(CN) - The U.S. Supreme Court on Monday placed a new limit on plaintiffs filing successive class actions, holding that tolling provisions established by its 1974 decision in American Pipe v. Utah don't extend to individual class members who want to file a new class action, for additional parties, after the statutory deadline for doing so.
In its American Pipe ruling, the court held that the filing of a class action "tolls the running if 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."
In the 45 years that have passed since the landmark ruling was handed down, circuit courts have applied varied interpretations of what the high court meant.
For instance, the Third and Eighth Circuits have held that the tolling principle set out in American Pipe allows the filing of new class claim in certain, limited circumstances. But the Sixth, Seventh and Ninth Circuits have ruled the Supreme Court's tolling rule permits the filing of any new, but otherwise time-barred class action.
The case decided Monday in China Agritech v. Resh. Michael Resh, the lead plaintiff in this case – the third putative class action against China Agritech by shareholders – saw the Ninth Circuit revive his class action after a federal judge ruled it had been filed outside the statute of limitations. According to the appeals court, the denial of class certification in the two previous class actions tolled the clock as to Resh’s action.
In urging the Supreme Court to grant review of the decision, attorneys for China Agritech said the Ninth Circuit’s decision “will lead to obvious forum-shopping.”
Writing for a unanimous Supreme Court (Justice Sonia Sotomayor write a concurring opinion), Justice Ruth Bader Ginsburg said once class certification has been denied, a putative class member may not, in lieu of promptly joining an existing suit or promptly filing an individual action, commence a class action anew beyond the time allowed by the applicable statute of limitations.
"The watchwords of American Pipe are efficiency and economy of litigation, a principal purpose of Rule 23 as well," Ginsburg wrote. "Extending American Pipe tolling to successive class actions does not serve that purpose. The contrary rule, allowing no tolling for out-of-time class actions, will propel putative class representatives to file suit well within the limitation period and seek certification promptly. For all the above-stated reasons, it is the rule we adopt today: Time to file a class action falls outside the bounds of American Pipe.
In her concurring opinion, Justice Sotomayor said while she agreed with the limits set forth by her colleagues in the current cases and cases like it, she worries about its effect on cases where class certification is denied because of the deficiencies of the lead plaintiff as class representative, or because of "some other nonsubstantive defect."
"Although there is ample support for denying American Pipe tolling to successive class actions subject to the [Private Securities Litigation Reform Act of 1995], the majority’s reasoning does not justify denying American Pipe tolling to other successive class actions," she wrote.
Sotomayor continued: "The majority could have avoided this error by limiting its decision to the issues presented by the facts of this case. Despite the Court’s misstep in adopting an unnecessarily broad rule, district courts can help mitigate the potential unfairness of denying American Pipe tolling to class claims not subject to the PSLRA.
"Where appropriate, district courts should liberally permit amendment of the pleadings or intervention of new plaintiffs and counsel," the justice said.
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