Michael H. Resh, On Behalf of Himself and All Others Similarly Situated; William Schoenke; Heroca Holding, B. V.; Ninella Beheer, B. V., Plaintiffs-Appellants,
China Agritech, Inc.; Yu Chang, Company's CEO, President, Secretary, and Chairman of the Board; Yau-Sing Tang, AKA Gareth Tang, Company's Chief Financial Officer; Gene Michael Bennett, Director of CAGC; Xiao Rong Teng, Director of CAGC; Ming Fang Zhu; Lun Zhang Dai, Director of CAGC; Charles Law, AKA Charles C. Law, AKA Charles Chien-Lee Law, AKA Charles Chien-Lee Loh, AKA Chien-Lee C. Loh, Director of CAGC; ZHENG WANG, Director of CAGC, Defendants-Appellees.
and Submitted December 5, 2016 Pasadena, California
from the United States District Court for the Central
District of California No. 2:14-cv-05083-RGK-PJW R. Gary
Klausner, District Judge, Presiding
Matthew M. Guiney (argued), Wolf Haldenstein Adler Freeman
& Herz LLP, New York, New York; Betsy C. Manifold,
Francis M. Gregorek, Rachele R. Rickert, and Marisa C.
Livesay, Wolf Haldenstein Adler Freeman & Herz LLP, San
Diego, California; David A.P. Brower, Brower Piven, New York,
New York; for Plaintiffs-Appellants.
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;
Before: Stephen Reinhardt, William A. Fletcher, and Richard
A. Paez, Circuit Judges.
panel reversed the district court's order dismissing as
untimely a would-be class action alleging that China
Agritech, Inc. and its managers and directors violated the
Securities Exchange Act of 1934, and remanded for further
panel explained that the district court's invitation to
file a complaint in a separate individual suit does not
render non-appealable the district court's dismissal of
the class action complaint. The panel also wrote that
appellate jurisdiction is proper, notwithstanding that the
plaintiffs did not wait for the district court to set forth
its judgment in a separate document, because the district
court's order was a full adjudication of the issues that
clearly evidenced its intention that the order be final.
panel held that the plaintiffs' 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 action certification was denied in both cases; (3)
the earlier actions were timely; and (4) under American
Pipe & Construction Co v. Utah, 414 U.S. 538 (1974),
and Crown, Cork & Seal Co. v. Parker, 462 U.S.
345 (1983), the statute of limitations for the individual
claims of would-be class members in the earlier actions was
tolled during the pendency of those actions.
panel wrote that permitting future class-action named
plaintiffs, who were unnamed 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.
The panel wrote that to the degree that the panel's
conclusion may be thought likely to lead to abusive filing of
repetitive class actions, the current legal system -
including Fed.R.Civ.P. 23 and principles of preclusion and
comity -- is adequate to respond to such a concern.
FLETCHER, Circuit Judge:
bring a would-be class action alleging that China Agritech,
Inc. ("China Agritech") and its managers and
directors violated the Securities Exchange Act of 1934
("Exchange Act"). Plaintiffs were unnamed
plaintiffs in two earlier would-be class actions against many
of the same defendants based on the same underlying events.
Class action certification was denied in both cases. Under
American Pipe & Construction Co v. Utah, 414
U.S. 538 (1974), and Crown, Cork & Seal Co. v.
Parker, 462 U.S. 345 (1983), the statute of limitations
was tolled during the pendency of these two suits for
plaintiffs' individual claims. There is thus no time bar
preventing plaintiffs from bringing the present suit as
joined individual claims rather than as a class action. The
question before us is whether plaintiffs are time-barred from
pursuing their suit as a class action.
reasons that follow, we hold that plaintiffs are not
time-barred from bringing a class action.
Agritech is a holding company incorporated in Delaware with
its principal place of business in Beijing, China. The
company claims to operate through various subsidiaries that
manufacture and sell organic compound fertilizers and related
products to farmers in twenty-eight Chinese provinces. China
Agritech began listing its shares on the NASDAQ Stock
Exchange in 2005. In a 2009 filing with the U.S. Securities
and Exchange Commission ("SEC"), China Agritech
reported a net revenue of $76 million, which was triple the
$25 million in revenue it reported for 2005.
February 3, 2011, LM Research, a market research company,
published a report entitled "China Agritech: A
Scam" ("LM Report"). The report, written by
individuals who held a short position in China Agritech
stock, asserted that China Agritech was "not a currently
functioning business that [was] manufacturing products,
" but instead was "simply a vehicle for
transferring shareholder wealth from outside investors into
the pockets of the founders and inside management."
Alleging idle factories, minimal investments, and fictitious
contracts, the report concluded that China Agritech had
"grossly inflated its revenue, failed to account for
tens of millions of investor dollars, and [had] virtually no
product in the market." Upon release of the LM Report,
China Agritech's shares declined from $10.78 per share on
February 2, 2011, to $9.85 per share on February 3, 2011.
Agritech denied the allegations in an eight-page letter to
shareholders. On February 15, 2011, Bronte Capital, a hedge
fund that also held a short position in China Agritech,
responded to China Agritech's letter in an article
sarcastically titled, "China Agritech: China's
amazing productivity levels" ("BC Article").
The BC Article contended that photos released by China
Agritech in its letter did not show the most basic equipment
required for operations of the magnitude that China Agritech
claimed. For example, the pictures showed 40 kg fertilizer
bags being moved manually by individual human laborers rather
than with forklifts, calling into question how a factory
reported to manufacture 100, 000 tons of granular fertilizer
annually could possibly operate as depicted. China
Agritech's stock value declined to $7.44 per share the
March 13, 2011, China Agritech announced the formation of a
Special Committee of its Board of Directors to investigate
the allegations of fraud. The next day, China Agritech
dismissed its independent auditor, Ernst & Young Hua Ming
("E&Y"), and publicly disclosed that E&Y
had insisted, in December 2010, that the board commence an
investigation of accounting problems it had previously
identified. Also on March 14, 2011, NASDAQ halted trading in
China Agritech stock and initiated delisting proceedings. On
October 17, 2012, the SEC issued an enforcement order
revoking the registration of China Agritech stock.
February 11, 2011, Theodore Dean, on behalf of himself and
all others similarly situated, filed a would-be class action
against China Agritech and several of its managers and
directors. See Dean v. China Agritech, Inc., Case
No. 2:11-cv-1331-RGK-PJW (C.D. Cal.) (the "Dean
Action"). Dean alleged that China Agritech had
materially misstated its net revenue and income for the third
quarter in 2009 on its SEC Form 10-Q filing, and had
materially misstated its net revenue and income for fiscal
years 2008 and 2009 in its 2009 SEC Form 10-K filing. The