I have had this perception for several years now that the U.S. Supreme Court recently has been particularly keen to take up securities cases. It turns out that this perception has a basis in objective fact. A recent paper by University of Toledo law school Professor Eric Chafee confirms that since John Roberts became Chief Justice in 2005, the Court has averaged two securities opinions per court term, twice the number of the prior Rehnquist Court. Indeed, as the number of cases overall on which the Court has granted cert has continued to shrink, the securities cases have become an increasingly significant component of the Court’s docket. The current term is no exception; the Court began the term with three securities cases on its docket (although a recent settlement in one of the cases reduced the number to two).
The Court is showing its securities law proclivities once again. On Friday, December 8, 2017, the Court granted cert in yet another securities law case. The Court’s December 8, 2017 Order granting the petition for a writ of certiorari in China Agritech Inc. v. Resh can be found here. As Professor Chafee notes in his recent paper, many of the securities cases the Roberts court has taken up in recent years have involved issues “at the periphery of securities laws.” The new case the Court has taken up arguably is no exception to this generalization. The China Agritech case is in fact the second case the Court has taken up in successive terms involving statute of limitations tolling issues under the Court’s American Pipe tolling doctrine.
In its 1974 decision in American Pipe & Construction Co. v. Utah, the U.S. Supreme Court held that the filing of a class action complaint tolls the running of the statute of limitations for other class members who might want to file their own individual action or intervene in the class action. In the Court’s last term in the case of CALPERS v. ANZ Securities, the Court held that while under the American Pipe doctrine that while the filing of a securities class action tolls statutes of limitations it does not toll the running of statutes of repose.
The China Agritech case involves a different question under the American Pipe tolling doctrine. The China Agritech case raises the question whether American Pipe tolling tolls statutes of limitation to permit previously absent class members to bring a subsequent class action outside the applicable limitations period. The procedural history of the China Agritech case itself help explain the meaning and significance of this seemingly obscure question.
The Procedural History of the China Agritech Case
China Agritech has been sued in a series of class action lawsuits arising out of allegations that the company’s financial statements different materially from the financial statements the company filed with regulators in China and that the company engaged in undisclosed related-party transactions.
The first of these lawsuits was filed in February 2011. The plaintiff in that first lawsuit purported to represent a class of shareholders who had purchased the company’s stock. After the court granted in part and denied in part the defendants’ motion to dismiss, the plaintiff filed a motion for class certification. In March 2011, the district court denied the motion for class certification on the grounds that the proposed class failed to satisfy the predominance requirement. The plaintiffs in this first action settled their individual claims in September 2011.
Within weeks of the settlement of the first action, a different plaintiff shareholder filed a new complaint. The court of appeals would later characterize the second complaint as “an almost identical class-action complaint on behalf of the same would-be class.” The plaintiffs in the second action filed a motion for class certification, which was again denied. In January 2014, the plaintiffs in the second action dismissed their claims without prejudice.
In January 2014, the plaintiffs in the case now before the U.S. Supreme Court filed a complaint the appellate court later said was “based on the same facts and circumstances, and on behalf of the same would-be class” as in the two prior lawsuits. The plaintiffs in this third lawsuit sought class certification, as had the plaintiffs in the prior two cases. The district court rejected the class claims as time-barred. Specifically, the district court held that American Pipe tolling permitted the plaintiffs to bring their action as an individual action but the statute had otherwise run with respect to the plaintiffs’ purported class action.
The plaintiffs appealed the district court’s ruling to the Ninth Circuit. In a May 24, 2017 opinion (here), the appellate court revived the plaintiff’s purported class action, ruling that American Pipe tolling allows absent class members to bring not only their own individual actions after the statute of limitations lapses, but also class claims on behalf of other absent class members, even though the district court had twice previously found the identical class deficient. China Agritech filed a petition for a writ of certiorari to the U.S. Supreme Court.
In its cert petition, China Agritech argued that Courts of Appeals in the First, Second, Third, Fifth, Eighth and Eleventh Circuits have rejected plaintiffs’ attempts to extend American Pipe tolling to permit absent class members to later bring not only their own claims, but also bring claims on behalf of a class. These other courts said that a contrary result would allow plaintiffs to engage in repeated attempts to certify class actions and thus undermine the purposes of the statutes of limitation.
In urging the Court to take up the case, Chinese Agritech argued that while most of the circuit courts had refused to extend American Pipe as the plaintiffs sought to do here, three circuit courts, including the Ninth Circuit in the China Agritech case, as well as the Sixth and Seventh circuits, have permitted American Pipe to toll the statute of limitations for absent class members not only to pursue their own individual claims but to pursue class action claims as well. China Agritech urged the court to take up the case in order to address the circuit split.
In opposing the petition, the plaintiffs argued that all of the circuit courts that had properly applied relevant U.S. Supreme Court precedent have held that the a plaintiff is entitled to assert timely claims on behalf of all asserted members of a class and that denial of class certification in an earlier case cannot bar a plaintiff from seeking class certification in a later case.
The plaintiffs argued further that concerns that allowing claimants in later cases to seek class certification would lead to endless litigation of class certification determinations were without merit in light of U.S. Supreme Court precedent directing district courts to apply principles of comity to each other’s class certification decisions when addressing a common dispute. Finally, the plaintiffs argued that in light of the Court’s decision last term in the ANZ Securities case, all subsequent claims would in any event be subject to the statute of repose consideration of American Pipe principles.
In an amicus brief filed in support of China Agritech’s cert petition, the U.S. Chamber of Commerce argued that if the 9th Circuit’s decision is allowed to stand, plaintiffs will be able to bring successive class actions arising out of the same allegations, even after class certification is initially denied. “Nothing will stop such zombie claims from arising again and again,” the group alleged.
I don’t have a good sense of how often these kinds of problems actually come up. I am just not sure how frequently another member of the putative class files a separate class action lawsuit after a prior lawsuit had unsuccessfully sought to have the same putative class certified. My instinct is that this doesn’t come up often, for the simple reason that most plaintiffs’ lawyers would be disinclined to expend effort on a class action bid that had already once proved unsuccessful. That instinct is all the more so in a situation where as here the attempts to certify the class have already twice proven to be unsuccessful. That instinct notwithstanding, the number of reported circuit court decisions on this same issue does suggest that the issue does come up from time to time, even if it does not come up frequently.
It may be due to defense-side instincts borne of a lifetime working on behalf of corporate defendants and their insurers, but I have to say that I find the defendant company’s position here to be sympathetic. You can almost hear them saying in their cert petition – come on, for crying out loud, we defeated two different class certification bids, why on earth should we have to go through this exercise another time? How many times should we have to go through this drill?
And it is not as if the substantive rights of the plaintiffs are being cut off. No one is arguing that the plaintiffs do not have the right to proceed in their on behalf of their own interests. All the defendant is saying is that at this point after so much time has passed and after two different successful class certification bids, the current plaintiffs no longer have the right to try to proceed on behalf of a putative class. Moreover, prospective plaintiffs in future cases keen to have the claims of the class asserted and concerned that the nominal plaintiff who stepped forward to assert the class claims may not be the best situated to represent the class will always have the option of intervening in the putative class action in order to try to assure that the class claims are fully represented.
When the time comes for the Court to address the merits of these issues, much of the focus will be on the principles behind statutes of limitations and the purposes that they serve. These general principles unquestionably are important. However, the question whether or not American Pipe tolling does or does not permit subsequent claimants to try to proceed on a class basis after prior claimants attempts to obtain class certification have been defeated strikes me as a peripheral issue very much of the kind about which Professor Chaffee commented in his paper about the Roberts court’s securities law case record.
The likeliest explanation for the Court’s decision to take up the China Agritech case is the court’s historic deep aversion to circuit splits, a predilection best understood as an abhorrence of the possibility that outcomes on identical issues might differ simply based on the court in which the question is decided. This possibility of diverse and inconsistent not only offends notions of consistency but arguably also even fairness. The possibility of inconsistent outcomes also raises the specter of forum-shopping.
So there may be very good policy reasons behind the Court’s decision to take up the China Agritech case, beyond just the Court’s desire to address the specific questions China Agritech’s petition presented.
Just the same, there is the nagging possibility that there is another reason the Court took up the case, and that is that for whatever reason the Court just seems predisposed to want to consider securities law cases. Interestingly, Professor Chafee rejects this idea, as he also rejects the notion that the Roberts Court has shown a pro-business bias in its consideration of securities law issues. While I agree that the Roberts Court has not shown a uniformly pro-business bias in its resolution of securities law issues, I remain inclined to the view that the current court for whatever reason has some peculiar predisposition to want to take up securities cases, as compared to cases that involve issues arising under other areas of the substantive law.
Whatever may explain the current Court’s propensity to consider securities law cases, there is yet another securities law cert petition pending that may provide the Court with yet another opportunity this term to take up a securities law case. As Alison Frankel well-detailed in a December 6, 2017 post on her On the Case blog (here), the defendants in the Petrobras securities class action lawsuit have filed a cert petition seeking to have the high court consider the question of what evidence a securities class action plaintiff needs to present in order to invoke the presumption of reliance for purposes of a motion for class certification. (For a detailed background regarding the Second Circuit decision the Petrobras seeks to have the Court review, please see my prior post, here.)
The Supreme Court is scheduled to consider the Petrobras petition in conference on January 5, 2017, so we won’t have to wait long to find out of the Court is going to take up yet another securities law case this term.
UPDATE: Alison Frankel has an interesting December 11, 2017 post on her On The Case blog (here), in which she takes the position that we shouldn’t be fooled, that the China Agritech case is really a class action litigation case, not a securities law case. Her point is well taken and I recommend reading her post at length and in full. Just the same, the China Agritech case does arise under the federal securities laws.