When you see headlines announcing a major Supreme Court decision in a case called Microsoft v. Baker, you might expect another foray into the law of patents. This one, though, involves class actions, and the court’s decision reflected a unanimous vote (sans Justice Neil Gorsuch, who joined the bench after the oral argument) rejecting the U.S. Court of Appeals for the 9th Circuit’s tolerance of a litigation tactic involving procedures for class certification.
Traditionally, federal courts of appeal cannot review anything a district court does until it issues a final decision. When plaintiffs try to bring a class action, litigating as a group, the claims of individual plaintiffs survive even when a district court refuses to certify a case for adjudication as a class. Thus, a district court decision denying certification ordinarily does not produce a final order suitable for immediate review on appeal. The problem that plaintiffs face, though, is that adjudication of the individual claims often makes no sense without class relief; the costs and fees associated with a trial typically dwarf the possible recovery from any particular individual’s claim. Accordingly, plaintiffs often want to appeal immediately when a district court rejects class relief.
For many years, the lower federal courts tolerated those appeals, reasoning that the certification decision was the “death knell” of the litigation, and concluding with an air of pragmatism that a death-knell order was close enough to a final order to justify an immediate appeal. The Supreme Court, though, in a landmark 1978 decision (Coopers & Lybrand v Livesay), rejected that doctrine, holding that because a district court’s denial of class certification is not final, plaintiffs cannot appeal from such a ruling. To complete the context for the present dispute, the Supreme Court in 1998 approved a revision of the federal rules of civil procedure (Rule 23(f)), which mitigated Coopers & Lybrand slightly, giving plaintiffs a narrow route for appeal of those orders, limited to cases in which the court of appeals consents.
During the 20 years since the adoption of Rule 23(f), plaintiffs have developed a new strategy for appealing denials of class certification even without the consent of the court of appeals. Under that strategy, the plaintiffs respond to a denial of class certification with a voluntary agreement to dismiss their claims. With that dismissal in hand, they claim they have a final order that they can appeal to the court of appeals, planning to revive their claims if the court of appeals reverses the district court and holds that class-based adjudication is proper. Although several of the courts of appeals have rejected that tactic, it has been successful in the 9th Circuit.
Microsoft v. Baker brought that arrangement before the court, and not one of the eight participating justices approved it. Microsoft’s strategy was to emphasize the inconsistency of characterizing the district court’s decision as final while retaining the right to pursue the individual claims after an appeal. Microsoft argued that if the district court’s decision did in fact finally dismiss the claims of the plaintiffs, then the litigation had to end because the plaintiffs no longer had any live claim that would present a case suitable for adjudication by a federal court. On the other hand, if the plaintiffs’ claims were still live, then the district court’s decision wasn’t really final, so the plaintiffs should not be allowed to pursue an appeal. The questioning of the justices at the argument was so unremittingly hostile to the position of the plaintiffs that the only question seemed to be which of the two routes the justices would take to rejecting the decision of the 9th Circuit. Yesterday’s opinions answer that question: A bare majority of five hold that the district court’s decision was not final (with Justice Ruth Bader Ginsburg writing for the majority); the other three justices (Justice Clarence Thomas, joined by Chief Justice John Roberts and Justice Samuel Alito) hold that the dismissal deprived the plaintiffs of any interest in further adjudication.
Ginsburg’s opinion rests the court’s decision on a structural argument, that the voluntary-dismissal strategy was an impermissible effort to avoid the framework established by Coopers & Lybrand and Rule 23(f) allowing plaintiffs to appeal a denial of class certification if, but only if, the court of appeals permits an appeal. Because the 9th Circuit in this case refused to permit the appeal under Rule 23(f), the plaintiffs’ later efforts to gain appellate review should have been unavailing. Thus, in the view of the court, the plaintiffs’ “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 opinion emphasizes that the most important consideration – “‘[o]f prime significance to the jurisdictional issue before us’” – is the likelihood that the “tactic [will] undercu[t] Rule 23(f)’s discretionary regime.” Embracing the rulemaking process that it supervises, the court explains that any further “changes” to the procedures for appeals in this area “are to come from rulemaking, however, not judicial decisions in particular controversies or inventive litigation ploys. In this case, the rulemaking process has dealt with the matter, yielding a ‘measured, practical solutio[n]’ to the questions whether and when adverse certification orders may be immediately appealed.”
Summarizing its conclusion in categorical terms that contemplate no further strategic circumvention, the opinion concludes that “[p]laintiffs in putative class actions cannot transform a tentative interlocutory order … into a final judgment … simply by dismissing their claims with prejudice – subject, no less, to the right to ‘revive’ those claims if the denial of class certification is reversed on appeal.”
Although the opinion certainly provides the last (even “final”) word in rejecting the strategy that it addresses, it underscores a closely related problem that has been festering in the court’s decisions for the last several years: the ability of defendants to engineer the resolution of a class action by settling the claims of the named plaintiffs. The three concurring justices here held that a class action cannot survive a settlement of the individual claims of the named plaintiffs, while the majority did not address that question. Last year’s decision in Campbell-Ewald v. Gomez held that a settlement offer does not moot the claims if the plaintiff does not accept it, at least if it is not sufficiently robust and unqualified to remove any controversy with the plaintiffs. It is fair to say that the effect of individual settlements on the continued litigation of a class action is one that the court will face again soon.