The Supreme Court Gets One Right: Members of a Class that Was Not Certified Are Not Bound by Collateral Estoppel in Smith v. Bayer; Thorogood v. Sears Remanded for Further Consideration

With all the commentary surrounding the Supreme Court’s recent decision in Dukes v. Walmart, two important decisions affecting class action litigants may have fallen under the radar this summer.  In the first, Smith v. Bayer Corp., No. 09-1205 (June 16, 2011), the Court held that a federal court exceeded its authority under the “re-litigation exception” of the Anti-Injunction Act when it enjoined a state court litigant from seeking to certify a class that the federal court had declined to certify.  In the second, Thorogood v. Sears, Roebuck & Co., No. 10-1087 (June 27, 2011), the Court summarily vacated and remanded a case to the Seventh Circuit for further consideration of whether a federal court could exercise similar control over litigants in other federal courts under the All Writs Act.

In Smith, a federal district court declined to certify a class action brought against Bayer Corp.  Bayer then moved the district court to enjoin a different plaintiff from seeking to certify a class in a West Virginia state court.  The District Court granted the motion, and the Eighth Circuit affirmed, finding that, although the Anti-Injunction Act generally prohibits federal courts from enjoining state court proceedings, the injunction was proper under the re-litigation exception to the Act, because the state class action rule, W. Va. Rule Civ. Proc. 23, was sufficiently similar to Federal Rule of Civil Procedure 23.

The Supreme Court disagreed. First noting that the preclusive effect of prior litigation is normally an issue for the second court to decide, it held that: (1) the issue presented to the state court was not the same as the issue presented to the federal court, as the West Virginia Supreme Court had generally stated that it would not necessarily interpret its Rule 23 as coterminous with Federal Rule 23; and (2) the injunction was independently improper because the plaintiff in the state court action was not a party to the federal suit and was not covered by any exception to the general rule that a nonparty is not bound by a court’s decision.

Similarly, on June 27, 2011, the Supreme Court vacated and remanded Thorogood v. Sears, Roebuck & Co., for further consideration in light of the decision in Smith v. Bayer Corp.   In Thorogood, the Seventh Circuit had held that a federal court could, under the All Writs Act, enjoin a plaintiff from seeking to certify a class in another federal court that the first court had declined to certify.  (For more abut the Thorogood case, see the article I wrote with Wexler Wallace associate Amy Keller, Preemptive Collateral Estoppel Blocks Consumer Class Action in Thorogood, CADS Report, Vol. 21, Winter 2011, which appeared in the Winter 2011 edition of the ABA Section of Litigation’s Class Action and Derivative Suit (CADS) Committee Newsletter.)

The injunction the Seventh Circuit permitted in Thorogood is unlikely to withstand such further consideration, given the Supreme Court’s clear determination in Smith v. Bayer that “[n]either a proposed class action nor a rejected class action may bind nonparties.”  As the Court noted, the defendant’s fears that this approach will permit class counsel to try repeatedly to certify the same class simply by changing plaintiffs is unfounded, given that principles of stare decisis and comity among courts are sufficient to address such concerns absent the unnecessary binding of nonparties to prior judgments.

With Smith and Thorogood, the Court has deprived defendants of one tool used to prevent class action plaintiffs from receiving their fair day in court.  Although the plaintiffs bar may lament the Court’s recent decisions in Concepcion and Dukes, it may take solace in the fact that the Court at least got this one right.

Photo Credit: Phil Roeder