HIGHLIGHTS:

  • In China Agritech, Inc. v. Resh, et al., a unanimous U.S. Supreme Court reversed the U.S. Court of Appeals for the Ninth Circuit's previous ruling in American Pipe and Construction Co. v. Utah, holding that it "does not permit the maintenance of a follow-on class action past expiration of the statute of limitations."
  • In so holding, the Court validated the First, Second, Fifth and Eleventh Circuits, which have consistently interpreted American Pipe tolling as applying only to individual claims of class members previously absent from a class action, not to additional class actions.
  • While acknowledging that its opinion may lead to a "multiplicity of class-action filings," the Court noted that this multiple filings may better enable district courts to determine whether class treatment is appropriate, and if so, which plaintiff would be the best class representative.

Citing the need for "efficiency and economy of litigation," on June 11, 2018, a unanimous U.S. Supreme Court reversed the U.S. Court of Appeals for the Ninth Circuit, holding that its previous ruling in American Pipe and Construction Co. v. Utah, 414 U.S. 538 (1974) "does not permit the maintenance of a follow-on class action past expiration of the statute of limitations." China Agritech, Inc. v. Resh, et al., 584 U.S. ___ (2018). Justice Ruth Bader Ginsburg delivered the opinion of the Court, in which Justices John Roberts, Anthony Kennedy, Clarence Thomas, Stephen Breyer, Samuel Alito, Elena Kagan and Neil Gorsuch joined. Justice Sonia Sotomayor filed a concurring opinion.

Supreme Court Decision

The question presented to the Court was whether "[u]pon denial of class certification, 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?" Id. at *2. The Court answered "no," explaining: "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." Id.

In China Agritech, the plaintiff, an absent class member of two previously dismissed class actions, sought to bring a third class action alleging that China Agritech violated securities fraud provisions of the Securities Exchange Act of 1934. The first class action was not certified due to a lack of predominance under Rule 23(b)(3). The second class action failed because the named plaintiffs were found to be inadequate and atypical class representatives under Rule 23(a) (3) and (4). The plaintiff, who had not intervened in the prior class actions, then filed a third class action complaint. The complaint was filed outside the two-year statute of limitations applicable to the Exchange Act. The district court dismissed the class action complaint as time-barred. The plaintiffs declined to pursue individual claims, and instead appealed. In reversing the district court, the Ninth Circuit held that American Pipe tolls the limitations period for otherwise untimely class actions. In so ruling, the Ninth Circuit noted that arguments could be made that its decision could lead to the "abusive filing of repetitive class actions," but that the "current legal system is adequate to respond to such a concern." Resh v. China Agritech, Inc., 857 F.3d 994 (9th Cir. 2017), cert. granted, 138 S. Ct. 543, 199 L. Ed. 2d 423 (2017)and rev'd and remanded, 17-432, 2018 WL 2767565 (U.S. June 11, 2018).

In reversing the Ninth Circuit, the Supreme Court stated: "We hold that American Pipe does not permit a plaintiff who waits out the statute of limitations to piggyback on an earlier, timely filed class action. The 'efficiency and economy of litigation' that support tolling of individual claims, American Pipe, 414 U. S., at 553, 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." Id. at *6, emphasis in original.

The Court continued, "American Pipe tolls the limitation period for individual claims because economy of litigation favors delaying those claims until after a class-certification denial. ... With class claims, on the other hand, efficiency favors early assertion of competing class representative claims." China Agritech, 584 U.S. at *7. The Court also noted that Federal Rule of Civil Procedure 23 "evinces a preference" for the preclusion of untimely successive class actions by instructing that "class certifications should be resolved early on." Id.

In so holding, the Court validated the First, Second, Fifth and Eleventh Circuits, which have consistently interpreted American Pipe tolling as applying only to individual claims of class members previously absent from a class action, not to additional class actions. The Court invalidated the Ninth Circuit decision allowing a class member to file a new class action after the statute of limitations had run, and also invalidates, by implication, reasoning from the Sixth and Seventh Circuits, which previously held that class actions after the statute of limitations had run were permitted by American Pipe.

The Court also noted that this "clarification of American Pipe" does not violate the Rules Enabling Act because "plaintiffs have no substantive right to bring their claims outside the statute of limitations," and can do so only due to a "judicially crafted tolling rule...." Id. at 12.

While acknowledging that its opinion may lead to a "multiplicity of class-action filings," the Court noted that this is not necessarily a problem. Multiple filings may better enable district courts to determine whether class treatment is appropriate, and if so, which plaintiff would be the best class representative. As far as managing and coordinating the multiple class actions, the Supreme Court noted that "district courts have ample tools at their disposal to manage the suits, including the ability to stay, consolidate, or transfer proceedings." Id. at 14.

Concurring Opinion

Justice Sotomayor concurred with the Court that in cases governed by the Private Securities Litigation Reform Act of 1995 (PSLRA), a plaintiff who seeks to bring a successive class action "may not rely on the tolling rule established by American Pipe ..." Id., Concurrence, at *1. Justice Sotomayor, however, did not join the majority in broadly holding that this rule applies to non-PSLRA plaintiffs. Justice Sotomayor noted that there is a specific statutory process under the PSLRA wherein the named plaintiff publishes a nationwide notice alerting putative class members to the filing of the suit and informing them of the timeline to move to become lead plaintiff. Justice Sotomayor pointed out that Rule 23, in contrast to the PSLRA, does not have such a statutory notice process, and thus the lead plaintiff is often the first to file, not necessarily the best-situated plaintiff. Justice Sotomayor noted that the conclusion of the majority does not always apply in generic Rule 23 contexts, where absent class members "are most likely unaware of the existence of a putative class action." Concurrence, *4.

Conclusion and Takeaways

Going forward, the Supreme Court's clarification of the scope of the American Pipe rule brings needed certainty to this area. It now falls to the district courts to evaluate a potentially greater number of competing class action complaints, class representatives and class counsel, as well as to manage what can quickly become complex issues on crowded dockets.