Unanimous US Supreme Court Bars ‘Stacked’ Class Actions

June 12, 2018

In a major victory for class-action defendants, the US Supreme Court yesterday ruled in favor of O’Melveny client China Agritech, Inc., holding that statutes of limitations cannot be extended to permit follow-on class actions. The Court’s unanimous decision in the closely watched securities case significantly narrows the tolling provisions established decades ago in the Court’s landmark American Pipe decision. As a result of China Agritech, Inc. v. Resh, all would-be plaintiffs are on notice to bring class claims early: statutes of limitation are finite.

A coast-to-coast O’Melveny team has been defending China Agritech against securities claims since 2011, when the company was targeted in a short-seller attack. The firm’s litigators defeated three shareholder class actions involving almost identical allegations in the US District Court for the Central District of California. In 2017, the Ninth Circuit reversed the third dismissal, finding that plaintiff Michael Resh, who filed his class action a year-and-a-half after the applicable statute of limitations had expired, should have been given the benefit of American Pipe tolling—that is, because his claims were encompassed by earlier class complaints, his suit was deemed timely.

On appeal to the Supreme Court, O’Melveny partner Seth Aronson argued that the statute of limitations should not be tolled to permit a previously absent class member to bring a subsequent class action. In a 9-0 opinion, authored by Justice Ruth Bader Ginsburg, the Supreme Court agreed: “American Pipe does not permit a plaintiff who waits out the statute of limitations to piggyback on an earlier, timely filed class action.” 

In reversing the Ninth Circuit’s decision, the Supreme Court found “little reason to allow plaintiffs who passed up opportunities in the first (and second) round of class litigation to enter the fray several years after class proceedings first commenced.” The Court agreed with China Agritech that plaintiffs’ “proposed reading would allow the statute of limitations to be extended time and again; as each class is denied certification, a new named plaintiff could file a class complaint that resuscitates the litigation.” Such a result would undermine efficiency and judicial economy.

In a sign of the case’s significance to the securities industry, the Court received nearly a dozen amicus briefs, including submissions from the Securities Industry and Financial Markets Association and the US Chamber of Commerce.

The O’Melveny team was led by partners Seth Aronson, Abby Rudzin, Anton Metlitsky, and Will Pao, along with counsel Brad Garcia, Brittany Rogers, and Michelle Leu, and associates Jason Zarrow and Grace Leeper.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Seth Aronson, an O’Melveny partner licensed to practice law in California, Anton Metlitsky, an O’Melveny partner licensed to practice law in the District of Columbia and New York, William K. Pao, an O’Melveny partner licensed to practice law in California, Jonathan Rosenberg, an O’Melveny partner licensed to practice law in New York, Abby F. Rudzin, an O’Melveny partner licensed to practice law in New York, Brad N. Garcia, an O’Melveny counsel licensed to practice law in the District of Columbia and Maryland, and Michelle C. Leu, an O’Melveny counsel licensed to practice law in California, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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