Supreme Court Limits Federal Courts’ Ability to Enjoin Relitigation of Class Certification in State Courts

by Eversheds Sutherland (US) LLP
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On June 16, 2011, the U.S. Supreme Court unanimously reversed a decision by the U.S. Court of Appeals for the Eighth Circuit that had affirmed an injunction against a state court’s certification of a class where the U.S. District Court had earlier denied certification of a similar class. Smith v. Bayer Corp., No. 09-1205, 2011 WL 2369357 (2011). In reaching its decision, the Court clarified the scope of the Anti-Injunction Act’s relitigation exception, which authorizes a federal court to enjoin state litigation on claims or issues that were previously decided by the federal court. Prior to Smith, circuit courts were split on the application of two key conditions of the relitigation exception: (1) whether the issue decided by the federal court was the same as the one presented to the state court; and (2) whether the plaintiff in the state court action was a party to the federal suit or subject to an exception to the general rule against binding nonparties.

The Eighth Circuit had affirmed a decision that enjoined two individuals from seeking to certify a class in a West Virginia state court after the U.S. District Court for the District of Minnesota (MDL court), which was overseeing the multidistrict litigation, denied certification of a similar West Virginia class by another individual. In both putative class actions, the plaintiffs sought to represent a class of West Virginia residents who had purchased Baycol, an allegedly hazardous cholesterol-lowering prescription drug. In August 2001, Plaintiff McCollins instituted his putative class action against the Bayer Corporation, asserting various state law claims arising from Bayer’s sale of Baycol. One month later, Plaintiffs Smith and Sperlazza (Smith) filed a similar action in a different West Virginia state court. Both McCollins and Smith sought to certify their class under West Virginia Rule of Civil Procedure 23.

In January 2002, Bayer removed the McCollins case to the U.S. District Court for the Southern District of West Virginia on the basis of diversity of citizenship. The case was later transferred to the MDL court. Because of a lack of complete diversity, however, Bayer was unable to remove the Smith case.

In August 2008, the MDL court granted Bayer’s motion to deny class certification of the class proposed by McCollins. Applying Federal Rule of Civil Procedure 23, the court reasoned that individual issues of fact predominated over common issues because the necessary showing of “actual injury” would vary from plaintiff to plaintiff. Based on this denial of class certification, Bayer obtained an order from the MDL court enjoining the Smith plaintiffs, as absent putative class members in the McCollins class, from relitigating the federal court’s decision in West Virginia state court.

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