On Monday, March 26, 2018, the United States Supreme Court heard
oral argument in an appeal that presents the question whether
American Pipe tolling—which provides that the
pendency of a class action generally tolls the statute of
limitations for claims of individual members of the putative
class—applies not just to subsequent individual actions but
also to subsequent class actions. Transcript, China
Agritech, Inc. v. Resh, No. 17-432 (U.S. argued Mar. 26,
2018). Plaintiffs, alleged owners of shares in China
Agritech, filed a putative securities fraud class action following
the filing of two other similar class actions for which class
certification had been denied. There was no dispute that the
claims of the individual named plaintiffs were timely under the
tolling rule of American Pipe & Construction Co. v.
Utah, 414 U.S. 538 (1974). The district court, however,
dismissed the class claims as time-barred, only to be later
reversed by the Ninth Circuit. The Circuit Courts of Appeals
have reached varying conclusions regarding whether, or the
circumstances in which, the filing of a putative but ultimately not
certified class action will operate to toll subsequently-asserted
class claims, thereby allowing for the seriatim filing of otherwise
time-barred class actions in the hope that a class may eventually
be certified. The China Agritech case provides an
opportunity for the Supreme Court to resolve the conflict.
The questioning from the Justices highlighted some of the competing
policy and other concerns at issue. It appeared to be an
accepted premise that the underlying rationale for the tolling rule
of American Pipe included avoiding the need for absent
class members to file a multiplicity of individual actions to avoid
having their claims be barred under the statute of limitations, so
long as they acted diligently (in other words, within the statute
of limitations, as tolled during the pendency of the class action)
after denial of class certification to assert their individual
claims. A key dispute centered on whether it furthered the
objectives of American Pipe to allow absent class members
who continued to "sleep" on their rights after the
initial denial of class certification—by failing to file an
individual action—to nevertheless benefit from American
Pipe tolling by having their claims asserted on their behalf
in a subsequent class action. For example, Justice Gorsuch
wondered whether it was appropriate to "stack [class action
cases] forever [when assessing the statute of limitations], so that
try, try again, and the statute of limitations never really has any
force in these cases" and what the Court should "do about
the congressional judgment that there should be a statute of
limitations." On the other hand, questions were raised
suggesting that, especially in cases in which certification was
denied for reasons unrelated to the merits of maintaining the case
as a class action (e.g., an atypical or inadequate class
representative), it would contravene the efficiency and fairness
objectives of American Pipe to require absent class
members to file individual actions to pursue their claims.
Thus, Justice Sotomayor repeatedly challenged counsel for the
petitioner as to why the Court should adopt a rule that would
encourage the filing of a multitude of individual claims when a
class action could be used as an efficient litigation tool.
Relatedly, Justice Gorsuch inquired whether it would be appropriate
to give an individual plaintiff who timely filed suit after a
denial of class certification the benefit of equitable tolling, yet
deny him or her the ability to invoke Rule 23.
It is always difficult to discern how the Court might rule based on
questioning during oral argument. However, a general
impression from the transcript is that neither insisting that only
individual actions are tolled nor concluding that class action
rights are always tolled is likely to satisfy a broad swath of the
Court. The Court should have some flexibility given that
American Pipe is a judge-made rule emanating not from
statute but rather the Federal Rules of Civil Procedure. One
can also question how consequential this issue ultimately will be
given the Supreme Court's 2017 ruling in the ANZ case
that no plaintiff—whether individually or on behalf
of a class—benefits from American Pipe tolling once
the Securities Act's three-year statute of repose has
expired.
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