Supreme Court Holds That American Pipe Tolling Does Not Apply to Successive Class Actions

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Justice Ginsburg delivered the opinion of the Court in China Agritech, Inc. v. Resh, No. 17-342, in which Chief Justice Roberts and Justices Kennedy, Thomas, Breyer, Alito, Kagan, and Gorsuch joined. Justice Sotomayor filed an opinion concurring in the judgment.

In the June 11, 2018, opinion, the Court held that the federal equitable tolling doctrine first espoused in American Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974) does not apply to successive putative class actions.

China Agritech shareholder Theodore Dean filed the first class action complaint in 2011 (Dean), alleging violations of the Securities Exchange Act of 1934, 48 Stat. 881, as amended, 15 U.S.C. § 78a et seq. When Dean was filed, the statute of limitations had not yet run. As required by the Private Securities Litigation Reform Act (PSLRA), Dean’s counsel posted notice of the action and invited other members of the purported class to move to serve as lead plaintiff. Six shareholders did seek lead shareholder status. The district court denied certification, after which the first case was settled and dismissed in September 2012. On October 4, Dean’s counsel filed a second class action complaint with a new set of plaintiffs (Smyth). This second case was also timely when filed, and eight shareholders sought lead plaintiff status. The district court again denied class certification, however, after which the Smyth plaintiffs settled their individual claims and dismissed their suit. Respondent Michael Resh—who had not sought lead plaintiff status in either Dean or Smyth—then filed the third class action complaint in 2014, well after the applicable limitations period had expired. Other shareholders moved to intervene and sought lead plaintiff status, and an amended complaint was filed. The district court dismissed the complaint as untimely, holding that Dean and Smyth did not toll the limitations period to initiate class claims. The Ninth Circuit reversed, holding that American Pipe did extend to successive class claims. The Supreme Court accepted the petition for certiorari in order to resolve a split amongst the circuits about American Pipe’s application to successive class actions.

The Supreme Court reversed and remanded, holding that American Pipe did not allow a putative class member to commence a class action after the time period allowed by the statute of limitations. While tolling of individual claims under American Pipe advanced economy of litigation, different considerations are involved with class claims. As Justice Ginsburg explained, if class treatment is appropriate and all competing class representatives have come forward, the district court can select the best representative plaintiff. Conversely, if class treatment is not appropriate, the decision denying certification will be made at the outset of the class and litigated only once as to all would-be class representatives. This approach is consistent with both Rule 23’s instruction to resolve the propriety of class certification early on and the PSLRA’s mechanisms for grouping class-representative filings at the outset of litigation. Furthermore, Respondent’s proposed reading of American Pipe would “allow the statute of limitations to be extended again and again; as each class is denied certification, a new named plaintiff could file a class complaint that resuscitates the litigation.” Thus, unlike the single extension of time during which an otherwise untimely individual claim could be brought, Respondent’s proposed reading of American Pipe would create a limitless opportunity for successive class suits. “Endless tolling of a statute of limitations is not a result envisioned by American Pipe.”

In an opinion concurring in the judgment only, Justice Sotomayor noted that she would limit the holding to cases decided under the PSLRA, which requires early notice to potential class members followed by an opportunity to join in seeking lead-plaintiff status. Alternatively, she stated that the majority could have held that, as a matter of equity, tolling only applies when class treatment is denied because of a deficiency of the lead plaintiff or some other nonsubstantive defect. In response to Justice Sotomayor’s concurring opinion, the majority observed that “…Rule 23 contains no instruction to give denials of class certification different effect based on the reason for the denial.”

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.

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