Monday, July 16, 2007

Transfer for Improper Venue does not Affect Statute of Limitations

On Friday, the Third Circuit decided Lafferty v. St. Riel and held that when a case is transferred for improper venue under 28 U.S.C. § 1406(a), the date of filing of the case in the original court—not the date of transfer—is the date of filing for statute of limitations purposes. The court reasoned that a transfer (as opposed to a dismissal) for improper venue does not make the complaint disappear. Instead, a transfer (as opposed to a dismissal) keeps the complaint intact and simply moves the existing lawsuit. Thus, although the statute of limitations of the transferee court generally applies, the filing date is that filed in the transferor court.

The decision puts the Third Circuit in some conflict with Eighth Circuit (which applies the statute of limitations of the transferor court) and in direct conflict with the Fourth, Seventh, and Eleventh Circuits (which all apply the transferee court's statute of limitations but use the date of transfer as the filing date for compliance with that statute of limitations).

Interestingly, the claims at issue were based on state law and therefore were subject to state statutes of limitations, and the transfer was out-of-state. This raises questions of venue, Erie, and conflict of laws. Yummy! I do note that the court expressly acknowledged that because the two states' statutes of limitations were identical, it did not reach any issues that might arise if the statutes of limitations applied by the two courts were different.

--Scott Dodson


UPDATE: I have corrected the date the opinion was filed.

UPDATE #2: In reporting on the case, I took the Third Circuit’s word when it characterized the Fourth, Seventh, Eighth, and Eleventh Circuits as reaching different results. Fortunately, there are those who actually read the underlying cases. Hat tip to Kevin Clermont, who concludes that Lafferty misread those Circuits’ precedents and that the rule is fairly straightforward and uniform: The § 1406(a) transferee court applies transferee law, except that the transferee’s SOL will be tolled by the initial filing if within both the transferor’s and transferee’s limitations period. Thanks, Kevin!

http://lawprofessors.typepad.com/civpro/2007/07/transfer-for-im.html

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That opinion is all over the place, although I would say that it reaches the right result in terms of concluding that the relevant date for SOL purposes is the initial filing date for cases which are TRANSFERRED and not dismissed. That aside, there is no obvious reason why the SOL of the state in which the transferor or tranferee court sit has any relevance in determining whether the SOL on the claims have run (for state law claims). For example, a person suing in diversity in NJ federal district court may be invoking CA state law as the basis of her claim. Why one would look to NJ law to determine the SOL makes no sense. If these were federal question claims (with some exceptions, e.g., Section 1983 claims) then the SOL would be the same regardless of which court the person filed in. And as for the choice of law issue, a 1406 transfer differs from a 1404 transfer. But why choice of law is relevant for this discussion eludes me. In the case of a 1406 transfer, the transferee court applies the choice of law rules (for state law claims) of the forum in which it sits -- thus if the parties do not agree which state law ought to apply, the transferee court must conduct its own choice of law analysis anew *(unless the transfer is between venues within the same state). It cannot (unless the transfer is between venues within the same state) rely upon an analysis (if any) that the transferor court conducted. In contrast, a 1404 transfer requires a transferee court to rely upon the choice of law rules of the forum in which the transferor court sits. But why any of that is relevant (i.e. the distinction for choice of law purposes between a 1404 and 1406 transfer) for deciding which date - the filing date or the transfer date - for SOL purposes escapes me.

Posted by: Alex | Jul 19, 2007 12:59:04 PM

Can you explain what is the relevance of the SOL of either the tranferor or transferee court? I take that statement as shorthand that SOL you are looking at is the SOL for the cause of action created by the forum's law in which either one one of these courts sits. But in actuality, the SOL depends on which forum's law create the cause of action. It might be the case that the forum in which either the transferor or transferee court sits is the source of law for the particular cause of action, but that need not be true. And so, why the constant reference to the SOL of either the transferee or trsnferor court -- it might be relevant, but need not be.

Posted by: Alex | Jul 23, 2007 1:05:04 PM

Alex,

I understand you to say that the SOL depends upon which substantive law applies to the cause of action. But that just begs the same choice-of-law question, right? Just because a person suing in diversity in NJ federal district court invokes California tort law as a cause of action does not mean that California law will apply. The NJ federal district court has to make an independent assessment about which law the NJ state courts would apply. And if NJ has a different tort SOL than California, things could get hairy.

Discretionary transfer under 1404 doesn't usually change the analysis--the transferee court still looks to the choice of law principles of the transferor court's state. So, if the NJ federal district court transferred the case to California district court under 1404, the California district court would apply the choice of law rules of NJ in determining what law (and SOL) to apply, and the commencement date for the action would be the date of filing in the transferor (NJ) court. That's Ferens v. John Deere.

Improper venue complicates things. If NJ was an improper venue and could not have been heard by that court in the first instance, then a 1406 transfer to a proper venue (say California) would mean that the California district court is the first proper court to determine what law governs the claims, and it would then look to California choice of law principles. The only relevant impact of the transferor court filing is the filing date, which tolls whatever SOL the transferee court applies. (I'm assuming that the initial filing was timely, by the way.)

So (if I understand you correctly), you are right that I'm using "transferee SOL" and "transferor SOL" as shorthand for a more complicated conflicts analysis, and you are also right that it will be relevant sometimes and other times not, but that doesn't change its importance in cases where it does matter.

Scott

Posted by: Scott Dodson | Jul 25, 2007 9:43:07 AM

Scott,
With all due respect, you simply recited back to me the Supreme Court's rules for deciding how a court is suppose to do a choice of law analysis depending on whether it is a 1404 or 1406 transfer. And as I understand your comment, you basically agree with me that the rule(s) that the courts of appeals have announced add a potentially irrelevant detail to the analysis - namely that the SOL in the forums of either the transferor or transferee courts might be, but need not be, relevant.

The more important issue is which type of transfer it is because that dictates the choice of law analysis the transferee court ought to do. (And for purposes of Section 1406, whether the district court DISMISSED rather than transferred the action.)

Really, the only issue the courts of appeals needed to decide is whether you look at the filing date or the transfer date in deciding the SOL issue -- regardless of which SOL applies (whether the transferor or transferee forums' or some other forum's SOL). I think for a 1404 transfer the answer to this is easy - you look at the filing date of the original complaint - because venue was proper in the original forum. For 1406 transfer, there might be some argument that its unfair to the defendant to apply the original filing date, but because the rule provides for a transfer when "justice requires" - I think this tells the transferee court Congress' preference to let potentially meritorious claims be heard and to use as the relevant date for SOL purposes the original filing date. I say potentially meritorious because even these claims might have been untimely when originally filed, even if they had been filed in the appropriate forum.

Finally, my example with CA tort law presumed (and I should have made this explicit) that NJ choice of law rules point to the application of CA tort law -- if it were a 1404 transfer - as you point out - then the transferee court would still have to apply CA tort law. (I fully understand that the transferor court doesn't often (if ever) do this analysis ex ante to any decision on venue).

Posted by: Alex | Jul 26, 2007 3:52:38 PM

To be clear the choice of law analysis DOES NOT inform a court in any manner which DATE it CHOOSES as the relevant one for SOL purposes - whether the original filing date or the transfer date - or some other date. (Unless for some reason the state law which created the cause of action would make reference to this in its SOL provision -- a proposition I find highly doubtful). The choice of law analysis only tells us which SOL to apply. And so it doesn't, as you say "beg the question" with respect to answering the question what date is relevant for SOL purposes.

Posted by: Alex | Jul 26, 2007 3:58:20 PM

Alex,

I think we agree, at least when the SOLs are the same and the initial filing was timely. And, just to be clear, when I said "I understand you to say that the SOL depends upon which substantive law applies to the cause of action. But that just begs the same choice-of-law question, right?," I meant that it begs the choice-of-law question as to which SOL applies, not as to which date controls.

Scott

Posted by: Scott Dodson | Jul 27, 2007 7:06:30 AM

Hm.. Quite interesting read actually, thanks for the good read! :)

Posted by: solfilm | Aug 11, 2008 4:21:57 PM

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