A Tale of Two Class Actions: U.S Supreme Court Ruling Allows State Litigation to Proceed Despite Federal Injunction

06/21/2011

On June 16, 2011, the Supreme Court issued an opinion in Smith v. Bayer allowing a plaintiff to pursue class certification in a state court action after a federal court had denied certification in a substantially similar case. The Court held that it was improper for the federal court to enjoin the state proceeding under the “relitigation exception” of the Anti-Injunction Act because the issues were not identical and the state court plaintiff was not a party to the federal lawsuit. This holding may permit plaintiffs’ counsel to make repeat attempts at obtaining class certification in different jurisdictions, thereby increasing class action defendants’ potential exposure to liability. For class action defendants, the decision also highlights the importance of strategically seeking to remove cases to federal court and consolidating related actions in a single forum.

Background

Thousands of lawsuits were filed against Bayer after it withdrew its cholesterol-reducing drug Baycol from the market in August 2001. Among those cases were two putative class actions filed in West Virginia state court. Bayer removed one of those cases, the McCollins case, to federal court on the basis of diversity jurisdiction. The Smith case, however, could not be removed from state court because it included several West Virginia defendants, destroying complete diversity. The McCollins case was subsequently transferred by the Judicial Panel on Multidistrict Litigation for coordinated pre-trial proceedings with the other federal cases.

In 2008, the federal district court denied class certification in the McCollins case, finding that common issues did not predominate because each member of the putative class would need to individually show actual injury and causation.

Shortly after the denial of class certification in the McCollins case, the plaintiffs in the Smith case asked the West Virginia state court to certify essentially the same class that had been rejected by the federal court. At Bayer’s request, the federal court issued an injunction preventing the state court from relitigating the class certification issue. On appeal, the Eighth Circuit upheld the injunction. Although the federal Anti-Injunction Act generally prohibits federal courts from enjoining state court proceedings, the court held that an injunction was permitted in this instance under a “relitigation exception,” which precludes litigants from attempting to relitigate an issue in state court that has already been decided by the federal court. The court reasoned that Smith should be precluded from attempting to certify “the same class” in a suit involving the “same legal theories.” Smith appealed the Eighth Circuit’s ruling to the Supreme Court.

The Supreme Court’s Opinion

The Supreme Court reversed the Eighth Circuit and vacated the district court’s injunction, finding that the “relitigation exception” to the Anti-Injunction Act was inapplicable for two reasons.

First, the Court held that the issue decided by the federal court was not identical to the issue presented to the state court, even though the substantive claims and proposed classes were substantially the same. The federal court’s denial of class certification was premised on the predominance requirement of Federal Rule of Civil Procedure 23(b). The Supreme Court noted that the district court never considered the procedural issue before the state court—whether certification would be appropriate under West Virginia’s Rule 23. Though the language of both rules is similar, the Supreme Court held that West Virginia courts had explicitly rejected the federal predominance analysis in a previous case. Because West Virginia state courts apply a different procedural standard than federal courts at the certification stage, the Court held that the issues were not identical and thus injunction was improper.

Second, the Court held that the plaintiff in the state court Smith case did not have the requisite connection to the federal suit to be bound by the federal court’s judgment. Although Smith was a member of the proposed class in the federal suit, the Supreme Court held that a non-named class member is not a party to the litigation until the class is certified. As a non-party to the federal case, the Supreme Court held that Smith could not be bound by the ruling in that case. The Supreme Court was not swayed by Bayer’s policy argument that if district courts cannot bind non-named class members when they deny certification, plaintiffs’ counsel may simply substitute a new named plaintiff and take another bite at the certification apple. The Supreme Court noted that comity among courts helps mitigate the costs of similar litigation brought by different plaintiffs. In addition, the Class Action Fairness Act, enacted in 2005, now allows defendants to remove to federal court certain class actions where there is minimal diversity of citizenship. Overlapping federal lawsuits can then be consolidated in a single court.

Implications of the Decision

The Supreme Court’s decision in Bayer underscores the risks of defending multiple class actions in various jurisdictions. In addition to the cost and expense of duplicative litigation, prevailing at the certification stage in federal court will not preclude a plaintiff in another case from seeking to certify the same class, nor will it ensure a uniform result. Bayer highlights the importance to class action defendants of strategically seeking to remove cases to federal court and consolidating related actions in a single forum.

For more information on the firm’s Class Action practice, please contact one of the attorneys listed below. You may also view the alert in the PDF linked below.

Thad Behrens

214.651.5668

thad.behrens@haynesboone.com

 

Nicholas Even

214.651.5045

nick.even@haynesboone.com

 

Carrie L. Huff

214.651.5509

carrie.huff@haynesboone.com

Odean Volker

713.547.2036

odean.volker@haynesboone.com

Daniel H. Gold

214.651.5154

daniel.gold@haynesboone.com

David Dodds

214.651.5566

david.dodds@haynesboone.com

PDF - Smith_v_Bayer.pdf

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