SCOTUS Resolves Circuit Split Regarding American Pipe Tolling

In an opinion authored by Justice Ginsburg and joined by all of the Justices (though with only a concurrence from Justice Sotomayor), the Supreme Court today ruled that its 1974 ruling in American Pipe & Constr. Co. v. Utah does not toll the statute of limitations for successive class actions. Justice Ginsburg summarized the Court’s holding as follows:

American Pipe tolls the statute of limitations during the pendency of a putative class action, allowing unnamed class members to join the action individually or file individual claims if the class fails. But American Pipe does not permit the maintenance of a follow-on class action past expiration of the statute of limitations.

The case, China Agritech, Inc. v. Resh, was the third in a series of putative class actions brought to address alleged federal securities law violations. Each of the first two lawsuits was filed within the two-year statute of limitations of the Securities Exchange Act of 1934. The District Court denied class certification in each case — in the first because it determined that plaintiffs had failed to establish that reliance could be proved on a classwide basis (i.e., they failed to establish that the company’s stock traded on an efficient market), and in the second because it determined that plaintiffs failed to establish typicality and adequacy.

Plaintiff Resh filed the third action after the statute of limitations had expired, and relied on American Pipe to avoid the time bar. The District Court dismissed the lawsuit, holding that the prior actions did not toll the statute, but the Ninth Circuit reversed. The Supreme Court granted certiorari, citing a circuit split with respect to the reach of American Pipe tolling.

In its decision, the Court pointed out that neither American Pipe, nor its 1983 decision in Crown, Cork & Seal Co. v. Parker, addressed whether the pendency of a class action tolls the statute of limitations for a subsequent class action. American Pipe promotes efficiency and economy, the Court observed, by allowing class members with individual claims to stand on the sidelines while a court considers whether to grant class certification in a case that would, if certified, encompass their claims. However, the Court held, efficiency and economy would not be served by allowing would-be class representatives to do nothing while waiting to see whether the court certifies the pending case. Rather, “efficiency favors early assertion of competing class representative claims,” because the court could then select the best class representatives and class counsel if the case is certified, and if the court denies certification, that decision “will be made at the outset of the case, litigated once for all would-be class representatives.” The Court rejected plaintiffs’ reading of American Pipe, in part because it “would allow the statute of limitations to be extended time and again; as each class is denied certification, a new named plaintiff could file a class complaint that resuscitates the litigation.”

As a practical matter, the Court’s decision will alleviate the concerns of many defendants that they could be exposed to potential class litigation indefinitely if courts permitted plaintiffs to “stack” class actions upon prior, unsuccessful ones. For that reason, the decision should also remove an obstacle to class settlements by clarifying that a settling defendant will not be exposed to subsequent class actions for the same conduct brought after applicable statutes of limitation have run.

Written by former litigation partner, Donald R. Frederico.

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