China Agritech, Inc. v. Resh

138 S. Ct. 1800 (2018)

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Nature of the Case

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Facts

This is the third class action brought on behalf of purchasers of D’s common stock, alleging violations of the Securities Exchange Act of 1934. The complaints each make materially identical allegations that D engaged in fraud and misleading business practices, causing the company’s stock price to plummet when several reports brought the misconduct to light. The Exchange Act has a two-year statute of limitations that begins to run upon discovery of the facts constituting the violation. The Act also has a five-year statute of repose. Dean filed the first class-action complaint on February 11, 2011, at the start of the two-year limitation period. Six shareholders responded to the notice, seeking to be named lead plaintiffs; other shareholders who had filed their class complaints dismissed them in view of the Dean action. On May 3, 2012, the District Court denied class certification; Dean had failed to establish that D traded on an efficient market-a necessity for proving reliance on a classwide basis. On October 4, 2012-within the two-year statute of limitations-Dean’s counsel filed a new complaint (Smyth) with a new set of plaintiffs and new efficient-market evidence. Eight shareholders responded to the notice, seeking lead-plaintiff appointment. The District Court again denied class certification, this time on typicality and adequacy grounds. The Smyth plaintiffs settled their individual claims and voluntarily dismissed their suit. P filed the present suit on June 30, 2014, styling it a class action-a year and a half after the statute of limitations expired. P had not participated nor had known of the prior suits. The other respondents moved to intervene, seeking designation as lead plaintiffs; together with P, they filed an amended complaint. The Court dismissed the class complaint as untimely, holding that the Dean and Smyth actions did not toll the time to initiate class claims. The Ninth Circuit reversed: “Permitting future class action named plaintiffs, who were unnamed class members in previously uncertified classes, to avail themselves of American Pipe tolling,” the court reasoned, “would advance the policy objectives that led the Supreme Court to permit tolling in the first place.” The Supreme Court granted certiorari.