Supreme Court Declines To End Multiple Class Action Mischief

The second of our Supreme Court trilogy for the week.  The Court ruled last week in Smith v. Bayer Corp., No. 09-1205, that a federal district court was prevented by the the Anti-Injunction Act from enjoining a state court from entertaining plaintiff's motion to certify a class action even when that federal court had earlier denied a similar motion to certify an overlapping class in a closely related case.

Generally, the Anti-Injunction Act bars a federal court from granting injunctions to stay proceedings in state courts except where specifically authorized by Congress, or "where necessary in aid of its jurisdiction, or to protect or effectuate its judgments."  Most of our readers hoped that the Court would agree with the lower courts' ruling that this was just such an exception.

The Smith case involved the issue whether a federal court can enjoin class members from bringing a product liability class suit in a state court after the federal court declined to certify a similar class. Specifically, the Baycol MDL court in Minnesota had denied class certification, and the court of appeals upheld the injunction barring plaintiffs from bringing virtually the same suit in West Virginia state court. The federal court of appeals in fact unanimously affirmed, holding that the injunction was authorized by the All Writs Act and the re-litigation exception to the Anti-Injunction Act, and that petitioners did not have a due process right to re-litigate class certification.

The Supreme Court, unfortunately, reversed, in a decision that may encourage forum shopping.

-The decision encourages "creative" case structuring strategies by the plaintiffs' bar to give themselves a second bite at the apple (or more) in class claims, even after the federal court properly denies certification, and even when the state class law mirrors Federal Rule 23; here, the Court found that an application of West Virginia's Rule 23 did not present the same exact issue as the application of the federal rule version, even though the language of the rules is nearly identical.

-The decision highlights the double-edged sword that is federalism; now, the preclusive effect of a certification denial, if any, will be decided by state courts applying the notions of res judicata rather than by the enjoining court.  This comports with the general notion that the second court looking back decides the impact, not the first court looking forward.  But readers are well aware of the hard-to-fathom preclusion decisions some state courts have fashioned in the class action context.  E.g., the Engle class in Florida. And, as plaintiffs told Justice Ginsburg in oral argument of the case, a state has the right to apply and interpret a rule of civil procedure "as it sees fit to manage its own docket and administrate its own docket as it sees fit."

-As a practical matter, it invites "if at first you don't succeed, try, try again," with plaintiffs seeking to bring similar cases again and again, shopping for a forum or judge that will finally agree to certify something. Plaintiffs will recruit a new named plaintiff, and recreate the risks associated with class certification, even after the defendant has seemingly won that important battle. Justice Alito asked petitioners at oral argument whether after a class certification denial is entered in one federal court, a plaintiff's attorney could simply substitute the name of a new named plaintiff and file the same complaint in another federal court. Plaintiffs answered that an attorney could do that.

-Note that petitioners had not been foreclosed from seeking relief on their individual claims, but only from seeking to represent other people through a class action. Whether a class should be certified had been fully and fairly litigated in proceedings that ought to be binding on petitioners and in which petitioners’ interests were adequately represented by an identically situated named plaintiff -- one whom plaintiff's counsel promised was an adequate representative, was typical, with common claims and no adverse interests. The Court apparently did not consider the possible argument that an absent class member who is adequately represented might be in sufficient privity with the named plaintiff such that he can be precluded from litigating the certification decision a second time.

-Even though in dicta, the Court discouraged the application of preclusion to absent class members.   It may be of little comfort to defendants faced with the costs and risks of serial class claims that, as the Court put it, the "legal system generally relies on principles of stare decisis and comity among courts to mitigate the sometimes substantial costs of similar litigation brought by different plaintiffs."

-The Court agreed that the policy concerns were the defendant's "strongest argument, " and seemingly recognized the mischief it was permitting, because the opinion noted that nothing in this holding forecloses legislation to modify established principles of preclusion should Congress decide that CAFA does not sufficiently prevent re-litigation of class certification motions. Nor does the opinion at all address the permissibility of a change in the Federal Rules of Civil Procedure pertaining to this question.  The Court said the trial court could not call on the "heavy artillery" of an injunction, but perhaps an even mightier weapon is needed.

 


 

No Second Bite of the Apple for HT Plaintiffs

A federal court granted summary judgment in litigation brought by hormone replacement drug plaintiffs whose suits were previously ruled untimely by a New York court. See Rick v. Wyeth Inc.,  No. 08-1287 (D. Minn., 9/23/10).

Plaintiffs, all citizens of New York, were women, and spouses of women, who allegedly used
hormone therapy drugs manufactured and sold by defendants. Plaintiffs further alleged that they developed breast cancer as a result of the use of HT drugs.  Plaintiffs had previously brought suit individually in New York state court where their claims were consolidated into a single
coordinated proceeding. In the New York proceeding, defendants moved for summary judgment based on the New York statute of limitations. Foreseeing the end of their suits, plaintiffs moved for a discontinuance without prejudice. While the dueling motions in the New York proceeding were pending, plaintiffs commenced another action in federal court in Minnesota (where there is a much longer, highly controversial statute of limitations; none of plaintiffs, nor any of the claims at issue, had any connection to Minnesota. Instead, it seems this case, like hundreds of others involving HT drugs, was brought solely to take advantage of Minnesota’s six-year statute of limitations.)

The New York trial court granted the defendants’ motion for summary judgment and denied the
plaintiffs’ motion for "discontinuance without prejudice." In doing so, the New York trial court reasoned that the defendants would be unfairly prejudiced by allowing the litigation to re-start in another forum after having completed discovery and reached the summary judgment phase in the New York proceeding.

In the federal court proceeding, defendants then moved for summary judgment arguing that the New York judgment was entitled to preclusive effect.  The traditional rule for claim preclusion was that dismissal for untimeliness does not bar a second action in another jurisdiction with a longer, unexpired statute of limitations. Semtek Int’l Inc. v. Lockheed Martin Corp., 531 U.S. 497, 504 (2001). However, the actual test for a federal court determining the preclusive effects of a prior state-court judgment is to ask ask what preclusive effect that state intends other jurisdictions to accord its judgments.  Here, the federal court determined that New York has not definitively answered that question in this context. Therefore, the court had to determine what rule New York would likely apply.

On one hand, the New York Court of Appeals has stated that, in general, New York views statutes of limitations as procedural rather than substantive. However, the New York Court of Appeals has also held that, in the narrow context of claim preclusion, statutes of limitations “in a practical sense may also be said to be substantive.”  Thus, said the federal court, the procedural/substantive distinction that formed the foundation of plaintiffs’ argument here was hardly clear under New York law. Indeed, while the procedural/substantive distinction may be a useful tool in some instances, a clear line between procedure and substance is not always ascertainable.

In interpreting this ambiguous area of New York law, the federal court was also mindful of the overarching principals of claim preclusion. Claim preclusion doctrine values judicial economy, preventing parties from burdening courts with claims already litigated.

Against this backdrop, the federal court found the procedural posture of the case decisive.  In the New York proceeding, the plaintiffs moved for a discontinuance without prejudice. Under New York law, an element of granting such a motion is whether the adverse party will suffer prejudice. The NY trial judge believed that a discontinuance without prejudice would not have preclusive effects in the federal action, and noted that granting the plaintiffs’ motion might thus allow plaintiffs’ Minnesota action to continue. Concluding that defendants would be highly prejudiced if forced to continue litigation in another forum, the trial judge denied the plaintiffs' motion. Implicit in that reasoning was that the grant of summary judgment instead would have preclusive effect in the federal litigation. Indeed, the New York trial court specifically stated that defendants had a right to judgment on the merits.

Thus, at the summary judgment phase, the timeliness issues were “sufficiently close to the
merits” to implicate claim preclusion. Plaintiffs chose to bring their claims in New York and continued litigation up to summary judgment.

 

Issue Preclusion in Mass Torts

Professor Byron Stier, of Southwestern Law School, has written an interesting article entitled, Another Jackpot (In)Justice: Verdict Variability and Issue Preclusion in Mass Torts.

In it, he notes that if there are no prior inconsistent verdicts, non-mutual offensive issue preclusion generally allows a finding by a single jury to bar re-litigation, in future cases, of the issue by the defendant who lost in the prior case. This approach, however, ignores the possibility that the first verdict delivered may have been an outlier, a fact that would be shown only if further verdicts were permitted to be delivered. In mass tort litigation, such a flawed approach may result in critical issues such as defect or negligence being resolved by only six jurors, when the potentially outlier verdict is then potentially applied to resolve the cases of thousands, perhaps bankrupting a company or an industry -- even when most juries would not so hold.

Focusing on mass tort litigation, this article by Professor Stier presents some growing empirical evidence of verdict variability and then critiques the use of issue preclusion, whose downside is applied only against defendants, not plaintiffs, because only defendants were parties to the prior action. As a result, the article argues, courts should exercise their discretion to deny issue preclusion in mass tort litigation. Instead, he asserts, courts should join the emerging consensus of mass tort management that ultimately better serves the goals of efficiency and public respect supposedly underlying issue preclusion: allow multiple verdicts to unfold a more balanced view of liability that will frequently be used for well-informed and far-reaching settlements. 

Given the administrative burden that mass torts can place on the courts, even with the use of management techniques such as an MDL, the temptation to use short-cuts to the traditional day in court promised all litigants and demanded by fundamental fairness can be immense. The professor offers some powerful arguments against one such short-cut.