The Ninth Circuit recently held that plaintiffs whose claims were tolled during the pendency of two class actions were not time-barred from bringing a third related putative class action when the first two classes were not certified. Plaintiffs alleged that the defendant, a Chinese holding company, along with its directors and managers, violated the Securities Exchange Act of 1934 by misstating revenue and income related to its subsidiaries’ purported fertilizer business. The named plaintiffs had previously been unnamed putative class members in two lawsuits against the same defendants and arising from the same facts in which certification was denied. Defendants in the third action moved to dismiss, arguing that the class action was time-barred under the Exchange Act’s two-year statute of limitations. Plaintiffs claimed, however, that the two earlier lawsuits had tolled the limitations period. The district court disagreed, finding that, while the earlier action tolled the statute for class members’ individual claims, it did not toll the time for a subsequent class action; otherwise, tolling could continue indefinitely while plaintiffs made repeated attempts to certify a class. The district court granted defendants’ motions to dismiss and subsequently denied reconsideration.
On appeal, however, the Ninth Circuit reversed. Like the district court, it discussed the Supreme Court’s decisions in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974) and Crown, Cork & Seal Co. v. Parker, 462 U.S. 345 (1983), in which the Court initially determined that class members’ individual claims are tolled during the pendency of a putative class action, which enables them to intervene in or bring individual actions if the class is not certified. These decisions did not, however, address whether such individuals could bring an entirely new class action.
In analyzing that question, the Ninth Circuit determined that successive class actions are an issue of preclusion rather than tolling. It found support for this conclusion in three additional Supreme Court decisions. First, the court relied on its reading of the Supreme Court’s decision in Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co., 559 U.S. 393 (2010), that only Federal Rule of Civil Procedure 23 is used to determine whether a claim is eligible for class certification, not any other laws (such as statutes of limitations). Next, in Smith v. Bayer Corp., 564 U.S. 299 (2011), the Supreme Court refused to allow a federal court that denied class certification to enjoin a parallel putative class action in state court involving different named plaintiffs. There, preclusion did not bar the state suit, as the plaintiffs had only been unnamed plaintiffs in the federal action and the class had not been certified. Finally, in Tyson Foods, Inc. v. Bouaphakeo, 136 S. Ct. 1036 (2016), the Supreme Court emphasized that the class action device does not abridge parties’ substantive rights in holding that statistical sampling evidence could be used to show class-wide liability. The Ninth Circuit interpreted these decisions as support for its determination that the statute of limitations would not bar a class action where the plaintiffs’ individual claims were not time-barred.
The court put its decision in a broader context, stating this outcome would advance the policy objectives of tolling and promote judicial economy without creating unfair surprise for defendants. It further noted that preclusion, comity, and the expense of filing multiple, unsustainable class actions would serve to dissuade the abusive filing of successive actions, but warned that these principles, and Rule 23 itself, were still obstacles to class certification in the case.