David M. Gettings, Amy Pritchard Williams and Alan D. Wingfield | Troutman Sanders LLP | June 12, 2018
News & Knowledge
The Supreme Court’s decision yesterday in China Agritech Inc. v. Resh is a significant victory for defendants in federal class action lawsuits, as it prevents plaintiffs from bringing successive class actions after the statute of limitations has run. Prior to the Court’s decision, there was a split among the Circuit Courts as to whether a plaintiff who files a subsequent class action against a defendant can receive the benefit of statute of limitations tolling from a previous class action against that same defendant. On June 11, 2018, however, the United States Supreme Court decisively held in an 8-1 opinion that American Pipe does not provide tolling for subsequent (“piggyback”) class actions in federal question cases. In the Supreme Court’s view, neither American Pipe nor the Federal Rules of Civil Procedure should be read to “permit plaintiffs to exhume failed class actions by filing new, untimely class claims.”
A. The Details of the Decision
Under the Supreme Court’s previous decision in American Pipe & Construction Co. v. Utah, the Court held that the filing of a class action tolls the limitations period for the individual claims of a purported class member if those claims fall within the scope of the pending class action. In China Agritech, the Supreme Court addressed whether the tolling effect of American Pipe is limited to claims asserted in a subsequent individual (non-class) case or whether a plaintiff that asserts a subsequent class action can receive the benefit of American Pipe tolling on behalf of the entire purported class.
Specifically, in China Agritech, shareholders of the defendant filed a putative class action alleging that the company committed securities fraud. China Agritech moved to dismiss, arguing that the putative class action was untimely because the shareholders filed it after the applicable two-year limitations period had lapsed. In response, the plaintiffs argued that, under American Pipe, the lawsuit was timely because the limitations period was tolled during the pendency of two earlier-filed class actions against the same defendants based on the same underlying events.
The district court granted China Agritech’s motion to dismiss, finding that the putative class action was untimely. The Ninth Circuit, however, reversed the district court’s decision, reasoning that the Supreme Court adopted its tolling rule in American Pipe to “promote economy in litigation.” In the Ninth Circuit’s view, if successive class actions do not receive the benefit of tolling, plaintiffs will begin filing multiple simultaneous class actions to avoid a potential statute of limitations defense in the future.
The federal appellate courts had previously split on the issue. The First, Second, Third, Fifth, Eighth, and Eleventh Circuits had held that American Pipe tolling only tolls the limitations period for subsequent individual (non-class) claims. In contrast, the Sixth, Seventh, and Ninth Circuits had held that American Pipe allows for tolling of individual and class claims in subsequent class actions.
In the China Agritech Inc. v. Resh decision, the Supreme Court resolved this split. According to the Supreme Court, “American Pipe does not permit a plaintiff who waits out the statute of limitations to piggyback on an earlier, timely filed class action.” In the Supreme Court’s view, it makes practical sense to allow a previous class action to toll the statute of limitations from running on subsequent individualclaims. If this type of tolling did not exist, courts might receive multiple individual lawsuits from purported class members during the pendency of a class action just to ensure the limitations period does not run against them. This would be inefficient. After all, if class certification is granted, then those individual claims would proceed on a class basis anyway. As a result, the Court believed that tolling individual claims until resolution of class certification is in the interest of efficiency and economy.
The Supreme Court reasoned, however, that there is no analogous “efficiency” rationale to allowing American Pipe to toll the limitations period on claims asserted in a subsequent class action. According to the Court, “efficiency favors early assertion of competing class representative claims,” with a determination at the outset of the case as to the viability of the class mechanism to resolve the claims. This is consistent, in the Court’s view, with Rule 23’s “preference for preclusion of untimely successive class actions by instructing that class certification should be resolved early on.” Allowing tolling in subsequent class claims would encourage potential named plaintiffs to “piggyback” by waiting to see the outcome of a previous class case. It would also effectively “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.” As the Court noted in its discussion of equitable tolling, “[a] would-be class representative who commences suit after expiration of the limitation period [] can hardly qualify as diligent in asserting claims and pursuing relief.”
In its opinion, the Court also rejected the shareholders’ contention that a parade of horribles would come if tolling did not apply to successive class actions, noting that while the Federal Rules provide a range of mechanisms to aid courts in overseeing complex litigation, ‘[w]hat the Rules do not offer is a reason to permit plaintiffs to exhume failed class actions by filing new, untimely class claims.” The shareholders had argued that there would be a “needless multiplicity” of protective class-action filings. The Court observed that the Second and Fifth Circuits have both declined to allow out-of-time class actions since the 1980’s, and yet there was no evidence that these Circuits “have experienced a disproportionate number of duplicative, protective class-action filings.” The Court cited to an amicus brief for evidence that protective class filings are uncommon and, even if protective class filings occurred, these actions could be consolidated for pre-trial and class certification purposes.
B. The likely counter-punch
The Supreme Court’s decision in China Agritech is a significant win for defendants. If a defendant successfully defeats class certification in a lengthy litigation, that may foreclose subsequent class actions on the same issue because, without tolling, those class members’ claims may become time-barred. As with all significant Supreme Court decisions, though, we expect the plaintiffs’ bar to adapt. For example, we see several potential developments moving forward:
- Plaintiffs may attempt to file more simultaneous class actions with multiple named plaintiffs in hopes that one of those cases will make it past class certification. Waiting for the first case to resolve is no longer a safe strategy, as the subsequent claim may become time-barred while the first action runs its course. While this may be possible, the Supreme Court in China Agritech looked to two Circuit courts with over three decades of history under a similar rule and concluded that this was unlikely. Nevertheless, we will continue watching this trend.
- Next, Plaintiffs may be more inclined to attempt to intervene in ongoing class actions – especially if they see defects in the current named representative’s claims. They may argue that, if they intervene in a case, they receive the benefit of tolling for the entire duration of the ongoing class action, despite the fact that the initially named representative had defective claims.
- Finally, courts may push for early resolution of class certification prior to the running of the statute of limitations in order to allow putative plaintiffs time to file class claims should class certification be denied.