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: