Case No. 17-432 | 9th Cir.
Supreme Court decisions are often clear rulings by a unanimous Court that leave little room for interpretation. These cases are recited decades later by citizens because they are so pivotal to understanding rights and liberties. Cases like Brown v. Board of Education, 347 U.S. 483 (1954) and Marbury v. Madison, 5 U.S. (1 Cranch) 137 (1803) fit into this picture. There are also cases which, though decided by a divided Court, are nonetheless easily understood and remembered. See Roe v. Wade, 410 U.S. 112 (1973); Miranda v. Arizona, 384 U.S. 436 (1966). Sometimes, however, the Court will issue a unanimous decision that leaves questions unanswered, requiring the Court to clarify the decision in subsequent terms. One such case is American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), which was at the center of the issues presented last term in California Public Employees’ Retirement System v. ANZ Securities, Inc., 137 S. Ct. 2042 (2017), and will again be interpreted in China Agritech, Inc. v. Resh.
China Agritech is a holding company listed on the NASDAQ Stock Exchange. The company operates through subsidiaries that sell fertilizers and other farm products. In February 2011, a market research company published a report alleging that China Agritech was not a functioning as a business, but rather being used to funnel money from shareholders to the founders. China Agritech denied the allegations, but was confronted by a hedge fund that published an article pointing out flaws in the denial. China Agritech’s share prices dropped the following day. In October 2012, the SEC revoked the registration of China Agritech stock.
In February 2011, just after the initial report came out, Theodore Dean filed a class action suit against China Agritech alleging that the company materially misstated revenue and income, but the complaint was dismissed as premature. When Dean amended the complaint, the court stated that individual issues predominated and thus did not certify the class. The plaintiffs proceeded as individuals. In October 2012, three weeks after the plaintiffs settled, Kevin Smyth filed a similar class action. The court also denied his motion for class certification.
In June 2014, Michael Resh filed a would-be class action. The plaintiffs alleged violations of U.S. securities law based on the same facts and circumstances that were present in the Dean and Smyth Actions. In September, China Agritech filed a motion to dismiss the complaint, stating that the action was time-barred by the two-year statute of limitations for actions such as the plaintiffs’. The motion to dismiss was granted in December. The plaintiffs argued that the class action was timely because American Pipe mandated that the statute of limitations be tolled pending the Dean and Smith actions. The district court held that American Pipe provides a tolled statute of limitations for individual class members, but did not determine whether the tolling also applies to an entirely new class action based upon a substantially identical class. The district court concluded that tolling would not apply in that scenario because doing so would allow classes to continually sue and indefinitely extend the limitations period.
On appeal, the Ninth Circuit reversed and held that the plaintiffs’ would-be class action is not time barred because (1) the plaintiffs were unnamed plaintiffs in two earlier would-be class actions against many of the same defendants based on the same underlying events; (2) class action certification was denied in both cases; (3) the earlier actions were timely; and (4) the statute of limitations for the individual claims of would-be class members in the earlier actions was tolled during the pendency of those actions, as per American Pipe and its progeny.
When the Court convenes to hear oral arguments in this case, it will decide “[w]hether the American Pipe rule tolls statutes of limitations to permit a previously absent class member to bring a subsequent class action outside the applicable limitations period.” Petition for Writ of Certiorari at i, China Agritech Inc. v. Resh, No. 17-432 (U.S. filed Sep. 21, 2017). While the details of this case are heavily peppered with securities litigation, the answer will have a broad impact on class action lawsuits generally.