The Preclusive Effect of a Federal Court Denial of Class Certification

By Professor Georgene Vairo

My colleagues, Michael Waterstone and David Horton have already weighed in on two of the big three class action cases before the Supreme Court this term. I will talk about the third.

Provocatively but aptly titled "Will arbitration kill the consumer class action?", David's article noted that in AT&T v. Concepcion, the Supreme Court will decide whether the Federal Arbitration Act (FAA) preempts state courts from striking down class arbitration waivers under the unconscionability doctrine. As he put it, "contract procedure" enthusiasts are on the edge of their seats anxiously awaiting the Court's ruling. The Court will have to balance its general trend in favor of favoring arbitration against it's the ideals of federalism which should enable state's to provide their citizens with greater protections than those afforded by federal law.

Michael talked about Wal-Mart v. Dukes, which is likely to have huge implications for both employment discrimination and class action law. Plaintiffs are a class of female Wal-Mart employees alleging sex discrimination. The Ninth Circuit whittled down a class of about 1.5 million employees to 500,000. Yet, the class still may be the largest-ever gender bias class action case. The Supreme Court's order granting certiorari looks at two important questions: 1) whether claims for monetary relief can be certified under Federal Rule of Civil Procedure 23(b)(2)--which by its terms is limited to injunctive or corresponding declaratory relief--and, if so, under, what circumstances?

The answer to this question will resolve a circuit split on the issue of to what extent monetary damage claims are allowable in a 23(b)(2) class action; and 2) whether, when determining whether a Rule 23(b)(2) class may be certified when the plaintiffs' evidence--including statistical proof of disparities between men and women, anecdotal evidence, and expert proof on social framework analysis showing susceptibility to gender bias in the management structure--arguably establishes a common issue, as required under Rule 23(a), of a corporate-wide policy of discrimination? Attorneys who practice discrimination law of any type as well as all class action lawyers await the Court's answers to these questions because they will go a long way in determining the contours, in terms of size and remedies, that will be available to plaintiff classes in the future.

The third case is of equal importance because it will bridge a gap between the other two cases. Given the Court's decision back in 1997 in Amchem v. Windsor, it is likely that the Court - conservatives and liberals alike - will be troubled by the expansive Dukes class. And, I am inclined to believe that the Court will champion the FAA over state law. So, that makes Mayes v. Bayer Corp. significant. Here it may well be that only procedure buffs are at the edge of their seats, but if I am right about the outcome in the other two cases, the result here could seal the deal in terms of the viability of the class action device. The issue in Mayes is whether a plaintiff who has lost a certification motion in federal court may then try again in a state court. The general rule is that the federal court may enjoin such a state court proceeding. In Mayes v. Bayer Corp., the Eighth Circuit held that although the federal Anti-Injunction Act generally prohibits a federal court from interfering in state court proceedings, the Act contains an exception that permits injunctions of pending state court proceedings when necessary "to protect or effectuate its judgments."

In Mayes, the defendants removed a West Virginia state court class action, which was then consolidated by the Mutidistrict Litigation Panel with other cases involving the drug Baycol. The federal court denied class certification of the West Virginia class. The plaintiffs then refiled a class action in a West Virginia court seeking certification on the same substantive legal basis as it had in the federal action. Defendants responded in the federal court by seeking an injunction of the state court class action.

The Eighth Circuit ruled that because the district court denied class certification on the basis that it could not survive under West Virginia law, the plaintiffs could not relitigate their entitlement to economic loss class claims in the West Virginia action. The Eighth Circuit opinion relied in part on an earlier Seventh Circuit decision in In re Bridgestone/Firestone. Thus, it held that an injunction of the state court proceeding was warranted.

The question of preclusion of class certification decisions is a bit tricky. Both the Eighth and Seventh Circuits noted that the ground for class action certification denial was substantive in nature in that the denial in both cases turned on questions of state substantive law. This is important because the Supreme Court has held that a federal court procedural determination such as forum non conveniens is not subject to the relitigation exception to the Anti-Injunction Act. And, other federal courts have ruled against granting an injunction against a state court class action proceeding. For example, in the GM side saddle fuel tank litigation, after the Third Circuit refused to approve a class action settlement, the parties sought to have essentially the same settlement approved in a state court, but the Third Circuit refused to grant an injunction against the state court proceeding. The distinction drawn by the Eighth Circuit was that in the Third Circuit case, there was no substantive determination of state law made by the federal court. In contrast, where the denial of class certification is based on state standards, the relitigation exception applies.

All this seems fine except that it is a federal court deciding the issue of state substantive law. Did the federal court get it right? Given federal courts' general propensity to deny class certification, will they be predisposed to find that state law prevents class certification? Since the enactment of the Class Action Fairness Act, most state claim based class actions will be litigated in federal court. So, if federal courts are deciding that state law bars class certification, and the relitigation exception to the Anti Injunction Act applies to bar a return to state court, then when will state courts get the opportunity to determine how state class action law should be interpreted? This is the critical question in Mayes. Even relatively liberal Supreme Court justices are generally pro-preclusion as long as the interests of the parties are adequately represented. Principles of federalism are therefore likely to be sacrificed again. Just as they were when CAFA was enacted.