Hunton Employment & Labor Perspectives

On March 26, 2018, the Supreme Court heard oral argument in Resh v. China Agritech, Inc., a case that could have far-reaching implications in the class action context.  Resh addresses the interplay of successive class actions and the statute of limitations, specifically, whether a plaintiff can pursue a class action after the statute of limitations has run.  Although the issue arose in a securities case, the Court’s ruling will affect class actions and time bars in all areas, including employment.

The case stems from a series of securities class actions against China Agritech.  The first purported class was not certified because the District Court found that individual issues predominated, as the plaintiffs had failed to establish a fraud-on-the-market presumption of reliance.  The second class action was nearly identical to the first and was filed on behalf of the same would-be class three weeks after the first case settled.  Certification was again denied, this time because the named plaintiffs’ prior relationship with the prior named plaintiffs subjected them to a claim preclusion defense that was not available against unnamed class members, thus failing the typicality requirement.  The court further held that the plaintiffs and their counsel failed to meet the adequate representation requirement of Rule 23(a)(4).

The third purported class action—again filed on behalf of the same would-be class and based on the same facts and circumstances as the prior two—sparked the issue currently before the Supreme Court: Does the tolling of the statute of limitations that occurs during the pendency of an ostensible class action allow a previously absent class member to pursue a class action after the statute of limitations has run?  The Ninth Circuit held in the affirmative.

Supreme Court precedent establishes that the statute of limitations is tolled during the pendency of a class action.  The open issue, however, is whether an otherwise untimely claim must be filed on an individual basis.

China Agritech argues that absent class members are not entitled to the equitable tolling that applies to someone who takes affirmative steps to pursue a claim.  In other words, if the statute of limitations has expired, a member of the defunct class can pursue an individual claim (thereby asserting his or her rights and justifying tolling), but no one should be an absent class member in a class action filed after the statutory deadline.  If that were permitted, the statute of limitations would essentially never expire for class members who never take any affirmative steps to sue.

Resh, on the other hand, argues that precedent creates equitable tolling that does not distinguish between individual and class actions.  Moreover, the goal of preventing duplicitous filings would be undermined by numerous individual claims.

Justices had tough questions for both sides during oral argument, with some challenging the wisdom of requiring large numbers of individual claims and others appearing to doubt the wisdom of automatic tolling.