Supreme Court Limits American Pipe Tolling, Holds Tolling Does Not Apply to Successive Class Actions

The Supreme Court has acted to ensure that the class action device cannot be used to indefinitely extend the statute of limitations, holding in China Agritech, Inc. v. Resh that American Pipe tolling does not apply to successive class actions.

American Pipe tolling dates to 1974, when the Supreme Court held that the filing of a class action tolls the statute of limitations for absent class members who seek to intervene after the court has denied class certification. Nine years later, in Crown, Cork & Seal, the Supreme Court extended the rule to toll the statute of limitations for absent class members who choose to file their own individual actions.

Resolving a split amongst the Circuits, the Supreme Court held that American Pipe tolling does not apply where class certification is denied and a class member subsequently seeks to bring a new class action after the expiration of the statute of limitations. The Court opined that the “efficiency and economy of litigation” that underpin the American Pipe rule do not support tolling for successive class actions. Rather, the Court determined, barring tolling in such situations will promote efficiency by requiring all litigants who wish to act as class representatives to come forward early on so that the Court can select the best representative among them.

Moreover, the Court reasoned that if a class action simply is not viable, a denial of certification will be made early on, “litigated once for all would-be class representatives.” If tolling for successive class actions is allowed, the Court opined, the statute of limitations could be extended over and over again. Each denial of class certification could lead to a new named plaintiff filing a new class complaint that would restart the litigation notwithstanding the expiration of the statute of limitations.

Concurring in the judgment, Justice Sotomayor would have limited the Court’s holding to class actions under the Private Securities Litigation Reform Act (PSLRA), which requires prospective lead plaintiffs to give notice to putative class members and allow competitors for the role of lead plaintiff to make their case. As Justice Sotomayor noted, Fed. R. Civ. P. 23 contains no pre-certification notice requirement, meaning absent class members may not be aware of a pending class action or their right to try to step in as a named plaintiff.

As an alternative to limiting the Court’s holding to the PSLRA, Justice Sotomayor would have adopted the Third Circuit approach, which made tolling for follow-on class actions unavailable in situations where certification was denied in the original action because the claims were simply unsuited to the class mechanism, but allowed tolling where certification of the original action was denied because of some deficiency particular to the class representative.

The China Agritech decision gives class action defendants assurance that class litigation will not drag on forever. In the wake of the decision, defendants may see a spike in duplicative class complaints filed by multiple plaintiffs seeking class representative status. Companies defending against class actions should be prepared to make use of available procedures to streamline such litigation, including consolidation.