In Xbox Case, SCOTUS Blocks Class Action Maneuver Favoring Plaintiffs

Jeffrey Fisher, Stanford Law School professor

 

In a ruling reverberating through the class action bar, the U.S. Supreme Court has blocked a controversial procedural tool that allowed plaintiffs attorneys to appeal class certification orders by dismissing their own case.

In an 8-0 decision, the Supreme Court ruled plaintiffs in a class action over Microsoft Corp.’s Xbox 360 video-game consoles should not have been allowed to automatically appeal a class certification order by voluntarily dismissing their claims.

Appealing class certification orders is critical for both sides of a class action because those decisions often make or break a case.

Justice Ruth Bader Ginsburg, echoing some of her concerns during March’s oral arguments, wrote in Monday’s decision that the plaintiffs’ voluntary dismissal ran afoul of Federal Rule of Civil Procedure 23(f), which permits only interlocutory appeals of class certification orders.

“These changes are to come from rulemaking,” she wrote, “not judicial decisions in particular controversies or inventive litigation ploys.”

Moreover, the dismissal wasn’t a “final decision” that could be automatically appealed under Judiciary and Judicial Procedure Code 1291.

“Repeatedly we have resisted efforts to stretch 1291 to permit appeals of right that would erode the finality principle and disserve its objectives,” she wrote. Justice Neil Gorsuch did not participate in the decision.

In a concurring opinion, Justice Clarence Thomas, joined by Chief Justice John Roberts and Justice Samuel Alito, disagreed over whether the dismissal was a “final decision,” finding that the majority’s opinion would “warp our understanding” of 1291. But Thomas sided with Microsoft for a different reason: Federal courts, which review “cases” and “controversies” under Article III of the Constitution, would have had no jurisdiction over the case once plaintiffs dismissed their claims.

“When the plaintiffs asked the District Court to dismiss their claims, they consented to the judgment against them and disavowed any right to relief from Microsoft,” he wrote.

Cory Andrews, senior litigation counsel at the Washington Legal Foundation, which filed an amicus brief in the case, called the ruling “a victory for common sense” in a statement on Monday. “Any other holding would not only deprive appeals courts of their discretion, but would unfairly favor plaintiffs over defendants.”

Microsoft Deputy General Counsel David Howard said the ruling “has important ramifications about judicial balance.”

“This case was about following procedural rules that Congress established and that work for everyone,” wrote Howard. “No party should be able to do an end-run around these rules and have rights that the other party doesn’t get.”

Microsoft was represented in the case by Jeffrey Fisher, co-director of the Supreme Court Litigation Clinic at Stanford Law School.

Calls to plaintiffs attorney Peter Stris, founding partner of Stris & Maher, were referred to Victor O’Connell, senior associate at his Los Angeles-based firm. O’Connell said he was disappointed but not surprised about the decision.

He insisted that the procedural move benefited both sides, since defendants, as in this case, often agree to the voluntary dismissal in order to gain certainty from the court of appeals over class certification orders.

“The better result would have been to allow this procedure to continue to exist, particularly because it wasn’t one that had been abused in the past and one we think benefited both plaintiffs and defendants,” he said.

The defense bar has long sought unsuccessfully to push for automatic, rather than discretionary, appeals of class certification rulings, with such provisions making their way into a class action reform bill that the U.S. House of Representatives passed in March and in public comments to a civil rules committee floating proposed amendments to Rule 23. Many in the defense bar have noted that most appeals courts, while they have discretion to do so, don’t take up class certification decisions.

The Microsoft case, which was brought in 2011, alleged the Xbox 360 was defective because it scratched game discs. A federal judge in Washington struck the claims of a nationwide class of consumers, and the U.S. Court of Appeals for the Ninth Circuit had denied the plaintiffs’ petition for interlocutory review of that order. The plaintiffs moved to dismiss their case with prejudice, which allowed them to appeal the order.

While not ruling on certification, the Ninth Circuit remanded the case after finding the district judge had abused his discretion.

Ginsburg acknowledged that an order rejecting class certification could spell the end of a plaintiff’s case, but she noted the Supreme Court had addressed a similar argument when it rejected the so-called death-knell doctrine in its 1978 decision in Coopers & Lybrand v. Liveway.

“Respondents’ voluntary-dismissal tactic, even more than the death-knell theory, invites protracted litigation and piecemeal appeals,” Ginsburg wrote.

Contact the reporter at abronstad@alm.com. On Twitter: @abronstadlaw.

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