United States: Resolving Circuit Split, Supreme Court Rules That Successive Class Actions Are Not Tolled Under American Pipe

On 11 June 2018, the U.S. Supreme Court held in China Agritech, Inc. v. Resh that the tolling rule first stated in American Pipe & Construction Co. v. Utah cannot salvage otherwise untimely successive class claims.

In American Pipe, the U.S. Supreme Court had held that the timely filing of a class action tolls (suspends) the limitations period for all persons covered by the class complaint. The issue in China Agritech was whether American Pipe tolling can salvage an untimely successive class claim – in other words, a claim filed on behalf of a putative class after the expiration of the limitations period, but before the time when the limitations period would expire if the court were to exclude time during which a previous proposed class action was pending. The Sixth Circuit (which hears appeals from Kentucky, Michigan, Ohio and Tennessee) and the Ninth Circuit (which hears appeals from Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, Washington, Guam and the Northern Mariana Islands) had ruled that American Pipe tolling applied to successive class action lawsuits, while certain other circuits, including the First, Second, Fifth, and Eleventh, had said it did not. Here, the Court resolved the circuit split and unanimously held that, upon denial of class certification, a putative class member may only 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. The plaintiff was a purchaser

The plaintiff was a purchaser of the stock of China Agritech and had filed the third iteration of "materially identical" claims against the company under the Securities Exchange Act of 1934 (Exchange Act). The district court had denied class certification in the two prior putative class actions that had been brought by different plaintiffs in 2011 and 2012, respectively. In June 2014 (a year and a half after the statute of limitations had expired), someone who would have been a member of the class in those two cases if the court had certified it, but had not previously applied to be a lead plaintiff, filed a third putative class action. The district court, dismissing the class action as untimely, held that the previous two class actions did not toll the time to bring class claims. The Ninth Circuit reversed and held 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 and 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, under the Federal Rules of Civil Procedure and the Private Securities Litigation Reform Act of 1995, early resolution of class issues is preferred. Early assertion of competing class representative claims, the Court added, allows district courts to select the best lead plaintiff or deny certification at the outset of the case, as appropriate.

The Court emphasized that plaintiffs must demonstrate diligence in pursuit of their claims to benefit from equitable tolling, and stated that a purported class representative who commences suit after expiration of the class period "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." Rejecting the argument that declining to toll the limitations period for successive class suits would lead to a profusion of protective class-action filings, the Court noted that such a trend has not emerged in the Second and Fifth Circuits, where the Courts of Appeals had already declined to read American Pipe as permitting successive class actions outside 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," and thereby increase the "efficiency and economy of litigation," a principal goal of American Pipe and Rule 23, the class action rule.

In light of this decision and others limiting the scope of American Pipe tolling, plaintiffs may try to protect their opportunity to file additional class claims by pressing for class certification earlier than they have typically done in the past. This decision may also result in more cases brought by a group of several plaintiffs to avoid the risk that the inadequacy of a single plaintiff will be fatal to a class claim.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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