China Agritech, Inc. v. Resh, 138 S.Ct. 1800 (2018). In American Pipe & Const. Co. v. Utah, 414 U.S. 538 (1974), the Supreme Court of the United States announced a rule that the timely filing of a class action tolls the statute of limitations for all of those who are encompassed within the class definition of the filed case. If class certification is later denied, the statute begins to run again at that point, and additional cases can then be brought. American Pipe, and a subsequent case, Crown, Cork & Seal Co. v. Parker, 462 U.S. 345 (1983), contained language that referred to subsequent individual cases, not sequential class actions. The question in today’s opinion of the Court, which involved a securities fraud case governed by the Private Securities Litigation Reform Act of 1995 (“PSLRA”), was whether American Pipe tolling permits successive class actions, as opposed to individual actions. In an opinion by Justice Ginsburg, the Court answered “no.” The result was unanimous, though Justice Sotomayor filed an opinion concurring in the judgment.
Justice Ginsburg’s opinion stated that neither American Pipe nor Crown, Cork “so much as hints that tolling extends to otherwise time-barred class claims. We hold that American Pipe does not permit a plaintiff who waits out the statute of limitations to to piggyback on an earlier, timely filed class action. The ‘efficiency and economy of litigation’ that support tolling of individual claims, American Pipe, 414 U.S., at 553, do not support maintenance of untimely successive class actions; any additional class filings should be made early on, soon after the commencement of the first action seeking class certification” (emphasis by Justice Ginsburg).
The Court observed that the PSLRA requires that notice of the filing of a securities fraud lawsuit be published, so as “to draw all potential lead plaintiffs into the suit so that the district court will have the full roster of contenders before deciding which contender to appoint.” With that published notice, and the opportunity to participate in the first-filed case, “there is little reason to allow plaintiffs who passed up those opportunities to enter the fray several years after class proceedings first commenced.” Rejecting arguments that the Court’s rule would encourage “needless duplication” in the form of multiple cases being filed, often in different Districts, Justice Ginsburg responded that not all such duplication is “needless,” that “sooner rather than later filings are just what Rule 23 encourages,” and that District Courts have tools to manage overlapping actions, including by staying, consolidating, or transferring cases.
Moreover, a contrary result, Justice Ginsburg said, would allow “[e]ndless tolling of a statute of limitations,” as each time class certification is denied, a new class action could be filed and considered timely. American Pipe did not contemplate that, and such a result would be unfair to defendants, who rely on statutes of limitation to terminate their exposure to suit at some point.
Justice Ginsburg noted that Circuit Courts of Appeal had split regarding this issue, and that the majority of those courts adopted the rule that the Supreme Court endorsed today. In one of the prior cases cited by the Court, however, the Third Circuit showed the way to a more sound result than the Supreme Court reached today. Yang v. Odom, 392 F.3d 97 (3d Cir. 2004). That decision held that American Pipe tolling does not protect subsequent class actions “where [class] certification was previously denied due to a class defect, but does apply where certification was denied based on the putative representative’s deficiencies.” It is outright unjust to deprive a class of persons who may have substantively meritorious claims from proceeding with a successor class action merely because the representative in the first case to rule on class certification had some disqualifying characteristic.
For that and other reasons, Justice Sotomayor’s concurring opinion was the better reasoned one. She agreed with that principle from Yang. She would also have limited today’s decision to PSLRA cases. That was the correct view, for several reasons.
First, this was a PSLRA case. Adhering to the general rule that courts adopt the narrowest available rule of decision called for the Court to establish only that American Pipe tolling does not apply to securities fraud class actions. Second, as Justice Sotomayor correctly noted, while the PSLRA requires public notice of a first-filed case, so as to encourage competition to be the lead plaintiff (as Justice Ginsburg observed), other types of class actions do not entail such public notice, so the notion that all potential plaintiffs should be able to join a case early breaks down. In consumer, products, and other types of cases, there is no comparable way for the public to receive notice of pendency, and therefore no reason to expect, as the main opinion did, that other potential plaintiffs will enter a non-PSLRA case fray.
Third, the PSLRA contains a statute of repose, beyond which no case could be filed even if American Pipe tolling applied to subsequent PSLRA class actions. The potential for “endless tolling” that the main opinion envisioned was thus illusory in PSLRA cases.
Given the lineup of Circuit Courts on this issue, and the language in American Pipe and Crown, Cork that emphasized tolling for subsequent individual cases rather than class actions, today’s ruling is not a huge surprise, especially from a Court that has often disfavored class actions. But the Court erred in the breadth of its result, as Justice Sotomayor compellingly demonstrated.