Seyfarth Synopsis: In Microsoft Corp. v. Baker, No. 15-457 (U.S. June 12, 2017), the U.S. Supreme Court ruled on a procedural issue that is of importance in any class action in terms of when and in what circumstances a plaintiff may appeal orders that terminate their rights in a case. In that respect, the decision is required reading for any employer involved in class action litigation.
In Microsoft Corp. v. Baker, No. 15-457, 582 U.S. ___ (2017), the Supreme Court was confronted with the question of whether courts of appeal have jurisdiction to review an order denying class certification after the named plaintiffs have voluntary dismissed their claims with prejudice.
Litigants have an immediate right to appellate review only of “final decisions of the district courts,” as set forth in 28 U.S.C. § 1291. The denial of class certification is not a final order and, therefore, not necessarily entitled to such immediate review. Nonetheless, Fed. R. Civ. P. 23(f) provides litigants the opportunity to appeal an adverse class certification decision, which the appellate court has unfettered discretion to review or not.
If the appellate court decides not to exercise discretion over such an appeal, plaintiffs still have options to ultimately obtain appellate review, including petitioning the district court to certify the interlocutory order for appeal pursuant to 28 U.S.C. § 1292 or pursuing the litigation to a final judgment at which point the class certification denial becomes final and appealable. However, as the Supreme Court’s decision in Baker makes clear, what plaintiffs may not do is circumvent that process by dismissing a case with prejudice after the denial of class certification in order to manufacture the appellate court’s jurisdiction over such an appeal. According to the Supreme Court, such a tactic impermissibly stretches Section 1291, circumvents the rules governing interlocutory appeals, including 23(f), and leads to protracted and piecemeal litigation.
Plaintiffs, purchasers of Microsoft’s Xbox 360 console, filed a class action alleging design defect of the console. (Slip Op. 8.) The district court struck Plaintiffs’ class allegations based on the denial of class certification in a previously-filed case of the same nature, finding that comity mandated its decision. (Id. at 8-9.)
Plaintiffs petitioned the Ninth Circuit for appellate review of the interlocutory order under Rule 23(f), but the Ninth Circuit declined to exercise jurisdiction. Id. at 9. Rather than pursue their individual claims further, Plaintiffs moved to voluntarily dismiss their claims with prejudice and represented to the district court that they would appeal the order striking their class allegations thereafter. (Id. at 10.) Microsoft stipulated to the voluntary dismissal with prejudice, but argued that Plaintiff would have no right to appeal. The district court granted the stipulated motion to dismiss. Id.
As promised, Plaintiffs only appealed the district court’s decision to strike their class allegations. Id. The Ninth Circuit held that it had jurisdiction to entertain the appeal under the 28 U.S.C. § 1291, rejecting Microsoft’s argument that Plaintiffs had impermissibly circumvented Rule 23(f). Id. Then the Ninth Circuit reversed the district court’s decision to strike Plaintiffs’ class allegations. Id. at 11. The Ninth Circuit expressed no opinion as to the merits of class certification, but merely found that comity did not require denial on the pleadings; such a decision would more properly be made on Plaintiffs’ eventual motion for class certification. Id.
The Supreme Court granted certiorari to address a Circuit split over the question: “Do federal courts of appeals have jurisdiction under [28 U.S.C.] § 1291 and Article III of the Constitution to review an order denying class certification (or . . . an order striking class allegations) after the named plaintiffs have voluntarily dismissed their claims with prejudice?” Id.
The Supreme Court, sitting with eight justices, unanimously found that the Ninth Circuit had improperly exercised discretion over Plaintiffs’ appeal.
Justice Ginsburg, authoring the opinion of the Court in which Justices Kennedy, Breyer, Sotomayor and Kagan joined, ruled that Plaintiffs’ voluntary dismissal with prejudice did not transform the district court’s denial of class certification into a final order. Such a tactic, the Supreme Court concluded, impermissibly attempts to subvert the final judgment rule in § 1291 as well as the process Congress implemented for refining that rule and providing for appeals of interlocutory orders. Id. at 12.
The Supreme Court explained that Plaintiffs’ tactic encouraged “protracted litigation and piecemeal appeals” as well as indiscriminate review of interlocutory orders. Id. Indeed, as the Supreme Court pointed out, under Plaintiffs’ theory, “the decision whether an immediate appeal will lie resides exclusively with the plaintiff” because plaintiff “need only dismiss her claims with prejudice whereupon she may appeal the district court’s order denying class certification.” Id. at 12-13. Thus, if Plaintiffs here had subsequently been denied class certification on remand from the Ninth Circuit, they could have again voluntarily dismissed and forced an appeal of that decision, thereby circumventing the purpose of Rule 23(f) and, in conjunction, the rulemaking process Congress bestowed upon the Supreme Court. Id. at 13-16.
Justice Thomas, joined by Chief Justice Roberts and Justice Alito issued a concurring opinion, concurring only in the judgment. Justice Thomas agreed that Plaintiffs could not appeal under the circumstances of this case, but under a different rationale. Specifically, Justice Thomas concluded that Plaintiffs’ voluntary dismissal with prejudice had indeed resulted in a final appealable order. However, such dismissal destroyed any live case or controversy. Accordingly, Plaintiffs had no standing under Article III of the Constitution to bring the appeal.
Implication for Employers
A decision on class certification is often the most significant event in the life of class litigation. As such, plaintiffs who are denied certification craft inventive strategies to circumvent rules limiting their appellate rights. With the Baker decision, one such strategy is no longer available to plaintiffs. Employers should pay careful attention to alternative tactics similarly contravening the purpose and structure of the federal statutes and rules governing appellate review.