The U.S. Supreme Court recently held that its prior ruling in American Pipe & Constr. Co. v. Utah (1974) did not allow the filing of successive class actions following the denial of class certification and after the statute of limitations has run. The Court clarified that American Pipe’s doctrine of equitable tolling for class action suits is limited to only putative class members who wish to sue individually when the initial attempt at class certification fails. Thus, a putative class action plaintiff who waits out the statute of limitations is not permitted to piggyback on an earlier, timely filed class action.
In this case, putative class members brought a third class action against a company alleging securities violations after the statute of limitations had expired. While the district court dismissed the plaintiff’s class action as untimely, the Ninth Circuit reversed. The Ninth Circuit reasoned that the application of American Pipe tolling to successive class actions would promote the economy of litigation by reducing incentives for other putative lead-plaintiffs to file protective class suits while the initial certification motion is pending.
In reversing and remanding the Ninth Circuit’s decision, the Court explained that American Pipe tolls the limitation period only for individual claims because economy of litigation favors delaying those claims until after a class-certification denial. Any additional class action filings, however, should be made early on, soon after the commencement of the first action seeking class certification. This is because efficiency favors the early assertion of competing class-representative claims, from which the district court can select the best plaintiff to represent the class, as explained by the Court. Further, the Court stated that there was no showing that this ruling would substantially increase the number of protective class action filings, given that several Courts of Appeals have already read American Pipe in this way and there was no showing that these Circuit Courts have experienced a disproportionate number of protective class action filings.
This decision resolves a Circuit split, where some Circuit Courts, including the Ninth Circuit, had applied American Pipe tolling to successive class actions while others did not.
The case is China Agritech, Inc. v. Resh, and is available here.