On June 11, 2018, the United States Supreme Court ruled that American Pipe tolling does not extend to follow-on class actions brought after the statute of limitations period has run. This decision resolves a split between circuit courts over the question of whether a putative class member can rely on American Pipe to toll applicable statute of limitations to file a new class action in lieu of promptly joining an existing suit or filing an individual action. The Court held that “American Pipe tolls the statutes of limitations during the pendency of a putative class action, allowing unnamed class members to join the action individually or file individual claims. But American Pipe does not permit the maintenance of a follow-on class action past expiration of the statute of limitations.” China Agritech, Inc. v. Resh, — S. Ct. —, 2018 WL 2767565, at *3 (2018).
This decision has major ramifications for companies that are contemplating or party to class actions and potential follow-on class litigation. American Pipe & Construction Co. v. Utah established the rule that “the commencement of an original class suit tolls the running of the statute [of limitations] for all purported members of the class who make timely motions to intervene after the court has found the suit inappropriate for class action status.” 414 U.S. 538, 553 (1974). This rule is designed to create efficiency and economy of litigation so potential class members are not induced to file motions to intervene or join in case a class is later found unsuitable. Id. The Supreme Court later extended American Pipe tolling “to class members filing separate actions” to avoid “a needless multiplicity of actions” filed by class members trying to preserve their individual claims. Crown, Cork & Seal Co. v. Parker, 462 U.S. 345, 351 (1983). Plaintiffs today routinely take advantage of American Pipe tolling to bring claims that would otherwise be time-barred.
Now, under China Agritech, the Supreme Court has narrowed this tolling mechanism to only individual claims and has affirmed a finality to successive class action cases. The Court reasoned that a contrary ruling “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.” 2018 WL 2767565, at *8. A key distinction between individual-claim tolling established under American Pipe and tolling for successive class actions is the fact that “[t]he time to file individual actions once a class action ends is finite, extended only by the time the class suit was pending,” while “the time for filing successive class suits, if tolling were allowed, could be limitless.” Id.
While the Court’s ruling in China Agritech was unanimous as to class actions brought under the Private Securities Litigation Reform Act of 1995 (“PSLRA”), 15 U.S.C. § 78u-4, which is the statute at issue in the case, Justice Sotomayor in a concurring opinion argued against extending the ruling to all class actions under Rule 23. She proposed that “[i]nstead of adopting a blanket no-tolling-of-class-claims-ever rule outside the PSLRA context, the Court might hold, as a matter of equity, that tolling only becomes unavailable for future class claims where class certification is denied for a reason that bears on the suitability of the claims for class treatment. Where, by contrast, class certification is denied because of the deficiencies of the lead plaintiff as class representative, or because of some other nonsubstantive defect, tolling would remain available.” 2018 WL 2767565, at *13 (Sotomayor, J. concurring). She believes that this rule would prevent races toward judgment or settlement that might result from the majority’s broad rule. Id. at 14. Despite the majority’s decision, her concurrence encourages district courts to “help mitigate the potential unfairness of denying American Pipe tolling to class claims not subject to the PSLRA” and “[w]here appropriate…liberally permit amendment of the pleadings or intervention of new plaintiffs and counsel.” Id.