SCOTUS Revisits American Pipe Decision

American Pipe Decision
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On June 11, 2018, the United States Supreme Court considered the scope of its 1974 holding in American Pipe & Const. Co. v. Utah (1974), 414 U.S. 538, 94 S.Ct. 756, 38 L.Ed.2d 713 a then-groundbreaking case for class action attorneys. American Pipe allowed for the statute of limitations to be tolled for any individual who would have been part of a class action had it been certified, allowing them to intervene in a pending action upon the denial of class certification. In Crown, Cork & Seal Co. v. Parker, 462 U.S. 345, 350, 103 S.Ct. 2392, 76 L.Ed.2d 628, the court expanded the scope of American Pipe allowing individuals to file their own separate action aft er the denial of class certification. In June, the U.S. Supreme Court dialed back its enthusiasm for American Pipe, finding that where class certification is denied, individuals can intervene in the pending action or file their own individual action, but the statute of limitations is not tolled for purposes of filing a successive class action.

AMERICAN PIPE

Utah brought a class action civil suit for violations of the Sherman Act. The defendants moved to deny class certification, which the court granted. Just days later, a group of over sixty municipalities and water districts filed motions to intervene, both as of right under Rule 24(a)(2), and by permission under Rule 24(b)(2). The court denied the motion holding that the statute of limitations had expired.

The U.S. Supreme Court held that the putative class members were parties to the suit, reasoning that to hold otherwise would frustrate the purpose of class actions suits by requiring each individual to intervene in the action to keep their statute of limitation from expiring, noting that this was “precisely the multiplicity of activity which Rule 23 was designed to avoid…” The court held that where the class action status was denied, “the commencement of the original class suit tolls the running of the statute for all purported members of the class who make timely motions to intervene aft er the court has found the suit inappropriate for class action status.”

EXPANSION BY CROWN

In Crown, an African-American male petitioner filed a charge with the Equal Employment Opportunity Commission (EEOC) against his employer. The EEOC sent him a Notice of Right to Sue under the Civil Rights Act, giving him 90 days to file suit. He took no immediate action. During the pendency of the EEOC review, two other employees of the same employer filed a putative class action suit against the employer, seeking to represent a class which would have covered the petitioner. The court denied the motion for class certification, and the action proceeded individually. The petitioner, nearly two years aft er receiving his Notice of Right to Sue, but within 90 days of the denial of class certification, filed suit. The employer argued that the action was time-barred, but the employee maintained that the statute of limitation was tolled during the pendency of the putative class action until class certification was denied.

The U.S. Supreme Court agreed with the employee, extending its holding in American Pipe. While the defendant in that case argued that American Pipe applied only to intervenors, the court clarified that individuals were not required to intervene in the action in which class certification was denied but could file their own individual action.

RECENT DECISION IN CHINA AGRITECH

In China Agritech, Inc. v. Resh (2018), 138 S.Ct. 1800, the court had before it the third nearly identical class action filed against the defendant, alleging violations of the Securities Exchange Act. The question posed was whether American Pipe permitted, upon the denial of class certification, an individual, instead of intervening or filing an individual suit, to file a successive class action. The court resolved this question in the negative, finding tolling only applicable if the individual would bring an individual suit.

The court noted it was best to have all potential class representatives come forward at once. It also found that the language of Federal Civil Rule 23 now mandates that class certification be resolved as early as practicable, reasoning that such language evidences an intent that readdressing class certification in successive actions not be permitted. Finally, the court reasoned that for equitable tolling of the statute of limitations to apply, a plaintiff would need to demonstrate that they had not slept on their rights. An individual who wishes to be a representative in a class action is not acting diligently in waiting for an outcome in an existing class action.

TOLLING RULE

In reading American Pipe, Crown, and China Agritech together, the court has set clear boundaries for when equitable tolling applies in class actions. The statute of limitations is tolled where class certification was denied, and an individual intervenes in the pending action or file their own individual suit. Shelley Fleming

Zerega Consulting

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