Thursday, June 16, 2011

Supreme Court decides Smith v. Bayer

Today, the Supreme Court decided Smith v. Bayer (opinion here), applying the Anti-Injunction Act to reject a federal court's attempt to control state court class certification.

The federal MDL judge in the Baycol litigation had rejected class certification for a class of West Virginia plaintiffs, finding that common questions did not predominate because each plaintiff would have to prove actual injury.  One of the members of the putative class filed a lawsuit in West Virginia state court (it was non-removable because it included several West Virginia defendants in addition to Bayer), and sought class certification.  Bayer asked the MDL judge for an order enjoining the state court from hearing Smith's motion to certify the class, arguing that Smith's class action was identical to the one the federal court had rejected.  The judge granted the injunction and the Eighth Circuit affirmed.

The Supreme Court unanimously reversed in an opinion by Justice Kagan.  The Anti-Injunction Act, 28 U.S.C. 2283, generally prohibits federal courts from enjoining state court proceedings.  Bayer argued that this case fits within the Act's relitigation exception; according to Bayer, issue preclusion prevents Smith from relitigating the issue of class certification.  The Court rejected this argument for two reasons: (1) it's not the same issue, and (2) it's not the same party. 

It's not the same issue because states are entitled to interpret their own procedural rules differently from federal courts' interpretation of the Federal Rules of Civil Procedure.  Last year's ruling in Shady Grove Orthopedic Associates v. Allstate (2010) emphasized that Rule 23 applies in federal courts and state courts apply their own class action rules.  The text of West Virginia's Rule 23 is nearly identical to the federal rule, but as Justice Kagan explained, federal and state courts "can and do apply identically worded procedural provisions in widely varying ways."  In the Rezulin litigation, the West Virginia Supreme Court announced that it did not necessarily follow the federal approach to class certification, particularly on the question of predominance.  Given that the state does not follow the federal interpretation of Rule 23, issue preclusion cannot prevent relitigation of class certification and the injunction was improper.

It's not the same party because Smith was not a named plaintiff in the federal court case.  You can't bind a non-party, as the Supreme Court emphasized in Taylor v. Sturgell (2008), where it rejected nonparty preclusion on a theory of virtual representation.  Bayer argued that Smith was bound as a member of the class, but the Supreme Court pointed out that there was no class because class certification was rejected: "The definition of the term 'party' can on no account be stretched so far as to cover a person like Smith, whom the plaintiff in a lawsuit was denied leave to represent."

The Court got it right.  It's a complicated case but it was an easy decision.  State courts have their own rules and are entitled to decide what procedures to follow.  Even though a federal judge concluded (correctly, in my view) that the mass tort litigation involving Baycol was not suitable for a class action under Federal Rule 23, the West Virginia state court is entitled to decide that issue under the West Virginia class action rule.  But the decision shows how messy things get when mass disputes are litigated in both federal and state courts.  Justice Kagan's opinion acknowledges the "special problems of relitigation" that can be presented by class actions, but suggests that the solution lies in removal under CAFA and transfer under the MDL statute, rather than departing from fundamental principles of preclusion.

HME

June 16, 2011 in Aggregate Litigation Procedures, Class Actions, Pharmaceuticals - Misc., Rezulin | Permalink | Comments (0) | TrackBack (0)