Gravel2Gavel Construction & Real Estate Law Blog
Today, the U.S. Supreme Court issued its decision in China Agritech v. Resh et al., a decision concerning the U.S. Court of Appeals’ application of the tolling rule first stated in American Pipe & Constr. Co. v. Utah and later clarified in Crown, Cork & Seal Co. v. Parker. The Court was called on to answer the question
“Upon denial of class certification, may a putative class member, in lieu of promptly joining an existing suit or promptly filing an individual action, commence a class action anew beyond the time allowed by the applicable statute of limitations?”
Answering this question with “No,” the Court explained that the American Pipe rule tolls the statute of limitations during the pendency of a putative class action, allowing unnamed class members to join the action individually or file individual claims if the class fails. But it does not permit the maintenance of a follow-on class action past expiration of the applicable statute of limitations.
The Court summarized its holding in American Pipe:
“[T]he timely filing of a class action tolls the applicable statute of limitations for all persons encompassed by the class complaint. Where class-action status has been denied, the Court further ruled, members of the failed class could timely intervene as individual plaintiffs in the still-pending action, shorn of its class character.”
The Court went on to explain its clarification of the American Pipe rule in Crown, Cork & Seal Co.
“The rule 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.'”
In the current case, the Court summarized the procedural background of the class claims against China Agritech. On February 11, 2011, at the start of the 2-year statute of limitations period, Theodore Dean, a China Agritech shareholder, filed the first class-action complaint(the Dean complaint). On May 3, 2012, after months of discovery and deferral of a lead-plaintiff ruling, the District Court denied class certification. On October 4, 2012, and within the 2-year statute of limitations period, the Smyth class action complaint was filed. The District Court again denied class certification. On June 30, 2014, the Resh class action complaint was filed. The District Court dismissed the Resh complaint as untimely and the Ninth Circuit reversed, citing the American Pipe tolling rule.
Analyzing the Resh class action complaint and concluding that it was not timely filed, the Court explained that
“American Pipe tolls the limitation period for individual claims because economy of litigation favors delaying those claims until after a class-certification denial. If certification is granted, the claims will proceed as a class and there would be no need for the assertion of any claim individually. If certification is denied, only then would it be necessary to pursue claims individually.
With class claims, on the other hand, efficiency favors early assertion of competing class representative claims. If class treatment is appropriate, and all would-be representatives have come forward, the district court can select the best plaintiff with knowledge of the full array of potential class representatives and class counsel. And if the class mechanism is not a viable option for the claims, the decision denying certification will be made at the outset of the case, litigated once for all would-be class representatives.”
Reversing the Ninth Circuit, the Court confirmed that extending American Pipe tolling to successive class actions would not serve the purposes of Federal Rule of Civil Procedure 23.