The U.S. Supreme Court recently issued an important decision on statutes of limitations in class actions. As it has done several times this term, its decision in China Agritech resolves a relatively narrow issue in a pro-business way. Critically, however, American Pipe tolling remains alive and well, but only for individuals seeking to join or file individual actions.
In American Pipe & Constr. Co. v. Utah, 414 U. S. 538 (1974), the Supreme Court held that the filing of a class action complaint tolls the running of the statute of limitations for individual plaintiffs who were members of the requested class, so that if a district court refuses to certify a case as a class action, the individuals could sue on their own, or join another individual action, even though the statute of limitations might have run while the class action was pending.
In China Agritech, Inc. v. Resh, the Supreme Court held that the American Pipe tolling doctrine does not extend to a second class action filed after the statute of limitations has expired. The Court instead limited the tolling principles of American Pipe to individual actions, not successive class actions. Justice Ruth Bader Ginsburg authored the Court’s nearly unanimous (8-0-1) opinion, with Justice Sandra Sotomayor concurring in the result.
Alleging securities law violations, a group of plaintiffs filed a class action complaint against China Agritech. The District Court denied plaintiffs' motion to certify the case as a class action because the plaintiffs failed to establish that China Agritech traded in an efficient market. That case was settled, but a second group of plaintiffs filed another class action complaint. Again, the District Court denied certification, this time because the plaintiffs did not establish that their claims were typical of others' or that they were adequate class representatives. Finally, Resh filed a third class action complaint, but in the meantime the statute of limitations had run. The District Court dismissed Resh's complaint as untimely.
The Ninth Circuit Court of Appeals reversed, holding that American Pipe tolling applies to successive class actions as a matter of fairness and judicial economy. Because several other Circuit Courts had limited American Pipe to individual claims, the Supreme Court granted a writ of certiorari to resolve the issue.
Justice Ginsburg noted that American Pipe involved an individual action and that nothing in that decision, nor in the principles of fairness on which American Pipe rested, nor in notions of judicial economy, supported extending American Pipe tolling to successive class actions. To the contrary, she wrote, Rule 23 requires decisions on class certification occur at "an early practicable time," and while it is fair to allow an individual to rely on a pending class action and only file his own claim after the class is not certified, fairness does not go as far as allowing class action lawyers to file seriatim class action complaints, which would allow forum shopping and potentially endless class action filings. She rejected the argument that limiting American Pipe would cause plaintiffs' lawyers to file "protective" class actions before a district court rules on class certification, noting that the data from Circuits that had limited American Pipe to individual claims did not show any increase in protective class suits.
Because the reasons for extending American Pipe tolling to later-filed class actions were not persuasive, the Court reversed the Ninth Circuit.
Justice Sotomayor agreed with Justice Ginsburg in securities class actions governed by the Private Securities Litigation Reform Act, but wrote that the decision went too far when applied to other kinds of class action cases.