United States: Class Dismissed . . . But Not Quite: Supreme Court To Review Appealability Of Class Certification Denials When Plaintiffs Voluntarily Dismiss Case

Does a federal court have jurisdiction to review an order denying class certification after the named plaintiffs voluntarily dismiss their claims with prejudice? That is the question the Supreme Court will consider in Microsoft Corp. v. Baker, Docket No. 15-457. Class action plaintiffs have increasingly relied on this tactic to obtain immediate appellate review of district court denials of class certification decisions, even where the Court of Appeals has denied discretionary review under Rule 23(f). The Supreme Court's decision in Baker will determine whether plaintiffs may continue this practice.

Baker Background.  The Baker case concerns a challenge to Microsoft's Xbox 360 game console. A group of plaintiffs filed an action in the Western District of Washington in 2007, alleging that the Xbox drive scratched game disks during normal game play. The district court denied certification, finding that only a small percentage of the consoles actually manifested the defect, and that determining whether scratching resulted from a defect versus misuse would require individual inquires. The plaintiffs filed a 23(f) petition with the Ninth Circuit, but the Ninth Circuit denied the petition.

In 2011, the Baker plaintiffs—who had opted out of the original action—filed a virtually identical lawsuit in the same District, arguing that an intervening Ninth Circuit decision required a different result. The district court disagreed, striking Baker's class allegations.  Plaintiffs again filed a 23(f) petition, which the Ninth Circuit again denied.

The Baker plaintiffs then voluntarily dismissed the case with prejudice. Their express purpose was to obtain immediate Ninth Circuit review of the district court's class certification order.

The Ninth Circuit Reviews the Case.  Plaintiffs filed an appeal from the court's final judgment, challenging the court's class certification decision. Microsoft argued that permitting the appeal allowed plaintiffs to end run Rule 23(f), which expressly governs appellate review of class certification decisions and gives the appellate court discretion to grant or deny interlocutory appeals of such decisions. The Supreme Court in Coopers & Lybrand v. Livesay, 437 U.S. 463 (1978), rejected former decisions requiring federal courts to accept immediate appeals of class certification denials to avoid the "death knell" of class claims, finding that the benefit to plaintiffs was outweighed by the burden on judicial resources in requiring immediate review. Congress then adopted Rule 23(f) in 1998 as a compromise to address the "death knell" issue, permitting plaintiffs to petition a Court of Appeals to grant discretionary, interlocutory review for any reason—including because the costs of litigation exceed the plaintiff's individual claim—while at the same time rejecting immediate appeals as of right from class certification decisions.

The Ninth Circuit ignored Microsoft's arguments. Relying on its prior decision in Berger v. Home Depot USA, Inc., 741 F.3d 1061 (9th Circ. 2014), the court focused on the existence of an actual controversy, stating that "'in the absence of a settlement, a stipulation that leads to a dismissal with prejudice does not destroy the adversity in that judgment necessary to support an appeal....'" Baker v. Microsoft Corp., 797 F.3d 607, 612 (9th Cir. 2015), cert. granted in part, 136 S. Ct. 890, 193 L. Ed. 2d 783 (2016) (quoting Berger, 741 F.3d at 1064).

Microsoft filed a petition for a writ of certiorari. The Supreme Court granted the petition on January 15, 2016.

Supreme Court Status Update.  Microsoft and amici filed their opening briefs in March. Microsoft argues that Plaintiffs' voluntary dismissal tactic violates Livesay and thwarts the discretionary review process created under Rule 23(f). Microsoft also argues that, because plaintiffs voluntarily dismissed their case, there is no longer a case or controversy required for Article III jurisdiction and plaintiffs' claims are moot.

Plaintiffs filed their responding brief on May 16. They argue that prohibiting appeals of class certification decisions from voluntary dismissals will undermine class actions, as the cost of litigating individual claims vastly exceeds the minimal value of such claims. They contend that the Supreme Court's holding in United States v. Procter & Gamble, 356 U.S. 677, 680-681 (1958), in which the Court rejected the defendant's argument that it lacked jurisdiction because the United States had requested dismissal of its claims, forecloses Microsoft's argument.  Microsoft's "atextual" reading of Rule 23(f) and the "final judgment" rule under 28 U.S.C. 1291, Plaintiffs argue, fails as a matter of law and policy.

Baker's Bottom Line.  The Baker decision promises to clarify the viability of a current trend in class action litigation: lose class certification, dismiss the case with prejudice, and then file for appeal. While Plaintiffs risk losing their individual claims if their appeal is denied, they view the ability to obtain immediate review of the district court's class certification decision as being worth it.

If the Supreme Court in Baker sides with Microsoft, this practice will end. Moreover, the Supreme Court's decision may impact current Ninth Circuit food misbranding decisions on appeal, such as Jones v. ConAgra, which reached the Ninth Circuit through this practice. An early decision in Microsoft's favor could deprive the Ninth Circuit of jurisdiction to hear Jones and similar cases altogether.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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