The U.S. Supreme Court gave companies some relief Monday when it ruled that plaintiffs can't file follow-on class actions after the statutory deadline has expired, but that relief could be short-lived if plaintiffs respond by taking more actions in the cases they're involved in to preserve their rights.
In deciding China Agritech v. Resh, the unanimous high court led by Justice Ruth Bader Ginsburg said that the so-called tolling provisions established by its landmark American Pipe decision only allow individual class members to file new lawsuits on behalf of themselves if the class action fails and the statutory deadline to bring a new claim has run out.
American Pipe does not, Justice Ginsburg wrote, allow these plaintiffs to return to court with a new class action claim. In ruling this way, the justices reversed and remanded a Ninth Circuit decision that had revived a securities class action against China Agritech filed after two earlier attempts at class certification failed and the statutory deadline had expired.
In her decision, Justice Ginsburg said American Pipe does not allow plaintiffs who sat on the sidelines "to piggyback on an earlier, timely filed class action" after the statute of limitations has run out. Instead, she wrote, "additional class filings should be made early on, soon after the commencement of the first action seeking class certification."
Daniel Sommers, co-chair of the Securities Litigation & Investor Protection practice at Cohen Milstein Sellers & Toll PLLC, said the court's decision sends "a clear signal" to plaintiffs that they need to be closely monitoring class actions they are a part of to ensure that their interests are being protected.
"It's not just enough to be evaluating a case to determine if they had a meaningful loss," he said. Plaintiffs will need to consider whether they should file a successive class action before the clock runs out, submit an opt-out claim or otherwise intervene in some fashion.
"Institutional investors are going to have to be even more closely scrutinizing what's going on in the securities litigation space to make sure they are making the right decisions and that they are not losing any rights they should be exercising," he said.
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