At the end of its most recent term, the U.S. Supreme Court issued an important decision on class-action procedure, China Agritech Inc. v. Resh, No. 17-432 (U.S. June 11, 2018), in which it limited the class-action tolling doctrine to prohibit class-action “stacking.”

In American Pipe & Const. Co. v. Utah, 414 U.S. 538 (1974), the high court first created the class-action tolling rule: the timely filing of a class action tolls the statute of limitations for all members of the putative class. If the class fails to obtain certification, then the statute of limitations begins to run again on absent class members’ claims. The American Pipe tolling rule allows putative class members to intervene on an individual basis in the existing action or to file individual claims as a separate action. Crown, Cork & Seal Co. v. Parker, 462 U.S. 345, 350 (1983).

In China Agritech, the Supreme Court confronted whether the American Pipe tolling rule applies not only to the individual claims of absent class members, but to their class claims as well. The Court held that it does not.

The Facts

Purchasers of China Agritech’s common stock brought a class action under the Securities and Exchange Act of 1934, which has a two-year statute of limitations and a five-year statute of repose. China Agritech, slip op. at 2-3. After class certification was denied and the named plaintiffs settled their individual claims, the same counsel filed a second class action on behalf of new named plaintiffs, still within the limitations period. Id. at 3-4. Again certification was denied, and the named plaintiffs settled their individual claims. Id. A year and a half after the statute of limitations had run, a third class action was filed by Michael H. Resh. Id. at 4. The U.S. District Court for the Central District of California dismissed his lawsuit as untimely, holding that the earlier-filed class actions did not toll the limitations period for subsequent class claims. Id.

The U.S. Court of Appeals for the Ninth Circuit reversed, extending the rule in American Pipe to permit untimely filed class actions. Id. The court reasoned that allowing subsequent class lawsuits by plaintiffs unnamed in prior uncertified class lawsuits would promote the policy goals “that led the Supreme Court to permit tolling in the first place.” 857 F.3d 994, 1004 (9th Cir. 2017). Namely, extending the tolling rule would serve judicial economy by reducing incentives to file protective class lawsuits while another class action is pending, and it would not cause unfair surprise to defendants. Id. at 1004.

Circuit Split

Federal appellate courts were split on whether to allow tolling for untimely class claims. The Sixth and Ninth Circuits extended the American Pipe rule to allow for tolling of subsequent class actions. The First, Second, Fifth, and Eleventh Circuits declined to extend the rule, for it would allow plaintiffs to “stack” one class action on top of another to re-litigate the question of class certification and toll the limitations period indefinitely. The Third Circuit allowed for tolling, but only if class certification was denied due to deficiencies of the named plaintiff and not the suitability of the claims for class treatment.

The Supreme Court Decision

The Supreme Court reversed the Ninth Circuit’s decision. Justice Ruth Bader Ginsburg (writing for all but Justice Sonia Sotomayor, who concurred in the judgment) held that the timely filing of a class action complaint tolls the statute of limitations on absent class members’ individual claims, but they may not file another class action beyond the statute of limitations. China Agritech, slip op. at 2. The Court rejected the idea that successive, untimely filed class actions could continue to be stacked end-on-end to re-litigate the question of class certification and toll the limitations period indefinitely. Id. at 10-11. By ending the practice of class-action “stacking,” the Court in China Agritech eased the administrative burden on courts and eliminated uncertainty for future litigants.

Efficiency & Economy

Both American Pipe and Crown, Cork & Seal involved individuals who wished to sue individually after the denial of class certification. Id. at 6. As those opinions noted, the twin aims of Rule 23 are efficiency and judicial economy. Id. at 5-6; American Pipe, 414 U.S. at 553; Crown, Cork & Seal, 462 U.S. at 351. Without tolling for individual claims, class members who feared that class certification may be denied would file a “multiplicity” of “protective” actions to preserve their claims, undercutting the twin aims of Rule 23. In China Agritech, the Supreme Court held that this reasoning does not apply to protective class actions. Id. at 6-7.

Class-Action ‘Stacking’

Allowing a plaintiff who seeks to represent a class to wait until after class certification is denied to file lawsuit would encourage class-action “stacking”—where one class action could toll the limitations period for an indefinite number of subsequent class actions, all seeking to re-litigate the class-certification question into eternity. Id. at 10-11. The rule must have a limiting principle, the Court found, for American Pipe did not envision an “[e]ndless tolling” of the statute of limitations. Id. at 11.

Respondents argued that the Court’s decision would lead to a “needless multiplicity” of class action lawsuits. Id. at 12, 14. The Court found any rise in protective class actions unlikely, as several circuits had already refused to permit untimely class claims. Id. at 12-13. Additionally, the Court found that a “multiplicity” of class action filings may not be so “needless” after all. Id. at 14. If all class lawsuits were filed upfront, the judge could make a more informed class-certification decision, and underlying defects within the class or its claims might be exposed. Id. Encouraging early filing of class claims would provide the additional benefit of having alternative lead plaintiffs ready to take over in the event the original named plaintiff was not well-suited to lead the class.

Diligence & Extraordinary Circumstances

AmericanPipe and Crown, Cork & Seal employed the common law doctrine of “equitable tolling” as a way to preserve absent class members’ individual claims where the class-action device failed them. Equitable tolling requires a showing of both:

  • (1) extraordinary circumstances for not filing earlier; and
  • (2) diligence in pursuing the claim.

Extraordinary circumstances for not filing earlier were shown by the individual’s reliance on the existing class action. Diligence was shown by promptly filing an individual suit once the extraordinary circumstance disappeared—upon the denial of class certification.

However, one who seeks to represent a class, the Court noted, cannot be said to rely on the earlier class claim, since their interest in representing a class would not be preserved by the prior action. For this reason, individuals who seek to represent a class cannot claim that they have been diligent if they “sleep on their rights” and allow the statute of limitations to expire. Id. at 9-10. Rather, they must file their class claims early on in the proceedings or will lose their right to do so.

Scenarios

How does the Supreme Court’s new ruling apply in practice? Here are some practical examples that illustrate how the class action tolling doctrine might apply after China Agritech.

Scenario 1

Plaintiff A filed a class action complaint naming B as a defendant. The statute of limitations on A’s claim was two years, and A’s complaint was filed on the first day of the limitations period. After 2.5 years, the court denied A’s motion for class certification. The day after class certification was denied, plaintiff C, an absent member of the putative class described in A’s complaint, moved to intervene as an individual plaintiff in the lawsuit filed by A. Is C’s claim timely?

Yes. This is the scenario presented by American Pipe. The filing of A’s class action complaint tolled the statute of limitations on C’s individual claim because C was a member of the putative class described in A’s complaint.

Scenario 2

Plaintiff A filed a class action complaint naming B as a defendant. The statute of limitations on A’s claim was two years, and A’s complaint was filed on the first day of the limitations period. After 2.5 years, the court denied A’s motion for class certification. The day after class certification was denied, plaintiff C, an absent member of the putative class described in A’s complaint, commenced a new individual action by filing a complaint against B, asserting the same claim described in A’s class complaint. Is C’s claim timely?

Yes. This is the scenario presented by Crown, Cork & Seal. The filing of A’s class action complaint tolled the statute of limitations on C’s individual claim because C was a member of the putative class described in A’s complaint. As the Supreme Court reiterated in China Agritech, “The rule [of American Pipe] is not dependent on intervening in or joining an existing suit; it applies as well to putative class members who, after denial of class certification, ‘prefer to bring an individual suit rather than intervene … once the economies of a class action [are] no longer available.’” Slip op. at 1.

Scenario 3

Plaintiff A filed a class action complaint naming B as a defendant. The statute of limitations on A’s claim was two years, and A’s complaint was filed on the first day of the limitations period. After 2.5 years, the court denied A’s motion for class certification. The day after class certification was denied, plaintiff C, an absent member of the putative class described in A’s complaint, commenced a new class action by filing a class action complaint against B, asserting the same claim described in A’s class complaint. Is C’s claim timely?

No. This is the scenario presented by China Agritech. 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.” Slip op. at 2. American Pipe only “allow[s] unnamed class members to join the action individually or file individual claims if the class fails.” Id.

Scenario 4

Plaintiff A filed a class action complaint naming B as a defendant. The statute of limitations on A’s claim was two years, and A’s complaint was filed on the first day of the limitations period. After 2.5 years, the court denied A’s motion for class certification. The day after class certification was denied, plaintiff C, an absent member of the putative class described in A’s complaint, moved to intervene as a new named plaintiff in the lawsuit filed by A. Is C’s claim timely?

This fact pattern is slightly different than the scenario presented in China Agritech, where the later-filing plaintiff commenced a separate class action. The likely answer is no. First, the Supreme Court in Crown, Cork & Seal ruled that the tolling rule of American Pipe did not depend on whether the later-filing plaintiff filed a separate action or joined the existing action. See China Agritech, slip op. at 1. Second, the Court in China Agritech ruled that, although the timely filing of a class action complaint “protects [putative class members’] interests in their individual claims,” it does not protect their “interest in representing the class as lead plaintiff.” Slip op. at 9-10. This reasoning applies with equal force to prohibit untimely intervention by new lead plaintiffs.

Scenario 5

Plaintiff A filed a class action complaint naming B as a defendant. The statute of limitations on A’s claim was two years, and A’s complaint was filed on the first day of the limitations period. After 2.5 years, but before the court issued any decision on class certification, plaintiff C, an absent member of the putative class described in A’s complaint, commenced a new class action by filing a class action complaint against B, asserting the same claim described in A’s class complaint. Is C’s claim timely?

This fact pattern is slightly different than the scenario presented in China Agritech, where the later-filing plaintiff commenced a new class action following the denial of class certification in the original, timely filed actions. The likely answer is no, for the same reason mentioned above: although plaintiff A’s timely class suit protected C’s interest in filing an individual claim, it did not protect C’s interest in representing a class as lead plaintiff. Slip op. at 9-10. While the question presented in China Agritech was whether a putative class member could commence a new class action “[u]pon denial of class certification” in the timely filed case, id. at 2, language from the opinion strongly suggests that the holding in China Agritech would apply prior to a class certification decision. The Court noted that neither American Pipe nor Crown, Cork & Seal, “so much as hints that tolling extends to otherwise time-barred class claims” and broadly ruled that “American Pipe does not permit the maintenance of a follow-on class action past expiration of the statute of limitations.” Slip op. at 2, 6. It also held that “Rule 23 evinces a preference for preclusion of untimely successive class actions by instructing that class certification should be resolved early on.” Id. at 7. And it further stated that, “[w]ith class claims, … efficiency favors early assertion of competing representative claims” and that “there is little reason to allow plaintiffs … to enter the fray several years after class proceedings commenced.” Id. at 7, 9.

Scenario 6

Plaintiff A filed a class action complaint naming B as a defendant. The statute of limitations on A’s claim was two years, and A’s complaint was filed on the first day of the limitations period. After 2.5 years, the court denied A’s motion for class certification. The day after class certification was denied, plaintiff C, an absent member of the putative class described in A’s complaint, commenced a new individual action by filing a complaint against B, asserting a different claim than the one described in A’s class complaint. Is C’s claim timely?

This fact pattern is not addressed in China Agritech. However, as Justice Powell observed in Crown, Cork & Seal, “It is important to make certain … that American Pipe is not abused by the assertion of claims that differ from those raised in the original class suit.” See Crown, Cork & Seal, 462 U.S. at 355 (Powell, J., concurring).

Scenario 7

Plaintiff A filed a class action complaint naming B as a defendant and asserting two claims (Claim 1 and Claim 2). A has Article III standing to sue B on Claim 1 but not Claim 2. The statute of limitations on each claim was two years, and A’s complaint was filed on the first day of the limitations period. After 2.5 years, plaintiff C, an absent member of the putative class described in A’s complaint, moved to intervene as a named plaintiff in the lawsuit filed by A. C has standing to assert Claim 2 against B. Is C’s Claim 2 timely?

Claim 2 is untimely for the same reason as Scenario 4 above: the class action tolling doctrine applies to individual claims only, not class claims. If C is attempting to intervene as a named plaintiff in order to assert Claim 2 on behalf of a class after the statute of limitations has expired on Claim 2, then Claim 2 is untimely under China Agritech. While the Supreme Court in China Agritech did not specifically address the question of what would happen if the timely filing named plaintiff lacked Article III standing to assert its class claim, the Court was clear that the American Pipe tolling doctrine does not permit absent class members to litigate claims filed outside the limitations period in a representative capacity—even if the timely filing named plaintiff is ultimately deemed inadequate to represent the class. The Court explained that “efficiency favors early assertion of competing class representative claims,” because “[e]ncouraging early class filings will help ensure sufficient time remains under the statute of limitations, in the event that certification is denied,” so that if “weaknesses in the class theory or adequacy of representation come to light, the lead complaint might be amended or a new plaintiff might intervene.” Slip op. at 7 & n.2.

In other words, limiting American Pipe tolling to individual claims encourages absent class members to decide early on whether they want to litigate in a representative capacity by requiring them to assert class claims within the limitations period, if at all. China Agritech warns that, if the named plaintiffs in the timely filed action are ultimately deemed inadequate after the limitations period has expired, then absent class members’ only option will be to pursue relief on an individual basis. See id. at 9-10 (noting that the American Pipe Court decided that tolling of absent class members’ individual claims was permissible “because plaintiffs who later intervened to pursue individual claims had not slept on their rights,” as “[t]hose plaintiffs reasonably relied on the class representative, who sued timely, to protect their interests in their individual claims”; however, “[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,” and so “[h]er interest in representing the class as lead plaintiff, therefore, would not be preserved by the prior plaintiff’s timely filed suit”).

Conclusion

The Court’s decision in China Agritech to limit class-action tolling places a greater burden on class plaintiffs to find adequate class representatives at the beginning of the case. If class certification is denied and the limitations period has run, plaintiffs can no longer rely on the tolling doctrine to revive class claims.

Author Information

David Hanselman Jr. is a partner in McDermott Will & Emery’s Antitrust Practice based in the Chicago office. Hanselman defends businesses in large, complex antitrust litigations and specializes in antitrust class actions and multidistrict proceedings.

Chelsea Black and Steven Vaughn are associates in McDermott Will & Emery’s Antitrust Practice in the Chicago office. They focus their practices on antitrust litigation and class action defense.