Supreme Court to Decide Clock-Tolling on Shareholder Class Action

(CN) – The U.S. Supreme Court agreed late Friday to hear a case against a fertilizer manufacturer that will determine whether new named plaintiffs from prior failed class actions toll the statute of limitations.

The appeal by China Agritech Inc. asks the court to reexamine its 1974 decision in American Pipe & Construction v. Utah, regarding when class actions are filed and whether the statute of limitations applies to all the plaintiffs if class certification is denied in a previous case.

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.” The Ninth Circuit, however, said its decision will help prevent duplicate filings to keep the clock stopped.

“The rule creates no unfair surprise to defendants because the pendency of a prior class suit has already alerted them ‘not only [to] the substantive claims being brought against them, but also [to] the number and generic identities of the potential plaintiffs who may participate in the judgment,’ Circuit Judge William Fletcher wrote for the panel earlier this year.

“The rule also promotes economy of litigation by reducing incentives for filing duplicative, protective class actions because “[a] putative class member who fears that class certification may be denied would have every incentive to file a separate action prior to the expiration of his own period of limitations.”

Fletcher added “ordinary principles of preclusion and comity will further reduce incentives to re-litigate frivolous or already dismissed class claims, and will provide a ready basis for successor federal district courts to deny class action certification.”

Seth Aronson of O’Melveny and Myers in Los Angeles represents China Agritech, and Charles Coleman of Lewis Brisbois Bisgaard and Smith of Sacramento, California, represents the Resh plaintiffs.


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