U.S. Supreme Court Rejects American Pipe Tolling for Serial Class Actions
Business Litigation Update
Date: June 12, 2018
On June 11, 2018, eight Justices of the United States Supreme Court agreed, with Justice Sotomayor concurring more narrowly, that the filing of a putative class action does not toll a statute of limitations for the filing of another class action, but only for individual claims. See China Agritech, Inc. v. Resh, 584 U.S. ___ (2018). Writing for the majority, Justice Ginsburg reasoned that the efficiency and economy purposes that support tolling for individual claims do not apply to the filing of additional class actions, and that such tolling is not required by Shady Grove Orthopedic Associates, P.A. v. Allstate Ins. Co., 559 U.S. 393 (2010) (holding that only Rule 23 and not a conflicting state statute determines whether a class action can be maintained). The Court reversed the Ninth Circuit’s judgment and in so doing resolved a circuit split, overruling contrary precedents in the Sixth and Seventh Circuits. The result is that plaintiffs will no longer be able to bring serial class actions outside the statute of limitations and have repeated attempts at persuading a court to certify a class.
The Supreme Court first held in American Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974), that the filing of a putative class action tolls the statute of limitations until class certification is denied for members of the putative class to file motions to intervene to pursue their individual claims. In Crown, Cork & Seal Co. v. Parker, 462 U.S. 345 (1983), the Court extended the tolling rule to plaintiffs who file separate actions.
Until 2011, no federal court had applied the tolling rule to permit a plaintiff to pursue a subsequent class action outside the statute of limitations. Then the Seventh Circuit in Sawyer v. Atlas Heating & Sheet Metal Works, Inc., 642 F.3d 560 (2011), and the Sixth Circuit in Phipps v. Wal-Mart Stores, Inc., 792 F.3d 637 (6th Cir. 2015), held that tolling applied to subsequent class actions.
The split widened with the Ninth Circuit’s 2017 decision in Resh. The plaintiff in Resh filed the third in a series of substantially identical putative class actions under the Securities Exchange Act of 1934, 48 Stat. 881, as amended, 15 U.S.C. §78a et seq. The first two actions had been settled and dismissed. It was undisputed that Resh filed his action after the relevant two-year statute of limitation had expired, not counting tolling due to the pendency of the two previously settled and dismissed actions. The District Court held that tolling did not apply to Resh’s attempt to bring another putative class action.
Agreeing with the Sixth and Seventh Circuits, the Ninth Circuit reversed, reasoning that tolling for serial class actions would further the same efficiency and economy purposes as for individual claims. It also agreed with those courts that the Supreme Court’s holding in Shady Grove supported this result by directing courts to consider only the criteria of Rule 23 for purposes of class certification.
Eight Justices of the Supreme Court rejected both of these arguments in reversing the Ninth Circuit. They found that tolling for serial class actions would undermine rather than promote efficiency and economy. While tolling promotes efficiency by allowing putative class members to wait for a ruling on class certification before asserting their individual claims, efficiency is served by requiring plaintiffs who want to serve as class representatives to come forward early, so class certification and representation are litigated once for all at the outset of the litigation. The majority also distinguished Shady Grove on the ground that it concerned a state law barring a class action that otherwise could have proceeded under Rule 23, while Resh involved a reverse situation in which the class action would be time-barred without application of the tolling rule. Justice Sotomayor concurred in judgment on the narrower ground that tolling cannot be applied to securities class actions subject to the Private Securities Litigation Reform Act of 1995, which contains special procedures for early appointment of a lead plaintiff.
The Supreme Court’s ruling has several practical consequences. It will protect defendants against serial class actions that are filed outside the relevant statute of limitations, although it will not affect those filed earlier. In some circumstances, the ruling will provide some assurance to defendants who wish to settle cases but are concerned that additional class actions could be filed afterward. More negatively for defendants, the ruling could incentivize earlier filing of more competing and overlapping class actions, although there is little evidence that this has happened in circuits that never applied tolling to serial class actions. The ruling also will not prevent the filing of additional class actions in cases where an injury is recurring. Overall, however, this is a significant victory for defendants who, as the Supreme Court observed, otherwise could face effectively endless refiling of class actions.
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Brian A. Troyer
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