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Supreme Court Rules That Successive Class Actions Are Not Tolled Under American Pipe
06/13/2018On June 11, 2018, the Supreme Court of the United States held that the tolling rule first stated in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974) cannot salvage otherwise-untimely successive class claims. China Agritech, Inc. v. Resh, No. 17-432, __ S. Ct. __, 2018 WL 2767565. In American Pipe, the Court held that the timely filing of a class action tolls the applicable statute of limitations for all persons encompassed by the class complaint. The issue presented in China Agritech was whether American Pipe tolling can salvage an untimely successive class claim. The Sixth Circuit and the Ninth Circuit 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. In China Agritech, 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.
Plaintiff-respondent 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 (the “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—a class member of the two failed class suits who had not previously applied to be a lead plaintiff filed a third putative class action. The district court dismissed the class action as untimely, holding 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. On December 8, 2017, the Supreme Court granted certiorari.
The Supreme Court reversed and remanded the Ninth Circuit’s decision, holding 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 the preferences within the Federal Rules of Civil Procedure and the Private Securities Litigation Reform Act for 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, stating 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.” 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.
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 may also result in more cases with multiple plaintiffs to avoid the risk of a class not being certified because of a plaintiff’s inadequacy.
