June 11, 2018

Supreme Court Decides China Agritech, Inc. v. Resh

On June 11, 2018, the Supreme Court of the United States decided China Agritech, Inc. v. Resh, No. 17-432, holding that a member of a failed federal class action may not use the tolling rule of American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974) to start a new class action after the statute of limitations has run.

In 1974, the Supreme Court held in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), that the timely filing of a class action tolls the applicable statute of limitations for all people encompassed in the putative class. The Court held that if class certification is denied, members of the failed class could timely intervene as individual plaintiffs in the lawsuit (which was still pending as an individual action), even if the statute of limitations had run in the meantime. In 1983, the Court held that American Pipe’s tolling rule also applied to putative class members who wanted to file their own lawsuits after denial of class certification. Thus, members of a failed class action could either intervene in the lawsuit or start a new lawsuit on their own as long as they did so within the original limitation period as extended by the tolling effect of American Pipe.

The question in this case was whether a member of a failed class action can also take advantage of the tolling rule in American Pipe to start a new class action.

Plaintiffs sued China Agritech in federal court as a putative class, alleging securities-law violations. Their claims were governed by a two-year statute of limitations that begins to run upon discovery of the violation, and a five-year statute of repose. The parties agreed that in this case, the two-year limitation period expired in February 2013, and the repose period expired in November 2014. In May 2012, the district court denied class certification. The case ultimately settled on an individual basis and was dismissed. In October 2012, a new set of plaintiffs filed a class-action complaint against China Agritech, asserting the same securities-law violations as in the earlier lawsuit. The district court denied class certification in that case too, and it also settled on an individual basis and was dismissed.

This case involved the third putative class action to be filed against China Agritech. It was filed in federal court in June 2014—after the statute of limitations had expired. The plaintiffs argued that their lawsuit was timely because it was filed within the statute of limitations as extended by the tolling period of the two prior lawsuits added together. China Agritech argued that American Pipe tolls the limitations period only with respect to intervention or new individual lawsuits by members of a failed class, not the filing of a new class action. The district court agreed with China Agritech and dismissed the case as untimely, but the Ninth Circuit reversed.

The Supreme Court reversed, holding that “American Pipe does not permit a plaintiff who waits out the statute of limitations to piggyback on an earlier, timely filed class action.” The Court observed that American Pipe tolled the limitation period for individual claims because economy of litigation favors delaying resolution of those claims until after a court has decided whether the claims should be resolved on a class-wide basis. But class claims are different: both Rule 23 and efficiency favor early assertion and resolution of claims that class treatment is appropriate. Once a court has decided that class treatment is not appropriate, there is no efficiency to be gained by allowing subsequent assertions that the case should be certified as a class action. Indeed, the contrary rule would allow the statute of limitations to be extended almost indefinitely, with lawyers seeking to represent classes filing successive class actions until they found a judge who would certify a class. “Endless tolling of a statute of limitations is not a result envisioned by American Pipe.”

Justice Ginsburg delivered the opinion of the Court, in which Chief Justice Roberts and Justices Kennedy, Thomas, Breyer, Alito, Kagan, and Gorsuch joined. Justice Sotomayor filed a dissenting opinion.

Download Opinion of the Court.

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