The Decision: The United States Supreme Court held that class action plaintiffs cannot obtain an immediate appeal as of right from the denial of class certification by voluntarily dismissing their individual claims.
The Reasoning: The "dismissal device" undermines the final-judgment rule, undermines the discretion given to the courts of appeals by Rule 23(f), and violates principles of fairness because it is available only to class action plaintiffs.
The Implications: Class action plaintiffs cannot use this "dismissal device" to obtain early review "as of right" of the denial of class certification. Given the Court's recognition of the heavy burdens class certification can impose on defendants, the decision may also help class action defendants obtain discretionary appellate review under Rule 23(f). The Court's decision provides courts with a reminder to treat class action defendants evenhandedly.
In a victory for class action defendants, the United States Supreme Court's decision in Microsoft Corp. v. Baker puts an end to plaintiffs' manufactured appeals as of right from denials of class certification. The Court's holding reaffirms that class certification decisions are interlocutory and subject to immediate appeal only within the discretion of the courts of appeals under Rule 23(f). In addition to narrowing when plaintiffs can appeal, the Court emphasized that class action rules must be evenhanded; class certification is "just as important to defendants" as it is to plaintiffs.
In 2011, a group of console owners sued Microsoft Corporation in a putative nationwide class action, claiming the popular Xbox 360 console was defectively designed because, plaintiffs alleged, it scratched game discs during normal operations. Microsoft Corp. v. Baker, ___ U.S. ___, No. 15-457, slip op. at 8 (June 12, 2017). The District Court struck the class allegations, an act that is "functional[ly] equivalent to an order denying class certification." The court determined that nothing undermined a previous court's denial of class certification in a similar case in 2009. Id. at 8-9 & n.7 (citing In re Microsoft Xbox 360 Scratched Disc Litig., 2009 WL 10219350, at *6-7 (W.D. Wash. Oct. 5, 2009)).
Although the order striking class allegations was not immediately appealable as of right under 28 U.S.C. § 1291 (because it was not a final judgment), Federal Rule of Civil Procedure 23(f) grants an immediate appeal of the grant or denial of class certification. That appeal, however, lies solely within the discretion of the court of appeals. The Microsoft plaintiffs petitioned the Ninth Circuit for discretionary review of the order striking the class allegations under Rule 23(f). Microsoft, ___ U.S. ___, slip op. at 9. The Ninth Circuit denied that petition. Id.
The plaintiffs chose not to proceed with their individual claims on the merits and litigate to final judgment. Instead, in an effort to obtain immediate review by the Ninth Circuit, the plaintiffs stipulated to a voluntarily dismissal of their individual claims. The plaintiffs then appealed to the Ninth Circuit, arguing that voluntary dismissal created a final judgment from which they could appeal as of right the order striking class allegations. Microsoft, ___ U.S. ___, slip op. at 10. The Ninth Circuit rejected Microsoft's argument that the plaintiffs had "no right to appeal" and were "impermissibly circumvent[ing] Rule 23(f)" and held that the plaintiffs' voluntary dismissal made the case appealable under § 1291 as a final judgment. Id. at 10-11. The Ninth Circuit also reversed the District Court's order striking the plaintiffs' class allegations. Id. at 11. Microsoft then petitioned the U.S. Supreme Court for certiorari. Id.
In Coopers & Lybrand v. Livesay, 437 U.S. 463 (1978), the U.S. Supreme Court rejected the "death knell" doctrine, which allowed a plaintiff who was denied class certification to appeal immediately if the denial "would end [the] lawsuit for all practical purposes." Microsoft, ___ U.S. ___, slip op. at 2. The U.S. Supreme Court agreed to hear the Microsoft case to "resolve a Circuit conflict" as to whether "federal courts of appeals have jurisdiction under § 1291 and Article III of the Constitution to review an order denying class certification (or, as here, an order striking class allegations) after the named plaintiffs have voluntarily dismissed their claims with prejudice[.]" Microsoft, ___ U.S. ___, slip op. at 11.
The U.S. Supreme Court reversed the Ninth Circuit. Justice Ginsburg wrote the majority opinion, which Justices Kennedy, Breyer, Sotomayor, and Kagan joined. Justice Thomas wrote a concurring opinion, which the Chief Justice and Justice Alito joined. Justice Gorsuch did not participate. The majority held that "Plaintiffs in putative class actions cannot transform a tentative interlocutory order into a final judgment within the meaning of § 1291 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." Microsoft, ___ U.S. ___, slip op. at 16.
The Court reached this conclusion for the same three reasons that supported its rejection of the "death knell" doctrine in Coopers & Lybrand.
First, the plaintiffs' "dismissal device subverts the final-judgment rule" by creating the opportunity for repeated, piecemeal appeals. Microsoft, ___ U.S. ___, slip op. at 12-13. The final-judgment rule is designed to funnel all issues into a single appeal at the end of the case, whereas the "dismissal device" in Microsoft, like the "death knell" doctrine, gives a plaintiff the opportunity to file repeated appeals. Id. at 3, 12-14. The risk of repeat appeals "is greater" here because the plaintiffs could dismiss as of right at any time, whereas under the "death knell" doctrine, the court of appeals had to approve each appeal. Id. at 14.
Second, the plaintiffs' dismissal device both "disturb[s] the appropriate relationship between respective courts" and "undercuts Rule 23(f)'s discretionary regime." Microsoft, ___ U.S. ___, slip op. at 14. Rule 23(f) sets out the proper balance for determining whether to allow an interlocutory appeal of a class certification decision and leaves that decision to the discretion of the court of appeals. Id. at 14-16. That discretion "would be severely undermined," the Court held, by allowing the plaintiffs to invoke an appeal of as right by dismissing their individual claims. Id. at 12, 14-16.
Finally, it was fundamentally unfair that the dismissal device would be available only to plaintiffs, not defendants. That "one-sidedness" "reinforce[d]" the Court's conclusion that the voluntary dismissal here "does not support appellate jurisdiction of prejudgment orders denying class certification." Microsoft, ___ U.S. ___, slip op. at 17. Instead, "Rule 23(f)'s evenhanded prescription" applies. Id.
The three concurring Justices agreed with the majority that the Ninth Circuit lacked jurisdiction here, but based on the lack of an Article III case-or-controversy: The plaintiffs voluntarily dismissed their claims against Microsoft, so the parties were no longer adverse. Microsoft, ___ U.S. ___, slip op. at 1, 3-4 (Thomas J., concurring in the judgment). The concurrence further explained that a class action claim is merely "a procedural mechanism that enables a plaintiff to litigate his individual claims on behalf of a class," not a separate, independent claim. Id. at 4.
Lesson from Microsoft
- Microsoft—the U.S. Supreme Court's first decision substantively interpreting Rule 23(f)—confirms that class certification rules cannot be one-sided and unevenly favorable to plaintiffs. Despite the Ninth Circuit's sympathy for plaintiffs who are denied class certification, the U.S. Supreme Court recognized that class certification can have the "reverse death knell" effect—"'[a]n order granting certification … may force a defendant to settle rather than … run the risk of potentially ruinous liability.'" Microsoft, ___ U.S. ___, slip op. at 17 (citations omitted). As other courts have explained, "certifying the class may place unwarranted or hydraulic pressure to settle on defendants." Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d 154, 165 (3d Cir. 2001). The Court's acknowledgment of the "reverse death knell" effect provides class action defendants with another basis to persuade courts of appeals to allow Rule 23(f) petitions for interlocutory appeal from the grant of class certification. To date, Rule 23(f) petitions from defendants have been granted at lower rates than those from plaintiffs.
- Microsoft reaffirms that Rule 23(f) is the appropriate mechanism for plaintiffs to seek an immediate appeal of a denial of class certification. Rule 23(f) provides a balanced approach to meet the needs of both parties in putative class actions and leaves the decision whether to allow an interlocutory appeal within the sole discretion of the courts of appeals.
- The three-Justice concurrence provides a reminder that class action claims should not be divorced from named plaintiffs' individual claims. Named plaintiffs' individual claims are the foundation for satisfying the Article III case-or-controversy requirement, without which there can be no class claims.
- Class action parties should continue to monitor relevant pending legislation. The Fairness in Class Action Litigation Act of 2017 (H.R. 985) passed the House of Representatives in March 2017 with a provision that allows appeal as of right by both plaintiffs and defendants from the grant or denial of class certification (see § 1723). Passage of that legislation would moot the specific holding in Microsoft but would further reinforce principles of equal treatment for plaintiffs and defendants in class actions.