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China Agritech, Inc. v. Resh: For Whom the Class Tolls—It Tolls for Individual Claims

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15 Jun 2018
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June 15, 2018

China Agritech, Inc. v. Resh, 584 U.S. ___ (2018) (Ginsburg, J.).
Response by James Hannaway
Geo. Wash. L. Rev. On the Docket (Oct. Term 2017)
Slip Opinion | SCOTUSblog

China Agritech, Inc. v. Resh: For Whom the Class Tolls—It Tolls for Individual Claims

On June 11, 2018, in China Agritech, Inc. v. Resh,1 the Supreme Court held that a class action resulting in class certification denial does not toll the statute of limitations for a second class action.2 The would-be class representative and plaintiff in the case, Resh, brought a securities class action in June 2014 against China Agritech. It was the third successive class action against the company, alleging essentially the same fraud cause of action alleged in the first two.3 The first class action was filed in February 2011 and failed because the plaintiffs did not have sufficient evidence of fraud on a class-wide basis.4 The second class action, filed in October 2012, fixed the evidentiary problem but was refused class certification on typicality and adequacy grounds.5

By the time Resh filed suit in 2014, the statute of limitations had run out, so he had to rely on class action tolling. In American Pipe & Construction Co. v. Utah6 and Crown, Cork & Seal Co., Inc. v. Parker,7 the Supreme Court held, respectively, that a class action tolled the statute of limitations for subsequent individual intervenors and for individual litigants. In these cases, the Court was animated by a concern for duplicative actions that would necessarily follow if litigants could not rely on tolling to preserve their claims.8 If the statute of limitations did not toll, the Court reasoned, reasonable class members would file duplicative suits right before the statute of limitations ran out to protect their interests, exactly the result that the drafters of Rule 23 wanted to avoid in creating an efficient means of resolving disputes involving a large number of people. As a result, the Court held that individuals should be able to rely on the first class action to preserve their rights. The Ninth Circuit previously extended this rule to hold that the statute of limitations tolled for a second class action as well, not just for individual actions.9 Applying and further extending that precedent in this case, the Ninth Circuit found that Resh’s suit was timely.

In considering whether to extend American Pipe and Crown, Cork & Seal to subsequent class actions for the first time, the Supreme Court had three options from which to choose: an absolutist pro-class action tolling rule, an absolutist anti-class action tolling rule, or a rule which tolled the statute of limitations only under certain circumstances.

David Frederick, counsel for Resh, advocated for the first option: a “straightforward, clean, simple rule” that would toll the statute of limitations during a class action, regardless of how the second action was brought.10 In Smith v. Bayer Corp.11 and Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co.,12 the Court held, respectively, that a first class certification denial does not preclude a second class, and that states may not single out claims unworthy of class treatment.13 To Frederick, the principle from these cases was clear: Rule 23 provides exclusive answers to questions about its application, and a class certification decision does not affect the rights of absent class members.14 Any discrimination against claims because they are class claims, rather than individual claims, would therefore violate this principle.

Seth Aronson, counsel for China Agritech, argued the opposite absolutist position—that a statute of limitations should never toll for a second class action during the first class action. A concern about the never-ending “serial litigation of class actions” animated his position.15 For him, the underlying policies of Rule 23—efficiency and economy—pointed away from allowing tolling. A rule not allowing tolling would encourage class representatives to come forward early in litigation, not later as they litigate successive class actions over years through tolling.

A middle position, endorsed by Justice Alito when he served on the 3rd Circuit,16 would allow tolling where a previous denial of class certification was due to some defect in the class representative, but would not allow tolling where a previous denial was due to some defect in the class. This approach would allay any fears of endless litigation because tolling would end as soon as a court made a decision on the wisdom of class suitability. It would also avoid the potential unfairness of foreclosing a second action just because a class representative in the first one was inadequate or incompetent. Neither advocate endorsed this position.

The China Agritech Court chose the absolutist anti-tolling rule with three primary concerns in mind: efficiency, the diligence of class representatives, and the potential for serial litigation. Taking note of the efficiency concerns of the American Pipe Court, the Court found that not allowing tolling would actually encourage efficiency because the best class representatives would have more incentive to pursue an “early assertion of competing class representative claims.”17 Responding to the American Pipe Court’s concern about reasonable class members losing their rights, the Court found that although an individual can be considered diligent by relying on a class action, “[a] would-be class representative . . . can hardly qualify as diligent” by relying on another class representative.18 The Court also adopted China Agritech’s concern about “limitless” class actions.19 Allowing tolling would allow one class representative after another to relitigate a previously-decided question.

The Court seems to offer a simple rule (no class action tolling) derived from a case that presents a lot of the troubles of class action tolling without any of the benefits. By choosing to grant certiorari on a case where tolling happened not once but twice, the Court did not have to confront some of the more difficult situations that arise in other cases. The District Court for the Northern District of Illinois, for example, allowed a second class action to benefit from tolling after a defendant settled a first class but failed to disclose all the identities of possible class members.20 In another case, after the Supreme Court held that a first class action was not ripe and Congress subsequently changed the law that formed the basis for the first class’s claims, the Ninth Circuit held it would be unfair to not allow tolling for the claims of a second class with essentially the same cause of action.21 In both cases, it is hard to say that the class representatives in the second class were not diligent, that it would be efficient to not allow their claims to proceed, or that allowing their claims to proceed would lead to infinite litigation. The China Agritech Court held that it does not matter why a class is denied, but it remains to be seen whether lower courts can make distinctions between cases like Villanueva v. Davis Bancorp, Inc.22 or Catholic Social Services, Inc. v. INS,23 and cases like China Agritech.24 Perhaps in recognition of the potentially harsh results of their absolutist anti-tolling rule on such cases, both the majority and Justice Sotomayor’s concurrence allow at least one escape hatch: allowing liberal amendment and intervention after a denial of class certification in cases where it is appropriate.25

In the end, the result in China Agritech is far from surprising given the Court’s general skepticism towards aggregate litigation.26 What is surprising is the Court’s unwillingness to grapple with the harder problems inherent in class action tolling. Even with an absolutist rule, these problems may not go away. It remains to be seen whether gray areas exist or matter where the China Agritech Court’s rationales may not apply. For now, the Court has made a relatively clear statement about for whom the class tolls—it tolls for an individual litigant, not a class.

James Hannaway is an Articles Editor of The George Washington Law Review. He is also a semester Law Clerk at Cohen Milstein Sellers & Toll PLLC, a firm which filed an amicus brief supporting Respondents in China Agritech, Inc. v. Resh. He writes here in his personal capacity.

  1. No. 17-432, slip op. (U.S. June 11, 2018).
  2. China Agritech, slip op. at 2.
  3. Id.
  4. See id. at 3.
  5. See id. at 4.
  6. 414 U.S. 538 (1974).
  7. 462 U.S. 345 (1983).
  8. See Crown, Cork & Seal, 462 U.S. at 349.
  9. Catholic Soc. Servs., Inc. v. INS, 232 F.3d 1139, 1149 (9th Cir. 2000).
  10. Transcript of Oral Argument at 56, China Agritech, Inc. v. Resh, No. 17-432, slip op. (U.S. June 11, 2018).
  11. 564 U.S. 299 (2011).
  12. 559 U.S. 393 (2010).
  13. See Smith, 564 U.S. at 315; Shady Grove, 559 U.S. at 399.
  14. See Transcript of Oral Argument, supra note 10, at 30–31, 37, 47.
  15. Id. at 61.
  16. Yang v. Odom, 392 F.3d 97, 112 (3d Cir. 2004) (Alito, J., concurring in part and dissenting in part).
  17. China Agritech, Inc. v. Resh, No. 17-432, slip. op. at 7 (U.S. June 11, 2018).
  18. Id. at 9.
  19. See id. at 10.
  20. See Villanueva v. Davis Bancorp, Inc., No. 09 CV 7826, 2011 WL 2745936, at *5 (N.D. Ill. July 8, 2011).
  21. See Catholic Soc. Servs., Inc. v. INS, 232 F.3d 1139, 1149 (9th Cir. 2000).
  22. No. 09 CV 7826, 2011 WL 2745936 (N.D. Ill. July 8, 2011).
  23. 232 F.3d 1139 (9th Cir. 2000).
  24. See China Agritech, slip op. at 11 n.5.
  25. See id. at 7 n.2; id. at 7 (Sotomayor, J., concurring).
  26. See A. Benjamin Spencer, The Restrictive Ethos in Civil Procedure, 78 Geo. Wash. L. Rev. 353, 362–63 (2010); Alan Morrison, Response, Bristol-Myers Squibb v. Superior Court of California: Another Big Personal Jurisdiction Win for Defendants, Geo. Wash. L. Rev. On the Docket (June 20, 2017), http://www.gwlr.org/bristol-myers-squibb-v-superior-court-of-california.

Recommended Citation
James Hannaway, Response, China Agritech, Inc. v. Resh: For Whom the Class Tolls; It Tolls for Individual Claims, Geo. Wash. L. Rev. On the Docket (June 15, 2018), https://www.gwlr.org/china-agritech-inc-v-resh-for-whom-the-class-tolls.

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