United States: The US Supreme Court's Ruling In American Pipe Does Not Extend To Allow Tolling Of Statutes Of Limitation In Successive Class Actions

In a unanimous decision, the Supreme Court has limited the reach of its landmark decision in American Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974), which tolled the statute of limitations applicable to a timely filed putative class action such that if class certification was denied, members of the failed class could timely intervene as individual plaintiffs in the "still-pending action, shorn of its class character." China Agritech, Inc. v. Michael H. Resh, et al., Case No. 17-432, slip op. at 1 (U.S. 2018) (citing American Pipe, 414 U.S. at 544, 552-53). Following American Pipe, the Court extended this rule to also toll statutes of limitation for individual suits brought by putative class members after denial of class certification. Id. (citing Crown, Cork & Seal Co. v. Parker, 462 U.S. 345, 350, 353-54 (1983)).

In the wake of American Pipe and its progeny, the federal circuit courts split on the question of whether such tolling extends to successive class actions filed beyond the applicable statute of limitations period. Id. at 4-5. While a majority of circuits had adopted an "anti-stacking rule," pursuant to which American Pipe tolling did not apply to successive class actions, the Ninth and Sixth Circuits had permitted such stacking – a move that threatened to allow the plaintiffs' bar to evade the statute of limitations by endlessly refiling putative class actions in the hope of finding a judge willing to certify them. In Resh, decided on June 11, 2018, the Court unanimously adopted the anti-stacking approach and held that American Pipe tolling did not extend to successive class actions.

Resh was the third of three successive putative class action cases "brought on behalf of purchasers of [] China Agritech's common stock," all of whom alleged "materially identical" violations of the Securities Exchange Act of 1934. Id. at 2. A two-year statute of limitations, and a five-year statute of repose, applied to the claims. Id. at 2-3. The first related putative class-action suit (the First Action) was filed in February 2011 and was timely. Id. at 3. Class certification was denied in the First Action, and notice was sent to putative class members informing them that they must act to protect their rights to relief by either joining the First Action as a plaintiff or filing their own action individually. Id.

The second related putative class action (the "Second Action") was filed in October 2012, still within the statute of limitations. Id. The District Court denied class certification on different grounds. Id. at 4. Given that the Second Action was filed within the statute of limitations period, "putative class members who promptly initiated individual suits in the wake of the class-action denial would not have encountered [any] statute of limitations bar" to their individual claims or intervention into the existing lawsuit. Id.

Thereafter, Michael Resh, an individual who did not seek lead plaintiff status in either the First or Second Actions, filed a third related putative class action suit (the "Resh Action") in June 2014 – after the statute of limitations had run. Id. The District Court dismissed the Resh Action, finding that the American Pipe line of cases "did not toll the time to initiate class claims." Id. The Ninth Circuit reversed, finding that "[p]ermitting future class action named plaintiffs, who were unnamed class members in previously uncertified classes, to avail themselves of American Pipe tolling ... would advance the policy objectives that led the Supreme Court to permit tolling in the first place." Id. (internal quotation marks and citations omitted). In particular, the Ninth Circuit reasoned that such tolling "would cause no unfair surprise to defendants and would promote economy of litigation by reducing incentives for filing protective class suits during the pendency of an initial certification motion." Id.

Finding this reasoning unpersuasive, the Supreme Court held that "American Pipe does not permit the maintenance of a follow-on class action past expiration of the statute of limitations." Id. at 2.

At the center of the Court's ruling was its reaffirmance of the policy underlying Rule 23, which is the promotion of judicial economy by avoiding "needless multiplicity of actions." See Id. at 6 (citations and internal quotations marks omitted). The Court reasoned that tolling the limitations period for individual claims serves the interest of "economy of litigation" because class certification is determinative of whether the claims "will proceed as a class" and, accordingly, whether there is even a need to assert an individual claim in the first place. Id. But for class actions, "efficiency favors early assertion of competing class representative claims" to facilitate prompt adjudication of whether "the class mechanism is [even] a viable option . . . ." Id. at 7. The Court explained that "[t]he time to file individual actions once a class action ends is finite, extended only by the time the class suit was pending; the time for filing successive class suits, if tolling were allowed could be limitless ... . Endless tolling of statute of limitations is not a result envisioned by American Pipe." Id. at 10-11. Indeed, American Pipe's equitable-tolling exception is rooted in the formal doctrine of equitable tolling, which is not available to plaintiffs who slept on their rights. And a "would-be class representative who commences suit after expiration of the limitation period ... can hardly qualify as diligent." Id. at 9.

The Court summarized its ruling as being grounded in the purpose of Rule 23:

Id. at "15 (emphasis added).

We will continue to report on how the Resh decision impacts the landscape of class action litigation moving forward.

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