The Supreme Court failed to take the opportunity to resolve the pressing problem of relitigation in class actions, but suggested some potential solutions. On June 16, the Supreme Court issued its opinion in Smith v. Bayer Corp., addressing whether a federal court, after denying class certification, can enjoin a state court from adjudicating a putative class action on the very same issue. Unfortunately, the result was not what corporate America had hoped for. In a unanimous opinion authored by Justice Kagan, the Court held that, at least in the vast majority of circumstances, such an injunction is not available.
The case involved the relitigation exception to the Anti-Injunction Act, under which a federal court can enjoin a state court from relitigating issues fully and finally decided by a federal court. Applying this exception involves an issue preclusion (collateral estoppel) analysis, focusing on: (1) whether the issue presented to the state court is the same as the issue previously decided by the federal court; and (2) whether the plaintiff in the state case was a party to the federal case or a nonparty that can be bound (such as a nonparty that was in privity with a party to the federal case).
The Court concluded that: (1) the issue of whether to certify a class in state court is not identical to the issue of whether to certify a class in federal court if the state has a different class action rule, or even if the text of the state rule is identical, but the state supreme court applies the rule differently; and (2) a putative class member in a case in which class certification is denied is not a “party” or the kind of nonparty that can be bound by a denial of certification. The Court concluded that “[n]either a proposed class action nor a rejected class action may bind nonparties.” (Slip op. at 15.)
This opinion has not gotten much attention in the media or blogs from what I can find. There was a short AP piece published in the Washington Post and other places, but it doesn’t say much.
I found most interesting the Court’s discussion of the problem that is presented, for corporate defendants and the legal system, by allowing plaintiffs’ lawyers to keep pursuing class certification on the same issue, even after certification has been denied multiple times:
Bayer’s strongest argument comes not from established principles of preclusion, but instead from policy concerns relating to use of the class action device. Bayer warns that under our approach 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.” Brief for Respondent 47-48. And in this world of “serial relitigation of class certification,” Bayer contends, defendants “would be forced in effect to buy litigation peace by settling.”
The Court suggested several solutions to this problem:
- Stare decisis and comity among courts can mitigate the problem of repetitive class action litigation. The problem I see here is that this does not help when you have a few “rogue” state courts that largely ignore what the federal courts and majority of state courts are doing on class certification. These states become meccas for class action litigation, particularly against insurers.
- The Court concluded that CAFA might solve the problem because “Congress enabled defendants to remove to federal court any sizable class action involving minimal diversity of citizenship.” (Slip op. at 17.) This might work, as long as the federal courts do not allow gamesmanship by plaintiffs’ lawyers seeking to frame their cases so that numerous $4.9 million class actions can be brought in state courts in places favorable to class certification.
- The Court suggested, in footnote 12, that Congress could enact a statute, or the Federal Rules of Civil Procedure could be amended, so as to restrict relitigation of class certification. I think those options are worth pursuing and insurance and other industry associations should consider supporting them.
A couple other potential solutions I see are: (1) an effort by the defendant, perhaps through a declaratory judgment claim against a putative class, to try to obtain one final, binding resolution by a federal court on the issue of class certification; and (2) the Supreme Court using the federal Due Process Clause to place some limitations on state court class certification rulings. On the due process point, there is currently a petition for certiorari pending in Philip Morris USA Inc. v. Jackson, No. 10-735 (docket), involving due process issues in a state court class action.