On June 16, the US Supreme Court issued its decision in Smith v. Bayer Corp., one of the court's much anticipated rulings involving class actions this term. At issue was whether the US District Court for the District of Minnesota had the authority under the relitigation exception to the Anti-Injunction Act, 28 USC § 2283, to enjoin a state court in West Virginia from holding a class-certification hearing.
The Anti-Injunction Act provides: "A court of the United States may not grant an injunction to stay proceedings in a State Court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments." As the text of the statute expressly provides, the act's prohibition against injunctions has three exceptions. The final of these exceptions, enabling a federal court to issue an injunction to "protect or effectuate its judgments," has become known as the relitigation exception and is based upon principles of res judicata and collateral estoppel. Bayer Corporation argued that because the Minnesota court, which was charged with handling the multi-district litigation proceedings for claims involving the drug Baycol, had recently denied certification of a similar West Virginia class in a different case, the court had the authority to grant an injunction in order to protect its own judgment under the relitigation exception.
The plaintiffs in Smith opposed the injunction arguing that the elements of collateral estoppel could not be satisfied under the relitigation exception because neither the issues nor the parties were the same in the two proceedings. They argued that the issues were not identical because the district court had made its ruling under Federal Rule of Civil Procedure 23(b)(3), while the West Virginia court would be applying the West Virginia Rules of Civil Procedure. The plaintiffs noted that federal courts of appeals addressing this issue have held that a state court has the discretion to interpret its class action rule in a different manner than a federal court interprets its counterpart, even if the state rule is modeled after the federal rule. This was demonstrated in JR Clearwater Inc. v. Ashland Chemical Co. and In re General Motors Corp. Pick-Up Truck Fuel Tank Prods. Liability Litigation.
The plaintiffs argued that the Supreme Court had addressed a similar issue in the same manner in Chick Kam Choo v. Exxon Corp.. In that case, the court concluded that a district court's dismissal of a case based on federal forum non conveniens could not be used to justify an injunction prohibiting a Texas state court from deciding whether to apply its own more liberal forum non conveniens doctrine in a different manner. Under those circumstances, the court held that the issues were not identical and that an injunction could not be issued under the relitigation exception to the Anti-Injunction Act.
Additionally, the plaintiffs argued that the parties were not identical or in privity with one another and that none of the exceptions to the rule against nonparty preclusion applied, including that applicable to properly conducted class actions, since no class ever existed. It was also noted that the Supreme Court had recently rejected the doctrine of virtual representation in Taylor v. Sturgell. The court there had found that this virtual representation would in essence create de facto or common law class actions without any of the due process protections provided by Rule 23. The plaintiffs submitted that the rationale applied in that case should govern the present dispute. They also argued that any attempt to bind them to the ruling denying class certification would violate principles of due process, since it would deprive them of their day in court without any notice and an opportunity to be heard. The plaintiffs noted that federal courts of appeals had held that once class certification had been denied, the court denying class certification had no authority, consistent with due process, to bind absent members of the denied class.
In further support of these arguments, the plaintiffs also stressed the principles of federalism and comity that underlie the Anti-Injunction Act, demanding that any doubt be resolved against the issuance of an injunction. Rather, in cases of doubt, parties in federal and state courts should be permitted to "proceed independently of the other with ultimate [Supreme Court] review ... of the federal questions raised in either system."
Despite these arguments, the district court granted the permanent injunction and the US Court of Appeals for the Eighth Circuit upheld it on appeal. As to the identical party requirement, both Bayer and the courts relied heavily on the decision by the US Court of Appeals for the Seventh Circuit in In re Bridgestone/Firestone, Inc., Tires Prods. Liability Litigation. In that case, the court had held that absent class members may be considered parties for some purposes, including the denial of class certification, provided that they were adequately represented in the prior proceeding. The Seventh Circuit had reasoned that any minimal due process protections required were met by the finding of adequate representation, particularly since absent class members could have appealed the ruling and still possessed their individual claims. The Eighth Circuit, adopting the Seventh Circuit's reasoning, failed to address the plaintiffs' arguments against the soundness of that reasoning, including the contention that the right to appeal the denial of class certification is purely imaginary for absent class members because they never had any notice of the prior proceeding or its rulings. As to the identical issue requirement, the Eighth Circuit held that the two cases involved the same issue because "[t]he state and federal [class] certification rules ... are not significantly different."
The Supreme Court granted certiorari in order to resolve the circuit split on the issues arising from the application of the Anti-Injunction Act's relitigation exception. Upon announcing the court's unanimous decision, Justice Elena Kagan, the opinion's author, cautioned those in attendance: "This decision involves a very complex procedural issue. And if you understand anything I say here, you will likely be a lawyer, and you will have had your morning cup of coffee." A review of the court's decision reveals, however, that while the procedural issues may be complex in nature, the answer to these issues was not nearly as difficult.
Upon acknowledging the principles of federalism that the Anti-Injunction Act is based, the court turned its attention to the relitigation exception which
is designed to implement "well-recognized concepts" of claim and issue preclusion. ... [I]n applying this exception, we have taken special care to keep it "strict and narrow." After all, a court does not usually "get to dictate to other courts the preclusion consequences of its own judgment." So issuing an injunction under the relitigation exception is resorting to heavy artillery. For that reason, every benefit of the doubt goes toward the state court ... [A]n injunction can issue only if preclusion is clear beyond peradventure.In addressing the conflict between federal and state civil procedure rules, the court focused on the question of whether the federal and state rules presented the same legal standard. The court reasoned that "[I]f those two legal standards differ (as federal and state forum non conveniens law differed in Chick Kam Choo)then the federal court resolved an issue not before the state court. In that event, much like in Chick Kam Choo, 'whether the [West Virginia] state cour[t]' should certify the proposed class action 'has not yet been litigated.'" While noting that the rules' language is a proper starting place, the court rejected the Eighth Circuit's almost exclusive reliance on the nearly identical wording of the two rules' texts, explaining that "[f]ederal and state courts, after all, can and do apply identically worded procedural provisions in widely varying ways." The court also noted that
if state courts have made crystal clear that they follow the same approach as the federal court applied, we see no need to ignore that determination; in that event, the issues in the two cases would indeed be the same. So a federal court considering whether the relitigation exception applies should examine whether state law parallels its federal counterpart[,] ... resolv[ing] any uncertainty on that score by leaving the question of preclusion to the state courts.Ultimately, as argued by the plaintiffs, the court found this question to be largely resolved by the West Virginia Supreme Court of Appeals' opinion in In re W. Va. Rezulin Litigation. There the court "made a point of complaining about the parties' and lower court's near-exclusive reliance on federal cases about Federal Rule 23 to decide the certification question. Such cases, the [West Virginia] court cautioned, may be persuasive, but [they are] not binding or controlling." The court further noted that "[t]he aim of this rule is to avoid having our legal analysis of our Rules amount to nothing more than Pavlovian responses to federal decisional law." The court in Smith found the case against an injunction even stronger, however, because the West Virginia Supreme Court of Appeals had also "disapproved the approach to Rule 23(b)(3)'s predominance requirement that the Federal District Court embraced," by rejecting an approach that a single individualized issue prevented class certification in favor of a more liberal and comprehensive approach to the predominance requirement. Accordingly, the court concluded that "point for point, the analysis set out in In re Rezulin diverged from the District Court's interpretation of Federal Rule 23. A state court using the In re Rezulin standard would decide a different question than the one the federal court had earlier resolved."
Turning to the same-party requirement of collateral estoppel, the court found that the plaintiffs were neither party to the prior federal proceeding, nor a member of a properly conducted class action, so as to meet one of the narrow exceptions to the rule against nonparty preclusion. As to Bayer's contention that the plaintiffs were party to the prior federal proceeding, the court held that "[t]he definition of the term 'party' can on no account be stretched so far as to cover a person like Smith, whom the plaintiff in a lawsuit was denied leave to represent." As to Bayer's alternative contention that the plaintiffs were a member of a properly conducted class action and, therefore, an exception to the rule against nonparty preclusion, the court explained Bayer's conundrum:
If we know one thing about the [prior federal] suit, we know that it was not a class action. Indeed, the very ruling that Bayer argues ought to be given preclusive effect is the District Court's decision that a class could not properly be certified. So Bayer wants to bind Smith as a member of a class action (because it is only as such that a nonparty in Smith's situation can be bound) to a determination that there could not be a class action.Rejecting Bayer's argument that the plaintiffs were members of a properly conducted class action until the moment when class certification was denied in the prior federal proceeding, the court explained
wishing does not make it so. [The prior federal litigant] sought class certification, but he failed to obtain that result. Because the District Court found that individual issues predominated, it held that the action did not satisfy Federal Rule 23's requirements for class proceedings. In these circumstances, we cannot say that a properly conducted class action existed at any time in the litigation. Neither a proposed class action nor a rejected class action may bind nonparties. What does have this effect is a class action approved under Rule 23. But McCollins' lawsuit was never that.The court noted that it had essentially made these same points recently in Taylor.
In reaching this decision, the court also rejected what it described as Bayer's "strongest argument"a policy argument (accepted by both the Seventh and Eighth Circuits) that a ruling in the plaintiffs' favor would lead to a world where the fear or threat of "serial relitigation" wherein "class counsel can repeatedly try to certify the same class by the simple expedient of changing the named plaintiff in the caption of the complaint' would force defendants 'in effect to buy litigation peace by settling.'" The court reasoned that "this form of argument flies in the face of the rule against nonparty preclusion. That rule perforce leads to relitigation of many issues, as plaintiff after plaintiff after plaintiff (none precluded by the last judgment because none a party to the last suit) tries his hand at establishing some legal principle or obtaining some grant of relief."
Noting that it had also rejected a similar policy argument of repetitive litigation in Taylor, the court emphasized that
our legal system generally relies on principles of stare decisis and comity among courts to mitigate the sometimes substantial costs of similar litigation brought by different plaintiffs. We have not thought that the right approach (except in the discrete categories of cases we have recognized) lies in binding nonparties to a judgment. And to the extent class actions raise special problems of relitigation, Congress has provided a remedy that does not involve departing from the usual rules of preclusion [in adopting the Class Action Fairness Act of 2005].
In its conclusion, the court noted that in its approach to Anti-Injunction Act cases, "close cases have easy answers: The federal court should not issue an injunction, and the state court should decide the preclusion question. But this case does not even strike us as close. The issues in the federal and state lawsuits differed because the relevant legal standards differed. And the mere proposal of a class in the federal action could not bind persons who were not parties there." Because the court concluded that the requirements for collateral estoppel could not be met and that the injunction, therefore, could not be issued under the relitigation exception to the Anti-Injunction Act, it declined to address the plaintiffs' due process argument.
The significance of the court's ruling in Smith to the field of class action jurisprudence cannot be overstated. Elemental concepts of fairness inherent in both the same-party requirement of preclusion law and constitutional guarantees of due process demand that every person receive their own day in court or at least notice and an opportunity to be heard before being bound by a judgment. This fundamental right is important not just for substantive rights, such as causes of action that constitute property rights entitled to due process protections, but also for important procedural rights.
Class actions serve a very important role in our system of civil justice, particularly in cases involving small economic loss claims where they level the economic playing field. Courts have acknowledged that one of the primary purposes of the class action device is to enable claimants with small economic loss damages to aggregate similar claims against the same defendant or group of defendants so that the value of the case is large enough to justify its prosecution. Without the possibility of class actions, numerous small claims would fall by the wayside.
A large corporation or other significant business entity can make millions (or even billions) of dollars by defrauding or otherwise unlawfully depriving large numbers of consumers of small individual sums of money. If the only alternative available for these consumers is the right to file an individual lawsuit, many would have no choice but to walk away. Even when statutory provisions enable the award of attorney fees and costs to successful claimants, many attorneys cannot risk filing suit because both the decision of whether to award attorney fees and their amount are largely discretionary. Only the possibility of being able to litigate these claims together through a class action enables consumers and their attorneys to have a reasonable opportunity to attempt to vindicate their rights and to keep wrongdoers from reaping a windfall of profits through unlawful means.
The court's decision in Smith ensures that one denial of a class action in federal court, whether right or wrong in that particular case, will not deprive litigants who were not a party to that prior proceeding from having their own day in court and to seek the justice to which they may be entitled. In so doing, it also respects the sovereign power of states and honors their discretion to apply and interpret their own rules for class actions as they see fit. The principles of federalism, comity and basic fairness upon which our nation was born are better served and protected.
Richard Monahan argued for the plaintiffs in Smith v. Bayer Corp. before the Supreme Court in January. A former law clerk to Judge Elizabeth Hallanan of the US District Court for the District of West Virginia, Monahan is a graduate of the University of Pittsburgh School of Law. He has experience litigating a wide variety of personal injury claims, antitrust violations and class actions.
Suggested citation: Richard Monahan, Class Actions in the Supreme Court: An Affirmation of Basic Fairness, JURIST - Sidebar, Aug. 2, 2011, http://jurist.org/sidebar/2011/08/richard-monahan-class-actions.php.
This article was prepared for publication by JURIST's professional commentary editorial staff. Please direct any questions or comments to them at email@example.com