China Agritech, Inc. v. Resh
Decision Date | 11 June 2018 |
Docket Number | No. 17–432.,17–432. |
Citation | 138 S.Ct. 1800,201 L.Ed.2d 123 |
Parties | CHINA AGRITECH, INC., Petitioner v. Michael H. RESH, et al. |
Court | U.S. Supreme Court |
Seth A. Aronson, Los Angeles, CA, for Petitioner.
David C. Frederick, Washington, D.C., for Respondent.
Abby F. Rudzin, Anton Metlitsky, O'Melveny & Myers LLP, New York, NY, Bradley N. Garcia, Jason Zarrow, O'Melveny & Myers LLP, Washington, D.C., Seth Aronson, William K. Pao, Brittany Rogers, Michelle C. Leu, O'Melveny & Myers LLP, Los Angeles, CA, for Petitioner.
Matthew M. Guiney, Wolf Haldenstein Adler, Freeman & Herz LLP, David A.P. Brower, Brower Piven, A Professional Corporation, New York, NY, Betsy C. Manifold, Wolf Haldenstein Adler, Freeman & Herz LLP, San Diego, CA, David C. Frederick, Jeremy S.B. Newman, Kellogg, Hansen, Todd, Figel & Frederick, P.L.L.C., Washington, D.C., for Respondents William Schoenke, Heroca Holding, B.V., and Ninella Beheer, B.V.
This case concerns the tolling rule first stated in American Pipe & Constr. Co. v. Utah, 414 U.S. 538, 94 S.Ct. 756, 38 L.Ed.2d 713 (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, 94 S.Ct. 756. Later, in Crown, Cork & Seal Co. v. Parker, 462 U.S. 345, 103 S.Ct. 2392, 76 L.Ed.2d 628 (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, 103 S.Ct. 2392 ; see California Public Employees' Retirement System v. ANZ Securities, Inc., 582 U.S. ––––, ––––, 137 S.Ct. 2042, 2053, 198 L.Ed.2d 584 (2017) ( ); Smith v. Bayer Corp., 564 U.S. 299, 313–314, n. 10, 131 S.Ct. 2368, 180 L.Ed.2d 341 (2011) ( ).
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.
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[s]," 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: Id., at 281–282. The Dean action settled in September 2012, occasioning dismissal of the suit. See 857 F.3d 994, 998 (C.A.9 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 reducing incentives for filing protective class suits during the pendency of an initial certification motion. 857 F.3d, at 1004.
We granted certiorari, 583 U.S. ––––, 138 S.Ct. 543, 199 L.Ed.2d 423 (2017), in view of a division of authority among the Courts of Appeals over whether otherwise-untimely successive class claims may be salvaged by American Pipe tolling. Compare the instant case and Phipps v. Wal–Mart Stores, Inc., 792 F.3d 637, 652–653 (C.A.6 2015) ( ), with, e.g., Basch v. Ground Round, Inc., 139 F.3d 6, 11 (C.A.1 1998) (); Griffin v. Singletary, 17 F.3d 356, 359 (C.A.11 1994) (similar); Korwek v. Hunt, 827 F.2d 874, 879 (C.A.2 1987) ( ); Salazar–Calderon v. Presidio Valley Farmers Assn ., 765 F.2d 1334, 1351 (C.A.5 1985) (). See also Yang v. Odom, 392 F.3d 97, 112 (C.A.3 2004) ( ).
American Pipe established that "the commencement of the original class suit tolls the running of 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." 414 U.S., at 553, 94 S.Ct. 756. "A contrary rule," the Court reasoned in American Pipe, "would deprive [Federal Rule of Civil Procedure] 23 class actions of the efficiency and economy of litigation which is a principal purpose of the procedure." Ibid. This is so, the Court explained, because without tolling, "[p]otential class members would be induced to file protective motions to intervene or to join in the event that a class was later found unsuitable." Ibid. In Crown, Cork, the Court further elaborated: Failure to extend the American Pipe rule "to class members filing separate actions," in addition to those who move to intervene, would result in "a needless multiplicity of actions" filed by class members preserving their individual claims—"precisely the situation that Federal Rule of Civil Procedure 23...
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