{"id":894412,"date":"2018-06-20T16:03:53","date_gmt":"2018-06-20T22:03:53","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=894412"},"modified":"2018-06-20T16:03:53","modified_gmt":"2018-06-20T22:03:53","slug":"supreme-court-prevents-plaintiffs-bringing-piggyback-class-actions-statute-limitations-run-american-pipe","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/supreme-court-prevents-plaintiffs-bringing-piggyback-class-actions-statute-limitations-run-american-pipe\/","title":{"rendered":"Supreme Court Prevents Plaintiffs From Bringing Piggyback Class Actions After the Statute of Limitations Has Run under American Pipe"},"content":{"rendered":"

David M. Gettings, Amy Pritchard Williams and Alan D. Wingfield | Troutman Sanders LLP<\/a> | June 12, 2018<\/p>\n

News & Knowledge<\/strong><\/p>\n

The Supreme Court\u2019s decision yesterday in\u00a0China Agritech Inc. v. Resh\u00a0<\/em>is a significant victory for defendants in federal class action lawsuits, as it prevents plaintiffs from bringing successive class actions after the statute of limitations has run. Prior to the Court\u2019s decision, there was a split among the Circuit Courts as to whether a plaintiff who files a subsequent class action against a defendant can receive the benefit of statute of limitations tolling from a previous class action against that same defendant. On June 11, 2018, however, the United States Supreme Court decisively held in an 8-1 opinion that\u00a0American Pipe<\/em>\u00a0does not provide tolling for subsequent (\u201cpiggyback\u201d) class actions in federal question cases. In the Supreme Court\u2019s view, neither\u00a0American Pipe<\/em>\u00a0nor the Federal Rules of Civil Procedure should be read to \u201cpermit plaintiffs to exhume failed class actions by filing new, untimely class claims.\u201d<\/p>\n

A. The Details of the Decision<\/strong><\/p>\n

Under the Supreme Court\u2019s previous decision in\u00a0American Pipe & Construction Co. v. Utah<\/em>, the Court held that the filing of a class action tolls the limitations period for the individual claims of a purported class member if those claims fall within the scope of the pending class action. In\u00a0China Agritech<\/em>, the Supreme Court addressed whether the tolling effect of\u00a0American Pipe\u00a0<\/em>is limited to claims asserted in a subsequent individual (non-class) case or whether a plaintiff that asserts a subsequent class action can receive the benefit of\u00a0American Pipe<\/em>\u00a0tolling on behalf of the entire purported class.<\/p>\n

Specifically, in\u00a0China Agritech<\/em>, shareholders of the defendant filed a putative class action alleging that the company committed securities fraud. China Agritech moved to dismiss, arguing that the putative class action was untimely because the shareholders filed it after the applicable two-year limitations period had lapsed. In response, the plaintiffs argued that, under\u00a0American Pipe<\/em>, the lawsuit was timely because the limitations period was tolled during the pendency of two earlier-filed class actions against the same defendants based on the same underlying events.<\/p>\n

The district court granted China Agritech\u2019s motion to dismiss, finding that the putative class action was untimely. The Ninth Circuit, however, reversed the district court\u2019s decision, reasoning that the Supreme Court adopted its tolling rule in\u00a0American Pipe\u00a0<\/em>to \u201cpromote economy in litigation.\u201d In the Ninth Circuit\u2019s view, if successive class actions do not receive the benefit of tolling, plaintiffs will begin filing multiple simultaneous class actions to avoid a potential statute of limitations defense in the future.<\/p>\n

The federal appellate courts had previously split on the issue. The First, Second, Third, Fifth, Eighth, and Eleventh Circuits had held that\u00a0American Pipe<\/em>\u00a0tolling only tolls the limitations period for subsequent individual (non-class) claims. In contrast, the Sixth, Seventh, and Ninth Circuits had held that\u00a0American Pipe<\/em>\u00a0allows for tolling of individual and class claims in subsequent class actions.<\/p>\n

In the\u00a0China Agritech Inc. v. Resh<\/em>\u00a0decision, the Supreme Court resolved this split. According to the Supreme Court, \u201cAmerican Pipe<\/em>\u00a0does not permit a plaintiff who waits out the statute of limitations to piggyback on an earlier, timely filed class action.\u201d In the Supreme Court\u2019s view, it makes practical sense to allow a previous class action to toll the statute of limitations from running on subsequent\u00a0individual<\/em>claims. If this type of tolling did not exist, courts might receive multiple individual lawsuits from purported class members during the pendency of a class action just to ensure the limitations period does not run against them. This would be inefficient. After all, if class certification is granted, then those individual claims would proceed on a class basis anyway. As a result, the Court believed that tolling individual claims until resolution of class certification is in the interest of efficiency and economy.<\/p>\n

The Supreme Court reasoned, however, that there is no analogous \u201cefficiency\u201d rationale to allowing\u00a0American Pipe<\/em>\u00a0to toll the limitations period on claims asserted in a subsequent class action. According to the Court, \u201cefficiency favors early assertion of competing class representative claims,\u201d with a determination at the outset of the case as to the viability of the class mechanism to resolve the claims. This is consistent, in the Court\u2019s view, with Rule 23\u2019s \u201cpreference for preclusion of untimely successive class actions by instructing that class certification should be resolved early on.\u201d Allowing tolling in subsequent class claims would encourage potential named plaintiffs to \u201cpiggyback\u201d by waiting to see the outcome of a previous class case. It would also effectively \u201callow 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.\u201d As the Court noted in its discussion of equitable tolling, \u201c[a] would-be class representative who commences suit after expiration of the limitation period [] can hardly qualify as diligent in asserting claims and pursuing relief.\u201d<\/p>\n

In its opinion, the Court also rejected the shareholders\u2019 contention that a parade of horribles would come if tolling did not apply to successive class actions, noting that while the Federal Rules provide a range of mechanisms to aid courts in overseeing complex litigation, \u2018[w]hat the Rules do not offer is a reason to permit plaintiffs to exhume failed class actions by filing new, untimely class claims.\u201d The shareholders had argued that there would be a \u201cneedless multiplicity\u201d of protective class-action filings. The Court observed that the Second and Fifth Circuits have both declined to allow out-of-time class actions since the 1980\u2019s, and yet there was no evidence that these Circuits \u201chave experienced a disproportionate number of duplicative, protective class-action filings.\u201d The Court cited to an amicus brief for evidence that protective class filings are uncommon and, even if protective class filings occurred, these actions could be consolidated for pre-trial and class certification purposes.<\/p>\n

B. The likely counter-punch<\/strong><\/p>\n

The Supreme Court\u2019s decision in\u00a0China Agritech<\/em>\u00a0is a significant win for defendants. If a defendant successfully defeats class certification in a lengthy litigation, that may foreclose subsequent class actions on the same issue because, without tolling, those class members\u2019 claims may become time-barred. As with all significant Supreme Court decisions, though, we expect the plaintiffs\u2019 bar to adapt. For example, we see several potential developments moving forward:<\/p>\n