The U.S. Supreme Court recently held that the timely filing of a class action does not toll the applicable statute of limitations for successive class actions. In so holding in China Agritech, Inc. v. Resh, 584 U.S. ___ (2018), the Court refused to extend its holdings in American Pipe and Crown, Cork & Seal Co.
For nearly half a century, the Court has held that the timely filing of a class action tolls the applicable time limits (also known as the statute of limitations) during the period between the filing of the class action and the court’s ruling on the question of class certification for all persons encompassed by the class complaint. See American Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974). Should certification be denied, members of the failed class can timely intervene in as individual plaintiffs in the still-pending action. See id. at 552–53. (The action would lack only its class character.) Later, in Crown, Cork & Seal Co. v. Parker, 462 U.S. 345 (1983), the Court added that members of the failed class also can bring an individual suit, rather than intervene. 462 U.S. at 350, 353–54. The failure of a class did not always doom individual actions.
In China Agritech, class attorneys sought to extend American Pipe (the Supreme Court’s holding that tolls the statute of limitations for individual actions) to also toll the statute of limitations on successive class actions—in essence giving class attorneys several “do-overs” until they could successfully certify a class without worry about running afoul of statutes of limitations. China Agritech involved the third securities class action brought on behalf of purchasers of China Agritech stock, alleging violations of the Securities Exchange Act of 1934, 48 Stat. 881, as amended, 15 U.S.C. § 78a et seq. (the “Securities Act”). China Agritech, slip op. at 2. The successive complaints each made materially identical allegations of fraud and misleading business practices. Slip op. at 2. The first two class-action complaints, both of which had failed, had been brought within the two-year statute of limitations for private rights of action. See 28 U.S.C. § 1658(b)(1); slip op. at 3. The present class action, however, had been filed a year and a half after the statute of limitations expired. Slip op. at 4. The District Court dismissed the class action as untimely, holding that the earlier class actions did not toll the statute of limitations. Id. The Court of Appeals for the Ninth Circuit reversed. Id.
In a unanimous 9-0 decision, the U.S. Supreme Court reversed the Ninth Circuit. Id. at 15. Justice Ruth Ginsberg, writing for the 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. The whole framework of class litigation is grounded in judicial efficiency and economy, and in her opinion, Justice Ginsberg discussed how efficiency and economy of litigation favored the early assertion of competing class representative claims and the tolling of individual claims. Id. at 6–7. If class treatment were appropriate, the claims would proceed as a class and there would be no need for the assertion of any claim individually. Id. at 6. Further, with all would-be class representatives and class counsel before it, the district court could select the best plaintiff. Id. at 7. If, on the other hand, certification were denied, only then would it be necessary to pursue claims individually. Id. at 6–7.
Justice Ginsberg explicated further that Rule 23 of the Federal Rules of Civil Procedure, which governs class actions, evinced a preference for the preclusion of untimely successive class actions by recommending certification “at an early practicable time.” Slip op. at 7. Justice Ginsberg then posited that the Private Securities Litigation Reform Act of 1995 (“PSLRA”), which specifically governs private securities class actions, also evinced a preference for such preclusion by grouping class-representative filings at the outset of litigation. See 15 U.S.C. § 78u‑4et seq.; slip op. at 8.
Justice Ginsberg also explained how 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.” Justice Ginsberg recognized that claims under the Securities Act also were governed by a statute of repose barring any private right of action brought more than five years after such violation. Slip op. at 10–11 (citing 28 U.S.C. § 1658(b)(2)), thus exhibiting a preference that potential defendants should at some time not have to worry about potential claims. This holding fits in with the framework governing class actions (the goal of a class is to resolve all issues expeditiously and efficiently): balancing the needs of plaintiffs to have injuries redressed with the needs of defendants to have all liability resolved
China Agritech is binding upon all federal courts. State courts, however, may reach a different decision. Indiana, whose class action rule is modeled upon the federal rule, often follows federal class precedent and has adopted Court’s holding in American Pipe. See, e.g., Arnold v. Dirrim, 398 N.E.2d 426 (Ind. Ct. App. 1979) (applying American Pipe to a claim under the Indiana Securities Act). Other states have followed American Pipe as well. See also Steinberg v. Chi. Med. Sch., 371 N.E.2d 634, 645 (Ill. 1977) (citing American Pipe before remanding). Some state courts even have extended American Pipe to toll the statute of limitations for successive class actions, an outcome that now directly contradicts China Agritech. See, e.g., Badzio v. Americare Certified Special Servs., Inc., 2017 N.Y. Misc. LEXIS 2385, at *7–8 (N.Y. Sup. Ct. June 15, 2017) (unpublished) (permitting successive class action where there has been no determination of class certification on the merits) (citing examples from federal circuits); Falk v. Children’s Hosp. L.A., 188 Cal. Rptr. 3d 686, 694 (Cal. Ct. App. 2015) (permitting successive class action where prior putative class action never reached class certification stage), review denied. Whether these courts and other state courts will adopt the reasoning in China Agritech is yet to be determined.
After China Agritech, it is clear that previous, unsuccessful suits may not stop the clock on your class action filing deadline, especially in federal court. Hiring competent class counsel is crucial. An attorney can help you determine whether your state is likely to follow the holding in China Agritech and the likelihood of class certification. Depending on the unique facts of your case, the best strategy may be to file an individual suit. The clock is ticking.
The attorneys at Plews Shadley Racher & Braun LLP (PSRB) have been found to be competent class counsel by courts in several class actions, both when prosecuting and defending class actions. If you have a case you think is appropriate for class treatment, we would be happy to meet with you. Additional information about Amy Romig, Andrea Townsend, and PSRB is available at www.psrb.com.