By Michael Hoenig - New York Law Journal -
October 18, 2010
Class action litigation, a thicket of procedural niceties, arcane
nuances, occasional unholy alliances, melanges of statutory and
substantive laws, and a perennial magnet for controversy, has its own
heartbeat. In our Sept. 10, 2007 column, "'Monkey
Business' in the Class Action 'Jungle',"1 we reported on
unwholesome developments accompanying lawyer-driven efforts to whip up
class action lawsuits whenever some corporation may have slipped,
tripped or erred in some manner. And in
earlier articles focusing on class action imbroglios,2 we
reported on the requirements for class action treatment, the controversy
as to whether class actions are good or bad (e.g., the device has been
hailed as the "great equalizer" and denounced as an "engine of
destruction"), the race to the courthouse by competing attorneys, and
vices, flaws and dangers in not applying tight standards.
Despite incisive reevaluation by Judge Richard A. Posner in the famous
Rhone-Poulenc case3 as to the wisdom of placing all
claimants' eggs in one super-litigation basket or Judge Frank Easterbrook's
analysis in the
Bridgestone/Firestone tire litigation4 regarding
inadvisability of certain national, mass products liability class actions,
this genre of litigation continues to grow. Enactment of the Class Action
Fairness Act (CAFA) in 2005, intended to enhance removal of certain class
actions from state to federal court and to expedite appeals from class
certification decisions, has not diminished the feeding frenzy. Although
CAFA has impacted attempts to file national mass tort suits in state venues
"friendly" to plaintiffs' class lawyers, these specialists have adjusted
well by vigorously pursuing more statewide classes and teaming up or
coordinating with lawyers in other states pursuing the same kinds of claims.
Many courts seem to believe that they are doing the Lord's work in
providing special nurture, care and protection in the handling of putative
class actions. Put the words "class action" on a complaint and observe the
halo and special glow some mesmerized judges bestow upon the litigation even
in its incipiency. An ordinary, mundane discovery dispute may assume
gargantuan importance. Why? "Your Honor, this is a class action," the
lawyers will gravely intone, expecting the utmost in the court's
cooperation. Some courts buy it. Should they? Well, there is another side to
Arguably, a lawyer's insertion of the words "class action" onto a
complaint should not be some magic key that opens all doors to judicial
over-generosity in special case handling. First, such a lawyer-inspired,
lawyer-imposed sobriquet on the pleading is, at early stages of the case,
pure wishful thinking. The case is not a class action until the court
certifies it to be one. That comes much later. The mere pleading of a
putative class action is the lawyer's allegation that, at some point, the
legal requisites of class certification will be shown to the court's
satisfaction. Why that subjective appellation should command such special,
tender, affectionate, unduly respectful treatment by judges from the get-go
is a question.
Lawyers, usually specialized class counsel, routinely scan the news of
the day looking for corporate vulnerabilities. They then advertise for
plaintiffs or find secretaries, assistants, family members or their friends
to act as putative class representatives and file the putative class action.
The court filing fee is minimal. For that, especially with electronic
discovery now available, litigation with enormous transaction costs is
triggered. The words "class action" mask what, at the outset and until a
certification decision is made, is only a complaint by one or several named
plaintiffs who claim to be appropriate personal representatives of a
putative class. Until certification of the class, the claimants are mere
individuals suing one or some defendants just as any litigant does.
Arguments to the contrary, namely, that by superimposing the words "class
action" on the pleading, courts somehow have to or should bow or defer to
some angelic quality or higher moral purpose in the pleading are just that,
hyperbolic arguments. Everyone knows that most class lawyers are attracted
to lawsuits because of the prospect of being awarded huge fees upon a
settlement. Thus, attempts to cloak putative class pleadings with an
automatic mantle of righteous justice-seeking are suspect. If the lucrative
fee structure were eliminated, class litigation would wither.
Even so-called public interest groups (or their lawyers) who sue on
behalf of putative classes usually do so pursuant to an agenda that is the
hallmark or raison d'être of the particular public interest entity. So,
instead of mere fees the class action quest may be for a particular ideology
or cause. Even public interest entities, however, do not turn down healthy
fees, if awarded.
While the foregoing suggests that judges presiding over a case in which
the pleading has the lawyer-bestowed title "class action" should not
sanctify the proceedings with holiness for that reason, the main message
here is an alert that it is the class certification motion that vivifies the
question whether a class action exists, indeed whether it will live or die
stillborn, so to speak. That is the key crossroads and that is the key
decision. Therefore, case developments regarding certification issues and
their consequences are of great interest to bench and bar. And when a class
certification question reaches the United States Supreme Court, the Court's
decision can have significant impact upon this genre of litigation that
occupies legions of lawyers and uses so much of our courts' resources.
On Sept. 28, 2010 the U.S. Supreme Court granted certiorari in a case
called Smith v. Bayer Corp.5 to review whether a federal district
court's denial of class certification precludes, on res judicata and
collateral estoppel grounds, the relitigation of similar class claims made
by absent class members which were filed in a state court. Does the federal
court's denial of class certification, especially when the court has
considered and decided substantive issues of state law, apply only to the
named plaintiffs or does it also bind the absent class members who never had
notice of the class certification motion? Stated differently, does the
presence of adequate class representatives (the named plaintiffs) make the
denial of certification by the federal judge count so as to preclude absent
class members from suing the same manufacturer in state court on similar
class action theories?
The Supreme Court's answers to these questions will determine whether a
class certification denial stops repeated "copy cat" lawsuits by unnamed
class members or whether class claimants can go back to the same class
action again and again. The tensions residing within these issues implicate
principles of claim preclusion, due process and notification of
certification proceedings, class action procedures and, generally, whether
class determinations are a two-way street (meaning that both certification
and denial decisions on the merits will affect absent class members). Here
is the way the Bayer case developed to get to the Supreme Court.
Baycol is a "statin," a cholesterol-reducing medicine that Bayer
Corporation distributed from 1997 to 2001 in the U.S. and then voluntarily
withdrew from the market in August of 2001 following reports of various side
effects including one called rhabdomyolysis and linkage of the drug to 31
deaths. Some 40,000 plaintiffs filed Baycol cases, some 22,500 of them in
federal court and 17,500 in state courts. Bayer has won defense victories in
each of the six Baycol cases tried to juries, all in state courts. Bayer
also defeated a number of motions for class certification in state courts.
The Judicial Panel on Multidistrict Litigation established an MDL
proceeding in the Minnesota federal district court to coordinate discovery
and other pretrial matters for federal court cases. The court supervised a
settlement program that paid some $1.17 billion to more than 3,100
rhabdomyolysis claimants but Bayer vigorously litigated all other claims
including cases seeking economic recovery (but not personal injuries). The
case that reached the U.S. Supreme Court is an economic loss putative class
action filed by three named plaintiffs in a West Virginia state court,
removed to federal court on diversity grounds and subsequently transferred
to the MDL court in the District of Minnesota. By 2008 only one named
plaintiff remained. He did not experience the side effect that led to
Baycol's withdrawal from the market and undisputed evidence showed he had
physically benefitted from the drug. Instead of suing for physical damages,
he sought refunds for economic loss allegedly caused by breach of warranties
and violation of the West Virginia Consumer Credit and Protection Act.
In the federal MDL court plaintiffs' steering committee filed a motion to
certify, among other classes, a nationwide refund class. The district court
denied this motion concluding that, since such plaintiffs would have to
demonstrate either injury by Baycol or that Baycol did not provide them any
health benefits, common issues did not predominate.
A further barrier to class certification was the lack of uniformity among
state tort laws governing unjust enrichment and breach of warranty.
Defendants thereafter moved for denial of class certification and for
summary judgment on the named plaintiff's individual claims. The district
court granted the motion to deny class certification and also granted
summary judgment on the individual claim. Plaintiff did not appeal.
A month after the foregoing plaintiffs had filed their Baycol claims in
the West Virginia court in August of 2001 (which were subsequently removed
to federal court), two separate individual plaintiffs purporting to
represent a similar class with similar allegations filed their lawsuit in a
West Virginia state court. However, that case was not removable to federal
court because of the presence of non-diverse parties until the one-year
period for removal had expired. This was before the CAFA legislation which
would have made the second suit removable.
This case sat in the West Virginia court until after expiration of the
time to appeal the order denying certification in the federal MDL court had
expired. Then the plaintiffs in the state court case moved for class
certification of an economic loss class. Bayer moved the federal district
court to enjoin the state court plaintiffs, as absent putative class
members, from relitigating the previous federal MDL court decision denying
certification of a West Virginia economic loss class.
Federal courts cannot interfere in state court proceedings except in
limited circumstances. One is the exception in the federal "Anti-Injunction
Act" which permits federal courts to issue injunctions to "protect or
effectuate its judgments." This includes the so-called "relitigation
exception," i.e., to prevent relitigation based on well-recognized concepts
of res judicata and collateral estoppel. Plaintiffs in the second West
Virginia state action specially appeared in the federal court to object to
issuance of an injunction but the court granted the injunction. Those state
plaintiffs now appealed to U.S. Court of Appeals for the Eighth Circuit.
The appellate court affirmed the grant of an injunction. The court found
that West Virginia's collateral estoppel requirements were met: the issues
were identical; there was a final adjudication on the merits; the party
estopped was a party or privy to the party in the prior action; and the
party in the prior action had a full and fair opportunity to litigate the
issue in the prior action. The issue presented by the state court
plaintiffs' motion for certification was previously decided by the federal
district court in the MDL proceeding.
In order to reach the class certification question, the federal court
appropriately decided on a substantive issue of West Virginia law as to what
a former Baycol user had to prove under the West Virginia consumer act
statute. Thus, the MDL court had concluded that a Baycol user suing Bayer
had to show that Baycol injured or did not benefit him, i.e., that the state
consumer law claimant had to show proof of harm or injury. Economic loss
alone was insufficient.
Thus, certification under the state class action rule in the state court
would undermine the conclusion of substantive state law properly made by the
district court. Here the certification ruling was not a mere procedural
determination such as a forum non conveniens decision. In the context of MDL
proceedings collateral estoppel principles of finality and uniformity are
particularly important. Relitigation in state court of the question whether
to certify the same class already rejected by a federal court presented an
impermissible "heads-I-win, tails-you-lose situation."
The Eighth Circuit followed the lead of the U.S. Court of Appelas for the
Seventh Circuit in the
Bridgestone/Firestone litigation6 holding that the "relitigation
exception" permitted an injunction barring relitigation in state court of a
federal court's denial of class certification.7 In
Bridgestone/Firestone plaintiffs sought national class certification in
various state courts after it had been denied in federal court.
In their petition for certiorari to the Supreme Court the plaintiffs
argued that the "relitigation exception" should not be used to enjoin state
proceedings since federal class certification is essentially a "procedural"
rather than "substantive law" decision. Further, and perhaps more
importantly, they claimed that, as absent class members who received no
notice and opportunity to be heard in the federal class certification
motion, their due process rights were violated when the court precluded them
from pursuing their state claim via a federal denial of class certification
they could not and did not litigate.
Defendants' opposition to the petition for certiorari argued that the
injunction was perfectly appropriate under the "relitigation exception" and
that the federal denial of class certification was enmeshed with substantive
law determinations and, thus, clearly was not a mere "procedural"
On the issue of notice and opportunity for absent class members to be
heard on the class certification motion, defendant argued that once the
federal court determined that the named individual plaintiff was an adequate
class representative then the rights of absent class members were fully
litigated or capable of full and fair litigation by their representative.
Adequacy of a class representative means that he or she is charged with
protecting the interests of the class members. Thus, he or she must litigate
not solely for individual interests but for absent members as well. As the
defendant's Opposition says, plaintiffs' "rationale would allow absent class
members to benefit from a decision to certify while remaining free to
relitigate time and again a judgment denying class certification." Further,
the federal court's denial of certification did not take away the state
plaintiffs' individual rights to sue defendant; rather, only the pursuit of
a class action was precluded.
The Supreme Court's acceptance of certiorari review of the Eighth
Smith v. Bayer decision shows that at least four Justices deemed the
issues "certworthy." Clearly, at least some members of the Court wish to
clarify important aspects of class action litigation.
The focus on the certification decision, its reach, vitality and preclusive
effect is not only significant because of the issues to be addressed. It is
a good reminder to trial bench and bar that counsel's stamping of the words
"class action" on an otherwise self-serving, artfully broad pleading filed
on behalf of one or several individuals purporting to represent a class is
not a holy writ. It is just another complaint filed by individuals. Courts
need not sanctify or elevate the proceeding early on into some kind of an
angelic mission. Keeping some healthy, pragmatic perspective on the matter
is in order. At some appropriate time the certification motion (pro or con)
will shake out whether the lawsuit properly should be a class action. Until
then, it is only some individuals' lawsuit.
Michael Hoenig is a
member of Herzfeld & Rubin.
1. Hoenig, New York Law
Journal, Sept. 10, 2007, p.3.
2. Hoenig, "Class Action
Imbroglios Revisited," NYLJ, May 13, 2002, p. 3; "Class Action Imbroglios,"
NYLJ, May 8, 1995, p. 3.
In re Rhone-Poulenc Rorer Inc.,
51 F.3d 1293 (7th Cir. 1995).
In re Bridgestone/Firestone Tire Prod.
Liab. Litigation, 288 F.3d 1012 (7th Cir. 2002).
5. No. 09-1205, pet. for
cert. granted Sept. 28, 2010, from an appellate decision by the U.S. Court
of Appeals for the Eighth Circuit in
In re Baycol Products Litigation, Mays et al. v. Bayer Corp.,
No. 09-1069 (8th Cir. Jan. 5, 2010).
In re Bridgestone/Firestone,
333 F.3d 763 (7th Cir. 2003).
7. Id. at 769.
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