The recent United States Supreme Court decision China Agritech, Inc. v. Resh, 201 L. Ed. 2d 123 (2018), sensibly resolved some existing confusion about the tolling effect that a putative class action creates for the members of a proposed class. In its 1974 decision in American Pipe & Constr. Co. v. Utah, the Court held that a timely filed class action effectively tolls any applicable statute of limitations for persons who are a part of the proposed class. The Court elaborated on this rule in 1983 in Crown, Cork & Seal Co. v. Parker, stating that the tolling rule applies to putative class members who, if class certification is denied, “prefer to bring an individual suit rather than intervene.” This sparked a slew of actions by plaintiff’s attorneys who argued that the tolling rule applied to both individual claims as well as successive class actions after an original class’ certification was denied. Defense attorneys, understandably, felt differently, and argued against the application of equitable estoppel by some courts, to permit the filing of “stacked” class actions.
The Court’s unanimous ruling in China Agritech, Inc. v. Resh sets the record straight and makes clear that the rule in American Pipe “tolls the statute of limitations during the pendency of a putative class action, allowing unnamed class members to join the action individual or file individual claims if the class fails. But American Pipe does not permit the maintenance of a follow-on class action past expiration of the statute of limitations.”
While widely anticipated, the ruling was no less vital to class action defendants. Under the arguments advanced by plaintiff’s attorneys, new class actions could conceivably be stacked end-to-end in perpetuity once an original class action had been timely filed. The Court recognized this perpetual domino effect, and Justice Ginsburg, writing for the Court, viewed this as a fundamental matter of judicial efficiency. American Pipe properly applies to permit tolling of individual claims, “because economy of litigation favors delaying those claims until after a class-certification denial. If certification is granted, the claims will proceed as a class and there would be no need for the assertion of any claim individually.” Early assertion of competing class representative claims is beneficial because it allows “the district court [to] select the best plaintiff with knowledge of the full array of potential class representatives and class counsel.” The Court’s holding effectively ensures class-action defendants that if class certification is denied in the first place, successive nearly-identical class suits will not follow, assuming the time period contemplated by the statute of limitations has passed.
The ruling comes as a relief to would-be class action defendants concerned that an already time consuming and dreadfully expensive area of litigation could multiply exponentially. Moreover, the stacking of successive class actions could have effectively allowed plaintiffs to “test the waters” in an original class suit, knowing there would be a fall back option, in a later-filed case. Class action defendants can now rest a little easier knowing that if class certification is defeated, future liability will be limited to individual claims if the statute of limitations period has expired.