The reality of class action litigation is that what is supposed to be the court’s preliminary decision of whether to certify a case as a class action is often the end of the litigation. In many cases, plaintiffs will not proceed if the court denies class certification for reasons including that their individual claims are not large enough to justify the costs. And defendant companies often will settle a case once a class is certified, even if the claims are meritless, because the risk and costs of litigation are too high. Therefore, the opportunity to appeal a class certification decision is paramount to both parties; but, class certification is not a final judgment that is immediately appealable under federal law. The Rules of Civil Procedure governing federal class actions do provide the opportunity for both parties to appeal unfavorable class certification decisions, but at the sole discretion of the appellate courts. Plaintiffs recently tested the waters in Microsoft Corp. v. Baker, 582 U. S. ____ (2017), to see if they could obtain immediate appellate review of an order striking their class allegations by voluntarily dismissing their remaining individual claims to “finalize” the disposition of their case. The U.S. Supreme Court unanimously agreed that plaintiffs do not have the unilateral power to force federal appellate courts to immediately review an order denying class certification or striking class allegations by dismissing their claims. We highlight the key points underlying the High Court’s decision to maintain limits on federal class action plaintiffs’ power in this manner, and note that North Carolina recently addressed class certification appeals in new legislation granting more expansive access to appellate review (see our previous post).
Federal Plaintiffs Cannot Force an Immediate Appeal – But Why?
The Microsoft plaintiffs filed putative class claims and individual claims based on alleged design defects in Microsoft’s Xbox video game console. The District Court struck the plaintiffs’ design defect class allegations based on a previous Xbox class action in which class certification on identical claims had been denied. Plaintiffs here argued that the previous class certification decision did not control because of a change in the law; however, the District Court rejected that argument and the Ninth Circuit Court of Appeals denied plaintiffs’ appeal of the District Court decision striking their class claims. 28 U. S. C. §1291 limits courts of appeals to reviewing only “final decisions of the district courts.” Accordingly, the plaintiffs’ legitimate path to appealing the order striking their class allegations included several options: (1) seeking the discretionary immediate appellate review available under Rule 23(f), which they did and were denied, (2) proceeding with the individual claims and seeking reconsideration of the class decision, or (3) proceeding with the individual claims to final judgment and seeking appellate review of the class decision at that time. Plaintiffs, however, chose to dismiss their individual claims with prejudice in an attempt to manufacture the finality that § 1291 requires for appellate review.
The Ninth Circuit held that the plaintiffs’ voluntary dismissal was sufficiently adverse (since it was not part of a settlement) and final to qualify for appellate review under §1291. The U.S. Supreme Court disagreed and reversed the Ninth Circuit’s decision. Although unanimous in the Microsoft judgment, the Justices differed on whether the U.S. Constitution or §1291 was the basis for denying plaintiffs the ability to force immediate review of class certification related decisions. Justice Ginsburg wrote the majority opinion grounded in §1291’s concept of finality and Justice Thomas wrote the opinion concurring in judgment based on the U.S. Constitution’s Article III granting the appellate courts jurisdiction over “cases” and “controversies. Justice Gorsuch took no part in the decision.
The Supreme Court in Microsoft recognized that the class certification decision is critical for defendants, as well as plaintiffs. If plaintiffs prevailed, they would have the unilateral authority to force the appellate courts to review a class certification denial or striking of class allegations by dismissing their claims. Defendant companies would have no similar recourse and the appellate courts would no longer have discretion to review a denial or not. To the Microsoft majority, this would “subvert the balanced solution Rule 23(f) put in place for immediate review of class action orders.” Moreover, plaintiffs could repeatedly force these appeals throughout the course of the litigation. The Microsoft majority held that the voluntary dismissal of plaintiffs’ remaining claims does not qualify as a “final decision” for purposes of §1291:
Plaintiffs in putative class actions cannot transform a tentative interlocutory order, see supra, at 9, 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
In so holding, the majority chose to respect “Rule 23(f)’s careful calibration—as well as Congress’ designation of rulemaking ‘as the preferred means for determining whether and when prejudgment orders should be immediately appealable.’”
Justices Thomas, Roberts, and Alito agreed that plaintiffs’ tactics could not confer jurisdiction to the Court of Appeals, but they grounded their concurring decision on a Constitutional Article III argument instead of the statutory argument advanced by the majority. In the concurring Justice’s view, the plaintiffs’ voluntary dismissal was “final” for purposes of § 1291, and the limits on interlocutory appeals prescribed by Rule 23(f) should not have guided and “warped” the majority’s argument regarding finality. However, jurisdiction of the federal courts is limited to “cases” and “controversies” by Article III of the Constitution. The concurrence argues that when plaintiffs voluntarily dismissed their claims against the defendant, “they consented to the judgment against them and disavowed any right to relief from Microsoft.” Therefore, they could not appeal the voluntary dismissal. Further, the concurrence explains that the class allegations that were struck by the District Court did not give rise to a “case” or “controversy” in and of themselves – without the underlying individual claims, class allegations are insufficient to confer jurisdiction:
Those allegations are simply the means of invoking a procedural mechanism that enables a plaintiff to litigate his individual claims on behalf of a class….Thus, because the Court of Appeals lacked Article III jurisdiction to adjudicate the individual claims, it could not hear the plaintiffs’ appeal of the order striking their class allegations.
Regardless of the Justices’ differences on reasoning, as it stands, federal class action plaintiffs are bound by Federal Rule of Civil Procedure 23(f) in seeking appellate review of orders denying them class status – the appellate court determines if immediate review is available.
North Carolina on Appealing Class Certification
It is worth noting that the State of North Carolina recently passed a law (H.B. 239) regarding appeals of class certification orders, granting both parties the right to appeal all decisions regarding class certification directly to the N.C. Supreme Court. Prior to H.B. 239, North Carolina case law recognized that the denial of class certification affects a substantial right because it determines the course of the case for the plaintiffs. Therefore, plaintiffs could immediately appeal a class certification denial to the North Carolina Court of Appeals. However, the courts found that “no order allowing class certification has been held to similarly affect a substantial right such that interlocutory appeal would be permitted.” North Carolina’s H.B. 239 recognizes the reality that the U.S. Supreme Court espoused in Microsoft – for company defendants the granting of class certification can be equally case determinative, as the risks and costs of defending class action litigation often pressure companies into settling even meritless cases once a class is certified. Yet, North Carolina’s H.B. 239 goes further than federal law and grants appellate review as a right instead of leaving it to the discretion of the appellate court whether to review the trial court’s decision to grant or deny class certification as Federal Rule of Civil Procedure 23(f) does. H.B. 239’s broad language includes the initial grant or denial of class certification, and arguably any other “decision regarding class action certification,” such as subsequent motions to decertify a class and some suggest possibly motions to strike class allegations. Overall, North Carolina class action law is not yet as fulsome as federal class action law, and with each year both continue to advance in this critical area of litigation. Read our previous post for additional information regarding North Carolina’s approach to appeals of class certification.
Tony Lathrop brings experience and a high level of analytical ability, professional credibility and creativity to handling litigation matters. He rigorously represents his clients’ interests in a diverse range of claims and actions. A certified mediator, Mr. Lathrop has extensive experience representing business clients in mediation. His service to the legal profession in North Carolina has allowed him to develop relationships across the state that benefit the firm’s clients. Read Mr. Lathrop’s full bio.