As we previously reported, last year the Ninth Circuit in Resh v. China Agritech, Inc., No. 15-55432, 2017 WL 2261024 (9th Cir. May 24, 2017), joined a circuit split when it held that the statute of limitations did not bar a third successive putative class action alleging securities fraud claims against a fertilizer manufacturer. The Ninth Circuit’s decision would have expanded the American Pipe equitable tolling rule to allow absent members of an uncertified class to wait on the sidelines until a decision on class certification, and then file a new class action outside the limitations period. Theoretically, absent class members could rely on American Pipe tolling to file one unsuccessful putative class case after another, until eventually landing before a court that would certify the class. Today, the Supreme Court analyzed the shortcomings of this possibility and unanimously snuffed out serial class action tolling.
In China Agritech, Inc. v. Resh, No. 17-432 (June 11, 2018), while the Supreme Court restated American Pipe’s longstanding equitable rule that the claims of absent class members are tolled on an individual basis prior to a decision on certification, the Court unequivocally held that the American Pipe tolling principle does not extend to subsequent efforts by those absent class members to file new class action litigation, explaining: “American Pipe does not permit the maintenance of a follow-on class action past expiration of the statute of limitations.”
Resh was the third consecutively filed putative shareholder class action against China Agritech under the Securities Exchange Act of 1934. The first two actions were both timely filed under the Exchange Act’s two-year limitation provision, and class certification was denied in each action. After certification was denied, the class representatives in the earlier actions settled their individual claims and their cases were dismissed. Resh filed the third class action case after the two-year limitations period expired, and the district court dismissed his action as time-barred. Applying American Pipe tolling, the Ninth Circuit reversed the district court’s dismissal and reinstated Resh’s putative class action. In so doing, the Ninth Circuit, joining the Sixth, became just the second circuit court to hold that American Pipe would apply to successive class actions regardless of the ground upon which certification was denied. The Third Circuit had previously concluded that the American Pipe tolling rule applied in successive class cases, but only if the inadequacy of the representative plaintiff was the reason for the denial of class certification in the prior case. In contrast, the First, Second, Fifth, and Eleventh Circuits had all held that the use of American Pipe tolling to “stack” class cases beyond the relevant statute of limitations was improper.
The Supreme Court’s opinion, drafted by Justice Ginsburg, adopted the majority position focusing on judicial efficiency and policy grounds. According to the Court, the “efficiency and economy of litigation” that supports the tolling of individual claims, does not support tolling untimely successive class action claims. Indeed, Justice Ginsburg’s opinion encourages multiple class representatives to file joint or competing cases immediately, to allow the courts to determine who might best represent a class. She posits that “[a] would-be class representative, who commences suit after expiration of the limitation period … can hardly qualify as diligent in asserting claims and pursuing relief.”
Justice Sotomayor’s concurrence argues that the Court’s decision should have been limited to cases filed under the Private Securities Litigation Reform Act of 1995 (PSLRA), a proposition that would not have resolved the issues percolating in the lower courts and would have raised more questions than it would have provided answers. At a minimum, according to Justice Sotomayor, the Court should have considered narrower restrictions on American Pipe that would allow tolling in some follow-on class actions. But according to Justice Ginsburg, American Pipe does not provide substantive rights that a narrow application might abridge. It limits statutory restrictions on equitable grounds, and should not be broadly construed.
The Court’s unequivocal holding that American Pipe does not toll the statute of limitations for successive class action cases provides welcome solace to class action defendants who can now better predict closure after a successful certification defense.
China Agritech, Inc. v. Resh, No. 17-432 (U.S. June 11, 2018).