Thomas R. Newman and Steven J. Ahmuty, Jr.
Thomas R. Newman and Steven J. Ahmuty, Jr. ()

In Microsoft v. Baker, 137 S. Ct. 1702 (June 12, 2017), the U.S. Supreme Court resolved an important jurisdictional issue concerning class action procedure, holding that a federal court of appeals does not have jurisdiction under 28 U.S.C. §1291 to review an order denying class certification after the named plaintiffs voluntarily dismiss their individual claims with prejudice.

The plaintiffs in Baker brought a putative class action against the manufacturer of a popular video game console, the Xbox 360, alleging that the console was inherently defective. The district court entered an order striking the plaintiffs’ class allegations, see 851 F. Supp. 2d 1274 (W.D. Wash. 2012), which is the functional equivalent of class certification denial. The plaintiffs filed a petition in the U.S. Court of Appeals for the Ninth Circuit under Rule 23(f) of the Federal Rules of Civil Procedure seeking permission to appeal from the district court’s order denying class certification. In support of their petition, the plaintiffs argued that the class certification denial would sound the death knell for the underlying litigation in light of the small economic value of their individual claims. The Ninth Circuit denied the Rule 23(f) petition for interlocutory review.

Instead of pursuing their individual claims to a final judgment on the merits, the plaintiffs filed a motion in the district court to dismiss voluntarily their claims with prejudice under Fed. R. Civ. P. 41(a), but reserving the plaintiffs’ right to revive their claims in the event of a reversal of the district court’s certification denial and reinstatement of the class allegations. The reason for their motion to dismiss, the plaintiffs explained, was to secure a final judgment and then appeal from it, which would bring up for review the prior interlocutory order denying class certification. (Under the “merger rule,” prior interlocutory orders merge with the final judgment in a case, and such orders are reviewable on appeal from the final judgment to the extent that they affect it.) Microsoft stipulated to the voluntary dismissal without conceding the plaintiffs’ right to appeal. After the district court’s entry of an order granting the dismissal with prejudice, the plaintiffs appealed to the Ninth Circuit, which held that it had jurisdiction to entertain the appeal under 28 U.S.C. §1291. The court reversed on the ground that the district court had abused its discretion in denying class certification. The court expressed no opinion on whether the class should be certified, holding only that the district court had applied an incorrect standard of review and remanding to that court for further consideration of the certification issue under a different standard. See 797 F.3d 607 (9th Cir. 2015).

After the Ninth Circuit denied Microsoft’s petition for rehearing en banc, the Supreme Court granted certiorari. In an opinion by Justice Ruth Bader Ginsburg, the Supreme Court reversed and remanded, holding that “the voluntary dismissal essayed by [the plaintiffs] does not qualify as a ‘final decision’ within the compass of §1291. The [voluntary dismissal] tactic would undermine §1291′s firm finality principle, designed to guard against piecemeal appeals, and subvert the balanced solution Rule 23(f) put in place for immediate review of class-action orders.” See 137 S. Ct. at 1707 (material in brackets added).

Legal Background

In most instances only a “final decision” of the district court—”one which ends the litigation on the merits and leaves nothing for the court to do but execute the judgment” (see Catlin v. United States, 324 U.S. 229, 233 (1945))—is appealable to the court of appeals as a matter of right. See 28 U.S.C. §1291. “An order refusing to certify, or decertifying, a class does not of its own force terminate the entire litigation because the plaintiff is free to proceed on his individual claim.” Coopers & Lybrand v. Livesay, 437 U.S. 463, 467 (1978).

Certain interlocutory orders are immediately appealable under 28 U.S.C. §1292, however, either as a matter of right or as a matter of judicial discretion. Under §1292(a), interlocutory injunctive, receivership and admiralty orders are appealable as of right. Under §1292(b), other interlocutory orders are only appealable by permission under a two-tier screening procedure. First, the district court must first certify that the order “involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation.” Second, the court of appeals “may thereupon, in its discretion, permit an appeal to be taken from such order.” (Section 1292(c) and (d) pertain to the exclusive jurisdiction of the U.S. Court of Appeals for the Federal Circuit, which is not relevant here.)

Section 1292(e) provides: “The Supreme Court may prescribe rules * * * to provide for an appeal of an interlocutory decision to the courts of appeals that is not otherwise provided for under subsection (a), (b), (c), or (d).”

Prior to the Supreme Court’s 1978 decision in Livesay, several courts of appeals had adopted the so-called “death knell” doctrine to determine the appealability of orders denying class certification. Under this doctrine, courts of appeals entertained interlocutory appeals from class certification denials “[w]here the effect of a district court’s order, if not reviewed, is the death knell of the action” because of the limited economic value of the putative class members’ individual claims. See, e.g., Eisen v. Carlisle & Jacquelin, 370 F.2d 119, 121 (2d Cir. 1966).

In Livesay, the Supreme Court held that the “death-knell” doctrine did not warrant mandatory appellate jurisdiction of such “inherently interlocutory” orders. See 437 U.S. at 470. The court concluded that this doctrine conflicted with §1291′s finality requirement by creating the potential for multiple interlocutory appeals (id. at 474); circumvented the restrictions on appellate review of interlocutory orders imposed by §1292 (id.); and favored only plaintiffs “even though the class issue * * * will often be of critical importance to defendants as well” (id. at 476). Accordingly, the court held that “the fact that an interlocutory order may induce a party to abandon his claim before final judgment is not a sufficient reason for considering it a ‘final decision’ within the meaning of §1291.” Id. at 477.

For two decades after Livesay, parties seeking immediate review of adverse class certification orders had to pass the demanding two-tier screening procedure in 28 U.S.C. §1292(b) or the extraordinary-circumstances test applicable to writs of mandamus. In 1988, acting pursuant to its authority under §1292(e) to prescribe rules to provide for appeals of interlocutory orders not otherwise appealable under §1292, the Supreme Court promulgated Fed. R. Civ. P. 23(f). This Rule provides in pertinent part: “A court of appeals may permit an appeal from an order granting or denying class-action certification under this rule if a petition for permission to appeal is filed with the circuit clerk within 14 days after the order is entered.” Rule 23(f) granted a partial reprieve from Livesay, but only in cases where the court of appeals granted permission to appeal.

Voluntary Dismissal Tactic

Against this backdrop, the plaintiffs in Baker sought to employ a strategy for appealing denials of class certification without having to obtain permission from the court of appeals pursuant to Rule 23(f). As noted, instead of pursuing their individual claims to final judgment on the merits after the district court’s class certification denial, the plaintiffs stipulated to a voluntary dismissal of their individual claims “with prejudice” pursuant Fed. R. Civ. P. 41(a), but also reserved the right to revive their claims should the Ninth Circuit reverse and permit class certification. After dismissal of their claims, the plaintiffs appealed from the resultant final judgment of dismissal “as of right” pursuant to §1291, thereby bringing up for review the interlocutory class certification denial under the “merger rule.” Several courts of appeals had rejected such efforts by plaintiffs “to manufacture finality” by voluntarily dismissing their individual claims following the denial of class certification. See, e.g., Camesi v. Univ. of Pittsburgh Med. Ctr., 729 F.3d 239, 245 (3d Cir. 2013); Rhodes v. E.I. du Pont de Nemours & Co., 636 F.3d 88, 100 (4th Cir. 2011). The Ninth Circuit nevertheless entertained the appeal in Baker, ruling that “in the absence of a settlement, a stipulation that leads to a dismissal with prejudice does not destroy the adversity in that judgment necessary to support an appeal.” See 797 F.3d at 612 (citation omitted).

The Supreme Court flatly rejected this voluntary dismissal tactic in Baker, holding that “[p]laintiffs 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.” See 137 S. Ct. at 1715 (citations omitted).

Structurally, the Baker decision tracked Livesay, in which the court previously rejected the death knell theory of appellate jurisdiction. Writing for a five-justice majority, Justice Ginsburg initially observed that the voluntary dismissal tactic subverts the finality principle in §1291, which “preserves the proper balance between trial and appellate courts, minimizes the harassment and delay that would result from repeated interlocutory appeals, and promotes the efficient administration of justice.” See 137 S. Ct. at 1712.

The court next observed that the voluntary dismissal tactic, even more than the death knell theory, invites protracted litigation and piecemeal appeals. See 137 S. Ct. at 1713 (citations omitted):

Under the death-knell doctrine, a court of appeals could decline to hear an appeal if it determined that the plaintiff “ha[d] adequate incentive to continue” despite the denial of class certification. Appellate courts lack even that authority under respondents’ theory. Instead, the decision whether an immediate appeal will lie resides exclusively with the plaintiff; she need only dismiss her claims with prejudice, whereupon she may appeal the district court’s order denying class certification. And, as under the death-knell doctrine, she may exercise that option more than once, stopping and starting the district court proceedings with repeated interlocutory appeals.

Beyond permitting “indiscriminate appellate review of interlocutory orders” like the death knell doctrine, the court further observed, the voluntary dismissal tactic “undercuts Rule 23(f)’s discretionary regime.” See 137 S. Ct. at 1714 (citations omitted). This consideration was “[o]f prime significance” to the jurisdictional issue in Baker because, as discussed above, in subsection (e) of §1292 Congress established rulemaking as the means of providing for appellate review of interlocutory orders not otherwise covered by §1292. Id. (citations omitted). Rule 23(f), which was the product of this rulemaking, vests the courts of appeals with sole discretion whether to permit an interlocutory appeal of an adverse certification order. “[Such] changes are to come from rulemaking * * * not judicial decisions in particular controversies or inventive litigation ploys.” Id. (citations omitted).

Finally, “[t]he one-sidedness of respondents’ voluntary dismissal device” reinforced the court’s conclusion that it does not support immediate review of interlocutory class certification denials. See 137 S. Ct. at 1715 (citations omitted). Specifically, this device “permits plaintiffs only, never defendants, to force an immediate appeal of an adverse certification ruling. Yet the ‘class issue’ may be just as important to defendants, for ‘[a]n order granting certification * * * may force a defendant to settle rather than * * * run the risk of potentially ruinous liability.” See id. (citations omitted).

While the majority held that the class certification denial was not “final” within the meaning of §1291, three of the justices (Justice Clarence Thomas, joined by Chief Justice John Roberts and Justice Samuel Alito) would have grounded the lack of jurisdiction under Article III of the Constitution instead of §1291. In Justice Thomas’ view, the plaintiffs “could not appeal because the Court of Appeals lacked jurisdiction under Article III of the Constitution, which “limits the jurisdiction of the federal courts to issues presented ‘in an adversary context’.” See 137 S. Ct. at 1716-17 (citations omitted). Specifically, after the voluntary dismissal of plaintiffs’ claims against Microsoft, they “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.” See id. at 1717 (citations omitted).