Argument analysis: Justices dubious about limiting precedent that tolls statutes of limitations to permit “stacked” class actions

The audience didn’t hear quite what it expected yesterday when the Supreme Court turned to the class-action realm at the argument in China Agritech v. Resh. As the most casual observer of the justices would know, several of them in recent years have evinced increasing levels of concern (if not panic) about large securities class actions. A separate group also has been pushing the idea that courts should get out of the business of using vague equitable doctrines to adjust the deadlines that Congress adopts for plaintiffs to initiate litigation. So a case pushing both of those buttons should be a tough one for plaintiffs’ counsel (David Frederick in this case) and smooth sailing for the defendants trying to eradicate the class (represented here by Seth Aronson). But that was not at all what transpired at the argument, as most of the justices expressed grave doubts about limiting earlier precedents that suggest that the action in this case is permissible.

A brief word of background. The problem in the case involves applying the statute of limitations to class actions. Suppose that a group of plaintiffs file a class action, which lingers on in litigation for a few years and then finally is dismissed for one reason or another (suppose that the plaintiffs are not good representatives for the class). If the statute of limitations runs before the first class action is dismissed, can individuals not involved in the first effort bring their own action later? American Pipe and Construction Co. v. Utah says yes, at least if the individuals file their own separate actions. Specifically, American Pipe holds that the statute of limitations is “tolled” (suspended) during the pendency of the first class action. The question here is whether those individuals can bring their follow-on actions as a class or must instead bring them separately as individuals.

Notwithstanding the recent swath of cases dubious about the benefits of class actions, the justices for the most part were quite skeptical of the idea that claimants under American Pipe could bring their claims only as individuals. As Chief Justice John Roberts put it early in the argument, “If you just read it on its face, the statute of limitations hasn’t run because of American Pipe, … so why shouldn’t that rule be available to you?” In the same vein, Justice Elena Kagan commented that “the whole theory of American Pipe was that for any given individual, we weren’t going to make them come forward; we were going to say reliance on a class action is sufficient. So here, these people were doing just that. They were relying on a class action.”

Justice Sonia Sotomayor also weighed in critically, pointing to provisions of the Private Securities Litigation Reform Act that give small-dollar plaintiffs a strong incentive not to file their own actions by requiring courts to select the plaintiffs with the largest claims as class representatives:

[I]f my financial interest is moderately sized or small sized, there’s no inducement for me to do anything other than what American [Pipe] tells me to do, which is to wait until the class issues are resolved before stepping forward. … [Y]our regime is encouraging the very thing that American Pipe was trying to avoid, which is having a multiplicity of suits being filed and encouraging every class member to come forth and file their own suit.

Roberts and Justice Stephen Breyer seemed particularly concerned about the practical effects of Aronson’s rule, which would require follow-on plaintiffs to adjudicate their claims separately. Roberts, evincing his wonted concern for overcrowded federal trial dockets, asked with apparent incredulity: “So what they all have to do is they all have to file individual claims – every member of the class?” More expansively, Breyer asked Aronson about a hypothetical in which “[a] lawyer walks into the judge’s chambers and says here in my hand I have 10,000 complaints and … they’re identical, would it be all right to consider those as a class, just those?” Aronson’s response that individual adjudication would be the only option did not seem to sit well.

That is not to say that the argument was totally one-sided. Both Roberts and Justice Neil Gorsuch, for example, were concerned about the possibility that the rule Frederick sought for the plaintiffs could lead to a long series of sequential “stacked” class actions. Raising that concern, Gorsuch asked: “[C]an you stack them forever, so that try, try again, and the statute of limitations never really has any force in these cases? What do we do about the congressional judgment that there should be a statute of limitations?” In the same vein, Roberts, offering an explanation for why American Pipe might apply differently to subsequent classes, suggested that “one reason that the second might be different [from] the first [is that] if you allow the second, you’ve got to allow the third and then the fourth and the fifth. And there’s no end in sight.”

Gorsuch and Sotomayor also explored the possibility that the reason for denial might be relevant. In some cases, courts refuse to certify a class because the complaint is not suitable for class adjudication – the Supreme Court’s recent ruling in Wal-Mart v. Dukes held that the claims of the Wal-Mart employees in that case did not raise sufficiently common factual questions to warrant class-based adjudication. In cases like that one, bringing a second class action before a second judge may amount to little more than an effort to shop for a favorable judge. Gorsuch noted that existing rules oddly do not really obligate trial judges in the second class action to defer to the rulings of a trial judge who decided to dismiss the first class action. Other cases, though, do not present that problem, because the reason for dismissal of the first class action involves a defect in the particular class representative; courts occasionally dismiss cases under the PSLRA rules mentioned above. In that case, a second class action filed by a proper plaintiff is less an attempt to evade the first ruling than a response to the ruling that solves the problem. Gorsuch and Sotomayor seemed much less concerned about permitting stacked classes in the latter group of cases – when (as Sotomayor put it) “the only deficiency was in the plaintiff not in my class.” Their discussion with Frederick on that topic, though, did not suggest an easy way to interpret American Pipe to draw that distinction.

In sum, an argument not nearly so hostile to the proposed class as recent cases might have suggested, but still leaving open the possibility of a limitation of American Pipe to prevent stacked class actions.

[Disclosure: Goldstein & Russell, P.C., whose attorneys contribute to this blog in various capacities, is among the counsel on an amicus brief in support of the respondents in this case. The author of this post is not affiliated with the firm.]