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Supreme Court shortens timeline for follow-up class-action lawsuits

The Supreme Court on Monday reduced the options investors have for filing repeated class-action lawsuits once an initial statute of limitations is reached.

Writing the unanimous decision in China Agritech vs. Resh, Justice Ruth Bader Ginsburg said, "there is little reason to allow plaintiffs who passed up opportunities to participate in the first (and second) round of class litigation to enter the fray several years after class proceedings first commenced."

The issue in the case was whether the so-called "American Pipe" precedent, under which statutes of limitations are suspended for all members of a class during the time a class action is pending, applies when class members later seek to bring another class action.

The case involved China Agritech's 2011 stock decline after publication of several negative research reports on the company. After two different District Courts denied class certification, Michael Resh filed a third putative class-action lawsuit in 2014, which was dismissed because it came after the two-year limitation period. The 9th U.S. Circuit Court of Appeals reversed the dismissal, noting that the limitation period was tolled, or suspended, for individual claims during two previous class actions against China Agritech.

“The practical impact of the court's ruling is to provide more power to the punch of an order denying class certification,” said Michael Biles, King & Spalding partner, in an emailed statement. “The Supreme Court clarified that American Pipe only tolls individual claims," and judicial efficiency arguments that justified tolling for individual claims do not apply to class claims. “This means that plaintiffs who wish to proceed with a class action following an order denying class certification must get the order reversed on appeal – they cannot recruit new shareholders and file another class action,” said Mr. Biles.