United States Supreme Court Clarifies Extent of American Pipe Tolling in Class Actions
On June 11, 2018, the United States Supreme Court found that its prior decision in American Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974) (“American Pipe”) did not permit a putative class member, following the denial of class certification, to file a successive class action after the expiration of the statute of limitations. In China Agritech, Inc. v. Resh, 584 U.S. ___ (2018), the Court limited the tolling of the statute of limitations for class action suits to a putative class member’s individual claims. Justice Ginsburg delivered the opinion of the Court, in which Justice Sotomayor filed a separate opinion concurring in the judgment.
As the Supreme Court explained, “American Pipe tolls the statute of limitations during the pendency of a putative class action, allowing unnamed class members to join the action individually or file individual claims if the class fails.” Slip Op. at 2. “But American Pipe does not permit the maintenance of a follow-on class action past expiration of the statute of limitations.” Slip Op. at 2.
The present case was the third class action brought against China Agritech by purchasers of its common stock, alleging securities violations. The parties agreed that the two-year statute of limitations began to run on February 3, 2011. The first class action was timely filed on February 11, 2011, but class certification was eventually denied. Then, the second class action was filed on October 4, 2012—still within the two-year limitations period, but class certification was again denied. Finally, plaintiff Michael Resh filed the third suit on June 30, 2014. See Slip Op. at 3-4.
While the district court dismissed plaintiff’s class action complaint as untimely, the Ninth Circuit reversed, applying American Pipe tolling to the subsequent filing of class claims by putative class members following the denial of class certification in a prior suit. See Slip Op. at 4.
In reversing the Ninth Circuit, the Supreme Court held that “American Pipe does not permit a plaintiff who waits out the statute of limitations to piggyback on an earlier, timely filed class action.” Slip Op. at 6. Further, “[t]he ‘efficiency and economy of litigation’ that support tolling of individual claims, American Pipe, 414 U.S., at 553, do not support maintenance of untimely successive class actions; any additional class filings should be made early on, soon after the commencement of the first action seeking class certification.” Slip Op. at 6 (emphasis in original).
While the “efficiency and economy of litigation” tolls the limitations period for individual claims to be asserted, the Supreme Court reasoned that class claims should be asserted early so that a district court can select the best plaintiff to move forward as class representative and litigate all class claims at the outset. See Slip Op. at 6-7. Indeed, “Rule 23 evinces a preference for preclusion of untimely successive class actions by instructing that class certification should be resolved early on.” Slip Op. at 7.
Plaintiffs’ proposed reading of American Pipe and its progeny would allow the statute of limitations in any particular case to be extended almost indefinitely with each successive filing of a class action. But “[e]ndless tolling of a statute of limitations is not a result envisioned by American Pipe.” Slip Op. at 11.
The Supreme Court’s decision in China Agritech resolves a Circuit split. The Ninth and Sixth Circuits had applied American Pipe tolling to successive class actions while the First, Second, Fifth, and Eleventh Circuits did not. The Third Circuit attempted to find a middle ground, applying American Pipe tolling when class certification was denied due to a named plaintiff’s deficiencies but not due to a class defect. See Slip Op. at 4-5.
In her concurring opinion, Justice Sotomayor sought to limit the Court’s decision to the specific facts before it in the securities litigation context, and even suggested that the Third Circuit’s middle ground approach is a more appropriate result moving forward. See Concurring Slip Op. at 5-6. But Justice Ginsburg rejected this approach, finding that “Rule 23 contains no instruction to give denials of class certification different effect based on the reason for the denial.” Slip Op. at 11, n. 5.
Moving forward, putative class members cannot rely on a named plaintiff’s filing of a class action to toll their own putative class claims. Assuming the statute of limitations has already expired, a denial of class certification in a case would limit putative class members to filing suit over their individual claims only. Plaintiffs in China Agritech also argued that a failure to toll the limitations period for successive class action suits would lead to a substantial increase in the number of “protective” class action filings. See Slip Op. at 12. While theoretically possible, the Supreme Court did not find this to be the case in Circuits, such as the Second and Fifth, where the rule against tolling has already been in place for decades. See Slip Op. at 13. In fact, those Circuits have not “experienced a disproportionate number of duplicative, protective class-action filings.” Slip Op. at 13.
It remains to be seen whether the Supreme Court’s decision in China Agritech will increase the number of “protective” class action filings following the filing of an initial suit, but defendants can take solace in the fact that any statute of limitations will not be tolled indefinitely as to a plaintiff’s class claims.