The phrase “American Pipe tolling” instantly takes us back to law school and civil procedure lectures. It refers to the case holding that once a class action is filed, the clock running on potential class members’ claims is paused. The clock only begins running again if a court denies class certification.
The concept came into the spotlight on Monday, after Justice Ruth Bader Ginsburg authored a unanimous opinion for the U.S. Supreme Court in China Agritech, Inc. v. Resh, No. 17-432, 2018 WL 2767565 (June 11, 2018). The appeal raised the question: after denial of class certification, can putative class members file new class actions outside the time allowed by the applicable statute of limitations? Is the statute of limitations for class claims tolled while class certification in an earlier case is under review? The Court said no. American Pipe tolling applies only to individual claims, not class claims.
China Agritech Inc. v. Resh was the third class action brought on behalf of China Agritech stock purchasers who alleged fraud and misleading business practices. After two different district courts denied class certification, Respondent Resh filed his first class action challenging China Agritech’s practices. The district court dismissed his class claims, this time because the claims were untimely and had not been tolled under American Pipe. The Ninth Circuit reversed, and allowed Resh’s proposed class action to proceed. The court held that “permitting future class action named plaintiffs … to avail themselves of American Pipe tolling … would advance policy objectives that led the Supreme Court to permit tolling in the first place.”
When the case went up to the Supreme Court last year, Impact Fund signed on to an amicus brief describing the potential impact of reversing the Ninth Circuit. Using the Wal-Mart v. Dukes case as an example, Impact Fund and Cohen Milstein Sellers & Toll, LLC, our Dukes co-counsel, argued that absent the assurance of American Pipe tolling, Dukes class members would have been forced to file separate class and individual claims before the certification of the main class was determined. Doing so could have led to inconsistent rulings on class certification and ultimately would have undermined judicial efficiency. We further argued that individual plaintiffs typically lack the capacity to challenge widespread discrimination on their own. Thus, after being denied national class certification, preventing successive regional Dukes plaintiffs from filing collectively would impair their ability to challenge widespread discriminatory practices.
On Monday, the Supreme Court held that American Pipe’s policy objectives of “efficiency and economy of litigation” did not support “untimely successive” claims. According to the Court, efficiency and economy are better served by requiring plaintiffs to file multiple class actions within the original statute of limitations, even though “multiple timely filings might not line up neatly; they could be filed in different districts, at different times—perhaps when briefing on class certification has already begun—or on behalf of only partially overlapping classes.”
The Court’s decision, in our opinion, is a grave departure from the goals of efficiency and economy inherent to class actions. Requiring plaintiffs to preemptively file multiple actions unnecessarily burdens the judiciary and clogs the system with duplicative cases. The Court’s decision also is at odds with what we regard as the reality of modern class actions in that many do not have a final decision on class certification within two or four years, for reasons outside the named plaintiff’s control. Necessary discovery, taxed courts, appeals, and recalcitrant defendants all slow the process and often prevent the parties from obtaining a final ruling on class certification within the first few years. In addition, orders denying class certification may identify remediable issues that can be addressed only by filing a new action. This week’s ruling prohibits plaintiffs who initially timely filed their case from filing those new actions if the court’s class certification order arrives outside the original statute of limitations.
Class actions are not only a critical tool to hold corporations and government entities accountable, they are necessary to protect workers and enforce civil rights. Unfortunately, the China Agritech ruling introduces new challenges to justice for all.