SCOTUS: Federal Court That Denied Class Certification Was Without Authority to Enjoin Absent Class Member From Pursuing State Court Class Action
Where a defendant defeats certification of a class in an MDL proceeding, should it have to re-litigate the issue of class certification again and again in state courts around the country? Most reasonable people would agree that it should not. The devil, however, is in the details of how you get to that result.
Today the SCOTUS held that the Anti-Injunction Act prevents a federal court that has denied class certification -- even an MDL transferee -- from enjoining absent class members from pursuing class certification in state courts where the issues may differ. See Smith v. Bayer Corp., No. 09-1205 (U.S. June 16, 2011). Justice Kagan wrote the opinion, which was unanimous except for certain parts that Justice Thomas did not join.
In Smith, two Baycol consumer fraud class actions were filed in West Virginia state court prior to adoption of the federal Class Action Fairness Act. One was removed to federal court and transferred to the MDL; the other had non-diverse defendants and thus was forced to remain in state court. The federal MDL court reached the issue of class certification first, concluding that because each absent class member would have to prove an "actual injury" that was caused by the challenged behavior, Rule 23(b)(3)'s predominance requirement was not met.
Bayer then asked the MDL transferee for an injunction against the pending state court action, reasoning that the state court action sought to certify the same class on the same legal theories, and the plaintiffs in the state suit were absent members of the class that had been denied by the MDL transferee, and thus their interests were aligned with the federal plaintiffs who had lost class certification. The district court granted injunctive relief, and the 8th Circuit had affirmed.
Justice Kagan's opinion rejects this approach, holding that the injunctive relief was prevented by the Anti-Injunction Act, which provides that "[a] court of the United States may not grant an injunction to stay proceedings in a State court except . . . to protect or effectuate its judgments." 28 U.S.C. sec. 2283. This is known as the "relitigation exception" and has its roots in issue preclusion. The AIA is to be interpreted broadly to protect state courts, and doubts are to be resolved against the application of an exception to the AIA. Slip op. at 6.
For the relitigation exception to apply, the issue presented in the federal decision must be the same as the one presented in the state court action, and the parties in both actions must be the same or must fall into one of the "few discrete exceptions to the general rule against binding non-parties." Id. at 7.
The SCOTUS held that neither prong of the two-part analysis was met. The issues were not the same because West Virginia requires a balancing of issues to determine predominance, while the federal court had not balanced issues, but summarily concluded that the need for individual proof on the causation and injury predominated. Id. at 8-12. And the parties to the state action were not parties in the federal action, and thus could not be bound.
As many commentators had predicted, the Court harkened back to Taylor v. Sturgell, 553 U.S. 880 (2008), in which it had held that a non-party to a FOIA request could not be bound to the result of a prior party's FOIA request using the doctrine of "virtual representation." Rather, due process required notice and opt-out rights on the order of what is written into Rule 23. The Court in Smith reiterated its rejection of any sort of common law class action: "We could hardly have been more clear that a 'properly conducted class action,' with binding effect on nonparties, can come about in federal courts in just one way--through the procedure set out in Rule 23." Slip op. at 15.
Justice Kagan wrote that "Bayer's strongest argument comes not from established principles of preclusion, but instead from policy concerns relating to the use of the class action device." Id. at 16. But she concluded that it "flies in the face of the rule against nonparty preclusion." Id. Moreover, she explained, Congress effectively solved many relitigation problems by including in the Class Action Fairness Act an ability to remove state court class actions with minimal diversity. Id. at 17.
Notably, the Court included a footnote indicating that the Smith opinion does not foreclose statutory adjustment of preclusion principles if Congress determines "that CAFA does not sufficiently prevent relitigation of class certification motions," nor does the opinion "address the permissibility of a change in the Federal Rules of Civil Procedure pertaining to this question." Id. at n.12.
Notably, Smith addresses relitigation of the class certification issue in state court. It does not address what remedies might be available to a federal court to enjoin the relitigation of class certification in federal court.
Moreover, Smith is expressly premised on the fact that the enjoined litigants were unaware of the pendency of the federal class action. See id. at 2, 4. As such, Smith does not address a problem more frequently complained of: class counsel who seek a second (or third or fourth) bite at the apple where they lost on the certification issue the first time. The issue of serial class action filings recently was raised in a certiorari petition in Thorogood v. Sears, Roebuck & Co., No. 10-1087 (U.S. pet. for cert. filed Mar. 2, 2011). The tortured history of that case has been the subject of substantial commentary, including here, here, and here.
Interestingly, the losing plaintiff in Thorogood filed an amicus brief in Smith in support of the petitioners there. But because Thorogood involved a subsequently-filed federal court class action filed by the same lawyer, it remains to be seen whether Smith -- which is premised on the federalism concerns of the Anti-Injunction Act -- will control the outcome of Thorogood. And certainly Smith did not address a federal court's authority to enjoin a lawyer appearing before it from using other federal courts to serially relitigate an issue to the point of harassing a defendant.
More remains to be written on the subject of enjoining serial class action filings.
