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Supreme Court: American Pipe Does Not Permit Unnamed Class Members to Bring a New Class Action After the Expiration of the Applicable Limitations Period

06.25.18

(Article from Securities Law Alert, May/June 2018) 

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On June 11, 2018, the Supreme Court unanimously held that the tolling of individual claims established in
American Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974),[1] does not toll limitations periods for successive class claims. China Agritech v. Resh, 2018 WL 2767565 (2018) (Ginsburg, J.). Thus, individual claimants that could invoke American Pipe tolling for their individual claims may not bring putative class claims if such class claims would be barred by the applicable statute of limitations.

In concluding that American Pipe tolling does not permit follow-on class actions after the expiration of the relevant statute of limitations, the Court focused heavily on the reasoning behind American Pipe. The Court explained that “[t]he watchwords of American Pipe are efficiency and economy of litigation” and stated that “[e]xtending American Pipe tolling to successive class actions does not serve that purpose.” The Court observed that the “‘efficiency and economy of litigation’ that support tolling of individual claims . . . do not support maintenance of untimely successive class actions.” Instead, the Court noted that class claims should be made soon after the first action seeking class certification. The Court reasoned that while economy of litigation favors delaying the limitation period for individual claims until class certification is denied because a certification grant would eliminate the need for individually asserted claims, the opposite is true for competing class representative claims: when class treatment is appropriate, it is best for all possible representatives to be known so the district court can select the best plaintiff.

The Court also analyzed the impact of the Federal Rules of Civil Procedure and the Private Securities Litigation Reform Act of 1995 (“PSLRA”) on class litigation and securities suits. Rule 23 mandates that class certification be resolved at “an early practicable time,” indicating a preference for the preclusion of untimely class actions. The Court noted that the PSLRA—which governs the China Agritech litigation—requires publication of class notices shortly after commencement of a securities class action. The Court reasoned that this rule aims to alert all potential class representatives to the litigation and to afford them an opportunity to demonstrate their suitability to serve as lead plaintiff.

The Court also explained that plaintiffs usually must show that they have been diligent in pursuing their claims to benefit from equitable tolling. In American Pipe, the Court noted that tolling was permissible because the intervening individual plaintiffs had not “slept on their rights,” but instead relied on the class representative to protect their interests. Here, however, a “would-be class representative who commences suit after expiration of the limitation period . . . can hardly qualify as diligent in asserting claims and pursuing relief.”

The Court expressed concern that applying American Pipe tolling to successive class claims would permit the statute of limitations to be extended indefinitely, noting that “[e]ndless tolling of a statute of limitations is not a result envisioned by American Pipe.” Additionally, the Court rejected concerns that its decision would lead to a “needless multiplicity” of class action filings because: (i) there is no showing that the Circuits that declined to apply American Pipe to class actions have experienced a disproportionate amount of protective class action filings; and (ii) a plaintiff that wants to lead a class already has incentive to file early and little reason to delay.

The Court also rejected the argument that limiting American Pipe tolling to individual claims was contrary to the Rules Enabling Act, noting that claimants have no substantive right to bring untimely claims. The Court explained that Rule 23 does not require class actions to be revived when individual claims are tolled. Indeed, “the [Federal] Rules do not offer . . . a reason to permit plaintiffs to exhume failed class actions by filing new, untimely class claims.”

Justice Sotomayor concurred with the outcome, but opined that the majority erred in adopting an unnecessarily broad rule. Justice Sotomayor expressed her view that the American Pipe tolling doctrine should apply to permit plaintiffs to file new class actions in cases that are not subject to the PSLRA. Justice Sotomayor pointed to the Court’s precedent in Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 559 U.S. 393 (2010), which held that there must be a special reason for treating class actions differently from individual claims. The PSLRA and its procedural requirements, particularly the requirement to notify potential lead plaintiffs of a pending class action, distinguishes securities law class actions from those not governed by the PSLRA. Justice Sotomayor observed that Rule 23 generally lacks a requirement to provide precertification notice to putative class members and “in no way ensures that potential lead plaintiffs know about the putative class action or about their opportunity to represent the class.” She disagreed with the majority’s view that its ruling would encourage class representatives to come forward early in the process to “aid” the court in selecting the best lead plaintiff. Justice Sotomayor stated that “in suits not covered by the PSLRA, absent class members may not know of the pending class action early enough to ‘aid’ the court, and will likely have to file a completely separate lawsuit if what they seek is lead-plaintiff status.”



[1] The American Pipe Court held that “the commencement of a class action suspends the applicable statute of limitations as to all asserted members of the class who would have been parties had the suit been permitted to continue as a class action.”