U.S. Supreme Court holds federal court cannot enjoin state court from certifying a class action

Posted on: July 7th, 2011 by Steve Larson
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When a federal court denies class certification in a case, can it also enjoin a state court from considering certification of identical claims?  In Smith v. Bayer Corp., No. 09-1205 (U.S. June 16, 2011), the Supreme Court held that unless (1) the same named plaintiff is at issue in both and (2) the state and federal class-certification standards are identical, it cannot.

In Smith, various plaintiffs filed nearly identical class actions across the country regarding the sale of Bayer’s drug, Baycol. The federal cases were consolidated before one court in multi-district proceedings. But the Smith case—filed in West Virginia state court—stayed put, since the plaintiffs also sued West Virginia defendants.  The cases predated CAFA, so federal jurisdiction was not appropriate.

The federal court denied class certification under Rule 23.  Bayer then asked for an injunction against the West Virginia state court to prohibit it from considering class certification.  Bayer argued the injunction was required to prevent relitigation of the same issue under the Anti-Injunction Act. The federal court granted the injunction, and the Eighth Circuit affirmed.

The Supreme Court reversed for two reasons.

First, it held that West Virginia’s class-certification rule was not identical to Rule 23. The West Virginia Supreme Court had stated a different approach to predominance inquiries than federal courts allow, and this predominance inquiry is exactly what the federal court used to knock out the federal class certifications. So despite the nearly identical texts of the two rules, the “same issue” was not being relitigated, which is required under the Act.

Second, the plaintiff here was not a party to the federal suit and so could not be bound by it. The Court explicitly rejected Bayer’s argument that members of uncertified classes qualify as parties in proposed class-action litigation. In other words, before a class is certified, only named plaintiffs may be bound by a court’s ruling. Unnamed, absent class members in proposed or rejected class actions are not bound by the outcome of the litigation.

Nor did the Court accept Bayer’s policy argument for an exception to the same-party requirement. Bayer argued that without allowing class-certification injunctions, class counsel will repeatedly try to certify the same class in different courts. That conduct, Bayer alleged, forces defendant to “buy litigation peace by settling.”

But the Court found Bayer’s concerns overblown. First, it noted that similar relitigation concerns are not enough to bind nonparties in other instances, such as FOIA requests.  Second, the Court found other laws protect defendants from these problems.  CAFA was one.  Post-CAFA, the Smith case, too, would have been removed to federal court and disposed of by the MDL court.  And defendants can rely on the legal system to use the doctrines of stare decisis and comity to protect them against outsized costs from serial relitigation of the same issues in different jurisdictions.