Companies confronting serial class actions won much needed relief from the US Supreme Court yesterday, in a decision that held that a class action tolls statutes of limitations only for putative class members’ individual claims, and not for later-filed class actions. A second class action must be filed within the limitations period, or it is barred. The opinion in China Agritech v. Resh (“Resh”), written by Justice Ginsburg, is a welcome development for companies that have been subject to repeated class action lawsuits raising the same claims.
The Resh decision stems from a perceived ambiguity in earlier decisions that established the class action tolling doctrine. In American Pipe & Construction Co. v. Utah, 414 U. S. 538 (1974), the US Supreme Court ruled that the timely filing of a class action suspends the running of the applicable statute of limitations for all putative or absent class members until class certification has been denied. At that point, those putative class members may then bring their individual claims, even if the claims would otherwise be untimely under the statute of limitations. The American Pipe rule was instituted to further efficiency and economy of litigation, allowing individual class members to rely on the class action vehicle to protect their individual rights and, thus, avoiding flooding federal courts with numerous individual actions. As the court recognized in Resh, however, the American Pipe decision and subsequent Supreme Court decisions interpreting class action tolling only addressed successive individual claims brought by absent class members and did not address successive claims that were alleged on behalf of a class.
Applying American Pipe over the subsequent decades, lower courts divided over the question of whether a class action tolls class claims. Several courts of appeals ruled that class action tolling did not apply to later-filed, otherwise-untimely class action claims. However, other courts of appeals—including the Ninth Circuit in Resh—reached the opposite conclusion. The Ninth Circuit held that American Pipe’s underlying policy objectives justified extending class action tolling to piggyback class actions, meaning that a putative class member in one class action could wait until the first class was denied certification, and then file a second suit, making the same class allegations, without being barred by limitations. That second class action would then, under this theory, toll limitations again, so that defendants would potentially face a litany of copycat class actions.
In Resh, the plaintiff had done just that—he filed a securities fraud class action on the heels of two previous class action cases, raising the same class claims, where class certification had been denied on superiority, typicality, and adequacy grounds. While the two previous class actions had been timely filed within the two-year statute of limitations, the Resh plaintiff’s case was undisputedly filed after the two-year limitations had expired. The district court dismissed the piggyback class claims as untimely, and the Ninth Circuit reversed.
Recognizing the circuit split, the Supreme Court granted certiorari to address the question of whether “a putative class member, in lieu of promptly joining an existing suit or promptly filing an individual action, [may] commence a class action anew beyond the time allowed by the applicable statute of limitations.” And, in its June 11 opinion, the court unequivocally stated: “Our answer is no. . . . We hold 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 ‘efficiency and economy of litigation’ that support tolling of individual claims, 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.”
A contrary rule, the court explained, would result in “limitless” piggyback class actions, where a denial of class certification in one class action would only lead to successive class actions, one stacked behind the other, with no end. The court further explained that its ruling in Resh will aid in the efficient and economical adjudication of class actions by encouraging any would-be class representatives to come forward early, before the limitations period expires, allowing district courts to make informed decisions in selecting class representatives and class counsel and in determining class certification, which would be “litigated once for all would-be class representatives.”
The Resh decision provides important protections for class action defendants. Under Resh, successfully defeating a class action no longer raises the specter of a hollow victory, where the defendant must litigate class claims over and over again, even when limitations has run. Now, the defendant can invoke the statute of limitations to defeat any subsequently filed, out-of-time class actions.
If you have any questions about the above you can contact us at darryl.anderson@nortonrosefulbright.com, dan.mcclure@nortonrosefulbright.com, geraldine.young@nortonrosefulbright.com or lauren.brogdon@nortonrosefulbright.com for more information.
