Marcy Hogan Greer, Adam T. Schramek and Stephen A. Calhoun
June 17, 2011
On June 16, 2011, the United States Supreme Court held in Smith v. Bayer Corp., No. 09-1205, 564 U.S. ___ (2011), that federal courts cannot enjoin state courts from certifying class actions that mirror cases denied certification by the federal judiciary. Instead, the Court concluded that a federal court's decision to deny class treatment is binding only on the named plaintiff and not the members of the class he or she seeks to represent. Accordingly, obtaining denial of class certification in federal court may now provide little finality for the successful defendant, who remains subject to multiple attempts at certification of the same claims.
Smith concerns a federal district court's issuance of an injunction in a pharmaceutical lawsuit prohibiting a state court from certifying the same class the federal court had denied. The Eighth Circuit permitted the injunction, concluding that because the proposed classes and substantive claims in both the state and federal lawsuits were effectively identical, an injunction was necessary to protect the district court's judgment denying certification. The Supreme Court reversed, holding that because the judgment in the federal case did not necessarily preclude certification in the state case, the relitigation exception to the Anti-Injunction Act did not apply.
In most circumstances, Congress has precluded federal courts from interfering with state court actions through the Anti-Injunction Act. The statute contains a relitigation exception, relied upon by the Eighth Circuit, which allows a federal court to implement "well-recognized concepts of claim and issue preclusion" by issuing an injunction to prevent a state court from hearing an issue already decided by the federal court. The Court found that this very limited exception did not apply here. It explained that a state court plaintiff's certification motion would be precluded only if two conditions were met: (1) the federal and state cases presented the same issue and (2) the state court plaintiff was actually a party to the federal court action or was an "exceptional kind of nonparty who [could] be bound" by it.
The Court concluded that the first requirement for preclusion was not met because, although the applicable federal and state rules of procedure were nearly identical, state and federal case law interpreting those rules conflicted in material respects. Accordingly, the two courts faced "distinct questions." The Court also concluded that the second requirement was not met because the named plaintiffs in the state court action were not named parties in the federal court. Although the state plaintiffs were members of the proposed class in federal court, that class had never been certified, which would have been necessary to bring unnamed class members within the federal court's authority. While the Court acknowledged that a federal judgment can bind the members of a certified class, it explained that "[i]f we know one thing about the [the federal] suit, we know that it was not a class action," and "[n]either a proposed class action nor a rejected class action may bind nonparties."
The Court concluded that by resolving close questions of preclusion in favor of permitting state courts to proceed, even "close cases have easy answers." This case, however, did "not even strike [the Court] as close." The Court acknowledged the concern that under its ruling, class counsel can repeatedly try to certify the same class by merely "changing the named plaintiff in the caption of the complaint," but it concluded that the principles of stare decisis and comity sufficiently "mitigate the sometimes substantial costs of similar litigation brought by different plaintiffs." The Court also found comfort in the fact that the federal jurisdiction provided by the Class Action Fairness Act of 2005 offers greater protection in the context of class actions.
The Smith decision is very likely to encourage multiple attempts at class certification in state courts after losing in federal court. The decision leaves open several questions, such as whether a federal court that has preliminarily certified a class for settlement purposes can enjoin state courts from proceeding with competing classes. Also, the Court made no mention of how its decision might impact dueling class actions pending in state courts. Finally, because this decision is grounded in the Anti-Injunction Act and the relationships between federal and state courts, the effect of this decision on multiple class actions pending in federal court remains uncertain. While principles of stare decisis and comity mitigate against repetitive class suits, the discretion accorded to courts applying these inherently flexible theories will result in less certainty for companies defending against proposed class actions.
This article was prepared by Marcy H. Greer (email@example.com or 512 536 4581), Adam T. Schramek (firstname.lastname@example.org or 512 536 5232) and Stephen A. Calhoun (email@example.com or 512 536 2472) from Fulbright's Class and Group Actions Practice Group and Fulbright's Appellate Practice Group.
Marcy Hogan Greer
Adam T. Schramek
Stephen A. Calhoun