Smith v. Bayer Corp. (09-1205)
Oral argument: Jan. 18, 2011
Appealed from: United States Court of Appeals for the Eighth Circuit (Jan. 5, 2010)
CLASS ACTION, MULTIDISTRICT LITIGATION, COLLATERAL ESTOPPEL, ANTI-INJUNCTION ACT
Bayer Corporation manufactured and distributed Baycol, a prescription cholesterol medication that was linked to thirty-one deaths. After removing Baycol from the market, Bayer was sued by thousands of individuals. These individual claims, including the claim of an individual seeking economic damages under the West Virginia Consumer Credit and Protection Act, were consolidated for pre-trial motions in the United States District Court for the District of Minnesota. Two other individuals separately sued Bayer under the West Virginia Consumer Credit and Protection Act in West Virginia state court. The federal district court denied class certification of the West Virginia economic damages claim, determining that such claims required individual damages. Bayer moved to enjoin certification of the economic damages claim in West Virginia state court based on the district court's decision. The district court granted the injunction and the Eighth Circuit affirmed, concluding that the claim fit the “relitigation exception” to the Anti-Injunction Act because the decision met the requirements of collateral estoppel. The Supreme Court granted certiorari to determine whether the relitigation exception applies when the parties and issues involved in two actions are not entirely identical and whether a court can have jurisdiction over an absent class member or a nonparty if a class does not actually exist because the court denied certification. This decision may affect the ability of individuals to bring class actions in state court or, alternatively, the ability of defendants in federal class actions to efficiently preclude similar state court claims.
1. Among the elements for the doctrine of collateral estoppel to be used in support of the relitigation exception to the Anti-Injunction Act are requirements that the state parties sought to be estopped are the same parties or in privity with parties to the prior federal litigation and that issues necessary to the resolution of the proceedings are also identical. In determining whether issues are identical, courts have also recognized that state courts should have discretion to apply their own procedural rules in a manner different from their federal counterparts. Can the district court's injunction be affirmed when neither the parties sought to be estopped nor the issues presented are identical? ??
2. It is axiomatic that everyone should have his own day in court and that one is not bound by a judgment in personam in a litigation in which he has not been made a party by designation or service of process. One exception to this rule are absent members of a class in a properly conducted class action because of the due-process protections accorded such absent members once class certification has been granted. Does a district court have personal jurisdiction over absent members of a class for purposes of enjoining them from seeking class certification in state court when a properly conducted class action had never existed before the district court because it had denied class certification and due-process protections had never been afforded the absent members?
Whether the Anti-Injunction Act’s relitigation exception allows a federal court to enjoin parties seeking a class certification in state court under state procedural rules when the federal court previously denied certification of a similar class with similar issues under federal procedural rules.
From 1997 to 2001, Bayer Corporation ("Bayer") manufactured and distributed Baycol, a prescription medicine designed to lower cholesterol. See Smith v. Bayer, 593 F.3d 716, 719 (8th Cir. 2010). Bayer removed Baycol from the market after the medication was linked to thirty-one deaths. See id. Thousands of individuals sued Bayer following the removal of the product, and the Judicial Panel for Multidistrict Litigation consolidated the claims in the United States District Court for the District of Minnesota ("Multidistrict Court"). See id. at 720.
In 2001, George McCollins sued Bayer in West Virginia state court, representing a class of individuals who did not experience physical side effects from Baycol, claiming only to have suffered economic loss under the West Virginia Consumer Credit and Protection Act ("WVCCPA"). See Smith, 593 F.3d at 720. Bayer removed McCollins' case to the Multidistrict Court. See id. Soon after in 2001, Keith Smith and Shirley Sperlazza also sued Bayer under the WVCCPA in West Virginia state court, claiming to represent a class of individuals harmed only economically. See id. Bayer was unable to remove this claim to the Multidistrict Court because the one-year statute of limitations for removal had passed. See id. Additionally, Smith's claim preceded the enactment of the Class Action Fairness Act of 2005, which would have allowed Bayer to remove Smith's claim despite the statute of limitations. See id.
In 2008, Bayer moved to deny McCollins' class-action certification because McCollins failed to show that Baycol harmed him or that the product did not provide health benefits. See Smith, 593 F.3d at 720. The Multidistrict Court agreed, denying McCollins' certification because under West Virginia law an economic loss claim required an individual showing of harm and was not suitable for class action. See id. at 721. Following the McCollins decision, Smith sought to have his economic loss claim certified as a class action in West Virginia state court. See id. Bayer sought an injunction in the Multidistrict Court to prevent Smith from relitigating the Multidistrict Court's denial of class certification for an economic loss claim. See id. The Multidistrict Court granted the injunction, holding that Smith was an absent class member to the McCollins litigation. See id.
Smith appealed to the Multidistrict Court's decision to the United States Court of Appeals for the Eighth Circuit. See Smith, 593 F.3d at 721. The Eighth Circuit determined that the Smith injunction fit the relitigation exception to the Anti-Injunction Act, which would ordinarily prevent a federal court from interfering in state court proceedings. See id. The Eighth Circuit determined that the relitigation exception applied under the doctrine of collateral estoppel, which generally prevents parties from bringing subsequent litigation of final determinations of law and fact. See id. The Eighth Circuit determined that collateral estoppel applied because the Multidistrict Court's decision in the McCollins case concerned issues identical to those in the Smith case, as both were brought under the WVCCPA and the McCollins' suit adequately represented Smith's interests. See id. at 721–22.
On September 28, 2010, the Supreme Court granted Smith's petition for certiorari to determine whether the relitigation exception allows a federal court to enjoin parties seeking a state court class certification under state procedural rules when the federal court previously denied certification of a similar class with similar issues under federal procedural rules. See Smith v. Bayer, 131 S. Ct. 61 (2010).
The crux of this case turns on the Supreme Court's interpretation of the relitigation exception to the Anti-Injunction Act. The Court will determine whether nonparties of an uncertified class may be bound in state court by a federal court's procedural determinations when the issues involved are not entirely identical.
Fairness Considerations in Applying the Relitigation Exception
Bayer argues that the Eighth Circuit correctly applied the relitigation exception barring absent class members from relitigating class certification of the same claim in state court. See Brief for Respondent, Bayer Corporation at 10. Bayer contends that reconsideration of the claim would undermine this equitable principles supporting preclusion. See id. at 22–23. The Products Liability Advisory Council ("PLAC") maintains that reconsideration of the issue would only waste limited judicial resources and needlessly impose additional costs on the parties. See Brief of Amicus Curiae Products Liability Advisory Council, Inc. (“PLAC”), in Support of Respondent at 7–9. In contrast, Smith argues that a ruling for Bayer would unfairly bind him because he was not a member of the Multidistrict Court suit and the issues involved are not identical. See Brief for Petitioners, Keith Smith & Shirley Sperlazza at 8.
Federalism, State Sovereignty, and the Anti-Injunction Act
Smith asserts that federalism concerns support allowing a state court to interpret its own procedural rules. See Brief for Petitioners at 8. Smith argues that the Anti-Injunction Act was established to protect state sovereignty from federal interference, and that the independence of state courts requires the maintenance of a balanced dual court system. See id. at 12–13. Smith contends that the limited exceptions to the Anti-Injunction Act were established to promote the effectiveness and supremacy of federal law, yet the issue in this case involves only questions of state law. See id. at 17. Considering the absence of federal issues, Smith maintains that the relitigation exception should not be expanded in this case. See id. at 13. Furthermore, he reasons that the dual system fairly allows parallel claims to proceed in both state and federal court because the principles of res judicata can adequately resolve any resulting conflicts. See id.
On the other hand, PLAC argues that parallel claims lead to inefficiency and that the relitigation exception ensures that federal decisions cannot be undermined by multiple, often purposefully duplicative claims. See Brief of PLAC at 12. PLAC further cautions that multidistrict litigation and the ability to consolidate class-action claims would be significantly undermined if federal courts were unable to enjoin state courts from relitigating class certifications. See id. at 13. Additionally, Bayer argues that the relitigation exception should apply because the claim implicates a strong federal interest rather than merely involving a question of state law. See Brief for Respondent at 18. Bayer contends that federalism supports a uniform application of federal preclusion because of the interconnectedness of preclusion and the federal rules of civil procedure. See id.
Clarity and Predictability of the Relitigation Exception
Steven Thorogood and Martin Murray, two individuals facing similar certification issues in their own class actions in other federal courts, argue that the Court should side with Smith and adopt a bright-line rule to provide clarity in applying the relitigation exception. See Brief of Amici Curiae Steven J. Thorogood & Martin Murray in Support of Petitioners at 2–4. Thorogood and Murray contend that the Eighth Circuit’s standard is unpredictable in its application, leading to inefficiency and ineffectiveness. See id. at 4–5. They propose a rule requiring a defendant to provide minimal due process protections, such as notice, to nonparties and absent members of both certified and non-certified class actions. See id. Thorogood and Murray maintain that an objective, clear rule will protect the due process rights of plaintiffs and provide predictability for defendants, while eliminating conflicts between both state and federal courts. See id. at 7. Nevertheless, Bayer asserts that the Eighth Circuit’s ruling provides a definite rule and that reconsideration of certification in state court would only waste time and resources considering the similarity of the procedural rules. See Brief for Respondent at 29.
Keith Smith and Shirley Sperlazza (“Smith”) argue that they should not be precluded from seeking class certification under state procedural rules after a federal court denied class certification to another potential class of litigants using its own procedural rules. See Brief for Petitioners, Keith Smith & Shirley Sperlazza at 17–18. Thus, Smith states that the relitigation exception to the Anti-Injunction Act (“AIA”) does not apply. See id. Respondent Bayer Corporation (“Bayer”), however, argues that that the exception does apply here because Smith is merely seeking to relitigate the same issue that was already decided by the federal court, and Smith’s interests were adequately represented by the earlier plaintiffs. See Brief for Respondent, Bayer Corporation at 17.
Does the Anti-Injunction Act Apply Here?
Under the exceptions to the Anti-Injunction Act (“AIA”), a federal court may enjoin duplicative state court proceedings when expressly authorized by Congress or when necessary to effectuate or protect its prior judgments. See Brief for Petitioners at 14. The All Writs Act provides a federal court with the authority to issue an injunction against state proceedings. See id. at 15. An injunction may extend to persons who were not parties to the original action but who may hinder the execution of a court order. See Brief for Respondent at 14. The AIA’s relitigation exception is based on principles of res judicata and collateral estoppel, which prevent parties from relitigating the same cause of action or issue that was the subject of a valid final judgment. See Brief for Petitioners at 14–15. In applying this exception, a federal court uses federal common law, which allows federal courts to incorporate the relevant state’s collateral estoppel doctrine to determine the preclusive effect of a federal court judgment. See id. at 15–16.
Smith argues that West Virginia’s collateral estoppel doctrine is consistent with the federal common law. See Brief for Petitioners at 16–17. Smith states that they both require that the issues be identical in both proceedings, that the prior action be a final judgment on the merits, that the party against whom it is being invoked be a party or in privity with the earlier party, and that the prior party had a full and fair opportunity in the prior action to litigate the issue. See id. at 16. Accordingly, he argues that in the relevant state court proceeding, there is no federal legal issue that needs protection through an injunction. See id. at 17. Thus, Smith believes that AIA’s exceptions, which are aimed at protecting the efficiency and preeminence of the federal law, should not apply here. See id. at 18.
Bayer contends that Smith overlooks the “powerful federal interests that support the application of uniform federal preclusion law.” See Brief for Respondent at 18. Accordingly, Bayer argues that a clear federal rule is necessary to determine who is bound by a class-action suit and to avoid unnecessary relitigation of class certifications. See id.
Is Smith a Party to the McCollins Action?
Smith argues that, because he was not a party to or in privity with any parties in McCollins, the AIA’s relitigation exception and collateral estoppel are inapplicable. See Brief for Petitioners at 18. Bayer, however, argues that Smith is bound by the class certification denial because Smith was an adequately represented unnamed party in McCollins. See Brief for Respondent at 32. Thus, the company states that even if a class is not certified, unnamed class members may properly be treated as parties in accordance with the objectives of class-action litigation and the goal of preventing duplicative actions. See id. at 33. Bayer adds that even if Smith was not considered a party, he would still be bound under nonparty preclusion principles because McCollins shares the same interests as Smith, McCollins understood that he was acting in a representative capacity, and the federal court took care to protect the interests of nonparties. See id. at 34–36.
Smith, however, argues that a properly conducted class action is alone insufficient to support nonparty preclusion. See Brief for Petitioners at 41. He adds that the exceptions to the rule against nonparty preclusion are recognized only if the procedural safeguards in Rule 23 of the Federal Rules of Civil Procedure (“FRCP”), such as adequate representation, right to notice, an opportunity to be heard, and a right to opt out, are met. See id. Smith also argues that these class-action safeguards are only given to class members upon the beginning of a class action, which occurs after class certification. See id. at 42. Conversely, Smith contends that when certification is denied as in the McCollins case, there has been no guarantee of a properly conducted class action; all that remains is the original individual lawsuit that sought class certification, the adjudication of which cannot bind absent members of the previously proposed class. See id.
Bayer counters that the touchstone of preclusion in class actions is adequate representation, which was met here, and that although class certification was denied, Smith may still be held to nonparty preclusion. See Brief for Respondent at 36–38. Smith, however, argues that the district court merely presumed adequate representation rather than expressly finding it and the court did not acknowledge that it would bind absent members to its class certification denial. See Brief for Petitioners at 47.
Is Smith Litigating the Same Issue from McCollins?
Smith argues that collateral estoppel cannot properly be applied under the AIA’s relitigation exception because the issues presented here are not identical to those in the McCollins action as Smith has asserted a common law claim of fraud that McCollins did not assert. See Brief for Petitioners at 19. Bayer, however, believes that Smith is seeking to certify the same class of West Virginia citizens on the same legal theory rejected in McCollins. See Brief for Respondent at 19. Bayer adds that common law fraud claims, similar to the claims made in McCollins, require “individual proof of injury that predominates over common issues” and thus cannot support a class action under the FRCP. See id. at 30–31.
Still, Smith argues that the West Virginia court would be using its own rules to determine class certification issues, rather than the FRCP used in McCollins. See Brief for Petitioners at 19. Smith adds that because a court has wide discretion in making its procedural ruling on class certifications and this ruling is collateral to a suit’s merits, a later court should have discretionary power to decide whether to follow a prior court’s class certification denial regarding similar class certification issues. See id. at 20–21.
Bayer, however, believes that although a state court may apply its rules differently than a federal court, this factor does not give rise to a different issue for class certification purposes, especially since the state rule at issue here is identical to the rule for class actions under the FRCP. See Brief for Respondent at 22. Thus, Bayer argues that a discretionary ruling would still result in preclusion if it were “fully and fairly litigated and essential to a judgment that binds the parties.” See id. at 27.
What Due Process Protections are Afforded when a Class Certification is Denied?
Smith argues that without notice, citizens of another state will likely never know that there is a case seeking class certification of that state’s residents in another state’s court, and without this knowledge it will be difficult for them to appeal. See Brief for Petitioners at 50. Thus, he contends that due process protections, including notice, have been expressly incorporated into Rule 23 and are necessary to bind absent class members to a judgment, at least in certain class actions. See id. at 36, 39. Accordingly, he argues that notice, rather than adequate representation, is the touchstone of the procedural due process required in class actions. See id. at 36–37. In response, Bayer argues that notice is not required before binding unnamed class members to a class certification denial because unnamed class members are bound to a ruling on the procedural issue of class certification, not to a judgment on the merits of their individual claims. See Brief for Respondent at 41–42.
This case will determine whether the Anti-Injunction Act’s relitigation exception allows a federal court to enjoin parties from seeking a class certification in state court under state procedural rules, even though the state party was absent from the federal court’s certification denial. Smith argues that he was not a party to the prior denial of certification in federal court and that he presents different issues to be litigated. Bayer argues that Smith is enjoined from seeking state court class certification because he was adequately represented in the federal proceedings and he is only seeking to certify the same class and issues previously denied by the federal court. The Court’s decision may affect the ability of individuals to bring class actions in state court when similar claims exist in federal court. Alternatively, the decision may decrease the ability of federal class-action defendants to efficiently consolidate claims and preclude similar litigation in state courts.
Edited by: Chris Maier
· Forbes, Daniel Fisher: Class-Action Foes Have Trifecta Before Supreme Court (Dec. 20, 2010)
· Mass Tort Litigation Blog, Elizabeth Burch: Supreme Court to Hear Case on the Anti-Injunction Act's Relitigation Exception (Oct. 7, 2010)