Supreme Court Considers an Expansion of Class-Action Tolling

by Patterson Belknap Webb & Tyler LLP
Contact

On March 26, 2018, the Supreme Court heard argument in China Agritech, Inc. v. Resh (No. 17-432), a case in which the justices will determine whether a plaintiff whose otherwise untimely claim has been tolled by the rules articulated in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974) and Crown, Cork & Seal Co. v. Parker, 462 U.S. 345 (1983) may bring a putative class action, or is limited to filing an individual claim.  In American Pipe and Crown, Cork, the Supreme Court held that the filing of a class action complaint tolls the statute of limitations for persons that fall within the proposed class definition until the court denies the motion for class certification.  In American Pipe, this rule rendered timely the claims of plaintiffs who sought to intervene in the pending action after the court denied class certification, 414 U.S. at 561, and in Crown, Cork, the Court held that tolling applied to plaintiffs who initiated individual actions after the district judge issued the decision denying class treatment, 462 U.S. at 354. 

The relevant factual background in Resh is relatively simple.  Reports circulated in early 2011 that China Agritech, Inc. (“China Agritech”), a fertilizer company incorporated in Delaware and with its principal place of business in China, had fraudulently misstated its revenue and earnings.  Two sets of plaintiffs brought two timely, sequential class actions alleging violations of the securities laws.  In each case, the judge denied the plaintiffs’ motion for class certification, the first for failure to demonstrate that common questions predominated over individual ones (Federal Rule of Civil Procedure 23(b)(3)), and the second on the grounds that the lead plaintiffs failed to demonstrate that their claims and defenses were typical of the class (Federal Rule of Civil Procedure 23(a)(3)) and that they would “fairly and adequately protect the interests of the class” (Federal Rule of Civil Procedure 23(a)(4)). 

In June 2014, a third action was filed based on the same facts and seeking to represent the same class.  The district court dismissed the action for failure to state a claim, on the ground that the statute of limitations had lapsed.  The plaintiffs had argued that the pendency of the two earlier putative class actions had tolled the statute of limitations according to the rules of American Pipe and Crown, Cork. The district court disagreed, but the Ninth Circuit reversed.

Before the Supreme Court, both parties contended that this case entailed only a straightforward application of the rules already established in American Pipe and Crown, Cork.  China Agritech argued that equitable tolling principles require a plaintiff to demonstrate that he or she has exercised due diligence and that extraordinary circumstances exist.  A person who falls within the class definition contained in the initial complaint demonstrates diligence by, first, relying on the class representatives to protect his or her rights and, second, intervening or filing an individual action after the denial of a class certification motion.  According to China Agritech, in this case, while the individual claim of a would-be lead plaintiff is equitably tolled, those of the absent class members are not.  China Agritech further argued that an individual seeking named-plaintiff status in a class action does not exercise diligence by waiting until after the failure of a certification motion to come forward; rather, a person who wants to represent a class should come forward early in the life of the litigation.  China Agritech also contended that no extraordinary circumstances justified the delay.

In contrast, the would-be lead plaintiffs argued that the class-action claims remain timely because the limitations period was suspended for all asserted members of the class while earlier class-certification motions were pending.  Respondents suggested that the rationale for allowing equitable tolling to benefit subsequent class actions is simple: any person that fell within the class definition of the initial complaint has a timely claim, and he or she may use any of the procedural rules available to any other litigant.  Indeed, according to respondents, any other holding would violate the Rules Enabling Act, as use of Rule 23 cannot abridge any substantive rights.  At oral argument, both Chief Justice Roberts and Justice Gorsuch indicated that they agreed that China Agritech seemed to ask for an exception to Rule 23.  Respondents further argued that, according to American Pipe, absent class members demonstrate diligence simply by relying on any pending putative class actions.  Additionally, they argued that allowing an individual plaintiff whose claim is otherwise equitably tolled allege claims on behalf of a class furthers the judicial economy rationale of Rule 23, and extraordinary circumstances are therefore present.  Justice Sotomayor acknowledged this point, and suggested that Rule 23 evinces a preference for class over individual adjudication, and against duplicative filings, whether styled as individual or class actions. 

The parties also disagreed sharply about the policy outcomes flowing from their proposed rules.  According to China Agritech, the rule proposed by respondents would eviscerate the statute of limitations.  Respondents argued that the Court had addressed and rejected these concerns in Smith v. Bayer Corp. 564 U.S. 299 (2011), which held that a denial of a motion for class certification does not have preclusive effect with respect to absent class members.  Rather, according to respondents, principles of stare decisis and comity, as well as the rational interest of class counsel in not seeking to continually relitigate a meritless case, will prevent the statute of limitations from extending indefinitely.

Though the substantive claims in Resh involve the securities laws, the holding will impact any future class litigation—including antitrust class actions.  We will provide an update when the Court issues its decision.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Patterson Belknap Webb & Tyler LLP | Attorney Advertising

Written by:

Patterson Belknap Webb & Tyler LLP
Contact
more
less

Patterson Belknap Webb & Tyler LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.