Locke Lord QuickStudy: Microsoft v. Baker: Supreme Court prohibits plaintiffs from manufacturing appellate jurisdiction over class-certification denial through voluntary dismissal

June 12, 2017

In Microsoft Corp. v. Baker, 2017 WL 2507341, the U.S. Supreme Court unanimously held that federal circuit courts lack jurisdiction over appeals from class-certification denials (or any other interlocutory decision) taken after a plaintiff voluntarily dismisses their individual claims. This leaves discretionary appeal under FRCP 23(f) as the only interlocutory appeal of a class-certification decision. Baker overrules contrary decisions in the Second and Ninth Circuits and will protect class-action defendants who prevail on class certification in the trial court from multiple appeals and prolonged litigation.

Plaintiffs repeatedly tried and failed to certify a class of Xbox 360 owners.
This case began in 2007 when the plaintiffs sued Microsoft alleging Xbox 360 game consoles had a design defect that could damage game discs. Microsoft defeated class certification in the trial court, the Ninth Circuit denied plaintiff’s Rule 23(f) petition for a discretionary appeal of the class-cert denial, and plaintiff settled the case on an individual basis.

Four years later, the same plaintiffs’ counsel sued Microsoft (through different named plaintiffs) alleging the same design defect, believing an intervening Ninth Circuit decision made class certification more likely. But the district court disagreed and struck plaintiffs’ class allegations. The Ninth Circuit again denied plaintiffs’ Rule 23(f) petition for discretionary review.

But rather than settle individually, plaintiffs voluntarily dismissed their case under FRCP 41 and then appealed the dismissal and the order striking class allegations to the Ninth Circuit.

Ninth Circuit: voluntary dismissal is a final decision creating appellate jurisdiction.
On appeal, Microsoft argued the Ninth Circuit lacked appellate jurisdiction. Microsoft argued that using a voluntary dismissal to create appellate jurisdiction over a class-certification denial would circumvent FRCP 23(f)’s grant of absolute discretion to an appellate court over whether to permit such appeals. Microsoft also argued that the parties were no longer sufficiently adverse so as to support Article-III “case” or “controversy” jurisdiction because the plaintiffs had voluntarily relinquished their claims.

The Ninth Circuit rejected both arguments. The court found it had jurisdiction because it believed the voluntary dismissal was a final decision under 28 U.S.C. § 1291 and the lack of a settlement meant the parties remained adverse. Baker v. Microsoft, 797 F.3d 607, 612 (9th Cir. 2015). The Ninth Circuit then reversed the order striking class allegations.

Supreme Court: plaintiffs cannot create appellate jurisdiction through voluntary dismissal.
All 8 justices (Gorusch did not participate) agreed that plaintiffs cannot create appellate jurisdiction by voluntarily dismissing their claims, though the five-justice majority (led by Ginsburg) took a different route to that conclusion than the three-justice concurrence (led by Thomas).

The majority concluded that a voluntary dismissal was not a final decision under 28 USC § 1291 so as to create appellate jurisdiction. The majority’s analysis was based entirely on policy rather than statutory text. Specifically, the majority found that allowing a plaintiff to create a final decision by voluntarily dismissing her claims would significantly increase the number of interlocutory appeals and would thereby conflict with the principals of finality and efficiency, and the preference against piecemeal appeals, in 28 USC § 1291’s final-decision requirement. Baker, 2017 WL 2507341 at * 12. The majority also noted that permitting plaintiffs’ to force an appeal under § 1291 after class-certification denial would undermine FRCP 23(f), which gives appellate courts discretion over whether to permit class-certification appeals.

The majority further rejected the plaintiffs’ argument that an appeal should be permitted because denial of class certification would otherwise force a plaintiffs to abandon their case. The majority noted plaintiffs could have settled their individual claims, or continued to litigate to try to get the district court to change its mind on certification, or litigated to conclusion and appealed class certification after the case was over. Id. at * 9.

Finally, the majority noted plaintiffs’ tactic was unfairly one-sided as it would only allow plaintiffs (not defendants, who cannot voluntarily dismiss the case) to seek immediate appeal as of right from adverse class-certification decisions. The Court recognized that class-certification decisions can have drastic consequences on defendants, who face tremendous pressure to settle even meritless claims once a class is certified, so it would be unfair to only permit plaintiffs a non-discretionary, interlocutory appeal of those decisions. Id. at * 14.

The three-justice concurrence disagreed with the majority’s statutory analysis—and thought the majority’s focus on policy served to “warp” its interpretation of § 1291—but agreed that no jurisdiction existed. The concurrence relied instead on the standing requirement in Article III of the Constitution, which limits federal-court jurisdiction to “cases “or “controversies” in which the parties are adverse. The concurrence stated that once plaintiffs voluntarily dismissed their claims they “disavowed any right to relief from Microsoft” and were therefore no longer adverse so as to support Article-III standing. Id. at * 17–18.

Impact: plaintiffs’ only interlocutory appeal of class-certification is under Rule 23(f).
The Supreme Court’s decision re-establishes what many already believed to be true: Rule 23(f) is the only way to take an interlocutory appeal of class-certification decisions. The decision in Baker thereby changes the law in both the Second and Ninth Circuits, which had permitted plaintiffs to appeal a class-certification denial by voluntarily dismissing their individual claims with prejudice. See, Baker, 797 F.3d at 612; Gary Plastic Packaging Corp. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 903 F. 2d 176, 179 (2d. Cir. 1990).

This case is a victory for defendants facing class-action litigation. Defendants that win class certification in the trial court will now face only one (potential) interlocutory appeal of that decision: a discretionary appeal under Rule 23(f). If a 23(f) appeal is denied, defendants will know class certification is resolved unless plaintiff litigates the individual case to conclusion and appeals after the case is over. This will shorten litigation, reduce litigation expense, and reduce pressure on defendants to settle meritless claims. Further, the decision levels the playing field by giving defendants the same appellate rights over class-certification decisions as plaintiffs: both sides can seek an interlocutory, discretionary, appeal under Rule 23(f), or litigate the case to conclusion and appeal after the case is over.