KT Class Action Blog

Category: U.S. Supreme Court

Posted on Wednesday, December 13 2017 at 2:58 pm by
The U.S. Supreme Court grants class defendants’ petition for certiorari in Ninth Circuit American Pipe tolling case (Resh v. China Agritech)

by John Neeleman

As we discussed at length last June [Ninth Circuit extends tolling doctrine to allow successive class actions, subject only to preclusion and “comity” defenses], the Ninth Circuit in Resh v. China Agritech, Inc., 857 F.3d 994, 999 (9th Cir. 2017), extended the American Pipe tolling rule (see American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), and Crown, Cork & Seal Co. v. Parker, 462 U.S. 345 (1983)) – providing that the statute of limitations is tolled for claims of unnamed members of a putative class during the pendency of a class action – by ruling that the limitations period had been tolled for unnamed plaintiffs for a third class action after two prior class actions involving the same allegations had failed to win certification. Prior to Resh, no court, including the Ninth Circuit, had held that under this precedent the statute would be tolled for class actions as well as individual claims. Now, last Friday, the Supreme Court granted the class defendants’ petition for writ of certiorari and agreed to review the Ninth Circuit’s decision in Resh.

Given the political makeup of the Supreme Court, and its recent decision in California Public Employees’ Retirement System v. ANZ Securities, Inc., 137 S.Ct. 2042 (U.S. 2017), holding that the filing of a putative class action does not toll the statute of repose for actions brought under Section 11 of the Securities Act of 1933, which we discussed at length last July [U.S. Supreme Court rejects application of American Pipe tolling to statutes of repose], a reversal seems a good bet. But the Supreme Court will have to address the central issue that occupied the Ninth Circuit—what legal or public policy basis would support distinguishing between individual and class actions in this context.

The crux of the Ninth Circuit’s reasoning was that there is no principled legal or public policy basis for distinguishing between individual actions and class actions in this context. Rule 23 is, after all, a procedural rule that, the Supreme Court has held, authorizes a district court to certify a class in every single case that satisfies Rule 23’s criteria—by its nature Rule 23 is not supposed to impact the adjudication of a claim on the merits. Moreover, while the Ninth Circuit was sensitive to the problem of serial efforts to certify class actions that were pending or previously failed to gain certification in state or federal courts, legal mechanisms exist to prevent such abuses in the class context (as in individual litigation), including claim preclusion and comity doctrines.

Among the cases upon which the Ninth Circuit relied was Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co., 559 U.S. 393 (2010), where the Supreme Court held that Rule 23 authorizes a district court to certify a class in every case that satisfies Rule 23’s criteria, regardless of the cause of action. In Resh, the Ninth Circuit reasoned that Shady Grove means that as a procedural rule, Rule 23 cannot abridge a claimant’s existing rights under a limitations statute. Resh, 857 F.3d at 1002 (“There is nothing in the certification criteria of Rule 23 that tells us to look to whether the statute of limitation has, or has not, been tolled.”)

The Ninth Circuit also addressed the defendants’ argument that “serial relitigation of class certification” was unfair to defendants, and that defendants “would be forced in effect to buy litigation peace by settling.” Id. at 1003. The quotations are from Smith v. Bayer Corp., 564 U.S. 299 (2011), wherein the Supreme Court refused to allow a federal district court to enjoin a state court from certifying a class after the federal court had denied class certification of a class involving the same transaction or occurrence. The Ninth Circuit relied on Smith v. Bayer’s reasoning that “there was no basis to apply formal preclusion principles against them, and thus no basis to enjoin the state court from certifying the class action.” Id. The Ninth Circuit followed Bayer’s holding that “traditional principles of stare decisis and comity, combined with the possibility of removal under the Class Action Fairness Act or consolidation by the Panel on Multidistrict Litigation, [are] adequate to the task of protecting defendants.” Id. (citing Smith v. Bayer, 564 U.S. at 316–18).

If it desires to reverse Resh, the Supreme Court will have to find that the legal and public policy issues identified and addressed by the Ninth Circuit compel an opposite result.

Posted on Friday, July 7 2017 at 11:57 am by
U.S. Supreme Court rejects application of American Pipe tolling to statutes of repose

by Joe Reynolds

Takeaway: In California Public Employees’ Retirement System v. ANZ Securities, Inc., No. 16-373, 2017 WL 2722415 (U.S. June 26, 2017), the Supreme Court issued its closely-watched decision regarding whether the filing of a putative class action tolls the statute of repose for actions brought under Section 11 of the Securities Act of 1933. The Supreme Court held that the equitable tolling principles announced in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), cannot supersede the purpose of a statute of repose, which is “to grant complete peace to defendants.” CalPERS, 2017 WL 2722415, at *11. For the defense bar, this is a welcome restriction on American Pipe tolling, at least where a statue of repose is involved. As we discussed last month, the Ninth Circuit recently expanded American Pipe tolling to successive class actions, rejecting the argument that serial relitigation of class certification would force defendants “to settle to buy peace.” Resh v. China Agritech, Inc., No. 15-55432, 2017 WL 2261024 (9th Cir. May 24, 2017) (quoting Phipps v. Wal-Mart Stores, Inc., 792 F.3d 637, 653 (6th Cir. 2015)).     

The CalPERS case arises out of certain securities offerings by Lehman Brothers in 2007 and 2008. In 2008, a putative class action was filed in the Southern District of New York on behalf of all persons who purchased these securities, alleging claims under Section 11 of the Securities Act of 1933. More than three years after the securities offerings at issue, CalPERS – a member of the putative class – filed a separate complaint alleging identical claims under § 11. Shortly thereafter, the putative class reached a proposed settlement, CalPERS opted out of the class, and the defendants moved to dismiss CalPERS’ complaint as time barred.

The statutory time bar at issue – Section 13 of the Act – provides that “[i]n no event shall any such action be brought to enforce a liability created under [§11] more than three years after the security was bona fide offered to the public … .” 15 U.S.C. § 77m. CalPERS argued its complaint was timely under American Pipe tolling principles, where the Supreme Court held “the commencement of a class action suspends the applicable statute of limitations as to all asserted members of the class.” American Pipe, 414 U.S. at 554. The District Court and the Second Circuit rejected CalPERS’ argument, however, holding that American Pipe tolling does not apply to § 13’s three-year bar—which the appellate court denominated a statute of repose. Writing for the majority, Justice Kennedy agreed, relying primarily on the “nature and purpose” of the statutory time bar at issue and of American Pipe tolling more generally. CalPERS, 2017 WL 2722415, at *6.

Justice Kennedy recognized that statutory time bars fall into two categories with two “distinct” purposes: statutes of limitations and statutes of repose. While statutes of limitations encourage “diligent prosecution of known claims,” statutes of repose provide “more explicit and certain protection to defendants.” Id. at *6-*7. Put another way, statutes of repose grant “complete peace to defendants,” give defendants “full protection after a certain time,” and offer defendants “full and final security.” Id. at *8, *11. American Pipe tolling, on the other hand, is grounded in the “the judicial power to promote equity” or the “traditional equitable powers of the judiciary.” Id. at *10. Ultimately, CalPERS holds that these principles of equity cannot modify a statutory time bar designed to grant peace to defendants. Id. at *11.

In her dissent, Justice Ginsburg notes the potential for opportunistic behavior by class action defendants: “Defendants will have an incentive to slow walk discovery and other precertification proceedings so the clock will run on potential opt outs.” Id. at *16. But this concern likely will be limited to Securities Act cases, given that most statutes of repose are much longer than three years. Nevertheless, and particularly given the Ninth Circuit’s recent decision allowing American Pipe tolling across successive class actions, CalPERS reiterates the importance of carefully evaluating any applicable statutes of repose, in addition to the preclusion and “comity” defenses potentially applicable in any repetitive class action.

Posted on Friday, June 23 2017 at 2:22 pm by
U.S. Supreme Court Issues Anti-Forum Shopping Jurisdictional Decision

by Jon Michaelson

As anticipated, the just-released U.S. Supreme Court decision in Bristol-Myers Squibb Co. v. Superior Court, No. 16-466, 2017 WL 2621322 (U.S. June 19, 2017), establishes an important limitation in the law of personal jurisdiction, especially as it relates to mass tort and class action litigation. Just as the Court in Daimler AG v. Bauman, 134 S. Ct. 746 (2014), drastically limited the ability of lower courts to assert general jurisdiction over non-resident defendants, the Bristol-Myers opinion likewise restricts the ability of plaintiffs to establish specific jurisdiction over non-resident defendants. The impact of this decision has been immediate. The very day Bristol-Myers issued, a Missouri state court judge declared a mistrial with respect to talcum powder claims brought by plaintiffs who were both residents and non-residents of Missouri, given that the Missouri state court likely did not have personal jurisdiction over the claims of the two non-resident plaintiffs.

The question presented in Bristol-Myers was whether out-of-state plaintiffs’ claims arose out of or related to a defendant’s forum activities – sufficient to establish specific jurisdiction – when there was no causal link between those forum contacts and the plaintiffs’ claims. More particularly, the Court addressed a California Supreme Court decision in a mass tort action instituted on behalf of nearly 600 non-California residents asserting California state law claims leveled at Bristol-Myers’ drug Plavix, where none of the non-residents’ claims had any connection with Bristol-Myers’ activities in California. Plavix was not marketed, prescribed, or ingested by any of the non-residents in California. None were injured or received treatment in the state. Plavix was not developed or packaged in California. Bristol-Myers’ regulatory compliance efforts regarding Plavix also took place elsewhere. And even though Bristol-Meyers had entered into a distribution agreement with California-based co-defendant McKesson, it was not possible to trace any Plavix pill taken by a non-resident plaintiff to McKesson.

Notwithstanding this complete lack of connection between the non-resident plaintiffs and their injuries and California, the California Supreme Court held – by a bare (4 to 3) majority – that specific jurisdiction over Bristol-Myers was established. It did so by applying a “sliding scale” test to determine whether non-residents’ claims were sufficiently related to California. Under that test, the intensity of a defendant’s overall forum contacts and the connection between those contacts and a plaintiff’s claims are inversely-related. In other words, the more extensive a defendant’s overall activities in the forum, the easier it is to demonstrate “relatedness” to a claim, for purposes of specific jurisdiction. Additionally, under this approach, a defendant’s forum contacts do not need to be a “but for” or even a “proximate” cause of the injuries alleged.

According to the California Supreme Court’s majority opinion, Bristol-Myers’ connections to California were extensive, even though they were insufficient to render it “at home” (i.e., subject to general jurisdiction) in California. Because national marketing and other efforts with respect to Plavix were conducted in California (among the other states), because California was the site for some company R&D activity (though not involving Plavix), and because claims asserted by the non-resident class members were similar to those advanced by California residents, the California Supreme Court held that there was sufficient “relatedness” to establish specific jurisdiction relative to the claims of the non-resident plaintiffs.

The Supreme Court disagreed by a margin of 8 to 1. According to the Court, under “settled principles regarding specific jurisdiction,” “there must be an ‘affiliation between the forum and the underlying controversy, principally, [an] activity or an occurrence that takes place in the forum State.’” Id. at *6 (quoting Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 919 (2011)). Even regularly occurring sales or other continuous activity within a state will not suffice if there is no connection between those contacts and the issue in dispute. Likewise, “‘a defendant’s relationship with a … third party, standing alone, is an insufficient basis for jurisdiction.’” Id. at *8 (quoting Walden v. Fiore, 571 U.S. ___ (2014) (slip op., at 8)). That principle undercut any contention that similar or even identical injuries suffered by resident and non-resident claimants provided a proper foundation for the exercise of specific jurisdiction. In light of these limitations, the Court described California’s sliding scale approach as “difficult to square with our precedents” and “resembl[ing] a loose and spurious form of general jurisdiction.” Id.

The Court’s holding – that specific jurisdiction does not exist where a non-resident asserts claims over a non-resident defendant where the relevant, alleged misconduct took place elsewhere – casts a cloud over state court mass tort and class actions asserted by non-resident plaintiffs against non-resident defendants. Obviously, a corporate defendant will still be subject to suit in its “home state,” as a matter of general jurisdiction. But combining resident and non-resident claims in a “non-home” forum has become far more difficult (if not impossible), as Justice Sotomayor pointed out in her lone dissent. Id. at *17. Further still, and again as noted in the dissent, joining corporate co-defendants domiciled in different states in a single state court proceeding may be impossible, as well. Id. The days of creative forum shopping for mass tort cases involving a multi-state class may be coming to an end.

It must be emphasized that the Bristol-Myers court did not decide two important issues. First, the Court left open the question whether the restrictions it established for specific jurisdiction on state courts apply to the exercise of jurisdiction by federal courts. Id. at *11. And second, the Court did not address Bristol-Myers’ argument that “relatedness” for purposes of specific jurisdiction can be satisfied only by a showing of actual causation. That leaves open the split which has emerged among courts – both state and federal – as to the meaning of “suit related conduct” in assessing specific jurisdiction. The vast majority (nine circuits along with the highest courts of Arizona, Massachusetts, Oregon, and Washington) have ruled that a plaintiff’s case does not “relate to or arise out of” a defendant’s forum contacts unless those contacts caused in some manner the injury alleged. Several of these courts express the relatedness requirement in “but for” terms while others articulate a “proximate cause” or foreseeability” test. In all instances, though, some direct linkage is required. By contrast, a minority of courts – including the Federal Circuit as well as the highest courts of California, the District of Columbia, and Texas – have adopted a more flexible (and easy to satisfy) approach. Although California’s “sliding scale” standard has now been struck down, it remains unclear whether and to what extent other similarly-relaxed standards will pass constitutional muster.

Posted on Friday, June 16 2017 at 1:45 pm by
Supreme Court rejects creative dismissal strategy to engineer appellate review of order denying class certification

by Ron Raider

Takeaway: The United States Supreme Court has rejected a tactic used by the plaintiffs’ bar to obtain appellate court review of an order denying class certification. Justice Ginsburg held that “the voluntary dismissal essayed by [class representatives] does not quality as a ‘final decision’ within the compass of 28 U.S.C. § 1291,” such that an order denying class certification could be reviewed even where the appeals court had rejected an interlocutory appeal of the certification ruling. Microsoft v. Baker, No. 15-457, 2017 WL 2507341 (U.S. June 12, 2017).

In Microsoft v. Baker, consumers sought to bring a class action against Microsoft based on an alleged Xbox defect that caused game discs to be scratched during normal use. After the district court denied certification, the consumers petitioned for interlocutory review of the certification order under Rule 23(f), which the Ninth Circuit denied. The named plaintiffs then dismissed their individual claims with prejudice and appealed, claiming the Court of Appeals possessed appellate jurisdiction over final judgments under 28 U.S.C. § 1291.

Justice Ginsburg emphasized the broad discretion of appellate courts to accept or decline petitions for immediate review of class certification rulings under Rule 23(f). Justice Ginsburg explained that “[c]ourts of appeals wield ‘unfettered discretion’ under Rule 23(f), akin to the discretion afforded circuit courts under § 1292(b).” 2017 WL 2507341, at *7.

Once the appellate court denied their Rule 23(f) petition, the disappointed consumers retained several procedural options for seeking review of the certification ruling. They could settle their individual claims; seek discretionary interlocutory review of the class certification decision under § 1292(b); request that the district court revisit the class certification order; or litigate their individual claims through judgment and then appeal both the final judgment and the order denying class certification. Id. at *9.

The Baker plaintiffs utilized none of these procedures. Instead, they stipulated to the dismissal of their individual claims with prejudice and then appealed the order denying class certification §1291. The Ninth Circuit held it had appellate jurisdiction and reversed the order striking class allegations. The Supreme Court granted certiorari to address a Circuit split on the appellate jurisdiction issue. Id. at *10 & n.8.

Recognizing as foundational the principle that all issues be decided in a single appeal, the Supreme Court rejected the consumers’ strategy: “Because respondents’ 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 tactic does not give rise to a ‘final decision[n]’ under § 1291.” Id. at *11. Rather than enhancing efficiency, the consumers’ approach “invites protracted litigation and piecemeal appeals,” in violation of the final judgment rule and the interlocutory appeal balance struck by Rule 23(f). Id. Accordingly, the Supreme Court reversed the Ninth Circuit’s exercise of appellate jurisdiction. Id.

Justice Thomas, joined by Chief Justice Roberts and Justice Alito, issued a concurring opinion arguing the appeal should have been rejected because of a lack of Article III standing. Justice Thomas disagreed with the majority that an appeal from a voluntary dismissal did not constitute a final judgment under § 1291. 2017 WL 2507341, at *16-*17 (Thomas, J., dissenting). Rather, the consumers’ appeal should have been rejected because, once the consumers dismissed their claims, the parties “were no longer adverse to each other on any claims, and the Court of Appeals could not ‘affect the[ir] rights’ in any legally cognizable manner.” Id. at *17. Because the Court of Appeals lacked jurisdiction over the consumers’ individual claims, “it could not hear plaintiffs’ appeal of the order striking their class allegations.” Id. at *18.

The Supreme Court’s ruling in Baker should put to bed class representatives’ tactic of dismissing their claims to secure immediate review of an adverse class certification ruling, as well as laying out the logical framework for challenging appeals generated through other litigation stratagems. And the concurring opinion may give class defendants greater ammunition to challenge class certification appeals by named plaintiffs with Article III standing issues. We will stay tuned for the next chapter in the Supreme Court’s class certification jurisprudence.

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