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Media Alerts - Resh v. China Agritech
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August 24, 2017
  Resh v. China Agritech
Headline:
Reversing the district court's dismissal of a would-be class action lawsuit on ground of untimeliness, the panel held that the named plaintiffs in the current class action - who were unnamed members in a previous uncertified class action lawsuit - had "availed themselves" of American Pipe tolling and are thus not time barred from bringing a subsequent class action suit on the same underlying claim.

Areas of Law:
Federal Rules of Civil Procedure, Federal Rules of Appellate Procedure
Issue Presented:
(1) Whether the dismissal of the class action due to timeliness was a final and appealable judgment where the district court had not set forth its judgment in a separate document as required by FRCP 58.
(2) Whether unnamed plaintiffs in a class action enjoy "tolling" of the statute of limitations on their claim, so that, as named plaintiffs, they could timely bring a subsequent class action on the same underlying merits.

Brief Summary:
Plaintiffs were joined as unnamed members of two would-be class actions against China Agritech, Inc. for alleged violations of the Securities Exchange Act of 1934. Both class actions were denied class certification. Before the district court could issue final judgment on a separate document, plaintiffs filed the instant would-be class action as named plaintiffs.

The district court dismissed plaintiff's complaint because the statute of limitations had run during the previous class actions. The panel reversed on the grounds that plaintiff's current action was timely because the deadline had tolled during the previous class actions. The panel remanded, ordering the district court to determine whether plaintiff's would-be class could be properly certified, and whether plaintiff's complaint should be precluded.

Significance:
Unnamed members of a would-be class action will have their claim's statute of limitations tolled, so that, as named plaintiffs, they may bring a subsequent class action on the same merits. The panel's decision effectively expands application of prior case law that had limited tolling to allow the claims only of individuals, to claims asserted on behalf of unnamed members of an entirely new class action.

Extended Summary:
China Agritech, Inc. was a holding company listed on the NASDAQ stock exchange. Through a series of writings alleging fraud, China Agritech's stock value declined until eventually it was formally dropped from the public trading market.

On February 11, 2011, Theodore Dean filed a putative class action against China Agritech and its directors. The district court denied the Dean plaintiffs' motion for class certification on the ground that the Dean plaintiffs had failed to establish the predominance requirement of Rule 23(b)(3). After the district court's denial of class certification was appealed under Rule 23(f) and affirmed, the Dean plaintiffs settled their individual claims.

On October 4, 2012, Kevin Smyth filed a similar complaint on behalf of the same would be class in Dean. The district court denied the Smyth plaintiffs motion for class certification on the grounds that the Smyth plaintiffs' personal claims failed the typicality requirement of Rule 23(a)(3).

Subsequently, Michael Resh, an unnamed plaintiff in Dean and Smyth, filed a would-be class action, as named plaintiff, against China Agritech on June 30, 2014. The district court dismissed the Resh plaintiffson the theory that the would-be class action was time-barred under the applicable two-year statute of limitations.

The Resh plaintiffs argued that his would-be class action was timely because American Pipe tolled the statute of limitations during the pendency of the Dean and the Smyth actions. While the district court ruled that American Pipe tolled the applicable statute of limitations as to all asserted members of the class, it only allowed class members to file separate individual actions prior to the expiration of his or her own limitations period, not an entirely new class action. The district court declined to expand American Pipe's tolling rule to include "an entirely new class action based upon a substantially identical class."

On appeal, the Ninth Circuit panel first determined that it had appellate jurisdiction, ruling that the district court's dismissal of the putative class action as untimely was a final and appealable judgment even though the district court had not set forth its judgment in a separate document as required by FRCP 58.

Federal Rule of Civil Procedure Rule 58(a) required the district court's judgment to be set forth in a separate document. However the absence of such document does not render that dismissal non-appealable. The panel cited Federal Rule of Appellate Procedure 4(a)(7)(B), which states "[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."

Accordingly, even if the district court had yet to publish their dismissal in a separate document, the Resh plaintiffs would still be able to appeal. Thus, the panel ruled the Court of Appeals had appellate jurisdiction to hear the Rash plaintiffs' appeal, and proceeded to determine the merits of the tolling issue.

Addressing the issue whether unnamed plaintiffs in a class action enjoy "tolling" of the statute of limitations on a claim, so that they, as named plaintiffs, could timely file an entirely new class action on the same underlying merits, the panel ruled in the affirmative.

The panel held the statute of limitations for Resh's own class action as named plaintiff tolled for the time Resh spent as an unnamed plaintiff in two prior would-be class actions. The panel noted 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." Defendants would not be unfairly surprised because the pendency of the prior class action put them on notice '"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." American Pipe, 414 U.S. at 554 - 55. The panel also observed that permitting previously unnamed class members to bring future class actions as named plaintiffs "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.'"

Addressing potential for abuse, the panel assured defendants that class actions would not be allowed to perpetually "re-litigate" from their pool of unnamed class members. Thanks to legal principles such as preclusion, and the unlikelihood that re-litigation would be economically viable for lawyers or clients, the panel concluded that "the current legal system is adequate to respond to such a concern."

To read the full opinion, please visit: http://cdn.ca9.uscourts.gov/da...17/05/24/15-55432.pdf

Panel: Stephen Reinhardt, William A. Fletcher, and Richard A. Paez, Circuit Judges.
Argument Date: December 5, 2016

Date of Issued Opinion: May 24, 2017

Docket Number: 15-55432

Decided: Reversed and Remanded

Case Alert Author: Devin Bruen

Counsel:
Matthew M. Guiney (argued), Wolf Haldenstein Adler - Freeman & Herz LLP, New York, New York; Betsy C. Manifold, Francis M. Gregorek, Rachele R. Rickert, Marisa C. Livesay, and 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.

Author of Opinion: Judge William A. Fletcher.

Circuit: Ninth

Case Alert Supervisor: Professor Glenn S. Koppel

    Posted By: Glenn Koppel @ 08/24/2017 07:03 PM     9th Circuit  

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