO funding topped $3 billion, exceeding the total amount of VC investment in early stage Internet companies for the year.

However, despite the meteoric rise of ICOs as the funding method of choice for cryptocompanies, ICOs have been afflicted by a number of problems, including regulatory hurdles, fraudulent activity, and negative public perception. While reliable estimates are lacking, informed observers have repeatedly warned that many ICOs are fraudulent; with nothing but “a swanky website and an official‐looking whitepaper,” dozens of ICOs have raised money for what have later turned out to be Ponzi schemes or fake companies whose owners steal the money and disappear. There are a number of factors that have contributed to these concerning circumstances. The decentralized nature of the technology means that large amounts of money can flow through ventures without a central financial institution present to act as a guarantor. The targeting of ordinary people, rather than sophisticated VC firms or wealthy individuals, means that few investors have the expertise or the financial incentive to engage in costly due diligence to ensure the veracity of a firm’s claims. The absence—until very recently—of significant regulatory oversight has meant that the ICO process is largely nonstandardized, giving firms significant latitude to include false or misleading information in their investment solicitation materials or to omit important information. Finally, the frothiness of the cryptomarket has meant that investors have at times been willing to accept significant risk of being defrauded in return for the potential for astronomical returns.


Online Exclusives
 Last updated: February 20, 2019


Essay

Rogue Retailers or Agents of Necessary Change? Using Corporate Policy as a Tool to Regulate Gun Ownership

By
Mystica M. Alexander & Scott R. Thomas
166 U. Pa. L. Rev. Online 283 (2018)

The tragedy of the Parkland, Florida high school shooting shocked the nation and sent thousands of student protestors out of the classrooms and into the streets. Sadly, the nation once again found itself asking the increasingly familiar question of how such senseless tragedies can be prevented. As the search for an answer to this question continues, several avenues of response are being explored. Some have focused on a failure of the “system” and take federal and state authorities to task for not heeding the warning signs. Others are considering how society can deal more effectively with the problem of mental illness. Still others are calling for more restrictive gun laws to address this problem. These calls for action are familiar and the likely federal response is equally familiar: nothing. Federal legislative action that puts further significant limitations on gun ownership is unlikely in the short term. As a result of legislative inaction, we are now seeing a grassroots response not only from concerned individuals, but from corporations willing to take actions that they hope will lessen the likelihood of another act of gun violence by someone under the age of twenty‐one. To accomplish this, retailers such as Walmart, Dick’s Sporting Goods (DSG), Kroger, and L.L. Bean have modified store policies across the United States and will no longer sell long guns (shotguns and rifles) or ammunition to those under twenty‐one. DSG was one of the first to implement this restriction on February 28, 2018. These actions have already been met with resistance from consumers in Oregon and Michigan who allege that such policies violate state public accommodation laws. While the scope of the public accommodation laws’ protections varies among states, Oregon and Michigan are among nineteen jurisdictions that consider age to be a protected class. The first lawsuits in the nation were filed in Oregon against DSG and Walmart by Tyler Watson, a twenty‐year‐old Oregon resident who was unable to purchase a rifle due to the retailers’ newly enacted age restrictions, alleging violation of the public accommodation laws. This Essay explores the merits of this claim using Mr. Watson’s case against DSG as the illustration since it is the furthest along procedurally. After explaining why Mr. Watson is likely to prevail in court, this Essay then concludes with a discussion of the implications of this case for other jurisdictions.


Response

The Bankruptcy Firm

By
Vincent S.J. Buccola
167 U. Pa. L. Rev. Online 1 (2019)

Bankruptcy scholars spend too much time thinking about distributional norms and not enough assessing the impact of bankruptcy rules on the quality of governance in Chapter 11. That, in short, is the thesis of The Bankruptcy Partition, the contribution of Professors Baird, Casey, and Picker to this symposium. Of course, the authors being who they are, the Article is about much, much more. This brief response seeks to draw out some of the article’s themes and, in the last Part, to suggest an approach to thinking about the nature of the bankrupt firm that could deepen and extend a conversation the authors usefully begin.


Case Note

Of Laundering and Legal Fees: The Implications of United States v. Blair for Criminal Defense Attorneys who Accept Potentially Tainted Funds

By
Philip J. Griffin
164 U. Pa. L. Rev. Online 179 (2016).

“In the common understanding, money laundering occurs when money derived from criminal activity is placed into a legitimate business in an effort to cleanse the money of criminal taint.” 18 U.S.C. § 1957, however, prohibits a much broader range of conduct. Any person who “knowingly engages” in a monetary transaction involving over $10,000 of “criminally derived property” can be charged with money laundering under § 1957.

Because § 1957 eliminates the requirement found in other money laundering statutes that the government prove an attempt to commit a crime or to conceal the proceeds of a crime, § 1957 “applies to the most open,

above‐board transaction,” such as a criminal defense attorney receiving payment for representation. In response to pressure from commentators, Congress passed an amendment two years after § 1957’s enactment defining the term “monetary transaction” so as to exclude “any transaction necessary to preserve a person’s right to representation as guaranteed by the sixth amendment to the Constitution.”

The statutory safe harbor found in § 1957(f)(1) has successfully immunized defense attorneys from money laundering prosecutions. However, United States v. Blair raised concerns among the criminal defense bar because of its holding that an attorney‐defendant was not entitled to protection under § 1957(f)(1). In Blair, an attorney‐defendant was convicted of violating § 1957 for using $20,000 in drug proceeds to purchase two $10,000 bank checks to retain attorneys for associates of his client. Noting that Sixth Amendment rights are personal to the accused and that Blair used “someone else’s money” to hire counsel for others, the Fourth Circuit held that his actions fell “far beyond the scope of the Sixth Amendment” and were not protected by the safe harbor. In his strongly‐worded dissent, Chief Judge Traxler criticized the court for “nullif[ying] the § 1957(f)(1) exemption and creat[ing] a circuit split.”

This Case Note discusses the implications of Blair for the criminal defense attorney who accepts potentially tainted funds and proposes a solution to ameliorate its unintended consequences. First, Part I provides relevant background information by discussing the money laundering statutory framework, the criticisms leveled at the framework as it was written, the Congressional response to that criticism, and § 1957(f)(1)’s application up until Blair. Next, Part II describes the Blair decision in detail and examines its implications. Part III then proposes a novel solution to the problems it created. Finally, the Case Note concludes with a brief word of practical advice for the criminal defense bar.