The Supreme Court held unanimously on June 11 that American Pipe tolling does not apply to successive class actions brought outside the statute of limitations. The case, China Agritech v. Resh, resolves a circuit split over this issue.
In American Pipe & Construction Company v. Utah, the Court held that a class action filing tolls the applicable statute of limitations for putative class members. Prior to the China Agritech decision, courts agreed that American Pipe’s tolling rule at least allowed putative class members to pursue their individual claims if class certification was denied after the statute of limitations expired. Yet courts disagreed on whether American Pipe also permitted a putative class member to file a new class action outside the statute of limitations.
Relying on American Pipe, the China Agritech plaintiff filed a putative securities fraud class action under the Securities Exchange Act of 1934 after the applicable two-year statute of limitations had expired. The plaintiff argued its claim was not barred because the statute of limitations had been tolled by the filing of two previous class actions, which were materially identical to the plaintiff’s action. In the two previously filed cases, the court denied class certification and the parties individually settled.
The district court dismissed the complaint as untimely. The Ninth Circuit reversed, holding that American Pipe tolling extended to successive class actions, joining the Sixth Circuit, but splitting from the First, Second, Third, Fifth, and Eleventh Circuits.
The Supreme Court reversed the Ninth Circuit. Writing for the Court, Justice Ginsburg explained that the “watchwords of American Pipe are efficiency and economy of litigation.” She reasoned that tolling the statute of limitations for putative class members’ individual claims promotes efficiency by preventing the need for class members to file protective individual actions (or protective motions to intervene in the existing action), but “[e]xtending American Pipe tolling to successive class actions does not serve that purpose.”
To the contrary, the Court determined that “efficiency favors early assertion of competing class representative claims,” because it allows (i) a court to select the best lead plaintiff from all candidates and (ii) for class certification issues to be litigated only once, early in the litigation.
The Court’s decision in China Agritech definitively ends the practice of bringing successive class actions outside the statute of limitations. Although the practice was not widespread, when it occurred, it often resulted in significant expense and uncertainty associated with litigating serial class certification motions. For this reason, China Agritech is a welcome development for the securities litigation defense bar, as well as for others who defend class actions in federal court.