On 11 June 2018, the U.S. Supreme Court, resolving a split between different courts of appeals, held in China Agritech, Inc. v. Resh that the tolling rule first stated in the landmark case of American Pipe & Construction Co. v. Utah cannot salvage otherwise untimely successive class claims. Upon denial of class certification, the court held, a putative class member may intervene as an individual plaintiff or commence an individual suit, but may not commence a new class action beyond the time allowed by the applicable statute of limitations.
In American Pipe, the Court had held that the timely filing of a class action tolls (suspends) the applicable limitations period for all persons encompassed by the class complaint. The issue presented in China Agritech was whether American Pipe tolling can salvage a new class claim filed after the expiration of the limitations period that would ordinarily apply. The Sixth Circuit (which covers Kentucky, Michigan, Ohio and Tennessee) and the Ninth Circuit (which covers Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada and Washington) ruled that American Pipe tolling applied to successive class action lawsuits, while certain other circuits, including the First, Second, Fifth, and Eleventh, held that American Pipe tolling did not apply.
The plaintiff, a China Agritech shareholder, sued the company in June 2014, after the district court had denied class certification in two prior putative class actions (brought by different plaintiffs in 2011 and 2012, respectively) and a year and a half after the limitations period had expired. The district court, dismissing the class action as untimely, held that the previous two class actions did not toll the time to initiate class claims. The Ninth Circuit reversed, holding that the reasoning of American Pipe extended not only to individual claims, but to successive class claims.
The Supreme Court reversed and remanded the Ninth Circuit's decision. It held that a putative class member may not commence a new class action beyond the time allowed by the statute of limitations. The Court emphasized that American Pipe addressed only putative class members that wished to sue individually after class certification was denied. The Court noted that both the Federal Rules of Civil Procedure and the Private Securities Litigation Reform Act favour the early resolution of class issues, and remarked that early assertion of competing class representative claims allows district courts to select the best lead plaintiff or deny certification at the outset of the case, as appropriate. In that vein, the Court held that the "efficiency and economy of litigation" that supported tolling of individual claims in American Pipe militate against the tolling of class claims.
The Court emphasized that plaintiffs must demonstrate diligence in pursuit of their claims to benefit from equitable tolling, and said that a purported class representative who commences suit after the class period expires "can hardly qualify as diligent in asserting claims and pursuing relief." The Court noted that holding otherwise "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."
The Court further noted that its holding did not "run afoul of the Rules Enabling Act by causing a plaintiff's attempted recourse to Rule 23 to abridge or modify a substantive right" because "[p]laintiffs have no substantive right to bring their claims outside the statute of limitations." The Court also rejected the argument that declining to toll the limitation period for successive class suits will lead to the multiplication of protective class-action filings, noting that this had not occurred in the Second and Fifth Circuits, where the Courts of Appeals had already declined to read American Pipe as permitting successive class actions outside of the limitations period. The Court concluded that "allowing no tolling for out-of-time class actions [] will propel putative class representatives to file suit well within the limitation period and seek certification promptly," thereby increasing the "efficiency and economy of litigation," a principal goal of American Pipe and Rule 23 (the class certification rule of the Federal Rules of Civil Procedure).
In light of this decision and others limiting the scope of American Pipe tolling, plaintiffs may press for class certification earlier in cases. This decision might also cause class counsel to include more individual plaintiffs in class action filings, just in case one or more prove inadequate and a class is not certified for that reason.
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