Important Class Action Apparently Awaits the Ninth Justice
About a year ago, the United States Supreme Court granted Microsoft’s petition to review this question: “Whether a federal court of appeals has jurisdiction under both Article III and 28 U.S.C. Section 1291 to review an order denying class certification after the named plaintiffs voluntarily dismiss their individual claims with prejudice.” Briefing in the case was completed last June, but the case has yet to appear in the calendar of the fourth sitting of the Supreme Court’s term, which began January 9, 2017. Although the reasons for the delay aren’t pellucid, this is an important case and likely is being held for a time when a full complement of the Court can decide the question.
The case comes from the Ninth Circuit, which held that 28 U.S.C. Section 1291 provided jurisdiction to review the trial court’s decision to strike class allegations, even though the named plaintiffs had dismissed their claims with prejudice. The district court found that the underlying claims, which alleged that a “design defect in the Xbox console gouges game discs,” could not proceed as a class because individual issues predominated. The plaintiffs sought interlocutory review under Rule 23(f), but the Ninth Circuit declined to take the appeal. Under the Supreme Court’s unanimous decision in Coopers & Lybrand v. Livesay, 437 U.S. 463, 466 (1978), this meant the plaintiffs would need to wait until after final judgment in the case before they would be able to obtain review of the class determination. But litigation is expensive, and trying a case about a few game discs—as opposed to millions of them—is not normally an attractive proposition for plaintiffs’ counsel. In most cases, of course, plaintiffs are loath to dismissing their claims as a condition to obtaining review for class claims, but in consumer litigation—where the individual stakes are quite small—this is not so. So the plaintiffs dismissed their claims with prejudice and filed a notice of appeal with the Ninth Circuit. This allowed them to do what Livesay seemed to prohibit—obtain an immediate appeal.
Relying on previous precedent in the circuit, however, the Ninth Circuit held that “a dismissal of an action with prejudice, even when such dismissal is the product of a stipulation, is a sufficiently adverse—and thus appealable—final decision.” Reaching the merits, the Ninth Circuit reversed the trial court and remanded to allow the class claims to go forward.
This option—if allowed by the Supreme Court—works only for plaintiffs in class action cases, not defendants. If defendants suffer an adverse class certification ruling, and the appellate court does not exercise its discretion to accept the interlocutory appeal, defendants must litigate the case to judgment before obtaining review of the class determination. And appellate courts don’t generally review class certification decisions on an interlocutory basis; one study indicates that less than one-quarter of such petitions are granted. Defendants are thus whipsawed: they can’t obtain interlocutory review of an adverse class certification decision and they can’t afford to take the risk of a class verdict. Put simply, they are at the mercy of a single trial judge and the stakes are enormous. As the Supreme Court has observed, class actions present a significant risk of “in terrorem settlements,” because defendants “[f]aced with even a small chance of a devastating loss . . . will be pressured into settling questionable claims.” AT&T Mobility LLC v. Concepcion, m 131 S. Ct. 1740, 1752 (2011).
But plaintiffs will have an enhanced ability to achieve appellate review if the Ninth Circuit decision is affirmed. Plaintiffs can also try a Rule 23(f) appeal, as they did in Baker. But if they lose, the named plaintiffs can dismiss their claims with prejudice and achieve immediate review of class certification as a matter of right. On its face, this inequality seems to be exactly what the Supreme Court wanted to avoid in Livesay when it refused to recognize the “death knell” doctrine embraced by numerous courts of appeals. There, the Court noted that the doctrine “operates only in favor of plaintiffs even though the class issue—whether to certify, and if so, how large the class should be—will often be of critical importance to defendants as well.”
As evidenced by the amount of amicus participation in this case, this decision is an important one and has significant stakes for consumers and businesses. Our guess is that the current justices are split 4 to 4 on this one, so stay tuned for the outcome of the confirmation process. Judge Gorsuch, for his part, seems to have a conservative view of the finality doctrine. See McClendon v. City of Albuquerque, 630 F.3d 1288 (10th Cir. 2011) (no appellate jurisdiction to consider district court’s order withdrawing approval of a class action settlement, observing that “[s]uch an order simply presses the reset button and marks the case for renewed litigation”).