The U.S. Supreme Court in China Agritech v. Resh, 2018 WL 2767565 (June 11, 2018) ruled that the American-Pipe doctrine—under which filing a class action tolls the statute of limitations for later-filed individual claims—does not toll the statute of limitations for later-filed class actions. This 8-1 decision is an unqualified win for class-action defendants and changes the law in multiple circuits that had expanded American Pipe to toll statutes of limitations for class actions. The decision will thus eliminate class actions filed after the statutory period expires, reduce class sizes (which are driven by statutes of limitations) in timely filed cases, and alleviate settlement pressure on defendants by providing certainty regarding the statute of limitations in class actions.
American Pipe and Crown Cork gave class members extra time to file individual claims if a prior class action was unsuccessful.
The Supreme Court in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974) held that filing a class action equitably tolled the statutes of limitations for individual claims. Specifically, American Pipe “held that unnamed members of an uncertified class could intervene as individual plaintiffs in the individual suit that remained even if the statutory limitations period had passed.” Resh v. China Agritech, Inc., 857 F.3d 994, 1000 (9th Cir. 2017) citing American Pipe, 414 U.S. at 550-56. The Court reasoned that not tolling the limitations period would thwart Rule 23’s goals of efficiency and judicial economy because “[p]otential class members would be induced to file protective motions to intervene or to join in the event that a class was later found unsuitable.” American Pipe, 414 U.S. at 553.
Almost a decade later, in Crown, Cork & Seal Co. v. Parker, 462 U.S. 345 (1983), the Supreme Court expanded American Pipe’s holding beyond intervention motions to also include individual standalone claims. Similar to its reasoning in American Pipe, the Court found that if independent individual claims were not tolled, the “result would be a needless multiplicity of actions—precisely the situation that Federal Rule of Civil Procedure 23 and the tolling rule of American Pipe were designed to avoid.” Crown, Cork & Seal Co., 462 U.S. at 351. Therefore, if class certification is denied, “class members may choose to file their own suits or to intervene as plaintiffs in the pending action.” Id.
Some circuits expanded American Pipe to toll limitations on subsequent class actions.
Circuit courts have applied American Pipe and Crown Cork in three ways. Four circuits applied the cases as written and only permitted tolling for later-filed individual claims while denying tolling for later-filed class actions. Basch v. Ground Round, Inc., 139 F.3d 6 (1st Cir. 1998); Korwek v. Hunt, 827 F.2d 874 (2d Cir. 1987); Salazar-Calderon v. Presidio Valley Farmers Ass’n, 765 F.2d 1334 (5th Cir. 1985); Griffin v. Singletary, 17 F.3d 356 (11th Cir. 1994).
A second group of circuits expanded American Pipe tolling to include later-filed class actions under any circumstances. Sawyer v. Atlas Heating & Sheet Metal Works, Inc., 642 F.3d 560, 564 (7th Cir. 2011); Phipps v. Wal-Mart Stores, Inc., 792 F.3d 637, 652 (6th Cir. 2015).
Two circuits adopted a middle ground and permitted tolling for later-filed class actions only “where class certification [was] denied solely on the basis of the lead plaintiffs’ deficiencies as class representatives, and not because of the suitability of the claims for class treatment.” Yang v. Odom, 392 F.3d 97, 111 (3d Cir. 2004); see also Great Plains Trust Co. v. Union Pacific R. Co., 492 F.3d 986, 997 (8th Cir. 2007).
The Ninth Circuit’s decision in Resh followed the Sixth and Seventh Circuits, expanding American Pipe tolling to later-filed class actions under all circumstances. Resh, 857 F.3d at 1002.
The Supreme Court limited American Pipe tolling to later-filed individual claims.
In reversing the Ninth Circuit’s decision in Resh, the Supreme Court held “American Pipe does not permit the maintenance of a follow-on class action past expiration of the statute of limitations.” 2018 WL 2767565, * 3. The Court noted that American Pipe was a judicially-created exception to the statute of limitations designed to serve Rule 23’s goals of efficiency and judicial economy, and that those goals were best served by requiring potential class representatives to file their claims as soon as possible to permit early resolution of class certification. Id., * 6–7.
The Court also rejected tolling for class actions based on general principles of equitable tolling, finding that “a would-be class representative who commences suit after expiration of the limitation period …can hardly qualify as diligent”, which is typically required for equitable tolling. Id., * 7.
Finally, the Court expressed concern that permitting tolling for later-filed class actions could give rise to endless litigation as each newly-filed class action would toll the statute of limitations for a subsequently-filed class action. Id., * 8 (expanding American-Pipe tolling to class actions “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.”).
Resh will limit case filings, reduce class sizes, and alleviate unreasonable settlement pressure.
Resh is a big win for class-action defendants in the five circuits (3rd, 6th, 7th, 8th, and 9th) where American-Pipe tolling had been expanded. The decision will help in three ways. First, Resh will prevent follow-on class actions outside the statute of limitations. Once the statute of limitations expires, no new class actions can be filed. Second, even where a subsequent class action is timely filed, Resh will limit the class size. Before the Supreme Court’s decision in Resh, a class action would toll the statute of limitations for all subsequently filed class actions, so that the class period for each later-filed case would be measured from the date the first class action was filed (e.g., if the statute of limitations were three years, the class period in each subsequent case would have begun three years before the first case were filed). Now, each case will have its own class period measured from the date that case was filed. Finally, Resh gives class-action defendants certainty that defeating a class action will eliminate or limit exposure for the conduct at issue in that case. Such certainty will allow defendants to fairly evaluate settlement opportunities based on the exposure provided by a single case rather than the potential never-ending exposure of serial class actions.