Michael Resh v. China Agritech, Inc. , 857 F.3d 994 ( 2017 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
MICHAEL H. RESH, On Behalf of No. 15-55432
Himself and All Others Similarly
Situated; WILLIAM SCHOENKE; D.C. No.
HEROCA HOLDING, B.V.; NINELLA 2:14-cv-05083-
BEHEER, B.V., RGK-PJW
Plaintiffs-Appellants,
v. OPINION
CHINA AGRITECH, INC.; YU CHANG,
Company’s CEO, President,
Secretary, and Chairman of the
Board; YAU-SING TANG, AKA
Gareth Tang, Company’s Chief
Financial Officer; GENE MICHAEL
BENNETT, Director of CAGC; XIAO
RONG TENG, Director of CAGC;
MING FANG ZHU; LUN ZHANG DAI,
Director of CAGC; CHARLES LAW,
AKA Charles C. Law, AKA Charles
Chien-Lee Law, AKA Charles
Chien-Lee Loh, AKA Chien-Lee C.
Loh, Director of CAGC; ZHENG
WANG, Director of CAGC,
Defendants-Appellees.
2 RESH V. CHINA AGRITECH
Appeal from the United States District Court
for the Central District of California
R. Gary Klausner, District Judge, Presiding
Argued and Submitted December 5, 2016
Pasadena, California
Filed May 24, 2017
Before: Stephen Reinhardt, William A. Fletcher,
and Richard A. Paez, Circuit Judges.
Opinion by Judge W. Fletcher
SUMMARY*
Class Actions
The panel reversed the district court’s order dismissing as
untimely a would-be class action alleging that China
Agritech, Inc. and its managers and directors violated the
Securities Exchange Act of 1934, and remanded for further
proceedings.
The panel explained that the district court’s invitation to
file a complaint in a separate individual suit does not render
non-appealable the district court’s dismissal of the class
action complaint. The panel also wrote that appellate
jurisdiction is proper, notwithstanding that the plaintiffs did
*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
RESH V. CHINA AGRITECH 3
not wait for the district court to set forth its judgment in a
separate document, because the district court’s order was a
full adjudication of the issues that clearly evidenced its
intention that the order be final.
The panel held that the plaintiffs’ would-be class action
is not time barred, where (1) the plaintiffs were unnamed
plaintiffs in two earlier would-be class actions against many
of the same defendants based on the same underlying events;
(2) class action certification was denied in both cases; (3) the
earlier actions were timely; and (4) under American Pipe &
Construction Co v. Utah, 414 U.S. 538 (1974), and Crown,
Cork & Seal Co. v. Parker, 462 U.S. 345 (1983), the statute
of limitations for the individual claims of would-be class
members in the earlier actions was tolled during the pendency
of those actions.
The panel wrote that permitting future class-action named
plaintiffs, who were unnamed members in previously
uncertified classes, to avail themselves of American Pipe
tolling would advance the policy objectives that led the
Supreme Court to permit tolling in the first place. The panel
wrote that to the degree that the panel’s conclusion may be
thought likely to lead to abusive filing of repetitive class
actions, the current legal system – including Fed. R. Civ. P.
23 and principles of preclusion and comity -- is adequate to
respond to such a concern.
4 RESH V. CHINA AGRITECH
COUNSEL
Matthew M. Guiney (argued), Wolf Haldenstein Adler
Freeman & Herz LLP, New York, New York; Betsy C.
Manifold, Francis M. Gregorek, Rachele R. Rickert, and
Marisa C. Livesay, Wolf Haldenstein Adler Freeman & Herz
LLP, San Diego, California; David A.P. Brower, Brower
Piven, New York, New York; for Plaintiffs-Appellants.
Seth Aronson (argued), Brittany Rogers, and Michelle C.
Leu, O’Melveny & Myers LLP, Los Angeles, California;
Abby F. Rudzin, O’Melveny & Myers LLP, New York, New
York; for Defendants-Appellees.
OPINION
W. FLETCHER, Circuit Judge:
Plaintiffs bring a would-be class action alleging that
China Agritech, Inc. (“China Agritech”) and its managers and
directors violated the Securities Exchange Act of 1934
(“Exchange Act”). Plaintiffs were unnamed plaintiffs in two
earlier would-be class actions against many of the same
defendants based on the same underlying events. Class action
certification was denied in both cases. Under American Pipe
& Construction Co v. Utah, 414 U.S. 538 (1974), and Crown,
Cork & Seal Co. v. Parker, 462 U.S. 345 (1983), the statute
of limitations was tolled during the pendency of these two
suits for plaintiffs’ individual claims. There is thus no time
bar preventing plaintiffs from bringing the present suit as
joined individual claims rather than as a class action. The
question before us is whether plaintiffs are time-barred from
pursuing their suit as a class action.
RESH V. CHINA AGRITECH 5
For the reasons that follow, we hold that plaintiffs are not
time-barred from bringing a class action.
I. Background
China Agritech is a holding company incorporated in
Delaware with its principal place of business in Beijing,
China. The company claims to operate through various
subsidiaries that manufacture and sell organic compound
fertilizers and related products to farmers in twenty-eight
Chinese provinces. China Agritech began listing its shares on
the NASDAQ Stock Exchange in 2005. In a 2009 filing with
the U.S. Securities and Exchange Commission (“SEC”),
China Agritech reported a net revenue of $76 million, which
was triple the $25 million in revenue it reported for 2005.
On February 3, 2011, LM Research, a market research
company, published a report entitled “China Agritech: A
Scam” (“LM Report”). The report, written by individuals
who held a short position in China Agritech stock, asserted
that China Agritech was “not a currently functioning business
that [was] manufacturing products,” but instead was “simply
a vehicle for transferring shareholder wealth from outside
investors into the pockets of the founders and inside
management.” Alleging idle factories, minimal investments,
and fictitious contracts, the report concluded that China
Agritech had “grossly inflated its revenue, failed to account
for tens of millions of investor dollars, and [had] virtually no
product in the market.” Upon release of the LM Report,
China Agritech’s shares declined from $10.78 per share on
February 2, 2011, to $9.85 per share on February 3, 2011.
China Agritech denied the allegations in an eight-page
letter to shareholders. On February 15, 2011, Bronte Capital,
6 RESH V. CHINA AGRITECH
a hedge fund that also held a short position in China Agritech,
responded to China Agritech’s letter in an article sarcastically
titled, “China Agritech: China’s amazing productivity levels”
(“BC Article”). The BC Article contended that photos
released by China Agritech in its letter did not show the most
basic equipment required for operations of the magnitude that
China Agritech claimed. For example, the pictures showed
40 kg fertilizer bags being moved manually by individual
human laborers rather than with forklifts, calling into
question how a factory reported to manufacture 100,000 tons
of granular fertilizer annually could possibly operate as
depicted. China Agritech’s stock value declined to $7.44 per
share the next day.
On March 13, 2011, China Agritech announced the
formation of a Special Committee of its Board of Directors to
investigate the allegations of fraud. The next day, China
Agritech dismissed its independent auditor, Ernst & Young
Hua Ming (“E&Y”), and publicly disclosed that E&Y had
insisted, in December 2010, that the board commence an
investigation of accounting problems it had previously
identified. Also on March 14, 2011, NASDAQ halted trading
in China Agritech stock and initiated delisting proceedings.
On October 17, 2012, the SEC issued an enforcement order
revoking the registration of China Agritech stock.
II. Procedural History
A. The Dean Action
On February 11, 2011, Theodore Dean, on behalf of
himself and all others similarly situated, filed a would-be
class action against China Agritech and several of its
managers and directors. See Dean v. China Agritech, Inc.,
RESH V. CHINA AGRITECH 7
Case No. 2:11-cv-1331-RGK-PJW (C.D. Cal.) (the “Dean
Action”). Dean alleged that China Agritech had materially
misstated its net revenue and income for the third quarter in
2009 on its SEC Form 10-Q filing, and had materially
misstated its net revenue and income for fiscal years 2008 and
2009 in its 2009 SEC Form 10-K filing. The complaint was
filed eight days after release of the LM Report. The case was
assigned to Judge Klausner in the Central District of
California.
On the same day that the Dean Action was filed, Dean’s
counsel notified China Agritech shareholders of the class
action through two global media platforms, Business Wire
and GlobeNewswire, inviting shareholders to come forward
and serve as lead plaintiff. He repeated the notification a
week later. See 15 U.S.C. § 78u-4(a)(3)(A)(i). On April 12,
2011, pursuant to § 21D(a)(3)(B) of the Private Securities
Litigation Reform Act of 1995 (“PSLRA”), 15 U.S.C. § 78u-
4(a)(3)(B)(iii)(I), six shareholders sought appointment as lead
plaintiff and approval of lead counsel. On May 16, 2011, the
district court denied without prejudice these motions as
premature.
On June 22, 2011, Dean filed an Amended Complaint
with four additional named plaintiffs and two additional
defendants. The amended Dean Action alleged claims for
violations of: (1) Section 10(b) of the Exchange Act and SEC
Rule 10b-5 by China Agritech and all individual defendants;
(2) Section 20(a) of the Exchange Act by the individual
defendants; (3) Section 11 of the Securities Act of 1933
(“Securities Act”) by all defendants; and (4) Section 15 of the
Securities Act by the individual defendants. On October 27,
2011, the district court granted China Agritech’s motion to
8 RESH V. CHINA AGRITECH
dismiss the Dean plaintiffs’ Securities Act claims but denied
its motion to dismiss the Exchange Act claims.
On January 6, 2012, the Dean plaintiffs moved for class
certification on behalf of all persons or entities that had
acquired China Agritech stock between November 12, 2009
and March 11, 2011. On May 3, 2012, the district court
denied their motion. The court concluded that although the
Dean plaintiffs had satisfied all four requirements of Rule
23(a), they failed to establish the predominance requirement
of Rule 23(b)(3). Reliance is a required element for Section
10(b) securities fraud cases. The district court found that
individual issues predominated because the Dean plaintiffs
had failed to establish a fraud-on-the-market presumption of
reliance. A fraud-on-the-market theory requires a showing of
market efficiency, which, in the view of the district court,
plaintiffs had not made. The court therefore held that
plaintiffs had to establish individualized reliance to support
their claims.
The Dean plaintiffs appealed the denial of certification
under Rule 23(f). On August 8, 2012, we affirmed. See
Dean v. China Agritech, Inc., Case No. 12-80120 (9th Cir.),
Dkt. No. 5. The Dean plaintiffs continued litigating their
cases as individuals. They settled their individual claims on
September 14, 2012. Based on the settlement, their
individual claims were dismissed with prejudice on
September 20, 2012.
B. The Smyth Action
On October 4, 2012, three weeks after the Dean Action
settled, Kevin Smyth filed an almost identical class-action
complaint on behalf of the same would-be class against China
RESH V. CHINA AGRITECH 9
Agritech in federal District Court for the District of Delaware.
See Smyth v. Chang, Case No.1:12-cv-01262-RGA (D. Del.)
(the “Smyth Action”). The Smyth and Dean Action
complaints differed only in that the Smyth Action alleged
solely Exchange Act violations and did not name several of
the defendants that had been named in the Dean Action. The
Smyth Action was filed one year and eight months after the
LM Report was published.
On December 7, 2012, following notification of the Smyth
Action on Business Wire, pursuant to the PSLRA, eight
shareholders sought appointment as lead plaintiff and
approval of their selection of lead counsel. The Smyth Action
was subsequently transferred to the Central District of
California, where it was deemed related to the Dean Action
and assigned to Judge Klausner (Case No. 2:13-cv-3008-
RGK-PJW (C.D. Cal.)). On July 18, 2013, plaintiffs in the
Smyth Action filed an amended complaint with several
additional named plaintiffs. On August 5, 2013, the Smyth
plaintiffs moved for class certification.
On September 26, 2013, the district court denied the
motion. The court found that the Smyth plaintiffs’ personal
claims failed the typicality requirement of Rule 23(a)(3)
because their prior relationship with named plaintiffs in the
Dean Action subjected them to a claim preclusion defense
that was not available against unnamed class members. The
court further held that the Smyth plaintiffs and their counsel
failed to meet the adequate representation requirement of
Rule 23(a)(4). The court noted that plaintiffs had failed to
modify their lead plaintiff certifications that had been signed
twenty-nine months earlier in connection with the Dean
Action, and had served only one defendant ten months after
filing Smyth.
10 RESH V. CHINA AGRITECH
On January 8, 2014, the parties to the Smyth Action
agreed to dismiss the action with prejudice as to the named
plaintiffs.
C. The Resh Action
On June 30, 2014, Michael Resh filed a would-be class
action against China Agritech and several individual
defendants (the “Resh Action”). On September 4, 2014, Resh
filed an amended complaint with several additional named
plaintiffs. The Resh plaintiffs alleged violations of Sections
10(b) and 20(a) of the Exchange Act based on the same facts
and circumstances, and on behalf of the same would-be class,
as in the Dean and Smyth Actions. The case was assigned,
like the others, to Judge Klausner.
On September 3, 2014, the CAGC Investor Group,
comprised of investors in China Agritech—William
Schoenke, Heroca Holding B.V., and Ninella Beheer
B.V.—filed a motion for appointment as lead plaintiff and for
approval of its selection of counsel for the proposed class.
On September 22, 2014, China Agritech and one of the
individual defendants, Charles Law, filed motions to dismiss
the complaint on the theory that the Resh plaintiffs’ would-be
class action was time-barred under the Exchange Act’s two-
year statute of limitations. On October 17, 2014, the district
court denied without prejudice the CAGC Investor Group’s
motion, deferring consideration until consideration of class
certification (“October 2014 Order”).
On December 1, 2014, the district court granted China
Agritech’s and Defendant Law’s motions to dismiss without
leave to amend (“December 2014 Order”). Plaintiffs had
argued that their would-be class action was timely because
RESH V. CHINA AGRITECH 11
American Pipe tolled the statute of limitations during the
pendency of the Dean and the Smyth actions. With tolling,
804 of the 1243 days that had elapsed since the release of the
LM Report were subtracted, meaning that only 439 days
counted towards the two-year statute of limitations. The
district court disagreed. It concluded that while the Supreme
Court in American Pipe and Crown, Cork & Seal held that the
commencement of a class action suspends the applicable
statute of limitations as to all asserted members of the class,
and that a class member may therefore file a separate
individual action prior to the expiration of his or her own
limitations period, the Supreme Court had not yet determined
whether American Pipe allowed tolling for an entirely new
class action based upon a substantially identical class.
Relying principally on Robbin v. Fluor Corp., 835 F.2d 213
(9th Cir. 1987), and Catholic Social Services, Inc. v. INS,
232 F.3d 1139 (9th Cir. 2000) (en banc), the district court
concluded that the statute of limitations was tolled for the
individual claims of the named plaintiffs in the Resh Action,
but was not tolled for plaintiffs’ would-be class action. In the
view of the district court, a contrary ruling “would allow
tolling to extend indefinitely as class action plaintiffs
repeatedly attempt to demonstrate suitability for class
certification on the basis of different expert testimony and/or
other evidence.”
On December 19, 2014, the Resh plaintiffs sought
reconsideration, arguing that the court had denied class
certification in the Dean and Smyth Actions due to issues
related to the lead plaintiffs’ suitability as class
representatives rather than the claims’ suitability for class
treatment. On January 7, 2015, the district court dismissed
the remaining defendants (“January 2015 Order”). On
February 23, 2015, it denied plaintiffs’ motion for
12 RESH V. CHINA AGRITECH
reconsideration (“February 2015 Order”), explaining that
“Plaintiffs’ class action claims were time-barred regardless of
the grounds on which class certification was denied in the two
earlier actions.”
The Resh plaintiffs appealed, challenging the district
court’s October 2014, December 2014, January 2015, and
February 2015 Orders.
III. Standard of Review
We review de novo a district court’s order dismissing a
suit on statute of limitations grounds. Sharkey v. O’Neal,
778 F.3d 767, 770 (9th Cir. 2015).
IV. Jurisdiction
We have jurisdiction under 28 U.S.C. § 1291. Defendants
argue that the orders are not appealable final orders because
the district court indicated that plaintiffs’ individual claims
could proceed. We disagree. The district court stated,
“Plaintiffs are not prevented from filing a complaint asserting
individual, rather than class action, claims . . . if they so
choose.” However, this statement did not affect the finality
of the court’s dismissal “without leave to amend” of the class
action complaint that plaintiffs had filed. An invitation to file
a complaint in a separate individual suit does not render non-
appealable the district court’s dismissal.
Defendants also assert that under Federal Rule of
Appellate Procedure (“FRAP”) 4(a)(7)(A)(ii), plaintiffs were
required to wait 150 days after the district court’s December
2014 and February 2015 orders before they appealed because
the district court’s judgment had not been set forth in a
RESH V. CHINA AGRITECH 13
separate document, as required under Federal Rule of Civil
Procedure (“Rule”) 58(a). However, under FRAP 4(a)(7)(B),
“[a] failure to set forth a judgment or order on a separate
document when required by . . . Rule 58(a) does not affect the
validity of an appeal from that judgment or order.”
“[N]either the Supreme Court nor this court views satisfaction
of Rule 58 as a prerequisite to appeal.” Kirkland v. Legion
Ins. Co., 343 F.3d 1135, 1140 (9th Cir. 2003). Because the
district court’s order was a full adjudication of the issues that
clearly evidenced its intention that the order be final,
appellate jurisdiction is proper. See Nat’l Distrib. Agency v.
Nationwide Mut. Ins. Co., 117 F.3d 432, 433 (9th Cir. 1997).
V. Discussion
We must decide whether the would-be class action
brought by the Resh plaintiffs is time-barred. It is undisputed
that the earlier Dean and Smyth Actions were timely. It is
also undisputed that, under American Pipe and Crown, Cork
& Seal, the statute of limitations for the individual claims of
would-be class members in the Dean and Smyth Actions was
tolled during the pendency of both of those actions. That is,
there is no time bar to individual claims brought by plaintiffs
who were unnamed class members in the Dean and Smyth
Actions, whether brought as separate or joined claims. The
question before us is whether plaintiffs’ would-be class
action, based on those same claims, is time-barred.
A. American Pipe and Crown, Cork & Seal
The Supreme Court has twice addressed tolling issues
arising out of the dismissal of a would-be class action when
no class has been certified. In American Pipe & Construction
Co. v. Utah, 414 U.S. 538 (1974), the Court held that
14 RESH V. CHINA AGRITECH
unnamed members of an uncertified class could intervene as
individual plaintiffs in the individual suit that remained even
if the statutory limitations period had passed. Id. at 550–56.
According to the Court, “the commencement of the original
class suit tolls the running of the statute [of limitations] for all
purported members of the class who make timely motions to
intervene after the court has found the suit inappropriate for
class action status.” Id. at 553. The Court characterized its
tolling rule as serving policies underlying statutes of
limitations as well as class actions. Recognizing that
limitations periods serve “[t]he policies of ensuring essential
fairness to defendants and of barring a plaintiff who ‘has slept
on his rights,’” id. at 554, the Court concluded that such
policies would be vindicated when a named plaintiff
“commences a suit and thereby notifies the defendants not
only of the substantive claims being brought against them, but
also of the number and generic identities of the potential
plaintiffs who may participate in the judgment.” Id. at
554–55. Not permitting tolling would frustrate the goal of
Rule 23 to promote economy in litigation because, absent
tolling, “[p]otential class members would be induced to file
protective motions to intervene or to join in the event that a
class was later found unsuitable.” Id. at 553.
In Crown, Cork & Seal Co. v. Parker, 462 U.S. 345
(1983), the Supreme Court extended American Pipe to permit
tolling not only for individual intervention in the named
plaintiffs’ original suit, but also for individual filing of
entirely new suits. The Court wrote that many of “the same
inefficiencies [discussed in American Pipe] would ensue if
American Pipe’s tolling rule were limited to permitting
putative class members to intervene after the denial of class
certification.” Id. at 350. Specifically, if the statute of
limitations for new individual claims were not tolled, “[t]he
RESH V. CHINA AGRITECH 15
result would be a needless multiplicity of actions—precisely
the situation that Federal Rule of Civil Procedure 23 and the
tolling rule of American Pipe were designed to avoid.” Id. at
351. Because the commencement of a class suit already
“put[s] defendants on notice of adverse claims,” the goals
underlying statutes of limitations would not be undermined
by a broader tolling rule. Id. at 352. The Court concluded,
“Once the statute of limitations has been tolled, it remains
tolled for all members of the putative class until class
certification is denied. At that point, class members may
choose to file their own suits or to intervene as plaintiffs in
the pending action.” Id. at 354.
B. Catholic Social Services and Later Cases
Under American Pipe and Crown, Cork & Seal, it is clear
that the individual claims of the would-be class members in
the Resh Action have been tolled during the pendency of
earlier class actions. Those class members may intervene in
existing individual suits, or may bring entirely new individual
suits. Plaintiffs bringing new suits may sue either separately
or jointly. American Pipe and Crown, Cork & Seal leave
open the question whether such plaintiffs may bring a new
suit as a class action.
In a short opinion published thirty years ago, we held that
“the pendency of a class action [does not] toll[] the applicable
statutes of limitation for a subsequently filed class action.”
Robbin v. Fluor Corp., 835 F.2d 213, 213 (9th Cir. 1987).
Relying principally upon a Second Circuit opinion, we
concluded that “extend[ing] tolling to class actions ‘tests the
outer limits of the American Pipe doctrine and . . . falls
beyond its carefully crafted parameters into the range of
abusive options.’” Id. at 214 (citing Korwek v. Hunt,
16 RESH V. CHINA AGRITECH
827 F.2d 874, 879 (2d. Cir. 1987)). In Korwek, our sister
circuit had held that “the tolling doctrine enunciated in
American Pipe does not apply to permit a plaintiff to file a
subsequent class action following a definitive determination
of the inappropriateness of class certification.” 827 F.2d at
879. Its rationale was that “[t]he Supreme Court in American
Pipe and Crown, Cork certainly did not intend to afford
plaintiffs the opportunity to argue and reargue the question of
class certification by filing new but repetitive complaints.”
Id.
We modified Robbin in 2000. In Catholic Social
Services, Inc. v. INS, 232 F.3d 1139 (9th Cir. 2000) (en banc),
the district court had certified a class, but an intervening
change in the law eliminated subject matter jurisdiction over
the claims of the named plaintiffs. Id. at 1143–44. New
plaintiffs then brought a second class action based on the
same underlying facts against the same institutional
defendants. Id. at 1144. The question before us was whether
the pendency of the prior class action tolled the statute of
limitations for the second action. Id. at 1145. We held that
it did. Id. at 1149. In so holding, we clarified the analytic
structure in which the American Pipe tolling analysis applies
to future class actions:
There is no dispute that if members of the
class . . . had filed individual actions after the
dismissal of their class action, the statute of
limitations would have been tolled for those
individual actions. . . . The only question in
this case is whether those same plaintiffs
should be permitted to aggregate their
individual actions into a class action. Strictly
speaking, this is not a statute of limitations
RESH V. CHINA AGRITECH 17
question at all. It is, rather, a question of
whether plaintiffs whose individual actions
are not barred may be permitted to use a class
action to litigate those actions.
Id. at 1147 (emphasis added).
Defendants read our opinion in Catholic Social Services
as denying tolling for plaintiffs in certain categories of class
action denials. They rely principally on a passage in which
we wrote, “If class action certification had been denied in [an
earlier case], and if plaintiffs in this action were seeking to
relitigate the correctness of that denial, we would not permit
plaintiffs to bring a class action.” Id. Two of our sister
circuits may have read Catholic Social Services similarly.
See Yang v. Odom, 392 F.3d 97, 107 (3d Cir. 2004)
(“Catholic Social Services can be read as authority for our
holding that class claims should be tolled where the district
court denies class certification based on deficiencies of a
class representative, and not on the validity of the class
itself.”); Great Plains Tr. Co. v. Union Pac. R.R. Co.,
492 F.3d 986, 997 (8th Cir. 2007) (“Whether the American
Pipe rule applies to subsequent class actions . . . depends on
the reasons for the denial of certification of the predecessor
action.”).
This is a misreading of Catholic Social Services. We did
indeed write that “we would not permit plaintiffs to bring a
class action” if they sought to serially re-litigate a previous
denial of certification. 232 F.3d at 1147. However, we did
not write that the availability of a subsequent class action
depended on general tolling principles. Rather, its
availability depended on the operation of preclusion and
preclusion-related principles. See id. For example, if
18 RESH V. CHINA AGRITECH
plaintiffs in Catholic Social Services had been named
plaintiffs in the earlier suit, if an issue relating to the
propriety of the class action had been resolved against them,
if their earlier suit had been dismissed with prejudice based
on that ruling, and if plaintiffs had then sought to bring a new
class action raising that same issue, they would have been
barred by issue preclusion from raising that issue.
Three recent Supreme Court decisions have confirmed
this view. First, in Shady Grove Orthopedic Associates, P.A.
v. Allstate Insurance Co., 559 U.S. 393 (2010), the Court
rejected an argument by defendant Allstate that only certain
categories of claims are eligible for class treatment under
Rule 23. The Court wrote:
There is no reason . . . to read Rule 23 as
addressing only whether claims made eligible
for class treatment by some other law should
be certified as class actions. Allstate asserts
that Rule 23 neither explicitly nor implicitly
empowers a federal court “to certify a class in
each and every case” where the Rule’s criteria
are met. But that is exactly what Rule 23
does[.]
Id. at 399 (emphases in original and internal citation omitted).
Shady Grove directs us, for purposes of class certification, to
look only to the criteria of Rule 23 and not to “some other
law.” There is nothing in the certification criteria of Rule 23
that tells us to look to whether the statute of limitation has, or
has not, been tolled. That is, the statute of limitations is not
part of Rule 23 but is, instead, “some other law.”
RESH V. CHINA AGRITECH 19
After Shady Grove, the Seventh Circuit explicitly adopted
our general approach in Catholic Social Services in treating
the issue of successive would-be class actions as an issue of
preclusion rather than tolling. In Sawyer v. Atlas Heating &
Sheet Metal Works, Inc., 642 F.3d 560 (7th Cir. 2011), the
court held that the overarching inquiry in determining
whether prior class actions can toll future class actions is “not
the statute of limitations or the effects of tolling, but the
preclusive effect of a judicial decision in the initial suit
applying the criteria of Rule 23.” Id. at 563. “To the extent
that [another court] may believe that Rule 23 must be set
aside when a suit’s timeliness depends on a tolling rule, that
view cannot be reconciled with the Supreme Court’s later
decision in Shady Grove . . . , which holds that Rule 23
applies to all federal civil suits, even if that prevents
achieving some other objective that a court thinks valuable.”
Id. at 564.
Second, in Smith v. Bayer Corp., 564 U.S. 299 (2011), the
Court refused to allow a federal district court to enjoin a state
court from certifying a class. The federal court had denied
class certification of a class in a would-be class action against
Bayer. Id. at 304. A parallel would-be class action was
pending in state court, brought by different named plaintiffs
than the named plaintiffs in federal court. Id. at 303. After
the federal court ruled, it enjoined the state court from
certifying the class in the case before that court, relying on
the “relitigation exception” to the Anti-Injunction Act,
28 U.S.C. § 2283. Id. at 304–05. The Supreme Court
reversed, pointing out, inter alia, that the named plaintiffs in
the state court suit had been unnamed members of the
uncertified class in federal court, and that they had thus never
been made parties to the federal court suit. Id. at 316–18. In
that circumstance, there was no basis to apply formal
20 RESH V. CHINA AGRITECH
preclusion principles against them, and thus no basis to enjoin
the state court from certifying the class action. Id.
The Court in Smith acknowledged Bayer’s argument that
“serial relitigation of class certification” was unfair to
defendants, and that defendants “would be forced in effect to
buy litigation peace by settling.” Id. at 316 (internal
quotation marks omitted). The Court responded that Bayer’s
“form of argument flies in the face of the rule against
nonparty preclusion.” Id. Its answer to Bayer’s concern was
that traditional principles of stare decisis and comity,
combined with the possibility of removal under the Class
Action Fairness Act or consolidation by the Panel on
Multidistrict Litigation, were adequate to the task of
protecting defendants. Id. at 316–18. Though the question of
sequential class action litigation in two or more federal
courts, as distinct from such litigation in federal and state
court, was not presented in the case before it, the Court
nonetheless addressed that question. The troublesome case,
of course, is one in which the plaintiffs were unnamed
plaintiffs in an earlier uncertified class action in federal court
and were therefore not subject to issue preclusion, and in
which the plaintiffs later seek to bring an identical or
substantially similar would-be class action in federal court.
With respect to such a case, the Court wrote, “[W]e would
expect federal courts to apply principles of comity to each
other’s class certification decisions when addressing a
common dispute.” Id. at 317.
Two years later, the Sixth Circuit had occasion to apply
both Shady Grove and Smith. In Phipps v. Wal-Mart Stores,
Inc., 792 F.3d 637 (6th Cir. 2015), with respect to tolling, the
Sixth Circuit cited and followed the Seventh Circuit’s
decision in Sawyer. Id. at 652. With respect to preclusion,
RESH V. CHINA AGRITECH 21
the court relied on Smith. Wal-Mart, like Bayer in Smith,
objected that allowing repeated litigation of class action
certification questions by different named plaintiffs would
force defendants “to settle to buy peace.” Id. at 653. The
court responded that Wal-Mart’s concerns “need not bar
legitimate class action lawsuits or distort the purposes of
American Pipe tolling. Instead, we follow the Supreme
Court’s lead and trust that existing principles in our legal
system, such as stare decisis and comity among courts, are
suited to and capable of addressing these concerns.” Id.
Third and finally, in Tyson Foods, Inc. v. Bouaphakeo,
136 S. Ct. 1036, 1046–48 (2016), the Supreme Court
considered whether class action plaintiffs could use statistical
sampling evidence to prove liability to a class. The Court
held that they could, reasoning that “[i]n a case where
representative evidence is relevant in proving a plaintiff’s
individual claim, that evidence cannot be deemed improper
merely because the claim is brought on behalf of a class.” Id.
at 1046. To hold otherwise would be to “ignore the Rules
Enabling Act’s pellucid instruction that use of the class
device cannot ‘abridge . . . any substantive right.’” Id.
(quoting 28 U.S.C. § 2072(b)). We recognize that for
purposes of Erie R. Co. v. Tompkins, 304 U.S. 64 (1938), and
the Rules Enabling Act, statutes of limitation occupy a no-
man’s land between substance and procedure. See Ragan v.
Merchants Transfer & Warehouse Co., 337 U.S. 530, 532–34
(1949) (in a suit based on state-law cause of action applying
state tolling rule rather than Federal Rule of Civil Procedure
3); Walker v. Armco Steel Corp., 446 U.S. 740, 748–53
(1980) (same); West v. Conrail, 481 U.S. 35, 37–40 (1987)
(in a suit based on a federal-law cause of action applying
Rule 3). We therefore do not regard the Court’s reasoning in
Tyson Foods as compelling a holding that the Rules Enabling
22 RESH V. CHINA AGRITECH
Act requires that the statute of limitations apply the same way
in both individual and class actions. But Tyson Foods, when
read in combination with Shady Grove and Smith, nonetheless
reinforces our conclusion that the statute of limitations does
not bar a class action brought by plaintiffs whose individual
actions are not barred.
C. Plaintiffs’ Would-be Class Action Is Not Time-barred
We conclude, based on American Pipe and Crown, Cork
& Seal, read in the light of Shady Grove, Smith and Tyson
Foods, that permitting future class action named plaintiffs,
who were unnamed class members in previously uncertified
classes, to avail themselves of American Pipe tolling would
advance the policy objectives that led the Supreme Court to
permit tolling in the first place. The rule creates no unfair
surprise to defendants because the pendency of a prior class
suit has already alerted them “not only [to] the substantive
claims being brought against them, but also [to] the number
and generic identities of the potential plaintiffs who may
participate in the judgment.” American Pipe, 414 U.S. at
554–55. The rule also promotes economy of litigation by
reducing incentives for filing duplicative, protective class
actions because “[a] putative class member who fears that
class certification may be denied would have every incentive
to file a separate action prior to the expiration of his own
period of limitations.” Crown, Cork & Seal, 462 U.S. at
350–51.
We further conclude, based on Smith, that to the degree
that our conclusion may be thought likely to lead to abusive
filing of repetitive class actions, the current legal system is
adequate to respond to such a concern. First, if it is clear that
a proposed class is not viable under Rule 23, as evidenced by
RESH V. CHINA AGRITECH 23
an earlier federal court decision, potential future plaintiffs (or,
more precisely, their attorneys) will have little to gain from
repeatedly filing new suits. Attorneys who are going to be
paid on a contingency fee basis, or in some cases based on a
fee-shifting statute, at some point will be unwilling to assume
the financial risk in bringing successive suits. Second,
ordinary principles of preclusion and comity will further
reduce incentives to re-litigate frivolous or already dismissed
class claims, and will provide a ready basis for successor
federal district courts to deny class action certification.
In light of the above, we conclude that plaintiffs’ class
action complaint is not time-barred. Plaintiffs’ individual
claims were tolled under American Pipe and Crown, Cork &
Seal during the pendency of the Dean and Smyth Actions. So
long as they can satisfy the criteria of Rule 23, and can
persuade the district court that comity or preclusion principles
do not bar their action, they are entitled to bring their timely
individual claims as named plaintiffs in a would-be class
action.
Conclusion
We hold that plaintiffs’ class action claims are timely.
Because we so hold, we do not reach plaintiffs’ additional
arguments. We reverse the district court’s order of dismissal
and remand for further proceedings consistent with this
opinion.
REVERSED and REMANDED.