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February 28, 2018 Articles

When Is Enough Enough? SCOTUS to Consider the Scope of American Pipe’s Tolling Doctrine

The appellate courts' decisions, however, have left litigants with a complicated and conflicting web of analyses.

By Erin E. Rhinehart

Over 40 years ago, the U.S. Supreme Court unanimously decided the landmark case American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), which held that the filing of a class action complaint tolls the statute of limitations for putative class members’ respective individual claims. What American Pipe and its progeny do not address is whether the filing of a putative class action tolls the statute of limitations for absent class members to file subsequent class actions—not simply individual lawsuits. Until now. In December 2017, the Supreme Court granted the petition for writ of certiorari in China Agritech, Inc. v. Resh, No. 17-432, to address this issue. While China Agritech may be grounded in securities laws, the implications of the Court’s decision will affect all class litigation. Therefore, all class practitioners should take heed.

Third Time’s a Charm?
In February 2011, a class action complaint alleging violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934, among other claims, was filed against China Agritech, a fertilizer manufacturer, in federal court in California. The district court denied class certification; the plaintiffs appealed. The Ninth Circuit affirmed and the named plaintiffs settled their individual claims. Petition for Writ of Certiorari at 6–7, China Agritech, Inc. v. Resh, No. 17-432 (citations omitted).

Shortly thereafter, another plaintiff filed a virtually identical class action complaint on behalf of the same putative class. Again, class certification was denied. In that case, the plaintiffs subsequently dismissed their claims without prejudice.

In June 2014, 17 months after the applicable 2-year statute of limitations had elapsed, the respondents in the instant China Agritech case filed a third class action complaint against China Agritech—also virtually identical to the prior two complaints. Id. at 8. The federal district court in California dismissed the class claims as time-barred and held that American Pipe does not toll class claims—only individual claims. Resh v. China Agritech, Inc., No. 14-CV-05083 (C.D. Cal. Dec. 1, 2014). Rather than pursue their individual claims, the respondents appealed and the Ninth Circuit reversed. Resh v. China Agritech, Inc., 857 F.3d 994, 1005 (9th Cir. 2017). Following the Ninth Circuit’s decision declining to rehear the case, China Agritech filed a petition for writ of certiorari with the Supreme Court. The Court agreed to hear the case.

American Pipe and Its Progeny Leave Circuits Split over the Scope of the Equitable Tolling Doctrine
The scope of the American Pipe doctrine has been fodder for the courts for decades. Following American Pipe, the Supreme Court issued another unanimous decision in Crown, Cork & Seal Co. v. Parker, 462 U.S. 345 (1983). In Crown, Cork, the Court expanded on its decision in American Pipe and found that once the statute is tolled, it remains tolled for all putative class members until class certification is denied.

Two more recent decisions from the Supreme Court, neither of which reference American Pipe, may, however, be significant to consideration of China Agritech: Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co., 559 U.S. 393 (2010), and Smith v. Bayer Corp., 564 U.S. 299 (2011).

First, in Shady Grove, a 5–4 majority held that, under Federal Rule of Civil Procedure 23, a plaintiff with a valid claim may maintain his or her case as a class action if the terms of Rule 23 are satisfied.

[Rule 23] says that if the prescribed preconditions are satisfied “[a] class action may be maintained” (emphasis added)—not “a class action may be permitted.” Courts do not maintain actions; litigants do. The discretion suggested by Rule 23’s “may” is discretion residing in the plaintiff: He may bring his claim in a class action if he wishes. And like the rest of the Federal Rules of Civil Procedure, Rule 23 automatically applies “in all civil actions and proceedings in the United States district courts,” Fed. Rule Civ. Proc. 1.

559 U.S. at 399–400 (citations omitted).

Therefore, as the respondents in China Agritech argue, “if the individual class representatives’ claims were timely as a result of American Pipe tolling, their case may proceed as a class action if the Rule 23 class action prerequisites are satisfied.” Brief in Opposition at 8–9, China Agritech, Inc. v. Resh, No. 17-432.

Second, in Smith, the Court reversed the appellate court’s decision and held, unanimously, that the federal district court exceeded its authority under the “relitigation exception” to the Anti-Injunction Act, 28 U.S.C. § 2283, when it enjoined a state court from considering a different plaintiff’s request for class certification after the federal court denied class certification in a related case brought by a different plaintiff against the same defendant. The Court reasoned, in part, that the state court plaintiff was not a “party” to the federal suit because “[n]either a proposed, nor a rejected, class action may bind nonparties”; therefore, none of the exceptions to the act applied and preclusion did not bar the state suit. Smith, 564 U.S. at 301. The Ninth Circuit’s decision currently pending before the Court in China Agritech relied, in part, on Smith to determine that successive class actions are an issue of preclusion, not tolling—a distinction that may prove pivotal to the China Agritech Court’s reasoning. Resh v. China Agritech, Inc., 857 F.3d 994, 1005 (9th Cir. 2017).

Within the past year, however, a 5–4 majority limited the scope of American Pipe and held that the equitable tolling doctrine developed in that case does not toll statutes of repose. Cal. Pub. Emps. Ret. Sys. v. ANZ Sec., Inc., 137 S. Ct. 2042 (2017). The Court reasoned that statutes of repose are generally not subject to equitable tolling because they represent a “legislative judgment that a defendant should ‘be free from liability after the legislatively determined period of time.’” Id. at 2045 (citation omitted).

As the Supreme Court has been disentangling various issues relating to the scope of Rule 23 and American Pipe, a majority of the circuit courts of appeals have addressed the very issue presented in China Agritech. The appellate courts’ decisions, however, have left litigants with a complicated and conflicting web of analyses—the primary basis on which the petitioners in China Agritech argued for certiorari. The circuits are split three ways: (1) extending American Pipe to allow tolling of class claims, (2) extending American Pipe to allow tolling of class claims in limited circumstances, and (3) limiting American Pipe to allow tolling of individual claims only:

1. The Sixth, Seventh, and Ninth Circuits have extended the American Pipe doctrine to allow tolling for otherwise untimely class claims. Phipps v. Wal-Mart Stores, Inc., 792 F.3d 637 (6th Cir. 2015) (cert. denied); Sawyer v. Atlas Heating & Sheet Metal Works, Inc., 642 F.3d 560 (7th Cir. 2011); Resh v. China Agritech, Inc., 857 F.3d 994 (9th Cir. 2017).

2. The Third and Eighth Circuits permit tolling for otherwise untimely class claims but only in limited circumstances, i.e., “where class certification has been denied solely on the basis of the lead plaintiffs’ deficiencies as class representatives, and not because of the suitability of the claims for class treatment.” Yang v. Odom, 392 F.3d 97, 111 (3d Cir. 2004). Accord Great Plains Tr. Co. v. Union Pac. R.R. Co., 492 F.3d 986, 997 (8th Cir. 2007) (following Yang).

3. The First, Second, Fifth, and Eleventh Circuits reject any extension of the American Pipe tolling doctrine to permit untimely class claims, limiting American Pipe to individual claims only. Basch v. Ground Round, Inc., 139 F.3d 6 (1st Cir. 1998); Korwek v. Hunt, 827 F.2d 874 (2d Cir. 1987); Salazar-Calderon v. Presidio Valley Farmers Ass’n, 765 F.2d 1334 (5th Cir. 1985); Griffin v. Singletary, 17 F.3d 356 (11th Cir. 1994).

As a result of this split among the circuits, the petitioners in China Agritech argue that “the viability of successive otherwise untimely class actions depends on the jurisdiction in which the plaintiff elects to file suit . . . [and such] differential treatment of prospective plaintiffs and defendants, depending solely on where a suit is filed, should not be allowed to persist.” Petition for Writ of Certiorari at 18.

The respondents, on the other hand, argue that there is no such split among the circuits following the Court’s decisions in Shady Grove and Smith. Brief in Opposition at 2. Specifically, the respondents reason that each of the appellate courts to consider the issue of whether American Pipe tolls class claims following Shady Grove and Smith (the Sixth, Seventh, and Ninth Circuits) have found that class claims, like individual claims, are tolled. Id. at 2–3. In addition, the respondents counter that the argument that extending the statute of limitations for class actions permits “endless relitigation of class certification determinations” is meritless in light of the Court’s decision in Smith, which found that the principles of preclusion and comity alleviate such concerns. Id. at 16 (quoting Smith v. Bayer).

It’s Not Just a Securities Fraud Case
As shown above, the implications of the Court’s decision in China Agritech stretch well beyond securities cases. As the petitioners explain,

[w]hether American Pipe tolling extends to successive class actions is a recurring question of national importance. . . . The effect of the conflict among the courts of appeals—and the need for national uniformity as to the question presented—is especially pronounced given the class action context. . . . The Court’s review is necessary to eradicate those forum shopping opportunities and establish uniformity. . . .

Petition for certiorari at 19–20.

Indeed, regardless of which side of the argument you may find more persuasive, clarity on the scope of the American Pipe tolling doctrine is long overdue and may have considerable impact on class litigation going forward.

Erin E. Rhinehart – February 28, 2018