The Supreme Court’s Decision

On June 11, 2018, the Supreme Court (Ginsburg, J.) held in China Agritech, Inc. v. Resh, et al.[1] that individuals seeking to file class action complaints do not benefit from American Pipe tolling of applicable statutes of limitations. Under American Pipe & Construction Company v. Utah,[2] individual plaintiffs seeking to pursue otherwise time-barred claims may take advantage of the tolling of a statute of limitations triggered by an earlier, timely filed class complaint by intervening as individual plaintiffs in the “failed” class action. The Court subsequently clarified American Pipe in Crown, Cork & Seal Co. v. Parker,[3] holding where class action status is denied, individuals covered by a class complaint could not only pursue their individual claims by intervening in the existing lawsuit, but could also pursue a new action.

Plaintiff in China Agritech argued that the same tolling doctrine should permit plaintiffs to pursue new class actions beyond the expiration of the applicable statute of limitations. The District Court refused to so extend American Pipe, but the Court of Appeals for the Ninth Circuit reversed. In so holding, the Ninth Circuit joined the minority of courts taking an expansive view of American Pipe tolling, in opposition to the numerous appellate decisions refusing to toll statutes of limitations for successive class actions.[4]

In reversing the Ninth Circuit’s decision, the Supreme Court began by examining the reasoning behind its American Pipe holding. Permitting individual plaintiffs to wait and see how a potential class action fared before filing their own actions is consistent with promoting “efficiency and economy of litigation,” the “principal purpose” animating Federal Rule of Civil Procedure 23, the Court explained. Otherwise, individual plaintiffs would need to file individual placeholder actions to preserve their rights, which the Court in Crown, Cork explained was “precisely the situation that Federal Rule of Civil Procedure 23 and the tolling rule of American Pipe were designed to avoid.”[5]

Permitting potential class claimants to take a wait-and-see approach did not offer similar efficiency gains. To the contrary, “efficiency favors early assertion of competing class representative claims.” The Court further distinguished American Pipe by explaining that the tolling permitted under that precedent was finite—i.e., should a court deny class certification, individuals would have a limited time (the previously tolled limitations period) to file their own actions—whereas the Ninth Circuit’s expansion of tolling to subsequent class plaintiffs might invite “[e]ndless tolling” where myriad plaintiffs might seek to resuscitate class claims by filing new complaints again and again. China Agritech preserves those plaintiffs’ rights to file otherwise time-barred actions in their individual capacity, but precludes the potentially endless filing of new class complaints.

Justice Sotomayor wrote an opinion concurring in the judgment. She agreed with the Court’s reasoning as it pertained to PSLRA cases like China Agritech—given the PSLRA’s “significant procedural requirements … that do not apply to individual or traditionally joined securities claims”—but would have limited the Court’s holding to the PSLRA context.[6] Because respondents in China Agritech bypassed the PSLRA’s statutory process by which all prospective class representatives are to come forward, Justice Sotomayor agreed with the majority that respondents “can hardly qualify as diligent” in asserting their claims, but expressed concerns that the same might not be true of potential class plaintiffs who did not receive the kind of notice of previously filed complaints required by the PSLRA.[7]

Takeaway

China Agritech requires potential class plaintiffs to file their complaints within the time permitted by the applicable statutes of limitations, with the consequence of watching from the sidelines dismissal of class claims as time-barred. While individuals will still be able to avail themselves of American Pipe tolling to preserve their individual claims, defendants will gain some measure of certainty upon the expiration of a tolling period that, should a court refuse to certify a class, there are no potential class plaintiffs lying in the weeds able to restart the clock.

The Supreme Court’s holding is particularly interesting in the wake of its recent unanimous decisions in Gabelli v. SEC[8] and Kokesh v. SEC,[9] where the Court expressed similar concerns about needing to enforce statutes of limitations in refusing to apply the discovery rule to government enforcement actions (Gabelli) and in limiting the relief the Securities and Exchange Commission could obtain for conduct pre-dating the applicable limitations period (Kokesh).

The China Agritech decision also follows the Court’s decisions addressing the class action process in Walmart v. Dukes[10] and Comcast Corp. v. Behrend.[11} While the Court recognized the important function of class actions under the federal rules, the decisions in Walmart and Comcast sought to reign in certification of inappropriate classes, requiring a rigorous analysis of whether issues common to the class justify class certification. In China Agritech, the Court stressed that the complaint at issue was the third class action complaint filed based on the same underlying facts and was filed almost five years after the alleged misconduct. Thus, the Court’s decision in China Agritech can be read as another attempt to impose some measure of order and efficiency on often unwieldy, burdensome, and interminable class action proceedings.