Hunton Employment & Labor Perspectives

In China Agritech, Inc. v. Resh, the U.S. Supreme Court held that putative class members cannot rely on equitable tolling to file new class actions under Rule 23 of the Federal Rules of Civil Procedure.

Resh was the third shareholder class action suit filed against China Agritech, Inc. under the Securities Exchange Act of 1934. The plaintiffs in the two previous suits settled their claims after the court denied their motions for class certification.

Shortly after the second lawsuit settled, Resh filed a third class action lawsuit on behalf of the same class of shareholders.  Although the suit was filed a year and half after the applicable statute of limitations had expired, Resh argued that the case was timely under the Supreme Court’s holding in American Pipe & Constr. Co. v. Utah, 414 U.S. 538, in which the Court had previously held that the relevant statute of limitations is tolled during the pendency of a class action to allow putative class members to pursue individual actions after the denial of class certification.

On review, the U.S. Supreme Court rejected Resh’s attempts to extend the holding in American Pipe & Constr. Co. to subsequently-filed class actions. Specifically, the Court held that the American Pipe tolling rule was created to allow individual employees to pursue individual cases after class certification had been denied, but was not created to allow plaintiffs to file successive class action suits.  The court reasoned that allowing plaintiffs to file successive class actions would lead to a never-ending cycle in which the limitations period would be “extended time and again; as each class is denied certification, a new name plaintiff could file a class complaint that resuscitates the litigation” – undermining the very concerns of “efficiency and economy of litigation” that the American Pipe rule was designed to address.

Although the Resh case arose in the securities context, the decision applies equally to employment class actions under Rule 23.  As a result, the Resh decision will likely prove to be a powerful tool to prevent employment law class action plaintiffs from filing successive and untimely class action lawsuits in hopes of securing certification in more plaintiff-friendly jurisdictions.