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Class Actions and Collateral Estoppel

On June 20, 2003, the Seventh Circuit issued the most comprehensive opinion to date enjoining named and unnamed class members, and their counsel, from pursuing class certification in any other court based on a prior class certification denial. In re Bridgestone/Firestone, Inc., Tires Prods. Liability Litig., Nos. 03-1379 & 03-1564, 2003 U.S. App. LEXIS 12514 (7th Cir. June 20, 2003) (hereinafter "Bridgestone/Firestone"). Although there are a handful of earlier cases addressing the issue, Bridgestone/Firestone is the first case to exercise its authority under the All Writs Act in order to protect the preclusive effect of a denial of class certification.

The Bridgestone/Firestone Decision

The Bridgestone/Firestone decision comes as a sequel to the Seventh Circuit's 2002 opinion decertifying nationwide classes of owners of Ford vehicles and Firestone tires, alleging product defects. See In re Bridgestone/Firestone, Inc., Tires Prods. Liability Litig., 288 F.3d 1012 (7th Cir. 2002). After the Supreme Court denied class counsel's petition for certiorari in that case, numerous other class suits were filed in state courts, many by the same lawyers involved in the original suit. Bridgestone/Firestone, 2003 U.S. App. LEXIS 12514 at *2. In response to the proliferation of new class actions, defendants in the first case sought an injunction from the district court enjoining any class action involving the same products. The district court denied the injunction and defendants appealed the decision to the Seventh Circuit.

Although the Seventh Circuit found defendants' request too broad (they sought an injunction prohibiting statewide as well as nationwide classes, as well as those involving a single product), it did find that an injunction should issue to protect its previous decertification ruling. It ordered the district court to issue "an injunction that prevents all members of the putative national classes, and their lawyers, from again attempting to have nationwide classes certified over defendants' opposition with respect to the same claims." Id. at *15. Accordingly, the Seventh Circuit determined that its prior denial of class certification could be protected by an exercise of authority under the relitigation exception to the Anti-Injunction Act.

The court began by noting that, typically, a second court would determine the preclusive effect of a judgment rendered by a different court. Id. at *5. In this case, however, the court found that the large number of duplicative suits suggested a strategy by some of the lawyers to persist until a nationwide class was certified. Thus, "it is sensible to handle the preclusive issue once and for all in the original case, rather than put the parties and state judges through an unproductive exercise." Id. at *6. The court noted the probability of a case finally being certified among the multitude that had been filed, and how one nationwide class would then trump all others. The Seventh Circuit spoke out decidedly against this outcome: "Section 2283 [the Anti-Injunction Act] permits a federal court to issue an injunction that will stop such a process in its tracks and hold both sides to a fully litigated outcome, rather than perpetuating an asymmetric system in which class counsel can win but never lose." Id. at *7 (emphasis in original).

The court then held that its previous order decertifying the class was entitled to preclusive effect, emphasizing that, while res judicata demanded a final judgment, collateral estoppel did not. Id. at *7. It concluded that its order was "sufficiently firm": certification had been thoroughly addressed and ruled on by both the district and appellate courts, and certiorari was sought and denied. Id. at *8. The court also pointed out that it had been the plaintiffs' decision to file a master complaint in the consolidated MDL cases in order that "a single disposition could be reached that covered all suits, no matter where they had been originally filed." Id. at *9. Having "sought and obtained a decision on the master complaint, class counsel are in no position to treat the resolution as irrelevant and start anew." Id.

Next, the court rejected plaintiffs' argument that it did not have personal jurisdiction over the unnamed class members. The district court had determined, and plaintiffs argued on appeal, that the only parties subject to the court's jurisdiction were the named class representatives in each of the individual suits comprising the MDL litigation. Thus, under Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 812-13 (1985), due process could be satisfied only if unnamed class members, upon certification, were given adequate notice and the opportunity to opt out. Id. at *10-12.

In finding that it possessed jurisdiction over the absent class members, the court observed that the MDL master complaint asserted RICO claims. Under both the RICO statute and Seventh Circuit law regarding federal statutes, due process is satisfied for purposes of personal jurisdiction where the party has sufficient contacts with the United States as a whole - in other words, permitting nationwide service of process. Id. at *11. Moreover, since the absent class members would be bound by any favorable judgment, the court reasoned that the rule should work both ways. Id. Finally, the court determined that it was proper to subject the absent class members to the injunction because they had been adequately represented by class counsel; the district court had made that determination and it had not been challenged. Id. at *13. The court dismissed plaintiffs' argument that, since they had not been given an opportunity to opt out, it was improper to bind them to the order:

[N]o statute or rule requires notice, and an opportunity to opt out, before the certification decision is made; it is a post-certification stepÂ…a person who opts out receives the right to go it alone, not to launch a competing class action. Preserving the right to litigate individually, as one's own champion, is the point of opting outÂ…Every person included in the district court's class definition has the right to proceed on his own.

Id. at *14. Thus, the court concluded that its prior judgment was binding in personam with respect to the unnamed class members and remanded the case for entry of the injunction.

Previous Decisions

Only two other circuit courts have directly addressed a federal court's authority to enjoin class proceedings based upon a class certification denial. In the first of these cases, J.R. Clearwater v. Ashland Chemical Co., 96 F.3d 176 (5th Cir. 1996), the Fifth Circuit held that a denial of class certification could not support the issuance of an injunction because class certification determinations are not final, appealable orders and, further, because they are discretionary in nature. Id. at 179. There, plaintiffs filed a statewide class action in Texas state court against the defendant for damages allegedly arising out of chemicals manufactured by the defendant and used to service plaintiffs' swimming pools. Id. at 177. Defendant removed the case to federal court where it was consolidated with a similar pending action. After extensive discovery and a full hearing, the trial court denied plaintiffs' motion for class certification. Id. at 178. Attorneys for the class plaintiffs then filed a separate state court action, alleging virtually identical claims, and naming a new lead plaintiff. Id. Defendant moved the district court to enjoin the case from proceeding as a class under the relitigation exception to the Anti-Injunction Act. The district court denied the requested relief, and the Fifth Circuit affirmed that denial.

The Fifth Circuit concluded that the class certification order lacked the requisite finality required to apply principles of collateral estoppel: "an order denying class certification is not a final judgment, and not appealable as a matter of right until conclusion of the litigation." Although the district court entered a final judgment subsequent to the appeal, the Fifth Circuit stated that such final judgment "does not change the disposition of the present appeal, given the discretionary nature of the class certification determination generally." Id. The court went on to conclude that "the wide discretion inherent in the decision as to whether or not to certify a class dictates that each court, or at least each jurisdiction, be free to make its own determination in this regard." Id. at 180.

Two years later, the Third Circuit followed the Fifth Circuit's reasoning in In re GMC Pick-up Truck Fuel Tanks Prods. Liability Litig., 134 F.3d 133 (3rd Cir. 1998). There, an MDL court conditionally certified a nationwide settlement class of truck owners alleging defective design of fuel systems in their vehicles, but that decision was vacated on appeal. Id. at 138. Class counsel in a parallel Louisiana state court class action then began negotiating with the parties to the MDL settlement, and 200 of the 277 MDL plaintiffs intervened in the Louisiana action. Id. at 139-140. The Louisiana court preliminarily approved a settlement similar to that proposed and rejected by the Third Circuit and provisionally certified a settlement class. Id. In the meantime, several putative class members in the MDL proceeding moved to intervene in the federal case and sought an injunction against the Louisiana case, which was denied by the district court. Id. at 141. While that decision was on appeal before the Third Circuit, the Louisiana court held a fairness hearing and final judgment was entered approving the nationwide settlement. Id.

On appeal, the Third Circuit held that it could not exercise personal jurisdiction over the 5.7 million individuals who were part of the Louisiana settlement class. Id. at 141. Since there was no certified class in the MDL court, it reasoned, the Louisiana class members were not parties to the federal action and had not consented to the jurisdiction of the court (save the named plaintiffs who had intervened in the Louisiana action). Id. The court then rejected any argument that an injunction against the Louisiana proceedings was necessary in aid of its jurisdiction or to protect its judgments, finding that there was no conditionally approved, or imminent, settlement in the MDL proceeding, and the Louisiana class had sufficient opt out procedures in place to protect the rights of the plaintiffs in the federal case. Id. at 145. The court further rejected the argument that its order decertifying the settlement class constituted collateral estoppel warranting the issuance of an injunction: "[D]enial of class certification is not a 'judgment' for the purposes of the Anti-Injunction Act while the underlying litigation remains pending." Id. at 146. Ultimately, the court followed the Fifth Circuit's directive in Clearwater: "We endorse the Fifth Circuit's rationale that denial of class certification [while the underlying litigation remains pending] lacks sufficient finality to be entitled to claim preclusion." Id.

Implications of Bridgestone/Firestone.

Whether other courts will choose to follow Bridgestone/Firestone, distinguish it on its facts, or disagree with it outright is uncertain. The opinion raises several issues to consider in this respect. For example, the Seventh Circuit appeared strongly influenced by the procedural posture of the case and the related litigation. The initial class determination was made in the context of an MDL proceeding where numerous cases had been consolidated; the same class counsel was responsible for much of the new litigation; and the number of new state court class actions was multiplying daily. These combined factors perhaps make a stronger case than the typical scenario. What if an MDL court had not issued the class certification denial, or separate counsel was bringing the new suits, or there was only one other class action filed? It is hard to predict which factors, and how many, would be necessary to convince a court that an injunction was necessary.

The issue of personal jurisdiction is another unanswered question. Although the Bridgestone/Firestone court determined that it could exercise personal jurisdiction over the unnamed class members because they are bound by class judgments, the crux of its holding was that the RICO statute and Seventh Circuit law permitted nationwide service of process. If a case does not involve a federal statute with nationwide service, or is brought in a jurisdiction with different service rules, the court could easily decide that it lacked personal jurisdiction over the absent class members. Relatedly, Bridgestone/Firestone determined that the parties were adequately represented by the named plaintiffs and class counsel. It is likely that another court might not reach the issue of adequate representation, and be reluctant to bind the unnamed class members absent such a finding. Furthermore, in denying class certification, a court may find that there had not been adequate representation, in which case due process concerns would certainly be implicated by an attempt to bind those unnamed class members.

Finally, Bridgestone/Firestone leaves open many questions regarding how similar the parties, facts, and claims must be for a class certification order to carry preclusive effect. The court rejected defendants' request to enjoin statewide classes - primarily because it had not made a ruling on this issue - but also because it recognized that each state court may subdivide a statewide class differently and apply its own choice of law rules. Id. at *3. Accordingly, it is hard to predict what a federal court might do where a state class action asserts different, but related claims, or involves a different class definition.

Wildman Harrold's class action team has extensive expertise in the defense of class actions. The group represents clients in class action matters pending in state and federal courts throughout the United States. These lawsuits involve claims brought under antitrust, RICO, consumer fraud, employment discrimination, breach of contract, product liability and toxic tort theories.

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