In Resh v. China Agritech, No. 15-55432, published May 24, 2017 (Resh), the Ninth Circuit Court of Appeals held that a 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 certification was denied in the both the prior cases; (3) the earlier actions were timely; and (4) the statute of limitations applicable to the individual claims of would-be class members were tolled.
The Resh decision was a class action filed on behalf of certain shareholders related to allegations that the defendant, China Agritech, had been engaged in defrauding the public and its investors. Two prior would-be class actions were filed regarding the same underlying events, and the plaintiffs in Resh were unnamed class members in those actions. The first class action was filed, but class certification was denied based on lack of predominance under Federal Rule of Civil Procedure (FRCP) 23(b)(3). The district court in that action found that the plaintiffs would have to individually establish reliance to support their securities fraud claim. In the second lawsuit, which was also filed within the applicable statute of limitations, the district court again denied class certification on grounds that the named plaintiffs failed to satisfy the typicality requirement of FRCP 23(a)(3) and the adequate representation requirement of FRCP 23 (a)(4). In the third action, Resh, it was undisputed that the prior two class actions had tolled the individual claims of the would-be class members. However, the district court dismissed the lawsuit on grounds that it was filed after the applicable statute of limitations, which had not been tolled for purposes of an entirely new class action based upon a substantially identical class.
The question presented on appeal was whether Resh could proceed as a class action or merely on the individual claims that had been tolled during the pendency of the prior litigation. The Ninth Circuit ruled, after reviewing numerous prior precedents, that allowing the named plaintiffs in Resh to proceed in a class action was consistent with public policy. The court dismissed the defendants’ arguments that tolling such claims would invite plaintiffs to file successive lawsuits where class certification is denied.
There is little question that Resh will be embraced by the plaintiffs’ bar given that it suggests that an adverse ruling on class certification can be overcome. Prior to Resh, the significance of successfully opposing class certification was tremendous because it left only disparate individualized claims that may not be practical or economical to litigate on an individual basis. Resh suggests successfully opposing class certification may just be the prelude to the next would-be class action brought on substantially the same grounds. While the Ninth Circuit’s decision indicates abusive practices will be curtailed by financial incentives and comity, it is difficult, from a defense perspective, to discern any meaningful substantive limitation on this new rule.
This document is intended to provide you with information about employment and labor law related developments. The contents of this document are not intended to provide specific legal advice. This communication may be considered advertising in some jurisdictions.