SCOTUS prohibits “piggybacking” of time-barred class claims

No statute of limitations tolling for pending class actions

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On June 11, the United States Supreme Court (SCOTUS) decided China Agritech, Inc. v. Resh, et al., No. 17-432 (U.S. June 11, 2018) (“China Agritech”), holding that the statute of limitations is not tolled for class claims during the pendency of a class action. This has important implications for class action defendants, in that it prevents subsequent class actions and extortionate class settlements on the same claims when class counsel (or new class counsel) finds a subsequent class plaintiff to file a successive class action suit on the same claims as an earlier class action. This tactic, known as “piggyback” class action filings, where an otherwise untimely class suit is filed on the theory that the time to sue is extended by the pendency of a prior class case, is common. But, no more. It is important to note, however, that China Agritech was decided under Rule 23 of the Federal Rules of Civil Procedure, not under the class action procedure available under California law.

The Supreme Court’s ruling

In China Agritech, the High Court held that the statute of limitations for subsequent class actions is not tolled during the pendency of a prior class action. Put another way, the time limitations imposed on lawsuits apply with respect to class actions, and the pendency of another class action on the same claims will not extend the time limitation by which a class plaintiff can file a new class action on those claims. This holding prevents the possibility that class actions can be successively filed without regard for the applicable statute of limitations, which would force class defendants to settle on a class basis to avoid never ending litigation.

In China Agritech the Defendant fertilizer company and its officers defeated class certification of two securities class actions that were both timely filed. After the failure of the named Plaintiffs in the first two actions to secure class certification and the statute of limitations on the claims had run, another Plaintiff attempted to file class claims against China Agritech. The district court dismissed the class claims with prejudice, but the Ninth Circuit reversed, holding that the statute of limitations was tolled during the pendency of the previous two class actions on the class claims. In so ruling, the Ninth Circuit joined the Sixth Circuit, which also unconditionally tolled the statute of limitations for subsequently filed class actions, and the Third Circuit, which tolled the statute of limitations if class certification was denied on certain grounds. A Circuit Split existed when the Court granted the writ of Certiorari, as the First, Second, Fifth, and Eleventh Circuits had held that the statute of limitations was not tolled for class claims.

American Pipe tolling

Almost fifty years ago, the SCOTUS’s opinion in American Pipe & Construction Co v. Utah, 414 U.S. 538 (1974) established that the individualclaims of putative class members are tolled until class certification is denied or the case is resolved, though that case did not address whether the statute would be tolled for subsequently filed class claims. In American Pipe, the SCOTUS held that class members should not be required to intervene in the pending class action before the statute of limitations runs to preserve their right to an individual recovery in the event the class is not successfully certified. The High Court reasoned that requiring class members to intervene would result in many moving to intervene, undermining the very purpose of class actions, which is to promote judicial economy.

The Court revisited the issue in Crown, Cork & Seal Co. v. Parker, 462 U.S. 345 (1983), applying the same logic to newly filed suits for individual relief, permitting persons that would have been part of a class for which certification was denied to file a new lawsuit, rather than requiring them to intervene in the action in which certification was denied. The question settled by China Agritech was whether this tolling would also apply to class claims. The Court answered this question with near unanimity. Justice Ginsberg wrote the opinion for 8 members of the Court, and Justice Sotameyor filed a concurring opinion, in which she took the position that the Court should have issued a more limited decision premised on the Private Securities Litigation Reform Act of 1995. The broad opinion of the majority, which unequivocally holds that there is no tolling of class claims during the pendency of a class action, maintains the balance that allows defendants to defend against class claims, rather than requiring them to pay something to escape the prospect of either never-ending litigation.

What this mean for California businesses

For a federal claim under federal law, the China Agritech result is clear: subsequent plaintiffs cannot bring untimely class claims on the basis of tolling during the pendency of the prior unsuccessful class claim. But under California law, the result is uncertain. Case law suggests this is one area where California law may be less permissive than federal law, and thereby, likely to follow the rationale in China Agritech and bar subsequent untimely class actions.

The general rule in California is that in the absence of controlling state authority, California courts are to use the federal Rule 23 procedures to ensure fair resolution of class action suits. However, unlike American Pipe’s almost guaranteed tolling of individual claims during the pendency of a class action, California law holds that even individual claims mayonly be tolled during class action proceedings under certain circumstances. This distinction arose in the mass tort/personal injury context, with the Jolly v. Eli Lilly & Co. case. See Jolly v. Eli Lilly & Co. (1988) 44 Cal.3d 1103.

In Eli Lilly, the California Supreme Court held that plaintiff’s subsequent filing of an individual claim about injury to her as a fetus due to her pregnant mother’s ingestion of DES was time-barred, because class certification had been denied in the prior lawsuit for lack of commonality and plaintiff’s claims were not tolled during the pendency of the lawsuit. Id. at 1118-1119. The California High Court read American Pipe narrowly, holding that tolling depends on the quality of notice to the defendants, and whether such tolling furthers the economy and efficiency of the litigation. In the case of Jolly, the Court ruled it did not.Id. at 1122.

The Ninth Circuit previously applied California’s equitable tolling doctrine to permit a subsequent class action, but only as to California residents, because the subsequent filing was in another jurisdiction.See Hatfield v. Halifax PLC (9th Cir. 2009) 564 F.3d 1177. In Hatfield, a securities class action case arising from a single alleged wrong: deceiving investors into thinking the company’s going public would entitle them to free shares, was filed in 2003 in New Jersey state court, and was eventually dismissed as to New Jersey resident plaintiffs. Immediately thereafter, Hatfield, a California resident, filed an almost identical case in California federal court. In that case, the Ninth Circuit found defendants had timely notice of the first suit, were not prejudiced in gathering evidence to defend the second suit since it was almost identical, and plaintiff acted reasonably in filing suit the same day as the New Jersey dismissal.

Since California law requires adequate notice and exalts efficiency and economy of litigation in deciding the issue of tolling, it is likely that California businesses will be able to use the rationale in China Agritech and Eli Lilly to head off untimely successive class actions.

Whether a company faces potential class liability for alleged statutory violations or misrepresentations over successive sales or service repairs, for wage and hour violations in successive workweeks, or for mass torts, China Agritech may solve many problems.

In most wage and hour cases, each workweek gives rise to a separate claim, at least for statute of limitations purposes. Thus, an employee seeking payment for alleged off-the-clock work or an independent contractor claiming misclassification and entitlement to overtime ordinarily may seek back wages and related recovery only for work performed within a set amount of time. Likewise, each sale contract or service repair order gives rise to a separate claim for statute of limitations purposes.

Now, if class certification is denied in an existing class action, the during which that class action was pending does not add time to the statute of limitations for a new plaintiff bringing a subsequent class action presenting the same class claims.

In light of China Agritech, companies should expect courts to reject the use of American Pipe tolling to allow plaintiffs in wage and hour putative class actions to seek relief for workweeks, or plaintiffs in consumer putative class actions to seek relief for sale contracts or service repair orders, that are outside the applicable limitations period. Courts will likely continue to allow individual claims for those otherwise time-barred workweeks, sale contracts and service repair orders when supported by American Pipe tolling. In addition, courts may continue to allow subsequent class actions by members of previously denied classes, but without the benefit of tolling.