The Securities Exchange Act of 1934 has both a two-year statute of limitations and a five-year statute of repose. With respect to complaints that China Agritech engaged in fraud and misleading business practices causing the company’s stock price to plummet when the misconduct came to light, the accrual date for purposes of the two-year limitation period was February 3, 2011, and for the five-year repose period was November 12, 2009.

The Dean class-action complaint was filed on February 11, 2011. Six shareholders sought to be named lead plaintiffs; other shareholders who had filed their own class complaints dismissed them in view of the Dean action. On May 3, 2012, after several months of discovery and deferral of the lead-plaintiff ruling, the District Court denied class certification. The plaintiffs, the District Court determined, had failed to establish that China Agritech stock traded on an efficient market — which is necessary for proving reliance on a classwide basis. Dean’s counsel then published a notice, advising: “You must act yourself to protect your rights. You may protect your rights by joining in the current Action as a plaintiff or by filing your own action against China Agritech.” The Dean action settled in September 2012, and the suit was dismissed.

On October 4, 2012 — within the two-year statute of limitations period — Dean’s counsel filed a Smyth complaint with a new set of plaintiffs and new efficient-market evidence. Eight shareholders responded to the PSLRA notice, seeking lead-plaintiff appointment. The District Court again denied class certification, this time on typicality and adequacy grounds. Thereafter, the Smyth plaintiffs settled their individual claims with the defendants and voluntarily dismissed their suit. Because the Smyth litigation was timely commenced, putative class members who promptly initiated individual suits in the wake of the class-action denial would have encountered no statute of limitations bar.

Resh, who had not sought Lead Plaintiff status in either Dean or Smyth filed suit on June 30, 2014, styling it a class action — a year and a half after the statute of limitations expired.

The District Court dismissed the Resh class complaint as untimely, holding that the Dean and Smyth actions did not toll the time to initiate class claims. The Court of Appeals for the Ninth Circuit reversed. The U.S. Supreme Court granted cert to answer the following question:

“Upon denial of class certification, may a putative class member, in lieu of promptly joining an existing suit or promptly filing an individual action, commence a class action anew beyond the time allowed by the applicable statute of limitations?”

The Court’s answer is: No. “American Pipe tolls the statute of limitations during the pendency of a putative class action, allowing unnamed class members to join the action individually or file individual claims if the class fails. But American Pipe does not permit the maintenance of a follow-on class action past expiration of the statute of limitations.”

 

China Agritech v. Resh, No.17-432, 2018 WL 2767565 (June 11, 2018).