On June 11, 2018, the Supreme Court of the United States held
that the tolling rule first stated in American Pipe &
Construction Co. v. Utah, 414 U.S. 538 (1974) cannot salvage
otherwise-untimely successive class claims. China
Agritech, Inc. v. Resh, No. 17-432, __ S. Ct. __, 2018 WL
2767565. In American Pipe, the Court held that the
timely filing of a class action tolls the applicable statute of
limitations for all persons encompassed by the class
complaint. The issue presented in China Agritech was
whether American Pipe tolling can salvage an untimely
successive class claim. The Sixth Circuit and the Ninth
Circuit ruled that American Pipe tolling applied to
successive class action lawsuits, while certain other circuits,
including the First, Second, Fifth, and Eleventh, held that
American Pipe tolling did not apply. In China
Agritech, the Court resolved the circuit split and unanimously
held that, upon denial of class certification, a putative class
member may only intervene as an individual plaintiff or commence an
individual suit, but may not commence a new class action beyond the
time allowed by the applicable statute of limitations.
Plaintiff-respondent was a purchaser of the stock of China Agritech
and had filed the third iteration of "materially
identical" claims against the company under the Securities
Exchange Act of 1934 (the "Exchange Act"). The
district court had denied class certification in the two prior
putative class actions that had been brought by different
plaintiffs in 2011 and 2012, respectively. In June
2014—a year and a half after the statute of limitations had
expired—a class member of the two failed class suits who had
not previously applied to be a lead plaintiff filed a third
putative class action. The district court dismissed the class
action as untimely, holding that the previous two class actions did
not toll the time to initiate class claims. The Ninth Circuit
reversed, holding that the reasoning of American Pipe
extended not only to individual claims, but to successive class
claims. On December 8, 2017, the Supreme Court granted
certiorari.
The Supreme Court reversed and remanded the Ninth Circuit's
decision, holding that a putative class member may not commence a
new class action beyond the time allowed by the statute of
limitations. The Court emphasized that American Pipe
addressed only putative class members that wished to sue
individually after class certification was denied. The Court
noted the preferences within the Federal Rules of Civil Procedure
and the Private Securities Litigation Reform Act for the early
resolution of class issues, and remarked that early assertion of
competing class representative claims allows district courts to
select the best lead plaintiff or deny certification at the outset
of the case, as appropriate. In that vein, the Court held
that the "efficiency and economy of litigation" that
supported tolling of individual claims in American Pipe
militate against the tolling of class claims.
The Court emphasized that plaintiffs must demonstrate diligence in
pursuit of their claims to benefit from equitable tolling, stating
that a purported class representative who commences suit after
expiration of the class period "can hardly qualify as diligent
in asserting claims and pursuing relief." The Court
noted that holding otherwise "would allow the statute of
limitations to be extended time and again; as each class is denied
certification, a new named plaintiff could file a class complaint
that resuscitates the litigation."
The Court further noted that its holding did not "run afoul of
the Rules Enabling Act by causing a plaintiff's attempted
recourse to Rule 23 to abridge or modify a substantive right"
because "[p]laintiffs have no substantive right to bring their
claims outside the statute of limitations." The Court
also rejected the argument that declining to toll the limitation
period for successive class suits will lead to the multiplication
of protective class-action filings, noting that this had not
occurred in the Second and Fifth Circuits, where the Courts of
Appeals had already declined to read American Pipe as
permitting successive class actions outside of the limitations
period. The Court concluded that "allowing no tolling
for out-of-time class actions [] will propel putative class
representatives to file suit well within the limitation period and
seek certification promptly," thereby increasing the
"efficiency and economy of litigation," a principal goal
of American Pipe and Rule 23.
In light of this decision and others limiting the scope of
American Pipe tolling, plaintiffs may press for class
certification earlier in cases. This decision may also result
in more cases with multiple plaintiffs to avoid the risk of a class
not being certified because of a plaintiff's inadequacy.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.