China Agritech, Inc. v. Resh
138 S.Ct. 1800, 2018 U.S. LEXIS 3502, 201 L. Ed. 2d 123 (2018)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
The timely filing of a class action tolls the statute of limitations only for individual claims of putative class members, not for filing successive class actions after the original limitations period has expired.
Facts:
- China Agritech, Inc. allegedly engaged in fraud and misleading business practices.
- When several reports brought the alleged misconduct to light, the company’s stock price plummeted.
- The discovery of the facts constituting the violation occurred on February 3, 2011, triggering a two-year statute of limitations under the Securities Exchange Act of 1934.
- Michael Resh and other respondents were purchasers of China Agritech's common stock who suffered financial losses.
- Resh did not participate as a potential lead plaintiff in two earlier, timely-filed class action attempts by other shareholders based on the same facts.
- Resh's attempt to initiate a third class action occurred in 2014, more than a year after the two-year statute of limitations had expired.
Procedural Posture:
- Theodore Dean filed the first timely class action (Dean), which the District Court declined to certify. The action later settled.
- A second set of plaintiffs filed another timely class action (Smyth), which the District Court also declined to certify before the plaintiffs settled their individual claims.
- Michael Resh filed a third class action in U.S. District Court after the statute of limitations had expired.
- The District Court dismissed Resh's class complaint as untimely, holding that the prior actions did not toll the limitations period for a new class action.
- Resh (as appellant) appealed to the U.S. Court of Appeals for the Ninth Circuit.
- The Ninth Circuit (an intermediate appellate court) reversed the dismissal, holding that American Pipe tolling applies to successive class claims.
- China Agritech (as petitioner) petitioned for and was granted a writ of certiorari by the U.S. Supreme Court.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does the tolling rule from American Pipe & Constr. Co. v. Utah, which pauses the statute of limitations for individual claims after the denial of class certification, also permit a new, otherwise untimely class action to be filed?
Opinions:
Majority - Justice Ginsburg
No. The tolling rule established in American Pipe does not permit a plaintiff to commence a new class action beyond the time allowed by the applicable statute of limitations. The 'efficiency and economy of litigation' that supports tolling individual claims does not support tolling for successive class actions. Efficiency in class litigation is best served by having all potential class representatives come forward early, allowing the district court to select the best plaintiff and decide the certification question once for all. Federal Rule of Civil Procedure 23 and the Private Securities Litigation Reform Act of 1995 (PSLRA) both encourage early determination of class representation. Allowing endless 'stacking' of class actions would permit the statute of limitations to be extended indefinitely, a result not envisioned by American Pipe and contrary to the principles of finality that statutes of limitations are meant to provide.
Concurring - Justice Sotomayor
No. The Court's holding is correct in this case because it is governed by the Private Securities Litigation Reform Act of 1995 (PSLRA), but the majority's rule should not be extended to all class actions. The PSLRA creates a specific procedural framework that requires potential lead plaintiffs to come forward early, and respondents' failure to do so shows a lack of diligence. In general class actions not governed by the PSLRA, there is no similar mechanism, and a broad rule barring successive class actions could be unfair. A more tailored approach might be better, such as allowing a successive class action if the initial certification was denied for reasons specific to the lead plaintiff's adequacy, rather than a flaw in the class itself.
Analysis:
This decision resolves a significant circuit split by establishing a clear, bright-line rule that American Pipe tolling applies only to individual claims, not to successive class actions. It effectively prevents the 'stacking' or 'piggybacking' of class actions to extend the statute of limitations indefinitely, thereby promoting finality and judicial efficiency. The ruling places the burden on potential class representatives to act diligently by intervening or filing their own class claims before the limitations period runs. This will likely discourage plaintiffs from waiting on the sidelines and instead encourage the consolidation of leadership challenges at the outset of litigation.
