Supreme Court Limits American Pipe Tolling for Successive Class Actions

In China Agritech, Inc. v. Resh,¹ the Supreme Court of the United States held that the filing of a class action complaint does not toll a statute of limitations period for later-filed class actions raising the same claims. The Court’s decision resolved a long-disputed question in class action law and provided an important victory for class defendants by sharply limiting plaintiffs’ ability to file successive class actions following the denial of class certification. In doing so, it protects defendants against the potential for endless tolling through strategic forum shopping by class action plaintiffs.

Unresolved Questions from American Pipe

In American Pipe & Construction v. Utah,² the Court had previously held that the filing of a class complaint tolls the relevant limitations period for all members of the putative class. If the putative class is denied class certification, under American Pipe, members of the class can still timely intervene in the pending lawsuit. And in Crown, Cork & Seal Co. v. Parker,³ the Court extended the American Pipe doctrine to include new individual lawsuits, not just intervention in the original putative class action. But for decades the lower courts disagreed over whether a statute of limitations is tolled for plaintiffs seeking to file a successive class action, as opposed to an individual lawsuit.

That circuit split largely turned on competing views about which rule would best advance notions of judicial policy and efficiency. The Sixth, Seventh, and Ninth Circuits held that that policy objectives underpinning American Pipe required tolling in individual and class actions alike. The First, Second, Fifth, and Eleventh Circuits, by contrast, declined to expand American Pipe tolling to the filing of untimely class actions out of concern that doing so would allow indefinite class litigation and delay resolution of claims. The Third and Eighth Circuits, meanwhile, took a middle ground approach, holding that American Pipe tolling was generally unavailable but could be invoked in certain situations, such as when certification was denied based on the lead plaintiff’s deficiencies as a class representative.

The China Agritech Decision

On June 11, 2018, the Supreme Court resolved the question by holding that American Pipe does not toll the statute of limitations for successive class actions. All class actions must therefore be filed within the original statute of limitations period and will not benefit from tolling if class certification is denied in an earlier-filed lawsuit.

The case decided by the Supreme Court involved securities claims brought by shareholders of China Agritech. After courts had denied class certification in two earlier lawsuits, and a year and a half after the statute of limitations period had run, Michael Resh filed a third class action complaint involving materially identical claims against China Agritech. The district court ruled that his putative class action was untimely and did not benefit from tolling. The U.S. Court of Appeals for the Ninth Circuit reversed, reasoning that American Pipe tolled successive class action claims, as well as individual claims. The Supreme Court reversed.

Writing for the Court, Justice Ginsburg grounded the decision on judicial efficiency. Looking to the Federal Rules of Civil Procedure, she explained that “Rule 23 evinces a preference for preclusion of untimely successive class actions by instructing that class certification should be resolved early on.” And she concluded that the Private Securities Litigation Reform Act of 1995 (PSLRA),⁴ “evinces a similar preference . . . for grouping class-representative filings at the outset of litigation.” By requiring class plaintiffs to file notice of their complaint, the PSLRA “aims to draw all potential lead plaintiffs into the suit so that the district court will have the full roster of contenders before deciding which contender to appoint” as lead plaintiff.

The Court’s rule thus consciously promotes judicial efficiency by encouraging plaintiffs and class representatives to come forward as soon as possible. That frontloaded process, the Court explained, allows the trial court to assess the adequacy of the named plaintiffs and their counsel. As a result, the viability of class certification can be resolved “with knowledge of the full array of potential class representatives and class counsel.” By the same token, the Court reasoned, advancement of individual lawsuits should take a back seat to resolution of class certification because, if “certification is granted, the claims will proceed as a class and there would be no need for the assertion of any claim individually.”

In contrast, the Court explained, allowing successive class actions to benefit from tolling would delay the resolution of litigation and allow a nearly “limitless” window for filing additional class action claims. And, based on the experience in circuits that did not permit tolling of successive class actions prior to the China Agritech decision, the Court was unpersuaded that its decision would “lead to a ‘needless multiplicity’ of protective class-action filings.”

The Impact of China Agritech for Defendants Facing Class Actions

The Court’s decision in China Agritech will benefit class defendants, especially those facing a nationwide putative class. Under the previous split among the circuits, plaintiffs in nationwide cases could strategically file in jurisdictions that allowed tolling for class actions, knowing that, if class certification were denied in one case, they could later try their hand at another. That led to a scenario where “the statute of limitations [could] be extended time and again; as each class is denied certification, a new named plaintiff could file a class complaint that resuscitates the litigation.” Such a scenario could drag out litigation endlessly and expose a company to nearly “limitless” threats of class actions for the same claims, many years beyond the events giving rise to those claims. The Court’s ruling definitively eliminated that possibility.

It is also significant that eight Justices joined the Court’s muscular view of Rule 23 and the PSLRA as aimed at promoting judicial efficiency and reducing excessive litigation.⁵ Justice Ginsburg’s explanation of those policy interests should prove useful to class defendants even beyond the narrow context of the Court’s decision.

Footnotes

_{1) China Agritech, Inc. v. Resh, No. 17-432.
2) 414 U.S. 538 (1974).
3) 462 U.S. 345, 350 (1983).
4) 15 U.S.C. § 78u-4.
5) Justice Sotomayor filed an opinion concurring in the judgment, stating that she would have limited the decision to suits governed by the PSLRA based on differences that she perceived between the text of Rule 23 and the PSLRA.}