Supreme Court Rejects Class Action Plaintiffs’ Attempts to Circumvent Rule 23(f)

As previously discussed on this blog, the Supreme Court granted certiorari to address the question of whether federal courts of appeals have jurisdiction to review an order denying class certification after the named Plaintiffs voluntarily dismissed their claims with prejudice. In the June 12, 2017 decision in Microsoft Corp. v. Baker, the high court answered this question with a very resounding “no.”

In Baker, a putative class of owners of Microsoft Corporation’s Xbox 360® video game console filed suit, alleging that the console suffered from a design defect that gouged game discs. Microsoft opposed Plaintiffs’ motion to certify the class. The District Court denied certification, citing comity considerations and relying on the class certification denial in a similar case. The Ninth Circuit denied the Plaintiffs’ 23(f) petition for interlocutory appeal. Plaintiffs then voluntarily dismissed the case with prejudice for the express purpose of obtaining immediate Ninth Circuit review of the District Court’s denial of class certification. Plaintiffs filed an appeal from the final judgment, challenging the denial of class certification, but not the order dismissing the case with prejudice. The Ninth Circuit held that it had jurisdiction under 28 U.S.C. § 1291 because the stipulated dismissal did not involve a settlement, and thus was a sufficiently adverse and appealable, final decision.

The Supreme Court disagreed. Justice Ginsburg, writing for the 5-justice majority, held that “the voluntary dismissal essayed by respondents does not qualify as a ‘final decision’ within the compass of §1291.” The Court grounded its holding on the importance of section 1291’s firm finality principle, which is “designed to guard against piecemeal appeals.” Relying on its 1978 decision in Coopers & Lybrand v. Livesay, the Court explained three ways that the “death knell” theory—i.e., the theory that a denial of class certification can effectively end a lawsuit for all practical purposes—threatened Section 1291’s finality requirement. First, the doctrine raised the potential for multiple interlocutory appeals, because a death-knell plaintiff could, following a successful appeal of a ruling denying class certification on one ground, then again claim an appeal “as a matter of right” following the denial of class certification on a different ground. Second, the death-knell theory forced appellate courts indiscriminately into the trial process, circumventing the two-tiered “screening procedure” Congress established for interlocutory appeals in 28 U.S.C. §1292(b). And finally, the doctrine “operat[ed] only in favor of [P]laintiffs,” even though the class-certification question may be critically important to defendants as well.

The Court also noted the importance of Rule 23(f)’s procedure, which was “put in place for immediate review of class-action orders.” Following the invocation of Rule 23(f) here, which was denied by the Ninth Circuit, Plaintiffs had several options, as the Court noted: (1) they could have settled their claims, (2) they could have petitioned the District Court, pursuant to §1292(b), to certify the interlocutory order for appeal, (3) they could have proceeded to litigate the case, mindful that the District Court could later reverse course and certify the proposed class, or (4) they could have litigated the case to final judgment and then appealed.

Justice Thomas wrote a concurring opinion, joined by the Chief Justice and Justice Alito, on the grounds that the voluntary dismissal with prejudice resulted in a “final decision,” and as such, Plaintiffs “could not appeal because the Court of Appeals lacked jurisdiction under Article III of the Constitution.” In other words, because Plaintiffs consented to the judgment against them, “the parties were no longer adverse to each other on any claims, and the Court of Appeals could not affect their rights in any legally cognizable manner.” Justice Gorsuch did not take part in the opinion.

In short, the Court rejected Plaintiffs’ voluntary-dismissal tactic, as it invited protracted litigation and piecemeal appeals. Now, regardless of whether the decision is grounded in Section 1291 or Article III, it should now be very clear to class action plaintiffs that their only recourse following the denial of class certification or the striking of their class claims is through Rule 23(f) or by litigating their individual claims to finality.

Caroline E. Oks is an Associate in the Gibbons Business & Commercial Litigation Department.
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