McGuireWoods Fintech industry team leader David Reidy and appellate litigator Jonathan Urick bring us this succinct analysis of the Supreme Court’s hotly anticipated decision on the doctrine of “equitable tolling” in class actions:
Class-action plaintiffs cannot toll the statute of limitations indefinitely by filing copycat class actions until certification sticks, the U.S. Supreme Court held on Monday, June 11, in China Agritech, Inc. v. Resh. The Court refused to extend American Pipe tolling—which stops the limitations clock for putative class members’ individual claims while a putative class action is pending—to successive, overlapping class claims. After a district court dismisses the class complaint or denies certification, a putative class representative in the rejected class can file an otherwise untimely individual suit with the benefit of American Pipe tolling. But China Agritech confirms that the statute of limitations for a refiled, overlapping class action is not tolled. The holding is good news for business, and makes sense, as it prevents serial class actions that have the cumulative effect of nullifying limitations periods.
The Supreme Court first recognized class-action tolling for individual claims in American Pipe & Construction Co. v. Utah (1974). American Pipe held that members of a failed class may still file otherwise untimely individual claims after a district court denies class certification. Until that denial or dismissal of the complaint, the putative class action tolls the statute of limitations. The Court grounded this rule solely on good policy: Without tolling, American Pipe reasoned, potential class members could not safely rely on the pending class action to protect their interests. As a result, they could only hedge against the possible denial of class certification by filing numerous individual actions—precisely the inefficiency Civil Rule 23 intended to avoid.
Before Monday’s Supreme Court decision, the circuits were split over whether American Pipe tolling also applied to successive, overlapping class actions. In an opinion for eight justices by Justice Ginsburg, the Court in China Agritech answered a resounding “no.”
American Pipe does not permit a plaintiff who waits out the statute of limitations to piggyback on an earlier, timely filed class action.
The policy reasons behind American Pipe, the Court explained, “do not support maintenance of untimely successive class actions.” On the contrary, “any additional class filings should be made early on, soon after the commencement of the first action seeking class certification,” so “the district court can select the best plaintiff with knowledge of the full array of potential class representatives and class counsel.” Justice Ginsburg also noted that, unlike failed class members who file individual claims after relying on the class representative to protect their rights, new putative class reps bringing untimely class claims “slept on their rights.” Such plaintiffs, the Court reasoned, “can hardly qualify as diligent in asserting claims and pursuing relief.” Finally, tolling would unacceptably “allow the statute of limitations to be extended time and again” after each class fails to win certification.
The Court acknowledged that its no-tolling rule may encourage rival plaintiffs to file competing class actions, just as American Pipe worried about individual claims. But that possibility gave the Court no heartburn. Indeed, an early flurry of overlapping class actions might not be a bad thing: As Justice Ginsburg observed, “multiple filings may aid a district court in determining, early on, whether class treatment is warranted, and if so, which of the contenders would be the best representative.” The Court repeatedly stressed that class certification should be decided as soon as possible. Tolling for overlapping class actions would just delay that decision. Moreover, district courts “have ample tools at their disposal to manage” overlapping class actions, “including the ability to stay, consolidate, or transfer proceedings.” China Agritech thus came down to the policy merits of extending tolling to successive class actions.
Justice Sotomayor concurred in the judgment, making it unanimous. In her view, the Private Securities Litigation Reform Act of 1995 prohibited tolling for the securities class actions at issue in the case. But Justice Sotomayor would have allowed tolling for successive class actions not governed by the PSLRA.