In a unanimous ruling, the Supreme Court found that a District Court exceeded its authority in enjoining a state court from considering class certification after having previously denied class certification in a similar case. Smith v. Bayer, No. 09-1205, 2011 WL 2369357 (June 16, 2011). The two reasons were that the issues were not the same and that nonparties cannot be bound to a prior decision to decline class certification. Justice Kagan wrote for the Court. Justice Thomas joined on the first reason only, while all other justices joined on both reasons.
In August 2001, George McCollins filed suit in West Virginia court against Bayer for allegedly violating the state’s consumer protection laws with regards to its allegedly hazardous drug Baycol. He asked to certify a class of Baycol purchasers in West Virginia under the state’s Rule 23. About a month later, Keith Smith and Shirley Sperlazza (“Smith”) filed a similar suit in West Virginia court and also requested class certification. Bayer successfully removed McCollins’ suit to the District Court for the Southern District of West Virginia because of diversity jurisdiction, but failed to do the same for Smith’s suit, since the second suit had named other defendants in West Virginia and thereby lacked complete diversity. The District Court declined class certification for McCollins’ suit under Federal Rule 23 because it did not meet the predominance requirement Part (b)(3). At Bayer’s motion, it then declined class certification for Smith’s suit under West Virginia’s Rule 23. The Eighth Circuit affirmed.
The Supreme Court reversed, following the general principle, laid out in Atlantic Coast Line R. Co. v. Locomotive Engineers, 398 U. S. 281 (1970), that federal injunctions against state courts are not allowed except in narrow cases, and that doubts are to be resolved in favor of allowing a state court to proceed. (It also noted that issues of preclusion are usually “the bailiwick of the second court” (emphasis in original).)
First, the Court noted that the class certification issues presented in Smith’s suit are not the same as those in McCollins’. It followed its reasoning in Chick Kam Choo v. Exxon Corp. that state courts might have different legal standards from federal courts and thus should not be enjoined (486 U.S. 140, 149 (1988)). It observed that, even though the texts for the federal and state versions of Rule 23 are almost identical, West Virginia had expressed disapproval of federal courts’ interpretation of Part (b)(3). The Court further noted that the lack of “clear evidence” of state courts’ explicit adoption of a federal interpretation of a rule was sufficient to prevent an injunction.
The Court gave an independent second reason for reversing the District Court’s injunction: Smith was not a party bound by the result of McCollins’ class certification request. It rejected Bayer’s alternative arguments that (1) Smith was a party as an unnamed member of a class that was not certified and (2) Smith’s suit falls under the exception to the rule against nonparty preclusion. The Court quickly dispensed with Bayer’s first argument, saying that it “ill-comports with any proper understanding of what a ‘party’ is.”
For Bayer’s second argument the Court reasoned that, precisely because the District Court denied class certification to McCollin, no class action ever existed, so Smith cannot be bound by that decision. It reiterated its theory from Taylor v. Sturgell that allowing nonparties to be bound in this way would allow the de facto creation of class actions outside of Rule 23 (553 U.S. 880, 901 (2008)). To respond to Bayer’s policy concern that not binding nonparties in failed class certifications would lead to multiple attempts at certification, the Court noted that “principle of stare decisis and comity among courts” would limit this effect. As further support for its rule, it remarked that the Class Action Fairness of Act (CAFA) of 2005 now allows defendants to remove cases to federal court based on “minimal diversity of citizenship,” further obviating the need for federal courts to exercise preclusion.
CAFA did not apply to the instant case because it was initiated before CAFA’s enactment. At the same time, CAFA appears to reduce the number of cases in which class certification questions may be considered in both federal and state court.