Class Action Litigation Update - September 2023

Five Years After the Supreme Court’s Ruling in China Agritech, Application of American Pipe Tolling Remains Unsettled

In two landmark decisions—American Pipe & Construction Co. v. Utah, 414 U.S. 538, 554 (1974) and Crown, Cork & Seal Co. v. Parker, 462 U.S. 345 (1983)—the Supreme Court adopted and then clarified a new doctrine that the commencement of a class action suspends the applicable statute of limitations as to the putative class members, including both those who seek to join the existing class action and those who bring their own individual (non-class) suits.  In adopting this doctrine (commonly referred to as “American Pipe tolling”), the Supreme Court focused on the underlying “efficiency and economy” goals of class action litigation, noting that absent such tolling, putative “class members would not be able to rely on the existence of the [class] suit to protect their rights,” thereby leading a “needless multiplicity of” protective lawsuits by class members.  Crown, Cork & Seal Co., 462 U.S. at 350-51.

The Supreme Court last revisited American Pipe tolling five years ago, with its decision in China Agritech, Inc. v. Resh, 138 S. Ct. 1800 (2018).  There, the Supreme Court resolved a split among federal courts of appeals and narrowed the application of American Pipe, holding that the doctrine “does not permit the maintenance of a follow-on class action past expiration of the statute of limitations.”  Id. at 1804.  The Court reasoned that the “efficiency and economy” goals underlying American Pipe did not apply to successive class actions because “[w]ith class claims . . . efficiency favors early assertion of competing class representative claims.”  China Agritech, 138 S. Ct. at 1807. 

Since China Agritech, courts have struggled with whether American Pipe tolling applies in two thorny situations:  (1) a follow-on class action where the court did not deny class certification on the merits in an earlier class action, and (2) where plaintiffs’ counsel seeks to add or substitute class representatives because the original class representatives lacked Article III standing.  Regardless of where they end up on these decisions, courts grappling with these issues tend to base their opinions on the efficiency and economy goals underlying the Supreme Court’s decisions.  But, what is clear is that both plaintiffs and defendants should understand the state of the law on these issues, because of their potentially huge implications for a class action’s continued viability.  After all, a timeliness argument is often one of the cleanest ways for a defendant to get rid of a class action.

Does China Agritech apply where the court did not deny class certification on the merits?

Until a court officially certifies a class, there is no class entity.  That is why courts, plaintiffs, and defendants refer to a “putative” class in the early phases of a class action, and why counsel appointed to pursue the case for the broader plaintiff group are typically labeled “interim” class counsel (i.e., because they do not yet represent a certified class).  Given these realities, some plaintiffs have argued that China Agritech cannot apply by its terms or logic until a court grants or denies class certification because there is no official decision on a case’s “class” nature.  Courts addressing this argument, however, have not always agreed.

In In re Celexa & Lexapro Marketing & Sales Practices Litigation, 915 F.3d 1 (1st Cir. 2019), for example, the plaintiffs alleged that a pharmaceutical company engaged in fraud to push its antidepressant drugs on minors for whom the FDA had not approved the use of these drugs.  A plaintiff brought a follow-on class action claim that relied on American Pipe tolling applying between the filing of an earlier class action and the dismissal of that suit, but the First Circuit held that American Pipe tolling did not apply to the plaintiff’s claims under China Agritech, and it therefore affirmed the district court’s decision denying class certification.  Id. at 16. 

The plaintiff argued that China Agritech was inapplicable because there was no substantive ruling on class certification in the earlier class action.  The First Circuit disagreed, noting that although the plaintiff’s argument had some facial appeal, the Supreme Court’s reasoning in China Agritech was not limited to situations where the court denied class certification in the earlier action.  Id. at 16-17.  According to the First Circuit’s interpretation, China Agritech stands for the proposition that “the tolling effect of a motion to certify a class applies only to individual claims, no matter how the motion is ultimately resolved.”  Id. at 17.  Invoking judicial efficiency and economy concerns, the court reasoned that “[t]o hold otherwise would be to allow a chain of withdrawn class-action suits to extend the limitations period forever.”  Id.

The Third Circuit reached a similar result in Blake v. JP Morgan Chase Bank NA, 927 F.3d 701 (3d Cir. 2019).  There, the plaintiffs filed a follow-on class action to an earlier class action that had been dismissed on statute of limitations grounds and was on appeal.  The plaintiffs tried to distinguish China Agritech on the grounds that the court’s ruling on class certification in the first class action was not final (because it was on appeal), but the Third Circuit held that was “a distinction without a difference.”  Id. at 709.  The court reasoned that tolling new actions while the first action was pending would be at odds with the policy rationale behind China Agritech because it would “encourage more plaintiffs to seek second bites at the apple,” “undermine Rule 23’s instruction to resolve class certification early on,” and “could lead to endless tolling.”  Id. at 710.  The court summed up its interpretation of China Agritech’s rule as follows: “a timely class action tolls its purported class members’ individual claims, but never their class claims.”  Id.

District courts in other circuits have reached the same conclusion.  See Cleary v. Am. Airlines, Inc., 2022 WL 5320126, at *3 (N.D. Tex. July 22, 2022) (“But the Supreme Court does not limit China Agritech only to cases involving a denial of class certification.”); Prac. Mgmt. Support Servs., Inc. v. Cirque du Soleil Inc., 2018 WL 3659349, at *4 (N.D. Ill. Aug. 2, 2018) (“If the Supreme Court wanted to make its holding contingent on the reason why the earlier class action was dismissed, it would have done so.”); Dormani v. Target Corp., 2018 WL 3014126, at *2 (D. Minn. June 15, 2018) (holding that American Pipe did not apply to successive class actions where the first class action was dismissed for failure to state a claim), aff’d on other grounds, 970 F.3d 910 (8th Cir. 2020).

Other courts have rejected these views and held that China Agritech’s limitation on American Pipe tolling does not apply where an earlier court did not decide class certification on the merits.  In Famular v. Whirlpool Corp., 2021 WL 395468, at *1 (S.D.N.Y. Feb. 3, 2021), for example, the court held that American Pipe tolling applied to follow-on class claims where a New York subclass was voluntarily dismissed from an earlier class action prior to any decision on class certification.  Id. at *2.  The Famular court rooted its decision in the same judicial efficiency and economy principles other courts cited to reach the opposite conclusion.  The court reasoned that “[r]equiring each potential sub-class of plaintiffs to simultaneously sue despite the pendency of a putative nationwide class would create a multiplicity of litigation that squanders resources and undermines judicial economy.”  Id. (internal quotation marks and citation omitted).  Other courts have similarly held that China Agritech does not bar American Pipe’s application to follow-on class actions where class certification was not decided on the merits in first action.  See In re Snap Inc. Sec. Litig., 334 F.R.D. 209, 222-23 (C.D. Cal. 2019) (holding that China Agritech did not apply where the court denied a prior motion for class certification in order to reopen the lead plaintiff selection process following the withdrawal of a lead plaintiff for medical reasons).

As these cases demonstrate, the slight weight of authority seems to fall against tolling for follow-on class actions, even if an earlier case did not reach a decision on class certification.  But, there are decisions in important class action districts finding such tolling remains.  Parties should look into their specific Circuit’s and District’s rulings on this issue, because they vary.

Does American Pipe tolling apply where plaintiffs seek to add or substitute class representatives because the original class representatives lacked Article III standing?

Lower courts have also struggled with whether American Pipe tolling applies when plaintiffs’ counsel seeks to add or substitute new class representatives because the original class representatives lacked Article III standing over all or some of the class claims.

The majority approach, adopted by the Second and Seventh Circuits, is that American Pipe tolling applies in these situations.  In In Fund Liquidation Holdings LLC v. Bank of America Corp., 991 F.3d 370 (2d Cir. 2021), cert. denied, 142 S. Ct. 757 (2022), two investments funds filed a class action complaint alleging that numerous banks conspired to manipulate certain benchmark interest rates.  A year after the funds filed the complaint, the banks discovered that the funds had been dissolved years earlier, and the case was actually being litigated by a separate entity, which asserted it was assigned the dissolved entities’ claims.  Id. at 375.  The court held that China Agritech did not bar the application of American Pipe tolling to this entity’s motion to file an amended complaint adding additional funds as class representatives.  Id. at 393.  The court followed the Seventh Circuit’s opinion in In re Allstate Corp. Securities Litigation, 966 F.3d 595, 615-16 (7th Cir. 2020), which held that China Agritech does not prohibit using American Pipe tolling to add or substitute class representatives within the same action.  The Seventh Circuit explained that prohibiting the use of American Pipe tolling within the original class action to add new class representatives would “undermine th[e] goals of efficiency and economy” underlying American Pipe.   Id.  Other courts have since followed the Second and Seventh Circuits’ approach.  See Bos. Ret. Sys. v. Uber Techs., Inc., No. 2021 WL 4503137, at *4 (N.D. Cal. Oct. 1, 2021) (“Multiple circuit courts have agreed that China Agritech does not apply to the addition of new plaintiffs to a class action.”); Byrd v. Progressive Direct Ins. Co., 2021 WL 1225961, at *6 n.7 (W.D. Ky. Mar. 31, 2021) (same). 

At least one court has reached the opposite conclusion.  In Evans v. Wal-Mart Stores, Inc., 2019 WL 3325806 (D. Nev. July 23, 2019), the plaintiff filed a class action against Wal‑Mart for failure to timely pay unpaid wages to employees who were discharged or resigned.  The court granted the plaintiff’s motion for class certification in part, but limited the class to include only class members who, like the plaintiff, voluntarily terminated their employment with Wal-Mart.  Id. at *2-*3.  The plaintiff sought to amend her complaint to include a class representative for employees who were involuntarily discharged, but the court held that the new class representative’s claims were time barred and that American Pipe tolling did not apply.  Id. at *4‑*5.  The plaintiff tried to distinguish China Agritech on the ground that she sought to add a class representative to an existing class action, but the court was unpersuaded.  It noted that the uncertified claims were not fit for certification, and it made no difference for these claims whether some other claims were certified or whether the motion for class certification was denied in its entirety.  Id. at *5.

Given the Circuit-level decisions on this issue, as well as the logic they employed, it is likely that additional courts will follow suit in the future to find that American Pipe tolling applies.  However, the remaining uncertainty suggests that a party to a class action should be aware of and research this issue in their venue, because it could provide an important timeliness argument.