UPDATE: Class Actions are Back at the Supreme Court: Statutory Time Limits and “Serial Relitigation” of Class Certification

UPDATE: Class Actions are Back at the Supreme Court: Statutory Time Limits and “Serial Relitigation” of Class Certification

Legal Sidebari

UPDATE: Class Actions are Back at the
Supreme Court: Statutory Time Limits and
“Serial Relitigation” of Class Certification
Updated June 13, 2018
UPDATE: On June 11, 2018, the Supreme Court unanimously reversed the Ninth Circuit in China
Agritech, Inc. v. Resh. In an opinion by Justice Ginsburg for eight of the Justices, the Court concluded
that equitable tolling of statutes of limitation should not apply to subsequent class actions. The Court
explained that the American Pipe rule, which provides that a class suit will toll the running of a statute of
limitations for members of the class that either intervene in existing class suits or file individual suits
after the court has found a suit inappropriate for class treatment, does not apply to subsequent class
actions. The Court noted that a contrary rule would undermine judicial efficiency by allowing class
claimants to serially re-litigate class actions, allowing class plaintiffs “limitless bites at the apple.”
Justice Sotomayor concurred in the judgment, but argued that the Court’s limitation on American Pipe
tolling should only have been applied to cases governed by the Private Securities Litigation Reform Act of
1995, as such cases are subject to significant procedural requirements that justify precluding plaintiffs
who do not file suit within the initial limitations period.
The original post from March 12, 2018, follows below.
Class action lawsuits – i.e., lawsuits by representative parties on behalf of all members of a class of
similar plaintiffs that have aggregated their claims in one case— have been a major focus of both
Congress and the courts of late. The House of Representatives, for example, last year passed the Fairness
in Class Action Litigation Act (H.R. 985), proposing significant changes to the device. Meanwhile, the
Supreme Court has given class actions similar attention, issuing dozens of decisions over the past decade
impacting prospective class plaintiffs and defendants alike.
One particularly thorny issue that has arisen with respect to class actions is what happens the first time a
class action fails. Often, plaintiff’s counsel or a new attorney will try again with new class
representatives, possibly before a new judge. This issue, which some analysts refer to as “serial
relitigation of class certification,” could allow multiple “bites at the apple” for would-be class action
litigants. The “serial relitigation” issue almost necessarily requires an examination of the interplay
between class actions and statutes of limitation. Normally, parties that do not act on their rights can find
their claims time-barred as a result of a statute of limitations. But the class action procedure encourages
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the vast majority of potential class members to not act on their rights based on the theory that those rights
can be best vindicated by a single action through a class representative as opposed to hundreds or
thousands of individual suits. However, if a court, at the initial stage of a class action proceeding, declines
to certify (i.e., approve) a class and allow the class action to proceed, strict adherence to a statute of
limitations could limit the ability of potential class members to seek relief in a future case.
A new case at the Supreme Court, China Agritech, Inc. v. Resh, presents an opportunity for the Supreme
Court to address these issues. Specifically, the question before the Court is whether a plaintiff can bring a
successive class action if the new case would otherwise be barred by the statute of limitations. The
underlying issue in China Agritech has split the lower courts and is a product of the Court’s fairly
complicated class action jurisprudence.
China Agritech is scheduled for oral argument before the Court on March 26, 2018. This Sidebar explores
the history behind the existing rules that apply with respect to statutes of limitations and class actions (the
American Pipe rule), before discussing the specifics of China Agritech and the importance of the case for
Congress.
Background. China Agritech centers on two legal concepts: class actions and statutes of limitations. The
class action device, by allowing a single named plaintiff to assert claims on behalf of all similarly situated
persons, enables the aggregation of relatively low value claims into large lawsuits worth millions—or
more. Many commentators have complained that the class action device as currently used by the courts
enables plaintiffs’ lawyers to generate expensive settlements and obtain huge fees while accomplishing
relatively little of value for class members. According to one estimate, businesses across the United States
spent $2.7 billion class action litigation in 2016 alone. Other commentators argue that class actions serve
a necessary function by holding defendants accountable for wrongs that, because they are widely
distributed and small, tend to not be worth pursuing on an individual basis and would otherwise go
unaddressed. In this vein, class actions are at the heart of broader debates over the reform of the American
litigation system.
Statutes of limitations represent the legislature’s judgment regarding the finality that should apply to
certain claims. As the Court noted in an opinion released this January, “statutes of limitations are
fundamental to a well-ordered judicial system.” The Supreme Court has cited the purpose of statutes of
limitations as “promot[ing] justice by preventing surprises through [plaintiffs’] revival of claims that have
been allowed to slumber until evidence has been lost, memories have faded, and witnesses have
disappeared.” They also “encourage the plaintiff to pursue his rights diligently.” Lastly, statutes of
limitations offer “certainty” and “repose.” But this logic can be difficult to apply in the context of a class
action. It takes time to approve a class, raising the issue of what happens if the statute of limitations
passes while the class proceeding is pending.
The American Pipe Rule. The Supreme Court first considered the tensions between a limitations period
and the class action vehicle in the 1974 case, American Pipe & Construction Co. v. Utah. This case held
that a court could equitably toll (i.e., pause) a statute of limitations for an individual who was formerly a
potential member of a class for the time that the class action was pending. The Court reasoned that the
major rationale for class actions—preventing costly and unwieldy joinder and encouraging efficient
litigation— would be undermined if every class member had to file separate filings in order to protect
themselves from deadlines in the event the court presiding over the original class action ultimately denied
certification. Further, the Court recognized that many of the purposes of statutes of limitations would be
served by a tolling rule, as the defendants would be notified of the claims and generic identities of the
claimants by the initial class suit. In so doing, the American Pipe Court rejected the argument that the
statute of limitations represented a statutory deadline that courts were powerless to extend. Instead, the
Court held that its “inherent judicial power” could be applied to toll the statute of limitations during the
duration of a class suit. In 1983, the Supreme Court reaffirmed the 1974 ruling in Crown, Cork & Seal

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Co. v. Parker, concluding that both parties who wish to intervene in ongoing lawsuits and parties that
bring new, separate lawsuits receive the benefit of the American Pipe rule.

China Agritech v. Resh. China Agritech presents the question of whether the Supreme Court should
further extend the American Pipe and Crown, Cork & Seal rules to toll the statute of limitations for a
party that was formerly a potential class member and wishes to file a successive class action. The case
specifically involves the third shareholder class action that has been brought against China Agritech
arising out of the same alleged fraud. The district court presiding over the previous putative class actions
denied certification in both cases. In June 2014, Michael Resh, the named plaintiff in the present action,
sought certification for the same class as the previous two actions, asserting that the defects in the original
classes could be cured by new class representatives. In December 2014, the district court dismissed this
third action based on it being time-barred under the statute of limitations. Under that statute of limitations,
the ordinary deadline for claims is two years after the discovery of the alleged fraud, or, in this case,
approximately February 2013. Although ordinarily individual claims would have been tolled under
American Pipe, the district court followed the First, Second, Fifth, and Eleventh Circuits in reasoning that
the equitable tolling rule in American Pipe did not apply to new class actions in the same way as it did to
individual claims.
The View of the Ninth Circuit. Disagreeing with the district court and aligning with the Sixth and
Seventh Circuits, the Ninth Circuit reversed, reading American Pipe alongside a number of other, more
recent class-action-focused Supreme Court precedents, particularly (1) Shady Grove Orthopedic
Associates, P.A. v. Allstate Ins. Co., (2) Tyson Foods, Inc. v. Bouaphakeo and (3) Smith v. Bayer Corp. In
particular, the Ninth Circuit concluded Rule 23 of the Federal Rules of Civil Procedure is the exclusive
authority concerning whether a class action can be brought. Because each class member in China
Agritech had a timely claim if the claim was brought on an individual basis—such non-class claims were
undoubtedly tolled by American Pipe—the Ninth Circuit reasoned that only Rule 23 should govern
whether a class action is available, not some special rule governing when tolling does and does not apply.
Of the three Supreme Court cases relied upon by the appellate court, none clearly speaks to the precise
questions raised in this case. Nonetheless, in the view of the Ninth Circuit, the three cases provide the
framework for analyzing the question posed in China Agritech concerning successive class actions. The
first case, Shady Grove, concluded that, at least in federal court, a New York statute that limited the types
of claims that could lawfully qualify for class treatment conflicted with Rule 23. As the Seventh Circuit
explained in another case reflecting the logic of the lower court in China Agritech, it is difficult to square
the language in Rule 23 with “a doctrine that knocks out Rule 23 whenever the time to sue has been
extended by a tolling rule.” The second case, Tyson Foods, Inc. v. Bouaphakeo, held that certain evidence
cannot be deemed inadmissible simply because the underlying claim is brought on behalf of a class. As
the Court noted, “the use of the class device cannot abridge any substantive right.” In China Agritech, the
only difference between the class claims and the individual claims is the presence of the class device—
which suggested for the Ninth Circuit that forbidding equitable tolling in one but not the other is in
tension with the principle of Tyson Foods. The last case, Smith v. Bayer Corp., held that a federal court
could not enjoin a state court from certifying a class that the federal court had previously refused to
certify. In reaching its conclusion in Smith, the Court responded to prudential arguments that are similar to
those made by China Agritech—i.e., fears of endless relitigation of class actions as plaintiffs hunt for a
court that will certify the class. The Court in Smith explained that relitigation was an ordinary problem in
the nation’s litigation system: “our legal system generally relies upon principles of stare decisis and
comity among courts to mitigate the sometimes substantial costs of similar litigation brought by different
plaintiffs.”

The Ninth Circuit ultimately concluded that together these cases stood for the general proposition that a
court should look to Rule 23—and Rule 23 alone—to determine whether a class action should proceed.

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To do otherwise would, in the view of the lower court, ignore the text of Rule 23 and would treat claims
differently by virtue of the attempt to proceed as a class, in violation of Shady Grove and Tyson Foods.
And while relitigation and class action “stacking” might occur under this system, following Smith, such
concerns are, according to the Ninth Circuit, not an excuse for a court to disregard Rule 23.

The Circuit Split. As China Agritech emphasizes in its petition and merits brief, several other circuits
have, however, concluded that American Pipe does not apply to subsequent class actions. The First,
Second, Fifth, and Eleventh Circuits have all held in one form in another that “[p]laintiffs may not stack
one class action on top of another and continue to toll the statute of limitations indefinitely.” There are
two main arguments these courts generally make against applying tolling to subsequent class actions.

First, these courts assert that the American Pipe rule represents a “careful balancing” of the interests of
plaintiffs, defendants, and the court system. As the Second Circuit stated, “[f]lexibility, notice and
efficiency are the watchwords” of the American Pipe rule. It is not a statutory or categorical rule, and as
such, it must be carefully monitored and limited. In line with this view, China Agritech’s merits brief
heavily emphasizes the significant “negative consequences” that could result from allowing tolling to
extend to subsequent class actions, primarily focusing on “perpetual stacking of one class action after
another.” Second, in refusing to extend the American Pipe rule to successive class actions, courts have
noted that as a doctrinal matter, the traditional “equitable tolling principle” applies only on a case-by-case
basis, as the party seeking tolling must demonstrate diligent pursuit of rights along with extraordinary
circumstances. In this vein, China Agritech argues that the fundamental principles of equitable tolling do
not seem to apply to subsequent class action plaintiffs. In American Pipe and Crown, Cork & Seal Co., it
could be argued that the individual beneficiaries of the tolling rule were acting diligently when they
intervened or filed their individual suits after the class action was dismissed. But it is unclear how
“diligent pursuit” could be established in China Agritech where no action whatsoever has been taken by
the vast majority of potential class members. As the Court recognized last term in holding that the
American Pipe rule does not apply to statutes of repose: “[the American Pipe] rule [is] based on
traditional equitable powers, designed to modify a statutory time bar where its rigid application would
create injustice.” But, in the view of the petitioner in China Agritech , there is no injustice when
individuals who received the benefit of tolling take no affirmative action to protect their rights.
Why China Agritech Matters. Whatever the Court decides, the impact of the case on class action
litigation is likely to be significant. There have been four amicus briefs filed in support of China Agritech,
including one on behalf of the Chamber of Commerce, asking the Court to limit the American Pipe rule.
These amici generally argue that there are significant costs imposed by class action, and that businesses
need finality and certainty that is provided by the ordinary operation of statutes of limitations. A contrary
ruling in China Agritech, they argue, would lead to endless uncertainty as claims could be kept alive
indefinitely by stacking class actions (absent an applicable statute of repose). In contrast, eight amici
have filed briefs for the Respondents, making a host of arguments for upholding the opinion of the Ninth
Circuit, including arguments that a reversal would burden the lower courts with duplicative filings or
would leave thousands of wronged individuals without a remedy.
Beyond its impact on businesses and litigants, China Agritech is also of significance to Congress.
As the Supreme Court has noted, statutes of limitations are “fundamental” and represent
Congress’s judgment on the deadlines that apply to certain actions and when finality should
apply. American Pipe and its progeny undoubtedly alter those deadlines under certain
circumstances and do so without any explicit statutory authority. Congress could alter these
common law rules, could alter the statutes of limitation at issue, or could alter Rule 23 itself to
provide more guidance to the courts in resolving the difficult questions posed by China Agritech.

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Author Information

Wilson C. Freeman

Legislative Attorney

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