On December 8, the United States Supreme Court agreed to decide whether the tolling rule adopted in American Pipe & Construction Co. v. Utah – i.e., that the filing of a class action tolls the limitations period for a purported class member's individual claims – permits a previously absent class member to bring a subsequent and otherwise untimely class action.
The federal appellate courts have split on that question. The First, Second, Third, Fifth, Eighth, and Eleventh circuits have held that American Pipe tolling only permits subsequent individual actions. However, the Sixth, Seventh, and Ninth circuits have held that American Pipe tolling also permits subsequent class actions.
In the case before the Supreme Court, China Agritech Inc. v. Resh, shareholders of China Agritech filed a putative class action alleging that the company committed securities fraud. China Agritech moved to dismiss, arguing that the putative class action was filed after the applicable two-year limitations period had lapsed and was thus untimely. In response, the plaintiffs argued that, under American Pipe, the action was timely because the limitations period was tolled during the pendency of two earlier-filed but defective class actions against the same defendants based on the same underlying events.
The district court granted China Agritech's motion to dismiss, finding that the putative class action was untimely, but the Ninth Circuit reversed the district court's decision.
The Ninth Circuit noted that the American Pipe tolling rule was adopted to "promote economy in litigation" and that, absent tolling, "[p]otential class members would be induced to file protective motions to intervene or to join in the event that a class was later found unsuitable." Relying in large part on that rationale, the Ninth Circuit then held that "once the statute of limitations has been tolled, it remains tolled for all members of the putative class until class certification is denied," and that, at that point, members of the putative class are entitled to bring individual suits "either separately or jointly."
In urging the Court to grant certiorari, China Agritech argued that the Ninth Circuit's decision would lead to forum shopping. The U.S. Chamber of Commerce agreed, arguing that the Ninth Circuit's decision "erroneously extends a judicially created tolling doctrine to effectively eliminate Congressionally mandated statutes of limitations."
The Court is expected to issue a decision in the case before the end of its term in June 2018.
The Troutman Sanders' Consumer Financial Services Law Monitor blog offers timely updates regarding the financial services industry to inform you of recent changes in the law, upcoming regulatory deadlines and significant judicial opinions that may impact your business. To view the blog, click here
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
