This morning the Supreme Court issued its long awaited and much anticipated ruling in Smith, et al. v. Bayer Corp., No. 09-1205 (U.S. June 16, 2011), on one of the key class action issues pending before the SCOTUS this term. The Smith case involves a situation where a federal court enjoined a state court from considering a plaintiff’s request to certify a class action because the federal court had earlier denied a certification motion in a related case brought by a different plaintiff against the same defendant alleging similar claims. At issue was the federal court’s order to enjoin the subsequent state court class action to prevent re-litigation of the class certification issue it had already decided and whether the federal court’s order was consistent with the Anti-Injunction Act, 28 U.S.C. § 2283, which allows a federal court to enjoin a state court proceeding when necessary to “protect or effectuate [the federal court's] judgment.”
As a result, the Smith case squarely addresses the “re-litigation” exception under the Anti-Injunction Act in the context of whether issue preclusion bars plaintiffs from a “second bite of the apple” in seeking class certification in state court after losing that issue in federal court. Though not a workplace class action (Smith involves a product liability class action involving the drug Baycol), the ruling is important for employers in terms of the ability of plaintiffs’ lawyers to assert multiple class actions against corporate defendants in different forums, as well as the range of defenses to this type of “case structuring” strategy used by the plaintiffs’ class action bar.
In a ruling authored by Justice Kagan, the SCOTUS held that a federal court may not enjoin a class action pending in state court except in the narrowest of circumstances, which does not include a “re-litigation” situation, since the presumption is that the second court – the state court in this instance – should determine whether the class action is barred due to a previous decision by a federal court. The SCOTUS ruling reversed a prior Eighth Circuit decision entitled In Re Baycol Products Liability Products Litigation, 593 F. 3d 716 (8th Cir. 2010).
The SCOTUS based its ruling on two key concepts. First, it held that the issue before the state court was not identical to the issue decided by the federal court. Second, it determined that the plaintiff in the state court case did not have the requisite connection to the federal lawsuit to be bound by the federal court’s judgment.
On the first issue, the Supreme Court reaffirmed the notion that exceptions to the Anti-Injunction Act are narrow. The SCOTUS described an injunction against a state court class action proceeding under the re-litigation exception as “resorting to heavy artillery,” and can be upheld only if “preclusion is clear beyond peradventure.” Id. at 6-7. In this case, Justice Kagan concluded it was not because the issues in the second state court class action were sufficiently different from the first federal court class action ruling. While the class members were nearly identical and the substantive claims overlapped, the federal court based its certification ruling on Rule 23 of the Federal Rules of Civil Procedure, whereas the state court was posed to decide whether certification was proper under the West Virginia state law class certification rule. What was critical to the SCOTUS was that West Virginia courts interpret their certification rule differently that federal courts deciding class certification issue under Rule 23. Because of the uncertainty of whether West Virginia state courts would decide class certification in a manner other than in a “Pavlovian response to federal decisional law,” the SCOTUS determined that this uncertainty precluded the injunction, especially as West Virginia courts have disapproved of the manner in which certain class action requirements – like predominance – are adjudicated in the federal system under Rule 23 Id. at 10-11 (citing In Re West Virginia Rezulin Litigation, 214 W. Va. 52, 61 (2003)).
On the second issue, Justice Kagan concluded that the parties bound by the first federal ruling were different than in the state court class action, so much so that the premise for the injunction was improper because of the narrow rule of binding only parties to prior judgment. Bayer argued that as the plaintiff was an unnamed member of the proposed but uncertified class, he was a “party” for purposes of being bound – the so-called concept of non-party preclusion of members of class actions. The SCOTUS rejected Bayer’s argument. The Supreme Court held that an non-named class member is not a party for preclusion purposes before a class is certified or where a court denied class certification; simply stated, Justice Kagan reasoned that “[n]either a proposed class action nor a rejected class action may bind non-parties.” Id. at 15. Only a class action certified under Rule 23 may have this effect. Almost as an afterthought and relegated to a footnote – footnote 12 on page 18 of the decision – is a suggestion by the Supreme Court that Congress can always pass legislation “to modify principles of preclusion” should the re-litigation phenomenon be deemed overly abusive.
On this last point, Justice Kagan acknowledged that Bayer’s strongest argument came down to policy reasons – abuse of the class action device where plaintiffs’ lawyers repeatedly try to certify the same class by facile pleadings or changing the name of the named plaintiff – and where defendants may only buy legal peace through blackmail settlements. Be that as it may, the SCOTUS concluded that our legal system deals with these abuses through “principles of stare decisis and comity among courts,” and that the “right approach” does not lie in binding non-parties to a judgment.” Id. at 17.
To those who say that the Supreme Court is a shill for big business and sides with Corporate America against consumers and workers in litigation, the Smith decision is anything but a pro-business ruling. In effect, it green-lights creative case structuring strategies by the plaintiffs’ bar to achieve a “second bite at the apple” in litigating class claims. As a result, employers can expect to see plaintiffs’ lawyers put the Smith ruling to use in the future in workplace class action context.