As discussed on our blog late last year, the U.S. Supreme Court granted certiorari to China Agritech, Inc., a fertilizer manufacturer, from the Ninth Circuit’s decision in Resh v. China Agritech, Inc., 857 F.3d 994 (9th Cir. 2017). (See our earlier post here). In reviewing Resh, the Court will consider whether its American Pipe and Construction Co. v. Utah, 414 U.S. 538 (1974) ruling tolls statutes of limitation to allow previously absent class members to bring a subsequent class action outside of the applicable limitations period. In other words, whether its American Pipe ruling applies only to subsequent individual claims or if it extends more broadly to successive class actions. The Court held argument on this issue earlier this week.
In American Pipe, the Supreme Court held that the filing of a class action suit tolls the running of the statute of limitations for all purported members of the class who make timely motions to intervene after the court has found the suit inappropriate for class action status. The First, Second, Third, Fifth, Eighth and Eleventh Circuits have found the American Pipe decision to allow for tolling for individual actions only—and not serial class actions. Three other courts of appeal—including the Ninth Circuit in the decision at issue—have rejected this notion and, instead, interpret American Pipe to mean that the limitations period is tolled not only as to individual claims, but also as to future class action claims.
In Resh, a group of plaintiffs first filed a class action against China Agritech in 2011, alleging violations of the Securities Exchange Act of 1934. In 2012, the district court rejected a motion for class certification, holding that the claims were not suited for joint adjudication. When the individual plaintiffs settled their claims, that case was dismissed. A few weeks later, another group of plaintiffs filed a similar class action against China Agritech, raising claims under the Securities Exchange Act related to the same events as the first class action. After the district court rejected a motion for class certification, the second group of plaintiffs voluntarily dismissed their claims.
Several months later, yet another group of plaintiffs filed the action at issue, raising claims under the Securities Exchange Act based on the same events as the two previous class actions. Because the filing in this case came more than two years after the events in question, outside the applicable statute of limitations, China Agritech argued that the district court should dismiss it as untimely. The district court ruled for China Agritech, but the U.S. Court of Appeals for the Ninth Circuit overturned that ruling, reinstating the class action. The Ninth Circuit held that the Plaintiffs’ would-be class action is not time bared, where: (1) the Plaintiffs were unnamed in the two earlier would-be class actions against many of the same Defendants based on the same underlying events; (2) class action certification was denied in both previous cases; (3) the earlier actions were timely; and (4) under American Pipe, the statute of limitations of the individual claims of the would-be class members in the earlier actions were tolled during the pendency of those claims.
Highlights of the March 26, 2018 Oral Argument
Seth Aronson argued on behalf of the Petitioner, China Agritech. Aronson argued that American Pipe gave claimants the benefit of equitable tolling because the plaintiff had shown diligence by coming to court to assert his claim when class certification was denied, and, further, because enforcing the statute of limitations would undermine Rule 23 by encouraging individual claimants to come forward while the class action was pending.
Justice Elena Kagan began by questioning how the plaintiff in the present case was different from plaintiffs in American Pipe, as both are relying on a class action in order to show diligence.
A skeptical Justice Sonia Sotomayor questioned the validity of petitioner’s argument early on, stating “your regime is now encouraging the very thing that American Pipe was trying to avoid, which is to have a multiplicity of suits being filed and encouraging every class member to come forth and file their own suit.”
Justice Kagan again pushed Aronson on his position, stating that “just as, at time one, it made more sense to have a class action than a thousand individual actions, so too, at time two, it makes more sense to have a class action than a thousand individual actions.”
Aronson responded by arguing that it is not reasonable to rely on a class action where the statute of limitations has already expired. He argued that if the statute of limitations is enforced, the interests of Rule 23 would still be served because it would mean the class members would come forward early, the best representatives would be picked, and the court would be able to decide the best way to proceed.
The newest addition to the Court, Justice Neil Gorsuch, also questioned Aronson’s argument against allowing individuals with equitably tolled claims from bringing a new class action suit, asking Aronson whether or not there were any other circumstances where courts have allowed equitable tolling, but denied access to procedural mechanisms in a subsequent suit. Aronson responded that he was not aware of any such circumstance outside of the present case, but that the absent class members’ claims are untimely and that there cannot be such a class of untimely class members.
Aronson argued that “someone who sleeps on their rights and doesn’t present her claim, those claims will expire when the statute of limitation expires.”
Aronson got to the heart of Petitioners’ argument and said that to allow an individual to bring a class claim after the limitations period had ended would be unfair because those other unnamed individuals would not be entitled to equitable tolling because they have done nothing to illustrate a showing of diligence while the statutory period ran.
David Frederick argued on behalf of the Respondents. Justice Gorsuch questioned Frederick and noted that American Pipe is the only time in which the court allows an absent class member to illustrate diligence without actually filing an action with the court.
Counsel for Respondents argued that if a plaintiff has a timely claim, which he argued was conceded in this case for the individual claims, then the Federal Rules of Civil Procedure apply automatically (which, of course, includes Rule 23).
Chief Justice John Roberts noted his concerns about allowing individuals whose claims have been tolled to file class actions, by stating “if you allow the second [class action suit], you’ve got to allow the third and then the fourth and the fifth and there’s no end in sight.”
Frederick responded by saying that the “end in sight” is that plaintiffs must have a new rationale for why the subsequent class certification motion should be granted.
Justice Stephen Breyer seemingly questioned why someone who has never done anything during the tolling period should be rewarded by being able to join a class action after the statutory period has run.
Justice Ruth Bader Ginsburg gave her thoughts on the holding in American Pipe in a question where she stated, “so the American Pipe [decision] is protecting diligent parties who will come in immediately after the class action is denied and the ones who don’t come in are still sleeping on their rights.”
The issue of whether under American Pipe individuals whose claims have been tolled can bring a class action after the statutory period has run is one that can have massive implications for complex litigation throughout the country. The precedent seems to be clear that on an individual basis, the plaintiffs’ claims may be tolled. However, on both sides of the aisle, the Court seems reluctant to extend this equitable tolling on a class-wide basis. Throughout the argument, the Justices were focused on the diligence prong of the equitable tolling standard and appeared concerned that allowing equitable relief for plaintiffs who sat on their claims would fly in the face of the rationale behind equitable tolling in the first place.
We will continue to monitor this case and provide you with updates. For more information or to discuss the potential implications of this ruling, please contact the Jackson Lewis attorney with whom you regularly work.