Source: http://updates.mwbllp.com/2017/06/fyi-scotus-holds-class-plaintiffs.html
Timestamp: 2019-04-26 14:03:38+00:00

Document:
The Supreme Court of the United States recently held that class action plaintiffs cannot stipulate to a voluntary dismissal with prejudice, then appeal the trial court's prior interlocutory order striking their class allegations because a voluntary dismissal does not qualify as a "final decision" under 28 U.S.C. §1291 and improperly circumvents Federal Rule of Civil Procedure 23(f).
A group of purchasers of Microsoft's Xbox 360 gaming console filed a putative class action alleging that the Xbox was designed defectively because it scratched game discs "during normal game-playing conditions." The trial court denied class certification, finding that "individual issues of damages and causation predominated over common issues." The plaintiffs' petitioned the U.S. Court of Appeals for the Ninth Circuit for leave to appeal the denial, which was denied. The plaintiffs then settled individually.
Two years later, a group of plaintiffs represented by some of the same counsel as in the first case filed another putative class action based on the same design defect as the first action. The trial court in the second action denied class certification, concluding that the doctrine of "comity required adherence to the earlier certification denial therefore struck [the] class allegations."
The plaintiffs petitioned the Ninth Circuit under Rule 23(f) for permission to appeal the order striking the class allegations, the "functional equivalent" of an order denying class certification, arguing that the order effectively killed their case because of the small size of their individual claims compared to the cost of litigating to final judgment. The Ninth Circuit denied the petition.
Instead of settling their claims individually as in the first action, petitioning the trial court to certify the order for immediate appeal, or litigating their case and trying to persuade the trial court to reconsider its denial of class certification prior to final judgment and then appealing the final judgment, the plaintiffs moved to dismiss their case with prejudice.
The plaintiffs argued that they would appeal the order striking their class allegations after the trial court entered its final order dismissing the case. Microsoft stipulated to the dismissal, but took the position that plaintiffs had no right to appeal the order striking the class allegations after the voluntary dismissal with prejudice.
The Ninth Circuit concluded that it had jurisdiction to hear the appeal pursuant to § 1291, rejecting Microsoft's argument that the voluntary dismissal tactic improperly "circumvented Rule 23(f)." It then "held that the District Court had abused its discretion in striking [the] class allegations" because it had misinterpreted "recent Circuit precedent … and therefore misapplied the comity doctrine."
Microsoft filed a petition for a writ of certiorari, which was granted, asking the Supreme Court of the United States to resolve a split among the federal courts of appeals over the question of whether "federal courts of appeals have jurisdiction under § 1291 and Article III of the Constitution to review an order denying class certification (or … an order striking class allegations) after the named plaintiffs have voluntarily dismissed their claims with prejudice."
The Supreme Court began by explaining that "[u]nder §1291 of the Judicial Code, federal courts of appeals are empowered to review only 'final decisions of the district courts[,]'" and its application of this "finality rule" was controlled by its 1978 ruling in Coopers & Lybrand v. Livesay and Federal Rule of Civil Procedure 23(f).
In Coopers & Lybrand, the Supreme Court held that "death knell" doctrine did not require "mandatory appellate jurisdiction" over a trial court's interlocutory order "striking class allegations or denying a motion for class certification." Instead, the Court held, a trial court applying this doctrine should consider whether denying class certification "would end a lawsuit for all practical purposes because the value of the named plaintiff's individual claims made it 'economically imprudent to pursue his lawsuit to a final judgment and [only] then seek appellate review" of the refusal to certify the class.
If the denial order sounded the "death knell," it was appealable under §1291. However, if "the plaintiff had 'adequate incentive to continue [litigating], the order [was] considered interlocutory" and an immediate appeal was impossible. The Court clarified that just because an interlocutory order denying class certification "may induce a party to abandon his claim before final judgment is not sufficient reason for considering [it] a 'final decision' within the meaning of §1291."
The Supreme Court explained that after its ruling in Coopers & Lybrand, class action plaintiffs had a difficult time obtaining immediate appellate review of an adverse class certification ruling because there were only two options: (a) obtain an order from the trial court under §1292(b) certifying that the order "involves a controlling question of law as to which there is a substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation[;]" or (b) "satisfy the extraordinary circumstances test applicable to writs of mandamus."
In 1998, however, the Court approved Federal Rule of Civil Procedure 23(f) in response to Coopers & Lybrand. The present Rule 23(f) gives the courts of appeals unfettered discretion to allow a "permissive interlocutory appeal" of an order granting or denying class certification.
The Supreme Court noted that Rule 23(f) thus removes the power of the trial court to defeat any opportunity to appeal a class certification ruling, while also denying a right to appeal that might be prone to abuse.
The Supreme Court did not reach the Article III standing question because it concluded that § 1291 does not confer jurisdiction under the facts presented, reasoning that "[b]ecause respondents' dismissal device subverts the final-judgment rule and the process Congress has established for refining that rule and for determining when nonfinal orders may be immediately appealed, … the tactic does not give rise to a 'final decision[n]' under § 1291."
The Court explained that the "voluntary-dismissal tactic, even more than the death-knell theory, invites protracted litigation and piecemeal appeals."
The Supreme Court rejected the argument that Rule 23(f) was irrelevant because it only addresses interlocutory orders and the case involved a final judgment, reasoning that "[i]f respondents' voluntary-dismissal tactic could yield an appeal of right, Rule 23(f)'s careful calibration—as well as Congress' designation of rulemaking 'as the preferred means for determining whether and when prejudgment orders should be immediately appealable, … would be severely undermined.'"
Accordingly, the Ninth Circuit's judgment was reversed and the case remanded for further proceedings.

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