Although he is remembered as a Los Angeles Laker, Hall of Famer Kareem Abdul-Jabbar, as basketball trivia buffs know, actually began his NBA career on the Milwaukee Bucks. After turning down an offer to play for the Harlem Globetrotters, Abdul-Jabbar was drafted by the Bucks in 1969, where he won the MVP in his second season while leading the Bucks to their sole NBA championship in 1970. In October 1974, Abdul-Jabbar requested a trade to Los Angeles, and the rest (including his role as Roger Murdock in Airplane!) is history.
1974 was also a monumental year with regard to class-action tolling. In American Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974), the Supreme Court held that the timely filing of a class-action tolls the applicable statute of limitations for all persons encompassed by the class complaint. Where class action status is denied, the Court ruled that members of the failed class could timely intervene as individual plaintiffs in the still-pending, non-class action, even though it had been divested of its class character. The question before the Court in China Agritech, Inc. v. Resh, Case No. 17-432 (June 11, 2018), was the natural extension of that decision: When class certification is denied, may a putative class member, in lieu of promptly joining an existing suit or promptly filing an individual action, commence a class action anew, beyond the time allowed by the applicable statute of limitations? Justice Ginsburg delivered the unanimous opinion: “Our answer is no.”
The underlying case arose in the Ninth Circuit. Purchasers of China Agritech’s stock alleged violations, specifically that China Agritech engaged in fraud and misleading business practices, causing the company’s stock price to plummet when several reports brought the misconduct to light. The Exchange Act has a two-year statute of limitations that begins to run upon discovery of the facts constituting the violation. The act also contains a five-year statute of repose.
A shareholder filed the first class-action lawsuit in 2011, and notice was disseminated via “national business-oriented publications.” Six shareholders responded to the notice, and other shareholders who had already commenced their own litigation dismissed them to link to the named action. In May 2012, after several months of discovery, the district court denied certification. Per the applicable statute, notice was again published to inform the class members that certification had failed and that they must each work to protect their own rights.
In October 2012, within the two-year limitations window, the original shareholder filed a new complaint with a new set of plaintiffs and new evidence. The district again denied certification, albeit on different grounds than the first time. The plaintiffs in that second lawsuit proceeded to settle their claims against the defendants.
On June 30, 2014, plaintiff Resh filed his own lawsuit − a year and a half after the statute of limitations had expired. Resh was not a plaintiff in either of the previous lawsuits, and the defendants therefore argued that his claim had expired. The district agreed and dismissed the lawsuit; the Ninth Circuit reversed, citing American Pipe as grounds for tolling.
The Supreme Court agreed with the District Court and reversed, and remanded the case to the Ninth Circuit. In her opinion, Justice Ginsburg explains, “The ‘efficiency and economy of litigation’ that support tolling individual claims … do not support maintenance of untimely successive class actions; any additional class filings should be made early on, soon after the commencement of the first action seeking class certification.” With respect to the plaintiff’s claim that such a ruling would lead to a flood of protective actions filed in district court, she dismantled the argument by explaining, “Several Courts of Appeal have already declined to read American Pipe to permit successive class actions filed outside of the limitations period, and there is no showing that these circuits have experienced a disproportionate number of duplicative, protective class-action filings.”
While the opinion was unanimous, Justice Sotomayor’s concurrence does serve as a warning to eager defense attorneys. Her honor agreed with the judgment of the Court, but only as to the securities class actions governed by the Private Securities Litigation Reform Act. The PSLRA, she explained, has unique notice and procedural requirements that set it apart from other class-action vehicles. She abstained from joining the rest of the Court as the ruling applied to cases beyond that limited scope, as “[t]he same conclusion simply does not follow in the generic Rule 23 context, where absent class members are most likely unaware of the existence of a putative class action.”
The Bottom Line: The filing of a putative Rule 23 class action will toll the statute of limitations for individual class members, but only for their own individual claims.