Today the Supreme Court held in China Agritech, Inc. v. Resh (pdf) that the filing of a putative class action does not delay the time for others to file their own successive class action lawsuits. The decision should give businesses confidence that they will not face an endless series of class actions over the same conduct.

Background

The debate in China Agritech centered on the American Pipe equitable tolling rule. The Supreme Court held in American Pipe and Construction Co. v. Utah (1974) that the filing of a putative class action tolls the time for absent class members to bring individual claims while the case remains pending as a potential class action. The question in China Agritech was whether American Pipe tolling applies beyond the context of individual actions and also allows absent class members to file a successive putative class action after the statute of limitations period has run.

The Supreme Court’s decision

In an opinion for an eight-Justice majority, Justice Ginsburg explained that the “answer is no”: “American Pipe tolls the statute of limitations during the pendency of a putative class action, allowing unnamed class members to join the action individually 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.”

Justice Ginsburg explained that the American Pipe line of cases focused on “putative class members who wish to sue individually after a class-certification denial,” but did not “so much as hint[] that tolling extends to otherwise time-barred class claims.” To extend the “judicially crafted tolling rule” of American Pipe to class claims would be contrary to the reasons for that doctrine: “The watchwords of American Pipe are efficiency and economy of litigation, a principal purpose of Rule 23 as well. Extending American Pipe tolling to successive class actions does not serve that purpose.”

Justice Ginsburg concluded that it would be inefficient to allow “maintenance of untimely successive class actions”; instead, “any additional class filings should be made early on, soon after the commencement of the first action seeking class certification.” That is because “efficiency favors early assertion of competing class representative claims. If class treatment is appropriate, and all would-be representatives have come forward, the district court can select the best plaintiff with knowledge of the full array of potential class representatives and class counsel. And if the class mechanism is not a viable option for the claims, the decision denying certification will be made at the outset of the case, litigated once for all would-be class representatives.”

Justice Ginsburg concluded that the plaintiff’s proposed approach would lead to inefficiency and a lack of repose because it “would allow the statute of limitations to be extended time and again; as each class is denied certification, a new named plaintiff could file a class complaint that resuscitates the litigation.” Indeed, “the time for filing successive class suits, if tolling were allowed, could be limitless.”

Finally, Justice Ginsburg rejected the idea that American Pipe tolling endowed potential class members with a substantive right to pursue class claims that could not be divested: “Plaintiffs have no substantive right to bring their claims outside the statute of limitations. That they may do so, in limited circumstances, is due to a judicially crafted tolling rule that itself does not abridge, enlarge, or modify any substantive right.”

For these reasons, the Court held “that American Pipe does not permit a plaintiff who waits out the statute of limitations to piggyback on an earlier, timely filed class action.”

Justice Sotomayor filed a separate opinion concurring in the judgment. She would have limited the Court’s holding to securities class actions based on limitations contained in the Private Securities Reform Litigation Act. In her view, it would be appropriate to extend the American Pipe rule to class claims filed under Rule 23 (outside the securities context). Justice Sotomayor believed that “comity” would provide a safeguard against the stacking of successive class actions, and suggested that the Supreme Court could, “as a matter of equity,” conclude that “tolling only becomes unavailable for future class claims where class certification is denied for a reason that bears on the suitability of the claims for class treatment” rather than “the deficiencies of the lead plaintiff as class representative, or because of some other nonsubstantive defect[.]”

Analysis

The Court’s holding is welcome news for businesses that face the risk of successive class actions ad infinitum. As a result of the decision in China Agritech, defendants will not face new class actions that are filed after the statute of limitations has expired. To be sure, American Pipe tolling will still allow putative class members to file their own individual lawsuits if class certification is denied in a putative class action—even if the statute of limitations has run—but the stakes are lower and the risks and costs of defense are more predictable and easier to manage.

That said, the impact of China Agritech is modest in practice because most class action lawyers have incentives to file copycat class actions soon after the first case is filed in order to try to secure lead counsel status. That is especially true under the PSLRA, which (as Justice Sotomayor details) has express provisions governing the selection of lead plaintiffs. But the fight for lead-plaintiff and lead-counsel status is commonplace in class actions of all stripes, and thus class action lawyers already try to throw their hats in the ring as soon as possible. China Agritech should, however, put an end to plaintiffs’ counsel who “wait in the wings” past the expiration of the statute of limitations.