The Supreme Court Justices have had their fill of class action procedure over the last few weeks, as the Court handed down a trilogy of opinions on class certification to close out the Court’s term. The three decisions don’t directly implicate CAFA, but, since if you are a reader of the CAFA Law Blog you are going to be interested in these class action cases anyway.

(1)        Wal-Mart Stores, Inc. v. Dukes, 2011 WL 2437013 (U.S. June 20, 2011).

In what was perhaps the most followed class action in recent history, the Court in Dukes reversed the Ninth Circuit’s en banc decision that affirmed a California district court’s certification of a nationwide class of 1.5 million female employees of Wal-Mart. Indeed, Justice Scalia prefaced the Court’s opinion with the observation that the Court was “presented with one of the most expansive class actions ever.” 

In Dukes, the named plaintiffs alleged that Wal-Mart discriminated against female employees by denying them equal pay or promotions, in violation of Title VII of the Civil Rights Act of 1964. The district court granted the plaintiffs’ request for certification under Rule 23(b)(2) of a nationwide class of all women employed at any Wal-Mart retail store since December 1998 who may have been subjected to Wal-Mart’s challenged pay and management track promotions policies and procedures. A divided en banc panel of the Ninth Circuit substantially affirmed the class certification decision.

The Supreme Court reversed the class certification decision on two grounds. By a 5-4 vote, the Court held that the plaintiffs’ request for class certification did not satisfy Rule 23(a)’s commonality component, which requires plaintiffs to show that “there are questions of law or fact common to the class.” In doing so, the Court ruled that what matters for class certification purposes is not the raising of common questions but instead the “capacity of a classwide proceeding to generate common answers apt to drive the resolution of the litigation.” In that regard, the Court expressly approved the practice of addressing the merits of plaintiffs’ claims at the class certification stage. Applying these rules, the 5-4 majority opinion concluded that the plaintiffs had neglected to provide convincing proof of a companywide discriminatory pay and promotion policy and thus could not satisfy Rule 23(a)’s commonality requirement.

Separately, the Court unanimously found that the plaintiffs could not certify their claims for backpay under Rule 23(b)(2). That rule permits class treatment when “the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.” 

The Court neglected to address whether Rule 23(b)(2) applies only to claims for injunctive or declaratory relief, instead holding that claims for individualized relief, such as backpay, do not satisfy Rule 23(b)(2). In doing so, the Court reasoned that a (b)(2) class is designed to provide indivisible relief (i.e., a single injunction or declaratory judgment that would provide relief to each class member). Rule 23(b)(2) does not apply when each class member would be entitled to an individualized monetary award. Accordingly, the Court concluded that individual claims for monetary relief belong in Rule 23(b)(3) with its corresponding predominance and superiority requirements and its notice and opt-out rights.

(2)           Smith v. Bayer Corp., 2011 WL 2369357 (U.S. June 16, 2011)

In a decision fraught with important practical ramifications for class action litigants, the Supreme Court unanimously found that federal courts cannot rely on the relitigation exception to the Anti-Injunction to enjoin a state court from considering class certification after the federal court has already denied class certification in a similar suit. 

In Smith, two separate class action suits had been filed in West Virginia state court around the same time, both asserting various state law claims against Bayer in connection with Bayer’s sale of the prescription drug Baycol. One of the suits was removed to federal court on the basis of diversity jurisdiction and ultimately transferred to the District of Minnesota pursuant to an order of the Judicial Panel on Multi-District Litigation. 

Although both cases proceeded on roughly the same litigation paths, the federal court was the first to reach a decision on class certification, declining to certify a class under Federal Rule 23 because there were predominating individual issues. Bayer then asked the federal district court to enjoin the West Virginia state court from hearing a motion to certify a similar class in that case. The district court agreed with Bayer and granted the injunction, and the Eight Circuit affirmed the injunction on appeal.

In a unanimous opinion authored by Justice Kagan, the Supreme Court held that the district court erred in granting the injunction. The Court reasoned that the district court could not rely on the relitigation exception to the Anti-Injunction Act, because the preclusive effect of a federal court’s decision is the bailiwick of the second court. According to the Court, “issuing an injunction under the relitigation exception is resorting to heavy artillery.” 

The Court further explained that an injunction was improper because the issues to be decided in the two cases varied, as the federal court addressed class certification under Federal Rule 23 while the state court would address certification under West Virginia’s counterpart to Rule 23, which had been interpreted differently by West Virginia courts. As such, the applicable legal standard differed in the two cases. The Court also noted that the named plaintiffs were not the same in the two cases, despite the fact that the named plaintiffs in the state court were encompassed by the putative class in the federal case (which the Court emphasized had never been certified). 

Finally, the Court did acknowledge that the issue before the Court raised “special problems of relitigation” that exist in class actions. The Court commented that Congress had provided a partial remedy to this problem when it enacted CAFA, which allows removal to federal court of certain class actions. Nonetheless, the Court concluded that the district court could not properly enjoin a state court from addressing class certification under the relitigation exception to the Anti-Injunction Act.  

(3)        Erica P. John Fund, Inc. v. Halliburton Co., 2011 WL 2175208 (U.S. June 6, 2011)

In another unanimous opinion dealing with class certification in the securities context, the Court that plaintiffs did not need to prove loss causation at the class certification stage to obtain class certification. In Erica P. John Fund, the plaintiff brought a class action suit on behalf of all investors who purchased Halliburton stock between June 1999 and December 2001. The plaintiff alleged that Halliburton made a variety of misrepresentations that inflated the price of its stock, all in violation of the federal securities laws. 

In addressing plaintiffs’ motion for class certification, the district court held that a class could not be certified under Rule 23(b)(3) because the plaintiff could not prove loss causation, which is the causal connection between the alleged misrepresentation and the economic loss suffered by the investors. The Fifth Circuit affirmed.

The Supreme Court agreed with the plaintiff that it was improper to require proof of loss causation at the class certification stage. The Court reasoned that the Fifth Circuit’s requirement that loss causation be proved to obtain class certification is not supported by the rule set forth in Basic Inc. v. Levinson, 485 U.S. 224 (1988) that allows securities plaintiffs to invoke a rebuttable presumption of reliance based on the “fraud-on-the-market” theory. The Court clarified that Basic’s rebuttable presumption of reliance principle is a different concept than loss causation, stating that “loss causation addresses a matter different from whether an investor relied on a misrepresentation, presumptively or otherwise, when buying or selling a stock.” The Court said the Fifth Circuit’s rule would prevent a plaintiff from invoking the rebuttable presumption of reliance in contravention of Basic. Consequently, the Court concluded that the Fifth Circuit erred by requiring proof of loss causation as a condition of obtaining class certification.