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06.20.2011 Supreme Court Clarifies Limits on Federal Courts' Ability to Enjoin State Court Class Actions
06.20.2011
In Smith v. Bayer Corp. the Supreme Court unanimously reversed an injunction barring a state court from considering whether to certify a putative class action under the state’s version of Federal Rule of Civil Procedure 23.

In 2001, George McCollins filed a class action against Bayer Corporation in the Circuit Court of Cabell County, West Virginia. McCollins alleged that Bayer violated West Virginia's consumer protection act, as well as express and implied warranties associated with Bayer's sale of Baycol, and sought to certify a class on these claims. Approximately one month after McCollins filed suit against Bayer, Keith Smith and another individual filed a class action against Bayer in the Circuit Court of Brooke County, West Virginia, asserting substantially similar facts and legal claims.

Bayer removed McCollins' case to the United States District Court for the Southern District of West Virginia. The West Virginia District Court, in turn, transferred McCollins' case to the District of Minnesota pursuant to a preexisting order of the Judicial Panel on Multi-District Litigation, which had created a MDL in Minnesota for Baycol suits. Bayer, however, could not remove Smith's claim to federal court because Smith had also alleged claims against several West Virginia residents in his complaint—diversity accordingly did not provide a basis for federal court jurisdiction.

In 2008, the Minnesota Federal District Court declined to certify McCollins' putative class of West Virginia Baycol purchasers. The District Court found that West Virginia law required each class member to prove an actual injury from his use of Baycol in order to recover and, pursuant to Federal Rule 23(b)(3), the individualized proof required to recover meant that individual issues of fact predominated over issues common to all class members of the proposed class. The District Court also dismissed McCollins' individual claims against Bayer because he failed to demonstrate a physical injury as a result of his use of Baycol.

Following the District Court's denial of class certification in the McCollins case, Bayer requested that the District Court enjoin the West Virginia state court from hearing Smith's class certification motion. Bayer argued that Smith's putative class was identical to McCollins' putative class and, therefore, the District Court should issue the injunction in order to protect its judgment denying class certification in McCollins’ suit. The District Court agreed and granted the injunction. The Eighth Circuit affirmed, but on different grounds. Rather than ruling the West Virginia state court proceeding threatened the District Court’s judgment in the McCollins action, the Eighth Circuit predicated its ruling on the relitigation exception to the Anti-Injunction Act. According to the Eighth Circuit, Smith was invoking a state court rule that tracked the language of Federal Rule of Civil Procedure 23 to seek class certification “of the same class” in a suit alleging “the same legal theories.” Thus, the issue before the state court was “sufficiently identical” to the one the federal court had decided to warrant preclusion. Additionally, the court found that the parties in the two proceedings were sufficiently alike—because Smith was an unnamed party in the proposed McCollins class and their “interests were aligned.”

"The Anti-Injunction Act generally prohibits federal courts from enjoining state court proceedings." This command is subject to only three narrowly construed and specifically defined exceptions. One of these is the relitigation exception that authorizes a federal court to issue an injunction to prevent litigation of a claim or issue in state court "that previously was presented to and decided by the federal court." In order for the relitigation exception to apply (1) the federal court must have decided the same issue presented to the state court, and (2) the party to the state court litigation must have been a party to the federal suit, or fall within a few discrete exceptions to the rule against binding nonparties. Because the exception runs counter to the rule that a court does not have the ability to dictate to other courts the preclusive effects of its own judgments, every benefit of the doubt goes in favor of the state court.

In reversing the Eighth Circuit, the Supreme Court ruled:

(1) Although the language of Federal Rule 23 and West Virginia Rule 23 are virtually identical, the West Virginia Supreme Court has made clear that it has no intention of simply adopting the construction federal courts give to Rule 23 in construing class certification standards under West Virginia Rule 23. In fact, in an earlier case, the West Virginia Supreme Court chided lower West Virginia courts for their near-exclusive reliance on federal precedent in deciding class certification issues. And, unlike federal precedent that applies a strict test that bars class treatment when individualized proof of actual injury is required, West Virginia applies a less rigorous standard that allows certification even in cases that typically involve showings of individual injury. So, even while West Virginia’s Rule 23 was modeled after Federal Rule 23, analysis for certification under West Virginia’s Rule 23 was not coterminous with federal law. The federal district court and the state court were accordingly deciding different legal issues and the narrow relitigation exception did not apply.

(2) If class certification is denied pursuant to 23(b)(3), an unnamed putative class member is not barred from pursuing a class action based on the same facts and legal theories. While true that generally a “party” to a class action cannot bring a subsequent action, that rule has no application where in the earlier case a class was never certified.

The Class Action Fairness Act ("CAFA") and the ability to remove a case with minimal diversity where more than $5,000,000 is at issue should help to avoid some of the issues presented by Smith. Nevertheless, Smith makes clear that, in the future, a party that has defeated class certification on the same or similar issues must rely on stare decisis and comity among courts to avoid relitigating the same issues in a different forum. Given that most class actions are taken on a contingency fee basis, plaintiffs' counsel are likely to think long and hard before investing the additional resources necessary to pursue the same or similar claims in a different forum. Still, it is reasonable to expect that plaintiffs’ counsel will look for new plaintiffs and seek to relitigate the denial of class certification in a different forum from time to time.