Today’s decision by the Supreme Court in Microsoft Corp. v. Baker puts an end to a tactic used by plaintiffs in the Ninth Circuit to manufacture an immediate appeal of an order denying class certification. When a federal district court grants or denies class certification, Federal Rule of Civil Procedure 23(f) allows the losing party to ask the court of appeals for permission to appeal immediately. Otherwise, the parties must litigate the case to a final judgment—the named plaintiffs’ individual claims if certification has been denied, or the class claims if certification has been granted—to obtain appellate review of the district court’s class certification determination. But the Ninth Circuit created an exception to this rule by authorizing a plaintiff who has had class certification denied to dismiss his or her individual claims with prejudice and then file an appeal from that self-generated judgment.

After the oral arguments in Baker, it seemed likely that the Supreme Court would reject that exception. And that is exactly what the Court decided today. Much more interesting is how they got there: Although all eight participating Justices agreed on the outcome, they took different approaches to the question presented. Continue Reading Supreme Court rejects end runs around Rule 23(f) by use of “voluntary dismissal” tactic

Earlier today, the Supreme Court heard oral argument (pdf) in Microsoft Corp. v. Baker, a case that raises complicated questions about federal appellate jurisdiction and Article III standing, but ultimately involves an important practical question in class action litigation: Can a named plaintiff engineer a right to an immediate appeal of the denial of class certification by voluntarily dismissing his or her claims with prejudice and appealing from the resulting judgment?

From the argument, it was clear that a number of Justices believe that the answer should be “no.” As Justice Ginsburg pointed out several times, the committee charged with amending the Federal Rules of Civil Procedure crafted Rule 23(f) to give courts discretion to decide whether to allow immediate appeals of orders granting or denying class certification. But plaintiffs maintain that they should be free to challenge the denial of certification immediately by appealing from what their counsel described as a “manufactured final judgment.”  In other words, as Justice Ginsburg put it, “any time … that a class action is brought against a corporation, [Rule] 23(f) is out the window.”

As discussed below, there are many ways in which the Court could decide the issue. That said, businesses should be cautiously optimistic that the Court will reverse the Ninth Circuit and thus reject a dysfunctional regime in which class-action plaintiffs can appeal the denial of class certification while defendants remain able to appeal orders granting class certification only by grace.

Continue Reading Supreme Court Hears Arguments In Microsoft v. Baker To Address When A Named Plaintiff Can Appeal The Denial Of Class Certification

[Editors’ note:  Today we’re featuring a guest post by Tim Fielden, who is in-house counsel at Microsoft.  His post spotlights an emerging—and important—issue in class-action litigation.]

In two recent decisions, the Ninth Circuit has carved out a new path for plaintiffs seeking immediate review of the denial of class certification: voluntarily dismiss the complaint under Rule 41(a), appeal from the final judgment, and challenge the class certification denial on appeal. If this tactic gains currency, plaintiffs (but not defendants) will have the right to an immediate appeal from any adverse class certification ruling. But at least four circuits have rejected this tactic, and the maneuver contravenes a unanimous Supreme Court decision limiting review of class decisions. As a result, defendants have reason to hope that these Ninth Circuit decisions will have limited and short-lived impact.

Background

Plaintiffs have long sought early review of class certification denials without the bother of pursuing their individual claims to judgment on the merits. But in Coopers & Lybrand v. Livesay, 437 U.S. 463 (1978), the Supreme Court rejected arguments that an order denying class certification should be immediately appealable, either as a final “collateral order” or because the denial of certification signals the “death knell” for the case when plaintiffs decide not to proceed to an appealable final judgment. The Court explained that because only Congress may expand the grounds for appellate review, “the fact that an interlocutory order may induce a party to abandon his claim before final judgment is not a sufficient reason for considering it a ‘final decision’ within the meaning of § 1291.” Id. at 477. And the Court added that the death knell doctrine unfairly “operates only in favor of plaintiffs [by giving them an immediate right to appeal] even though the class issue … will often be of critical importance to defendants as well.” Id. at 476.

As a result, plaintiffs for years had only limited routes to immediate review after a denial of class certification. Absent the district court’s certification of the decision for review under 28 U.S.C. § 1292(b) or the court of appeals’ acceptance of mandamus review, a plaintiff could obtain review of a class certification denial only by taking her individual case to trial and then appealing from the judgment on the merits. In 1998, Congress created a new avenue to review, amending Rule 23 to allow parties to file a petition seeking permission for an immediate appeal of adverse class decisions, which the courts of appeals could grant or deny at their discretion.

The Ninth Circuit’s End Run Around Rule 23(f)

In Berger v. Home Depot USA, Inc., 741 F.3d 1061 (9th Cir. 2014), the Ninth Circuit opened a new route for plaintiffs seeking interlocutory review of the denial of class certification. In Berger, the plaintiff chose not to seek Rule 23(f) review, which the Ninth Circuit could have exercised its discretion to deny. Instead, he voluntarily dismissed his case and appealed from the final judgment. In essence, he made good on the “death knell” threat from Coopers & Lybrand: he ended his case in response to the class certification order. Ignoring Coopers & Lybrand, the Berger panel held that the Rule 41 dismissal was sufficiently adverse to the plaintiff’s interests to create appellate jurisdiction, because Berger dismissed his individual claims with prejudice without settling. Id. at 1066.

Unlike in Berger, the plaintiffs in Baker v. Microsoft Corp., 2015 U.S. App. LEXIS 4317 (9th Cir. Mar. 18, 2015), sought Rule 23(f) review of the district court’s order striking class allegations, but the Ninth Circuit denied review. Months later, plaintiffs voluntarily dismissed, declaring their intent to seek review of the order striking class allegations. Before the decision in Berger, Microsoft asked the Ninth Circuit to dismiss, relying on Coopers & Lybrand and a Ninth Circuit opinion dismissing an appeal from a Rule 41(b) dismissal after the denial of class certification. In the meantime, Berger was decided. And the Baker panel, following Berger, decided that it had jurisdiction over the appeal. Neither the Baker nor Berger panels mentioned the previous (and conflicting) Ninth Circuit decision.

The Conflicts

There is a strong possibility that the panel decisions in Baker and Berger are not the end of the story.

In Baker, Microsoft has filed a petition for en banc review (pdf), arguing that, among other things, Berger and Baker conflict with Coopers & Lybrand and at least one prior Ninth Circuit opinion.

The petition also notes the existence of a long-standing circuit split on this issue. A 25-year-old Second Circuit decision reached the same result as Berger and Baker. See Gary Plastic Packaging Corp. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 903 F.2d 176, 179 (2d Cir. 1990). But at least four other circuits have rejected this approach to seeking appellate review of the denial of class certification. Most recently, in Camesi v. University of Pittsburgh Medical Center, 729 F.3d 239 (3d Cir. 2013), the Third Circuit held that it lacked appellate jurisdiction when workers dismissed their individual complaints with prejudice in an attempt to appeal the district court’s ruling decertifying their collective actions. The Third Circuit rejected their “procedural sleight of hand to bring about finality,” and held that “voluntary dismissals … constitute impermissible attempts to manufacture finality[.]” Id. at 245. The Fourth, Eighth, and Tenth Circuits agree that they lack jurisdiction over such an appeal. See Rhodes v. E.I. du Pont de Nemours & Co., 636 F.3d 88, 100 (4th Cir. 2011); Telco Grp., Inc. v. AmeriTrade, Inc., 552 F.3d 893, 893-94 (8th Cir. 2009) (per curiam); Bowe v. First of Denver Mortg. Investors, 613 F.2d 798, 800-02 (10th Cir. 1980).

This conflict provides reason to believe that the Ninth Circuit should grant rehearing en banc. Businesses should watch further proceedings in Baker closely.

We recently noted that the Ninth Circuit had granted a Rule 23(f) petition in Chen v. Allstate Insurance Co.—on the issue whether a named plaintiff can refuse an offer of judgment for full relief and persist in litigating a class action—and was expected to issue a briefing schedule soon. Leaving aside the substance of the case, there is nothing unusual about the practice the Ninth Circuit followed in Chen. That is standard operating procedure virtually everywhere, although in a few rare instances courts of appeals have ordered briefing and argument on both the Rule 23(f) petition and the merits of the class certification ruling. E.g., In re Rail Freight Fuel Surcharge Antitrust Litig. (pdf), 725 F.3d 244 (D.C. Cir. 2013); Tilley v. TJX Cos., 345 F.3d 34, 36 (1st Cir. 2003). See also Lienhart v. Dryvit Sys., Inc., 255 F.3d 138, 141 (4th Cir. 2001) (after hearing argument on the Rule 23(f) papers, the court granted the petition and vacated the class certification order).

The Seventh Circuit is different. Sometimes it will follow grant a Rule 23(f) petition and order briefing on the merits. See, e.g., Abbott v. Lockheed Martin Corp. (pdf), 725 F.3d 803 (7th Cir. 2013); McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, 672 F.3d 482 (7th Cir. 2012); Ross v. RBS Citizens, N.A., 667 F.3d 900 (7th Cir. 2012).

But in many cases it skips the second step: it grants the petition and rules on the merits at the same time, based on only the parties’ Rule 23(f) papers and without oral argument. See, e.g., Hughes v. Kore of Ind. Enters. (pdf), 2013 WL 4805600, at *1 (7th Cir. Sept. 10, 2013); Butler v. Sears, Roebuck & Co., 702 F.3d 359 (7th Cir. 2012); Creative Montessori Learning Ctrs. v. Ashford Gear LLC (pdf), 662 F.3d 913, 915 (7th Cir. 2011); CE Design Ltd. v. King Architectural Metals, 637 F.3d 721, 722–23 (7th Cir. 2011); Pella Corp. v. Saltzman, 606 F.3d 391, 393 (7th Cir. 2010); Am. Honda Motor Co. v. Allen, 600 F.3d 813 (7th Cir. 2010).

The parties have no way of knowing which procedure the Seventh Circuit will use in any given case—it depends entirely on the discretion of the judges who happen to be on the motions panel when the court considers the Rule 23(f) petition. The parties do not learn which approach the court will follow in a particular case until it issues its decision on the petition.

The Seventh Circuit’s unique approach to handling Rule 23(f) petitions has significant implications for parties filing and responding to Rule 23(f) petitions in that court. Most importantly, the parties should endeavor to make all of their merits arguments in their Rule 23(f) papers, because they may not get another chance. This is often difficult; the petition and response are limited to 20 pages each, and the petitioner will not have a right to file a reply brief (although petitioners occasionally are given leave to file a reply). Moreover, respondents should be wary of following a strategy of not responding to a Rule 23(f) petition, on the theory that the decision below is obviously correct or that responding may make the case seem more worthy of immediate review. In at least two cases where there was no response to a Rule 23(f) petition, the Seventh Circuit has granted the petition and overturned the district court’s ruling, reversing decertification of a class in Hughes—a controversial recent decision by Judge Posner that the plaintiffs’ bar has been citing with regularity—and vacating class certification in Creative Montessori Learning Centers.

At this point, some 15 years after the adoption of Rule 23(f), it seems unlikely that other circuits will opt to embrace the Seventh Circuit’s approach. But in the Seventh Circuit, the practice of granting a Rule 23(f) petition and ruling on the merits simultaneously shows no sign of abating.

One final practitioners’ note: The Seventh Circuit follows a similar practice when it comes to appeals under the Class Action Fairness Act of orders granting or denying remand, so the same caveats apply equally in that context. Examples include Knudsen v. Liberty Mut. Ins. Co., 435 F.3d 755, 758 (7th Cir.2006), and In re Safeco Ins. Co. of Am. (pdf), 585 F.3d 326, 327 (7th Cir. 2009).

 

6SDCD5ARNUKS

Here’s a common scenario:  After unsuccessfully moving for class certification and having a petition for review under Federal Rule of Civil Procedure 23(f) rebuffed, the plaintiff wants to take another shot at an appeal.  Can the plaintiff simply settle his individual claims—subject to his right to appeal the denial of class certification—so that he has a dismissal giving him an automatic right to an immediate appeal?

If you’re in the Third, Seventh, Eighth, or Ninth Circuit, the answer is no. Each of these courts have held that they lack jurisdiction over the appeal of a would-be class representative following such a settlement.

The most recent of these decisions is the  Eight Circuit’s opinion in Ruppert v. Principal Life Ins. Co. (pdf), No. 11-2554 (8th Cir. Feb. 13, 2013), which involved an ERISA claim by the plaintiff against his insurer. The district court denied class certification for lack of commonality and typicality. And the Eighth Circuit denied a Rule 23(f) petition for review. So the plaintiff next tried entering into a settlement, accepting $80,000 in exchange for a dismissal of his individual claims. In the agreement, the plaintiff reserved the right to appeal the denial of class certification and, if the Eighth Circuit were to reverse, to seek a share of any recovery to the class. The Eighth Circuit dismissed the appeal for lack of appellate jurisdiction.

The Eighth Circuit held that there was no final judgment because the settlement “allows for [the plaintiff’s] individual claims to spring back to life.” The Third, Seventh, and Ninth Circuits have also dismissed appeals for lack of finality, concluding that such settlements are impermissible attempts to manufacture appellate jurisdiction. See India Breweries, Inc. v. Miller Brewing Co., 612 F.3d 651, 656-57 (7th Cir. 2010); Fed. Home Loan Mortg. Corp. v. Scottsdale Ins. Co., 316 F.3d 431, 440 (3d Cir. 2003); Dannenberg v. Software Toolworks, Inc., 16 F.3d 1073, 1076 (9th Cir. 1994). By contrast, the Second Circuit deems a decision to be final, despite the plaintiff’s ability to reassert a dismissed claim on remand, if the “plaintiff’s ability to reassert a claim is made conditional on obtaining a reversal” on appeal. Purdy v. Zeldes, 337 F.3d 253, 258 (2d Cir. 2003).

The Eight Circuit also held that the settlement of the plaintiff’s individual claims deprived him of standing to appeal the denial of class certification. The Eighth Circuit acknowledged that the Supreme Court has held that a would-be class representative has standing to challenge the denial of class certification even if his individual claims are involuntarily extinguished. See United States Parole Comm’n v. Geraghty, 445 U.S. 388, 404 (1980). But when the claims are voluntarily settled—even under terms that give the plaintiff a stake in the class recovery—the case is moot. In so holding, the Eighth Circuit sided with the Fourth Circuit and rejected the position of the D.C. Circuit. Compare Rhodes v. E.I. du Pont de Nemours & Co., 636 F.3d 88, 100 (4th Cir. 2011) with Richards v. Delta Air Lines, Inc., 453 F.3d 525, 529 (D.C. Cir. 2006).  (The fact that the D.C. Circuit’s decision rests on an application of Deposit Guaranty National Bank v. Roper, 445 U.S. 326 (1980)—which the Supreme Court recently suggested might no longer be good law—suggests that the Eighth Circuit has the better side of this split.)

Although Ruppert deepens two preexisting circuit splits, the court’s docket suggests that the plaintiff is not seeking further review.  Accordingly, unless and until the Supreme Court decides the issue, if you’re a class-action defendant and the plaintiff comes to you with a proposal for one of these settlements, consult the law of the relevant circuit before deciding whether the offer is too good to pass up.

The Wall Street Journal recently published an editorial urging the Supreme Court to grant the petition for certiorari (pdf) in Whirlpool Corp. v. Glazer—a petition filed by my colleagues Stephen Shapiro, Jeffrey Sarles, and Tim Bishop. The petition seeks review of a decision by the Sixth Circuit (pdf), which affirmed the certification of a class of Ohio purchasers of front-loading Whirlpool washing machines that allegedly are defective because a small fraction may emit moldy odors due to laundry residue. (The action is a bellwether case; many identical class actions have been filed across the country against numerous manufacturers.)

The petition presents several issues worthy of review—if not summary reversal:

  • Most class members would never experience the alleged defect—meaning they were not harmed and could not sue on their own behalf under the applicable Ohio law. Yet the Sixth Circuit held that those persons could be included in a Rule 23(b)(3) class, in conflict with decisions of the Second, Seventh, and Eighth Circuits.
  • The Sixth Circuit approved the district court’s failure to address Whirlpool’s evidence that each class member’s claim would require individualized inquiries. For example, Whirlpool showed that very few buyers ever reported mold or odors, the designs of the 21 washers at issue changed dramatically over the nine-year class period, buyers used (and some misused) their washers in many different ways, and Whirlpool’s knowledge of and disclosures regarding the potential for mold odors changed dramatically. The district court believed these “merits” issues were irrelevant at class certification under Eisen. The Sixth Circuit’s affirmance of that ruling is mistaken in light of the Supreme Court’s decision in Wal-Mart v. Dukes, which repudiated that aspect of Eisen.
  • The Sixth Circuit erroneously concluded that the predominance requirement of Rule 23 was satisfied because it had found that the plaintiffs had adequately alleged the existence of a common question—thus ignoring issues individual to each customer, such as the varying ways in which they were or were not injured, whether the alleged defect caused any particular injury, and whether the class members were subject to individualized affirmative defenses such as product misuse and statutes of limitations.

Amicus briefs were filed by the Product Liability Advisory Council (pdf); the Pacific Legal Foundation (pdf); and the Chamber of Commerce of the United States of America, National Association of Manufacturers, and Business Roundtable (pdf). The plaintiffs waived the right to oppose the cert. petition, but on October 9, 2012, the Supreme Court called for the plaintiffs to file a response.

The Second Circuit’s recent decision in Hecht v. United Collection Bureau, Inc., No. 11-1327 (2d Cir. Aug. 17, 2012), should sound alarm bells for any business that attempts to settle a class action.  The takeaway from the decision is to make sure that  notice of the settlement to absent class members is adequate. Under some circumstances, a single notice in the USA Today won’t cut it. And if it doesn’t, the release in the settlement won’t be worth the paper it’s printed on, and other plaintiffs will be free to bring the exact same class action against you.

Continue Reading Second Circuit: Insufficient Notice of Class Action Settlement Means That Class Members Can Bring Copycat Class Actions

Lest there was any uncertainty on the topic, in Gelder v. Coxcom Inc. (pdf), the Tenth Circuit has now made clear that when a party moves for reconsideration of an order granting or denying class certification, the time for filing a petition for permission to appeal under Rule 23(f) runs from the date of the order resolving the motion for reconsideration.  The court rejected the contention that the motion for reconsideration merely tolls the time for filing the petition for review such that the time it takes to file the motion for reconsideration is deducted from the 14 days that Rule 23 (f) affords the losing party to file the petition for review.  It instead held, consistent with the rule in appeals from final judgments, that the losing party has the full amount of time to petition from the date of action on the motion for reconsideration.

Federal Rule of Civil Procedure 23(f) gives federal courts of appeals authority to permit interlocutory appeals from orders granting or denying motions to certify a class. The rule leaves it murky, however, whether an order partially decertifying a class is appealable under Rule 23(f). In a brief opinion by Judge Posner, the Seventh Circuit has now held that it is.

In Matz v. Household International Tax Reduction Investment Plan (pdf), the court ruled that “an order materially altering a previous order granting or denying class certification is within the scope of Rule 23(f) even if it doesn’t alter the previous order to the extent of changing a grant into a denial or a denial into a grant.” The court reasoned that “[t]his is best seen by imagining that rather than altering a class that the court had already certified the district judge had at the outset certified a narrower class than proposed by the plaintiff. That order would have been appealable by either party . . . . We don’t see why it should make a difference that the order modifying the class requested by the plaintiff came later. The difference is between one order and two orders that accomplish the same thing.”