Published on: 6/17/2011
On Thursday, June 16, 2011, the U.S. Supreme Court handed down its decision in Smith v. Bayer Corp. The principal issue before the Court was whether a Federal District Court decision denying class certification could be used as the basis for an injunction against a state court proceeding seeking to certify the same class of personal injury plaintiffs. The Court’s answer: No.
The case involves Bayer’s cholesterol lowering drug Baycol. In August 2001, plaintiff George McCollins brought suit in West Virginia state court, alleging that Baycol was defective. Plaintiff McCollins asked the state court to certify a class of all West Virginians that had purchased the product. The McCollins suit was subsequently removed to federal court.
Approximately one month later the Smith case was filed in West Virginia state court, alleging that Baycol was a defective product, and asking the state court to certify a class of all West Virginians that had purchased the product.
In 2008, the federal court judge issued a decision denying class certification in the McCollins case. Bayer promptly moved to enjoin further proceedings in the Smith case, arguing that the proposed class in the Smith case was identical to the one the federal court had just rejected. Bayer argued that the injunction was necessary to protect its judgment in the McCollins case, and therefore, the injunction did not offend the federal Anti-injunction Act. The District Court agreed with Bayer, holding that the injunction fit within the “relitigation exception” to the Anti-Injunction Act. On appeal, the Eighth Circuit affirmed.
In a strongly worded decision written by Justice Kagen, the Supreme Court has reversed the lower courts, holding that the West Virginia state court should decide whether the Smith class should be certified. The court emphasized that the relitigation exception is limited to those “rare” occasions where the prior federal adjudication clearly precludes a state court decision. In the ordinary case, the issue of preclusion will be decided by the state court. If there are “any doubts” then the federal court should refrain from issuing an injunction.
This case, says the Supreme Court, is not even close. First, the relitigation exception to the Anti-Injunction Act does not apply to this case because the federal courts and state courts apply different legal tests to decide the certification issue. Therefore, the “issue” of whether the state court should certify the class action “has not yet been litigated” so the relitigation exception is not applicable.
The Supreme Court also held that the Smith plaintiffs were not bound by the McCollins decision because neither a proposed class action nor a rejected class action may bind nonparties.
The Supreme Court acknowledged the policy concerns raised by Bayer, namely, that class action lawyers can abuse the system by repeatedly attempting to re-litigate issues of class certification. However, the Supreme Court stated that principles of stare decisis and comity are enough to protect against such litigation abuses. The Court also noted that changes made by the Class Action Fairness Act of 2005 (“CAFA”), which make it easier to remove class action cases with minimal diversity, should mitigate such abuses.
Businesses are forced to spend millions of dollars defending against class action suits. In most cases, the issue of class certification is not decided until after expensive discovery on the class certification issue is complete. Businesses fight to avoid class certification with the expectation that the issue, once decided, is final. Unfortunately, today’s decision by the Supreme Court takes away any certainty for businesses. A business that successfully defeats class certification in one court will undoubtedly face additional suits, in other courts.
Moreover, although the specific issue in Smith v. Bayer Corp. dealt with the power of a federal court enjoining a state court proceeding, today’s decision, and in particular the Court’s holding that denial of a class certification is without preclusive effect on nonparties, will inevitably be used by enterprising class action lawyers to bring “copy cat” class action suits in state and federal court. Contrary to the Supreme Court’s determination, these “near frivolous” tactics of some class action plaintiffs simply cannot be mitigated or eliminated by relying upon principles of stare decisis, comity, or CAFA. See Thorogood v. Sears, Roebuck & Co., 624 F.3d 842 (7th Cir. 2010).