Argument preview: Can a federal court that has denied class certification prohibit certification of a similar state-court class?

By Amy Howe
on Jan 18, 2011 at 9:27 am

This morning the Court will hear oral argument in Smith v. Bayer Corp. (No. 09-1205).  As Amanda explained in her academic round-up yesterday, the case “reads like a particularly devious Federal Courts exam”:  in it, the Court will consider whether a federal court that has denied class certification can prohibit a separate state court lawsuit seeking class certification that was brought by individuals who would have been members of the federal class but had not themselves filed the lawsuit.

The case arises from respondent Bayer Corporation’s distribution of Baycol, a prescription drug intended to reduce cholesterol.  In 2001, Bayer voluntarily withdrew the drug from the market in light of reports of serious side effects.  Thousands of lawsuits followed, prompting the establishment of a multidistrict litigation proceeding to coordinate and supervise discovery and other pretrial matters in federal courts. 

One such federal proceeding was McCollins v. Bayer Corp., in which a West Virginia resident who had taken Baycol filed suit seeking certification of a class of that state’s Baycol purchasers for claims involving economic loss in violation of West Virginia consumer protection law.  Bayer filed a motion seeking denial of class certification, which the district court granted in 2008.  The court reasoned that “individual issues of fact predominate[d]”:  each plaintiff would have to show that he personally was injured by Baycol. 

Shortly after the district court’s judgment denying class certification became final, another group of Baycol users – the petitioners here – sought certification in West Virginia state court of a class asserting similar economic loss claims on behalf of all West Virginia Baycol purchasers.  Bayer returned to the district court, this time seeking an injunction prohibiting petitioners from re-litigating the certification issue.  The district court issued that injunction, holding that it fell within the re-litigation exception to the Anti-Injunction Act because – among other things – the class was identical to the one at issue in McCollins; there was no difference between the federal and state class-certification rules; the order denying federal class certification was final; and petitioners’ interests were adequately represented in the federal court case.  After the Eighth Circuit affirmed, petitioners filed a petition for certiorari, which the Court granted.

In its brief on the merits, petitioners begin by explaining that the re-litigation exception is based (among other things) on principles of collateral estoppel, which is normally used to bind parties to a final judgment on the merits.  Here, because petitioners were “not the same party who brought the prior proceeding and [were] not in privity with him,” the re-litigation exception does not apply.   Moreover, a federal court’s decision denying class certification under the Federal Rules of Civil Procedure cannot collaterally estop a decision by a West Virginia court applying that state’s procedural rules.  Petitioners next invoke what they describe as “the general rule of nonparty preclusion . . . grounded in the United States Constitution” and its due process requirements.  Here, they contend, petitioners never received any of the due-process protections to which they are entitled under Federal Rule of Civil Procedure 23(b)(3); the fact that they can still bring individual actions is rendered essentially meaningless by the small amount of economic damages at issue in each individual case.

In its own brief on the merits, Bayer seeks to characterize petitioners’ position as a “‘heads-I-win, tails-you-lose’ proposition.”  First, it contends, the lower courts’ holdings are entirely consistent with both the history and purpose of the re-litigation exception to the Anti-Injunction Act:  “Congress has expressly authorized federal courts to protect and effectuate their judgments by enjoining state-court litigation of issues that have been fully and fairly adjudicated in federal court.”  Petitioners are also collaterally estopped from seeking to re-litigate the class certification issue because they are relying on the same legal theory that the federal court has already rejected.  Moreover, because petitioners were adequately represented members of the class for which McCollins sought certification, they are bound by the district court’s denial of class certification in that case.  Finally, Bayer emphasizes that the lower courts’ rulings do not violate due process:  petitioners can still bring their individual claims; they are simply precluded from re-litigating the class certification issue.