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China Agritech, Inc. v. Resh

United States Supreme Court

June 11, 2018

CHINA AGRITECH, INC., PETITIONER
v.
MICHAEL H. RESH, ET AL.

          Argued March 26, 2018

          ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

         American Pipe & Constr. Co. v. Utah, 414 U.S. 538, established that the timely filing of a class action tolls the applicable statute of limitations for all persons encompassed by the class complaint and that members of a class that fails to gain certification can timely intervene as individual plaintiffs in the still-pending action, shorn of its class character. American Pipe's tolling rule also applies to putative class members who, after denial of class certification, "prefer to bring an individual suit rather than intervene." Crown, Cork & Seal Co. v. Parker, 462 U.S. 345, 350. The question presented in this case is whether American Pipe tolling applies not only to individual claims, but to successive class actions as well.

         This suit is the third class action brought on behalf of purchasers of petitioner China Agritech's common stock, alleging materially identical violations of the Securities Exchange Act of 1934. The Act has both a two-year statute of limitations and a five-year statute of repose, 28 U.S.C. §1658(b). Here, the accrual date for purposes of the Act's limitation period is February 3, 2011, and for the repose period, November 12, 2009. Theodore Dean, a China Agritech shareholder, filed the first class-action complaint on February 11, 2011. As required by the Private Securities Litigation Reform Act of 1995 (PSLRA), his counsel posted notice of the action and invited any member of the purported class to move to serve as lead plaintiff. Six shareholders sought lead-plaintiff status. On May 3, 2012, the District Court denied class certification; the action settled in September 2012, and the suit was dismissed. On October 4, Dean's counsel filed a new complaint (Smyth), still timely, with a new set of plaintiffs. Eight shareholders sought lead-plaintiff appointment in response to the PSLRA notice, but the District Court again denied class certification. Thereafter, the Smyth plaintiffs settled their individual claims and dismissed their suit.

         Respondent Michael Resh, who did not seek lead-plaintiff status in the earlier actions, filed the present class action in 2014, a year and a half after the statute of limitations expired. The other respondents moved to intervene in the suit commenced by Resh, seeking lead-plaintiff status. The District Court dismissed the class complaint as untimely, holding that the Dean and Smyth actions did not toll the time to initiate class claims. The Ninth Circuit reversed, holding that the reasoning of American Pipe extends to successive class claims.

         Held:

Upon denial of class certification, 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. Pp. 5-15.
(a) American Pipe and Crown, Cork addressed only putative class members who wish to sue individually after a class-certification denial. The "efficiency and economy of litigation" that support tolling of individual claims, American Pipe, 414 U.S., at 553, do not support maintenance of untimely successive class actions such as the one brought by Resh. Economy of litigation favors delaying individual claims until after a class-certification denial. With class claims, on the other hand, efficiency favors early assertion of competing class representative claims. If class treatment is appropriate, and all would-be representatives have come forward, the district court can select the best plaintiff with knowledge of the full array of potential class representatives and class counsel. And if the class mechanism is not a viable option, the decision denying certification will be made at the outset of the case, litigated once for all would-be class representatives.
Federal Rule of Procedure 23 evinces a preference for preclusion of untimely successive class actions by instructing that class certification should be resolved early on. The PSLRA, which governs this litigation, evinces a similar preference, this time embodied in legislation providing for early notice and lead-plaintiff procedures. There is little reason to allow plaintiffs who passed up opportunities to participate in the first (and second) round of class litigation to enter the fray several years after class proceedings first commenced.
Class representatives who commence suit after expiration of the limitation period are unlikely to qualify as diligent in asserting claims and pursuing relief. See, e.g., McQuiggin v. Perkins, 569 U.S. 383, 391. And respondents' proposed reading would allow extension of the statute of limitations time and again; as each class is denied certification, a new named plaintiff could file a class complaint that resuscitates the litigation. Endless tolling of a statute of limitations is not a result envisioned by American Pipe. Pp. 5-11.
(b) If Resh's suit meets the requirements of Rule 23(a) and (b), respondents assert, the suit should be permitted to proceed as a class action in keeping with Shady Grove Orthopedic Associates, P. A. v. Allstate Ins. Co., 559 U.S. 393. Shady Grove, however, addressed a case in which a Rule 23 class action could have been maintained absent a state law proscribing class actions, while Resh's class action would be untimely unless saved by American Pipe's tolling exception. Rule 23 itself does not address timeliness of claims or tolling and nothing in the Rule calls for the revival of class claims if individual claims are tolled.
The clarification of American Pipe's reach does not run afoul of the Rules Enabling Act by abridging or modifying a substantive right. Plaintiffs have no substantive right to bring claims outside the statute of limitations. Nor is the clarification likely to cause a substantial increase in the number of protective class-action filings. Several Courts of Appeals have already declined to read American Pipe to permit a successive class action filed outside the limitations period, and there is no showing that these Circuits have experienced a disproportionate number of duplicative, protective class-action filings. Multiple filings, moreover, could aid a district court in determining, early on, whether class treatment is warranted, and if so, who would be the best representative. The Federal Rules provide a range of mechanisms to aid district courts in overseeing complex litigation, but they offer no reason to permit plaintiffs to exhume failed class actions by filing new, untimely class claims. Pp. 11-15.

857 F.3d 994, reversed and remanded.

          GINSBURG, J., delivered the opinion of the Court, in which ROBERTS, C. J., and Kennedy, Thomas, Breyer, Alito, Kagan, and Gorsuch, JJ., joined.

          OPINION

          GINSBURG, JUSTICE

         This case concerns the tolling rule first stated in American Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974). The Court held in American Pipe that the timely filing of a class action tolls the applicable statute of limitations for all persons encompassed by the class complaint. Where class-action status has been denied, the Court further ruled, members of the failed class could timely intervene as individual plaintiffs in the still-pending action, shorn of its class character. See id., at 544, 552-553. Later, in Crown, Cork & Seal Co. v. Parker, 462 U.S. 345 (1983), the Court clarified American Pipe's tolling rule: The rule is not dependent on intervening in or joining an existing suit; it applies as well to putative class members who, after denial of class certification, "prefer to bring an individual suit rather than intervene . . . once the economies of a class action [are] no longer available." 462 U.S., at 350, 353-354; see California Public Employees' Retirement System v. ANZ Securities, Inc., 582 U.S.___, ___ (2017) (slip op., at 13) (American Pipe "permitt[ed] a class action to splinter into individual suits"); Smith v. Bayer Corp., 564 U.S. 299, 313-314, n. 10 (2011) (under American Pipe tolling rule, "a putative member of an uncertified class may wait until after the court rules on the certification motion to file an individual claim or move to intervene in the [existing] suit").

         The question presented in the case now before us: Upon denial of class certification, may a putative class member, 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? Our answer is no. American Pipe tolls the statute of limitations during the pendency of a putative class action, allowing unnamed class members to join the action individually or file individual claims if the class fails. But American Pipe does not permit the maintenance of a follow-on class action past expiration of the statute of limitations.

         I

         The instant suit is the third class action brought on behalf of purchasers of petitioner China Agritech's common stock, alleging violations of the Securities Exchange Act of 1934, 48 Stat. 881, as amended, 15 U.S.C. §78a et seq. In short, the successive complaints each make materially identical allegations that China Agritech engaged in fraud and misleading business practices, causing the company's stock price to plummet when several reports brought the misconduct to light. See App. 60-100 (Resh complaint), 205-235 (Smyth complaint), 133-156 (Dean complaint). The Exchange Act has a two-year statute of limitations that begins to run upon discovery of the facts constituting the violation. 28 U.S.C. § 1658(b). The Act also has a five-year statute of repose. Ibid.[1] The parties agree that the accrual date for purposes of the two-year limitation period is February 3, 2011, and for the five-year repose period, November 12, 2009. Brief for Respondents 8, n. 3.

         Theodore Dean, a China Agritech shareholder, filed the first class-action complaint on February 11, 2011, at the start of the two-year limitation period. As required by the Private Securities Litigation Reform Act of 1995 (PSLRA), 109 Stat. 737, Dean's counsel posted notice of the action in two "widely circulated national business-oriented publication[], " 15 U.S.C. §78u-4(a)(3)(A)(i), and invited any member of the purported class to move to serve as lead plaintiff. App. 274-280. Six shareholders responded to the notice, seeking to be named lead plaintiffs; other shareholders who had filed their own class complaints dismissed them in view of the Dean action. On May 3, 2012, after several months of discovery and deferral of a lead-plaintiff ruling, the District Court denied class certification. The plaintiffs, the District Court determined, had failed to establish that China Agritech stock traded on an efficient market-a necessity for proving reliance on a classwide basis. App. 192. Dean's counsel then published a notice informing shareholders of the certification denial and advising: "You must act yourself to protect your rights. You may protect your rights by joining in the current Action as a plaintiff or by filing your own action against China Agritech." Id., at 281-282. The Dean action settled in September 2012, occasioning dismissal of the suit. See 857 F.3d 994, 998 (CA9 2017).

         On October 4, 2012-within the two-year statute of limitations-Dean's counsel filed a new complaint (Smyth) with a new set of plaintiffs and new efficient-market evidence. Eight shareholders responded to the PSLRA notice, seeking lead-plaintiff appointment. The District Court again denied class certification, this time on typicality and adequacy grounds. See App. 254. Thereafter, the Smyth plaintiffs settled their individual claims with the defendants and voluntarily dismissed their suit. Because the Smyth litigation was timely commenced, putative class members who promptly initiated individual suits in the wake of the class-action denial would have encountered no statute of limitations bar.

         Respondent Michael Resh, who had not sought lead-plaintiff status in either the Dean or Smyth proceedings and was represented by counsel who had not appeared in the earlier actions, filed the present suit on June 30, 2014, styling it a class action-a year and a half after the statute of limitations expired. The other respondents moved to intervene, seeking designation as lead plaintiffs; together with Resh, they filed an amended complaint. The District Court dismissed the class complaint as untimely, holding that the Dean and Smyth actions did not toll the time to initiate class claims. App. to Pet. for Cert. 36a.

         The Court of Appeals for the Ninth Circuit reversed: "[P]ermitting future class action named plaintiffs, who were unnamed class members in previously uncertified classes, to avail themselves of American Pipe tolling, " the court reasoned, "would advance the policy objectives that led the Supreme Court to permit tolling in the first place." 857 F.3d, at 1004. Applying American Pipe tolling to successive class actions, the Ninth Circuit added, would cause no unfair surprise to defendants and would promote economy of litigation by ...


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