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Posts Tagged ‘issue preclusion’

Earlier today, the Supreme Court issued its third of four class action-related decisions for the October 2010 term.  In Smith v. Bayer Corp., No. 09-1205, the Court held that a federal court exceeded its authority when it issued an injunction preventing a state court from considering whether to certify a class on claims in which the federal court had previously denied class certification. 

Justice Kagan’s opinion involves a fairly straightforward academic analysis of the “re-litigation exception” to the federal Anti-injunction Act and principles of issue and claim preclusion: where a state court applies a different class certification standard than the standard applicable under FRCP 23, the issue decided in the federal action on class certification is not the same as the one to be decided in the state court proceeding.

However, the practical impact of the decision is that a plaintiffs’ lawyer who is unsuccessful in seeking class certification in federal court can try again in a state that applies a different class certification standard.  Of course, the successive class action is potentially subject to removal under the Class Action Fairness Act (CAFA), but if one of the exceptions to CAFA applies, such as the home state or local controversy exception, the Court’s decision paves the way for multiple bites at the class certification apple.

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Earlier today, the U.S. Supreme Court held oral argument in  Smith v. Bayer, which raises the question of a federal court’s power to enjoin a state court from considering class certification after the federal court had previously denied certification.  A copy of the argument transcript is available for download at the Supreme Court’s website.  Some of the key lines of inquiry from the Court can be summarized as follows:

  • Are there differences between FRCP 23 and West Virginia Rule 23 that should have prevented the application of issue preclusion?
  • Even if the elements of the two rules are substantially the same, does the fact that the West Virginia courts take a more favorable “tone” toward class certification mean that they are different for the purposes of an issue preclusion analysis?
  • Does an individual have a protected due process right to be heard on a procedural issue, such as the appropriateness of class certification, as opposed to a substantive right or cause of action?
  • Does it matter whether the plaintiff in the second case could have intervened in the first one?
  • Why isn’t it sufficient that the state court in a subsequent case can decide to apply issue preclusion, as opposed to the federal court enjoining the state court from even considering the question?
  • Does the absense of a formal judgment mean that the relitigation exception of the Anti-injunction Act cannot apply to class certification orders at all?
  • Can the plaintiff and his or her counsel who unsuccessfully sought class certification in one case be considered sufficiently representative of other absent class members and their counsel to satisfy the identity of interest requirement of issue preclusion?

Although most of the questions involved how the case should be decided under express statutory language and established legal principles, it seems reasonable to expect that the Justices’ views on federalism, and the proper balance between federal and state power, will flavor the Court’s decision.  The federalism theme is one that counsel for the plaintiffs, Richard A. Monohan, fell back to on several occasions during the argument.  Perhaps not coincidently, two of the members of the Court’s conservative bloc, Justice Scalia and Chief Justice Roberts, asked some of the more biting questions implicating the fairness of precluding a new party from re-litigating an unsuccessful attempt at class certification by a different party.

To this point, the Roberts Court’s direction on issues of federalism has been less than clear (see this September 2010 National Law Journal article by Marcia Coyle).  This case offers the opportunity to start charting a more specific course.  At the same time, this is the kind of case that can foster unpredictable alliances within the Court.  For example, the states’ rights supporters may find themselves joining forces with one or more Justices who see unfairness in preventing absent class members from having their day in court on the issue of class certification. 

On the other hand, predicting the outcome or rationale of Supreme Court cases is a lot like predicting the NFL playoffs.

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I commented recently on the fact that the well publicized “class-action” trial against the United States Department of Veteran’s Affairs was never actually certified as a class action.  Instead, the case is being pursued by two nonprofit veterans’ advocacy groups who are pursuing the case on behalf of their members based on a concept called associational standing.  The popular media often uses the misnomer “class action” to define a wide range of lawsuits in which one or a few litigants prosecute a case on behalf of a larger group of interested parties.  Here is a partial glossary of them, along with some other terms often associated with representative actions:

Class Actions – Class actions are brought by one or more class representatives on behalf of a larger group of similarly situated people or legal entities.  Rule 23, Federal Rules of Civil Procedure, and similar state rules of civil procedure, govern whether a case can proceed as a class action.  A case does not become a true class action until the judge certifies a class.  Before a class is certified, lawyers and courts often refer to the case as a putative class action.

Derivative Suits – These lawsuits are brought by shareholders of a corporation on behalf of the corporation to pursue the rights of the corporation that the corporation itself has failed to enforce.  Derivative suits are governed by Rule 23.1, Federal Rules of Civil Procedure and similar state court rules.  A lawyer considering a lawsuit for corporate wrongdoing may face a choice between filing the case as a class action or a derivative suit.  See this recent WSJ Law Blog article for a recent example.

Collective actions – Some statutes, notably the federal Age Discrimination and Employment Act (ADEA) and Fair Labor Standards Act (FLSA), allow a court to certify a collective action as opposed to a representative action.  The key difference between these collective actions and representative actions like class actions is that in a collective action, absent parties are asked whether they want to opt in to the lawsuit.  By contrast, in a class action, absent parties are bound by the result of the litigation unless they opt out of the case after getting notice.  Many FLSA cases are brought as both collective actions and class actions.   The collective action procedure covers the FLSA claim, while the class action procedure governs any related state law claims.  Here’s a good article for more detail on the distinctions between collective actions and class actions.

Attorney general actions – State attorneys general and other governmental authorities (like the Federal Trade Commission) may, by statute, bring actions to enforce the rights of consumers and the public at large.  Here’s a link to the Colorado Attorney General’s consumer protection page.  See the Federal Trade Commission website for examples of consumer actions being pursued by the FTC.

Parens patriae actions – Parens patriae actions are a species of attorney general actions in which the government brings claims to recover monetary losses on behalf of its citizens.  In these actions, the government stands in the shoes of individual citizens and prosecutes the action to recover money for their benefit.  Here’s a link to a paper addressing parens patriae actions.

Private attorney general actions – Some statutes allow any person to bring an action to protect the rights of the public.  Until recently, an example of a statute allowing this type of action was the California Unfair Competition Law, Business & Professions Code Section 17200, which allowed a case to be brought on behalf of consumers injured by a defendant’s act of unfair competition, whether or not the plaintiff him or herself was harmed in any way.  This changed recently when the voter referendum Proposition 64 was passed, which requires a litigant to have lost money or other property as a result of the challenged practice, and must be able to satisfy the requirements for a class action in order to be allowed to pursue a UCL claim in a representative capacity.  A great resource for developments on the UCL is Kimberly Kralowec’s blog The UCL Practitioner.  Another example is California’s Labor Code Private Attorneys General Act of 2004 (PAGA), also called the Bounty Hunter Statute, which allows employees to pursue violations of the state labor code whether or not they had suffer injury, including the ability to pursue statutory penalties on behalf of the state and to share in any recovery of those penalties.  Here’s a link to an interesting California Court of Appeal decision addressing both PAGA and the UCL and the viability of an assignment of representative claims under those laws.

Qui tam actions – The federal False Claims Act is another example of a law that allows a private individual to pursue an action on behalf of the government.  An individual who has information about the misappropriate or theft of government funds may file an lawsuit under the Act known as a qui tam action.  The government has an opportunity to decide to take over the prosecution of the case, but if it declines, the person who filed the action may proceed and in the event of a recovery, he or she is entitled to a portion of the recovery.  Here is a link to an article summarizing the federal False Claims Act.

Associational actions – An association may, in some circumstances, bring an action on behalf of its members.  See this previous entry regarding the recent trial against the VA for more discussion on the requirements for associational standing.

Mass actions – Many lawsuits that people commonly associate with the term “class action” are really mass actions.  Mass actions are cases that involve the joinder of many individual claims for discovery, resolution of certain legal issues, or other purposes.  Unlike class actions, however, each claim ultimately has to be brought by an individual plaintiff, who must have some involvement in the proceedings.  Examples include many products liability cases, like those involving alleged injuries caused by tobacco, asbestos, or pharmaceuticals, where a common set of acts form the basis of a the claim for liability but where the effects are too individualized to establish all of the requirements necessary to support a true class action.  They may also be cases involving claims that arise from a single catastrophic event, like an airplane crash, toxic leak, or oil spill.  A well-known example is the Exxon Valdez oil spill case.  When numerous mass actions against the same defendant or group of defendants are filed in the federal courts, the cases are often transferred to a single district court under rules promulgated by the United States Judicial Panel on Multidistrict Litigation (MDL)

Bellwether trials – This is not so much a type of lawsuit but rather a procedural device to assist in resolving cases involving similar claims.  A bellwether trial is a essentially a sample test case, where one claim or set of claims are tried first to establish a precedent for the rest.  Bellwether trials generally cannot be used to bind parties in one case to the results of another, but they can be a useful tool for providing information to assist attorneys with valuing similar cases for settlement purposes.  Here are some good entries discussing bellwether trials from the Drug and Device Blog and the Mass Tort Litigation Blog.

Aggregator actions – For lack of a better phrase, this novel procedural vehicle involves the assignment of various plaintiffs’ right to pursue a lawsuit to a single person or entity, called an aggregator.  This procedural device is at issue in a case now pending before the United States Supreme Court.  See this entry at SCOTUS Blog.

Virtual representation – This is a concept applied in the trusts and estates area.  Under the doctrine of virtual representation, the participation in a proceeding of one heir or trust beneficiary can sometimes be deemed to be sufficient to protect the interests of unborn, unascertainable, or minor beneficiaries who could not otherwise appear.  See page 20 of this comprehensive summary of the 2005 Uniform Trust Code.

Non-mutual offensive collateral estoppel – The doctrine of collateral estoppel, or issue preclusion, provides that a party can be prevented from relitigating certain issues that were previously resolved against it.  Ordinarily, the concept applies to issues that were previously litigated between the same parties, but is sometimes possible for a plaintiff to bind a defendant to an earlier ruling in a case in which the plaintiff was not a party, if the earlier case involved a plaintiff with similar interests, and if the defendant had the same incentives to defend the lawsuit.  This doctrine has been applied only in very limited situations.  For a good analysis, see this Ninth Circuit Court of Appeals opinion

Reverse Bifurcation – Is a controversial procedure used in the West Virginia courts in which the punitive damages phase of a mass tort case against a defendant is tried before the liability phase.  See previous entries here, here, and here.

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As defense lawyers, our instincts tell us to take our shot at a dispositive ruling on the merits if it might allow us to avoid a class certification hearing.  We know that the material facts aren’t in dispute and that we should win on the law, if we can just get the judge to ignore the plaintiffs’ attorneys constant spin and obfuscation and focus on the real legal issues.  The named plaintiff has no case, and consequently, the class has no case either.  We hardly ever answer until our motion to dismiss is denied.  If the motion to dismiss doesn’t work (which is almost always because the judge is overwhelmed and doesn’t want to take a chance at possible reversal by dismissing the case too early) we look for the first opportunity to file a motion to strike, a motion for judgment on the pleadings, a motion for ruling as a matter of law, or if all else fails, a motion for summary judgment.

But contrary to those instincts, filing a summary judgment motion before certification proceedings in a class action can be a lose-lose proposition.  If the defendant loses the motion, there is a good chance that the court won’t look seriously at the issue in another pretrial motion filed after certification, when the facts are likely to be more fully developed.  On the other hand, if the defendant wins, the victory may be a hollow one because the judgment is not likely to be given any preclusive res judicata or collateral estoppel effect as to absent class members.  Thus, winning a pre-certification summary judgment does not guarantee an end to the exposure.  Any other member of the putative class can simply file a class action under the same legal theory in a new case.

Some may consider the mere suggestion heresy, but there are situations where a defense lawyer might even consider counseling a client to stipulate to class certification in order to get a final resolution on the merits of a claim that is binding on all potential plaintiffs.  

Of course, it’s a rare case where the potential reward of guaranteed claim or issue preclusion justifies the risk of a classwide adverse judgment.  Usually, winning a dispositive motion against the named plaintiff promises to mark the end of the litigation for all practical purposes, either because the ruling is likely to dissuade the same or other plaintiffs’ attorneys from spending the time and effort pursuing a similar theory of liability, because the plaintiff is one of very few individuals willing an able to serve as class representative, or because a subsequent class action would be time-barred (this raises the issue of piggybacking of successive class actions, which is a subject for another day).

But even if it is likely in many cases that the potential benefits of filing a dispositive motion before pre-certification will ultimately carry the day, it is always a good idea to first consider the preclusive effect–or lack thereof–of a pre-certification judgment.

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