In a unanimous decision, the U.S. Supreme Court ruled today that the Anti-Injunction Act prohibits federal courts from issuing injunctions to prevent state courts from considering certification of class action litigation previously rejected by the federal courts. Smith v. Bayer Corp., U.S., No. 09-1205, 6/16/11.

Plaintiff Smith sued Bayer in West Virginia state court asserting various state-law claims arising from Bayer’s sale of the allegedly hazardous prescription drug Baycol®, seeking to certify a class of state residents under West Virginia’s version of Rule 23. Because plaintiffs also named several West Virginia defendants, the case – filed before passage of the Class Action Fairness Act – could not be removed to federal court. Approximately a month earlier, another West Virginia resident had filed a similar state court class action. Bayer removed that earlier filed case to federal court, and it was transferred to Minnesota pursuant to a preexisting order of the Judicial Panel on Multi-District Litigation (“MDL”) consolidating all suits involving Baycol®.

After six years of litigation, the federal court in Minnesota denied class certification, finding individual issues of fact predominated over issues common to all members of the proposed class. On motion by Bayer, the Minnesota district court then entered in injunction barring the West Virginia state court from hearing Smith’s motion to certify a class in his later filed state court action. Concluding that the injunction fell within the relitigation exception of the Anti- Injunction Act, the Eighth Circuit affirmed. The Supreme Court granted certiorari to resolve circuit splits concerning the Anti-Injunction Act relitigation exception, including whether the “same issues” were presented in the two actions and whether the Minnesota federal court ruling could bind “nonparties.”

In a unanimous opinion authored by Justice Kagan, the Supreme Court reversed the Eighth Circuit, finding that the Anti-Injunction Act prohibits the order entered by the district court. The Supreme Court defined the question as whether the federal court’s rejection of the proposed class action “precluded a later adjudication in state court of Smith’s certification motion.” The Court then outlined a two-prong analysis to determine whether the federal court’s decision carried such preclusive effect: (1) “the issue the federal court decided must be the same as the one presented in the state tribunal”; and (2) “Smith must have been a party to the federal suit, or else must fall within one of a few discrete exceptions to the general rule against binding nonparties.”1

Considering the first issue, the Supreme Court held that although the text of West Virginia’s rule was nearly identical to that of Federal Rule 23, the statutory language was “the right place to start” but not the end of the inquiry. The Court noted that federal and state courts “can and do apply identically worded procedural provisions in widely varying ways.” The Supreme Court held that “absent clear evidence” that the state courts had adopted an approach tracking interpretation of Federal Rule 23, the potential for different interpretations alone would preclude an injunction. The Court continued, highlighting differences in West Virginia’s application of the predominance requirement, to further emphasize the different issues presented in the West Virginia class action proceedings.

Turning to the second prong of its analysis, the Supreme Court started by confirming that Smith was not a named party in the separate federal action. The Court then considered and rejected Bayer’s argument that the Minnesota federal court decision should be binding on Smith because Smith was an unnamed member of the putative class in the federal case. The Supreme Court held that while “an unnamed member of a certified class may be considered a ‘party’ for the particular purpose of appealing an adverse judgment,” “[n]either a proposed class action nor a rejected class action may bind nonparties.” In reaching this decision, the Court dismissed the argument that its ruling would allow plaintiffs’ counsel to repeatedly try to certify the same class by simply changing the named plaintiff in the caption of the complaint. Recognizing the possibility of repeat litigation, the Court stated that stare decisis and comity among courts were appropriate safeguards “to mitigate the sometimes substantial costs or similar litigation brought by different plaintiffs.” The Court also noted that subsequent passage of the Class Action Fairness Act enabled defendants to remove sizeable class actions involving minimal diversity to federal courts thus further ameliorating this potential concern. However, the Supreme Court did recognize that these safeguards offered no relief for Bayer in the present case.

This case may provide plaintiffs’ counsel with an additional incentive to pursue class actions simultaneously in different fora, to maximize their odds of prevailing on class certification. The decision also increases the stakes for successfully removing class action litigation to federal courts and consolidating related actions in MDL proceedings.

Click here to view the Supreme Court’s decision.