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From Securities Regulation Daily, September 25, 2017

Does American Pipe tolling also apply to class actions?

By Rodney F. Tonkovic, J.D.

A petition for certiorari askes the Supreme Court to address whether American Pipe tolls not just individual actions, but also class actions. The Ninth Circuit construed American Pipe to toll the limitations period for class action plaintiffs who were unnamed class members in previously uncertified classes. Unlike the Ninth Circuit, at least six others have held that American Pipe applies only to individual actions. A new class action brought by previously absent class members would have been dismissed as untimely in these circuits, the petition asserts (China Agritech, Inc. v. ReshSeptember 21, 2017).

Tolling permitted? This petition involves the third identical securities fraud class action brought by shareholders of the petitioner, China Agritech, Inc. Class certification for both previous actions was denied, and the respondents did not seek to participate as named plaintiffs or appear in those actions. The underlying action was filed in June 2014, seventeen months after the applicable two-year statute of limitations had lapsed. The district court dismissed the new complaint as time-barred. The judge, who also presided over the two earlier class actions, held that American Pipe tolling permitted the filing of new individual claims, but not an entirely new class action based on a substantially identical class.

On appeal, the Ninth Circuit reversed and held that the statute of limitations was tolled during the pendency of two prior class actions. Permitting unnamed class members in previously uncertified classes to avail themselves of American Pipe tolling "would advance the policy objectives that led the Supreme Court to permit tolling in the first place," the panel concluded. Further, the pendency of the prior actions would alert defendants to the substantive claims, so there would be no unfair surprise, and the rule promotes economy of litigation. The court acknowledged the possibility of abuse, but said that plaintiffs and attorneys would not risk bringing successive nonviable suits and that the ordinary principles of preclusion and comity would further reduce incentives to re-litigate frivolous or already dismissed class claims. The appellate court subsequently denied both rehearing and rehearing en banc.

The petition. The petition asks whether the American Pipe rule tolls statutes of limitations to permit a previously absent class member to bring a subsequent class action outside the applicable limitations period. The petition asserts that up to now, appellate courts have uniformly rejected attempts to extend American Pipe to permit absent class members to bring claims on behalf of a class. According to the petitioner, the First, Second, Third, Fifth, Eight, and Eleventh Circuits have held that American Pipe tolling does not apply to serial class actions, particularly when an attempt to certify a materially identical class has already been rejected. The Sixth, Seventh, and now the Ninth Circuits, however, have adopted rules that would extend the statute of limitations for class actions indefinitely, the petition says.

The petition explains that the First, Second, Fifth, and Eleventh Circuits flatly reject extending American Pipe tolling to otherwise untimely class actions. In these circuits, tolling only applies to the individual claims of absent class members. In some circumstances, the Third and Eight Circuits allow tolling for successive class actions, but not when class certification has previously been denied on the basis of the lead plaintiffs' deficiencies as class representatives.

The Sixth, Seventh, and Ninth Circuits, on the other hand, permit "endless relitigation" of class certification determinations, the petition claims. According to the petition, while the Sixth and Seventh Circuits generally extended American Pipe tolling to class actions, neither applied the rule in a case where certification of an identical class had already been denied. In this case, the Ninth Circuit has applied American Pipe where certification was denied, leaving "no limit to a plaintiff's ability to stack class actions" and inviting "endless, vexatious litigation" of the sort Congress intended to prevent in enacting statutes of limitations.

The petition concludes by arguing that the Ninth Circuit's decision is an ideal vehicle for resolving this recurring question of national importance. The Court's review is needed to eradicate opportunities for forum shopping and to establish uniformity. Moreover, the Ninth Circuit's decision is at odds with Supreme Court precedent holding that American Pipe applies to individual claims. Finally, there are adverse policy consequences to the Ninth Circuit's holding such as an essentially indefinite extension of the statute of limitations that would also make it much more difficult to timely settle disputes.

The petition is No. 17-432.

Attorneys: Anton Metlitsky (O'Melveny & Myers LLP) for China Agritech, Inc.

Companies: China Agritech, Inc.

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