Multiple actions involving the same subject matter and the same defendant are a common feature of the U.S. class action landscape. This article examines the variety of challenges and options for the defendant and defense counsel in addressing competing class actions. While each repetitive litigation situation stands on its own facts, being aware of the available options is a key to the formulation of a successful defense strategy.
Race to Judgment
One possibility is to defend each action on its own. In general, the first action to reach judgment on the merits, whether by settlement or litigation, will be conclusive as to all class members despite any competing litigation that remains pending, by virtue of res judicata and claim preclusion principles and the Full Faith and Credit Clause of the U.S. Constitution. See, e.g., Matsushita Elec. Indus. Co. v. Epstein, 516 U.S. 797, 807 (1996). The preclusive effect of the first judgment, however, may depend on how close the overlap is between the classes and claims asserted in the two actions.
While there are some potential benefits to defending multiple class cases simultaneously (particularly if a case in a more favorable forum is moving quickly), there are obvious downsides. The defendant’s ability to control which case goes to judgment first is frequently limited, especially in the absence of settlement. Often, the cases in the venues that are the worst from the defendant’s perspective are those that are put on the fastest tracks by plaintiff-friendly judges. In any event, the cost of defending multiple class actions at once can be prohibitive for all but the largest defendants. Further, defeating class certification in one jurisdiction will generally not have preclusive effect in another jurisdiction, particularly as between state and federal court class actions (a subject discussed below). These difficulties lead to the conclusion that, in most instances, a “race to judgment” strategy makes the most sense if the client’s goal is resolution by settlement.
In that regard, the preclusive effect of settlement creates an incentive among competing class counsel to be the first to reach settlement. Critics argue that such situations undercut the interests of class members by setting up opportunities for a defendant to pursue a so-called “reverse auction,” forcing class counsel to bid against one another to see who is willing to offer the cheapest overall class settlement. From the defense perspective, simultaneous negotiation with class counsel in multiple cases is inadvisable and can lead to unnecessary difficulties in obtaining approval of the resulting settlement in the face of objections by counsel with whom settlement is not reached. However, the fact remains that a defendant facing numerous class actions has strong implied bargaining leverage with whichever set of counsel the defendant chooses to negotiate. That leverage is certainly not unfettered; the resulting class settlement still has to satisfy all requirements for class certification, save trial manageability. See Amchem Prods. v. Windsor, 521 U.S. 591, 620 (1997). Further, the court considering the class settlement must find that it is fair, reasonable, adequate, and in the best interests of class members; and will likely have to do so in the face of objections from class members and would-be class counsel whose competing cases are being eliminated by the settlement.
Where competing class actions are within the same state or filed in or removable to federal court, traditional principles of comity between courts can often provide an opportunity to effectively limit the litigation to the first-filed case, or at least consolidate all of the litigation before the judge with the first-filed case. How attractive this option is will depend, of course, on the defendant’s evaluation of the desirability of the venue and trial judge in the first-filed case.
A long-standing rule of comity, whereby a federal court in which a substantially identical action is filed has discretion to stay, dismiss, or transfer the second-filed action, is known as the “first-to-file” or “first-filed” rule. See, e.g., Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co., 342 U.S. 180 (1952). The rule provides that, when actions involving nearly identical parties and issues have been filed in two different district courts, the court in which the first suit was filed should generally proceed to judgment. The potential use of the rule is less settled when one action is pending in state court. However, the Class Action Fairness Act and the Securities Litigation Uniform Standards Act make it easier to remove class actions, mitigating this problem to a large degree.
Complementing the first-filed rule and similar state court principles are transfer of venue tools available both in the federal system and in most state systems. Relying on such tools, while not necessarily eliminating competing cases, can be useful in lodging such cases in fewer forums, potentially resulting in efficiencies for the defendant. Often the next step in such a strategy will be to seek consolidation of all cases pending in the forum, which again can result in significant efficiencies, as well as the avoidance of inconsistent rulings.
Transfer of venue under 28 U.S.C. § 1404(a) is within the court’s discretion, considering all relevant factors to determine whether or not, on balance, the litigation would more conveniently proceed and the interests of justice be better served by transfer. The factors normally considered under the venue transfer statute include private interest factors (including party and nonparty convenience) and public interest factors (including administrative difficulties and the desirability of applying local law), none of which is given dispositive weight. See, e.g., In re Volkswagen AG, 371 F.3d 201, 203 (5th Cir. 2004); Jones v. GNC Franchising, Inc., 211 F.3d 495, 498–99 (9th Cir. 2000).
While the plaintiff’s choice of forum is also normally accorded some weight, numerous courts have given that factor less weight in class actions, partly because the interests and convenience of the class as a whole are at stake. See, e.g., Koster v. Lumbermens Mut. Cas. Co., 330 U.S. 518 (1947). Moreover, courts have found that the pendency of a prior similar action in the proposed transferee forum strongly militates in favor of a section 1404(a) transfer. See, e.g., Cont’l Grain Co. v. FBL, 364 U.S. 19, 26 (1960). Many states, by statute or rule of civil procedure, have transfer or dismissal options under principles similar to that of section 1404(a). See, e.g., Ala. Code §§ 6-3-21.1, 6-5-430; Ga. Code Ann. § 9-10-31.1(a); 735 Ill. Comp. Stat. 5/2-619(3).
Multidistrict Litigation Consolidation
Another option is to seek transfer and pretrial consolidation of all competing class action cases into multidistrict litigation (MDL) pursuant to 28 U.S.C. § 1407. Unlike the first-filed rule, section 1407 does not require substantial identity of parties. The mere presence of one or more common issues is enough. Also, unlike a motion under the first-filed rule or a section 1404(a) transfer motion, a motion for transfer to MDL is not ruled on by any of the judges assigned to any of the pending class actions. And unlike the “race-to-judgment” strategy, MDL treatment has as its object to bring all cases together for coordinated discovery and pretrial proceedings, including determination of class-certification issues.
Whether the Judicial Panel on Multidistrict Litigation (JPML) will grant MDL treatment depends in large part on the number of overlapping actions facing the defendant. In general, the fewer the number of overlapping cases, the more complex the common issues will have to be to justify MDL treatment. MDL transfer is also more likely when cases are young than when they are nearing trial.
MDL treatment affords several advantages for the defendant. It has the potential to lessen the overall costs of defense and avoids inconsistent rulings on discovery, dispositive motions, class certification, and other pretrial matters. It also brings all relevant players to the same bargaining table and thereby enhances the prospects for an effective global settlement of the controversy. Counsel for all plaintiffs are forced to coordinate their discovery efforts, so that the defendant does not have to deal with an endless series of different but overlapping discovery requests, nor tender the same witnesses for deposition multiple times. At the same time, MDL treatment can be problematic. Collectively, the combined mass of a large number of plaintiffs tends to enhance the leverage exerted, even by claims with relatively questionable merit. Further, discovery often proceeds at a much faster pace, and discovery battles often become more difficult for the defendant because any given discovery request is more likely to be relevant in some respect when several different cases are at issue than when there is only one. Consequently, the promise of overall cost savings that led the defendant to seek MDL treatment in the first place can often vanish. MDLs also tend to generate publicity and a large amount of “copycat” or “tagalong” litigation that might not otherwise have been filed. Finally, cases not originally filed in the MDL court must be tried in the transferor courts in which they were originally filed, rather than in the MDL transferee court. All of these factors combine to result in an increased likelihood that class action MDL litigation will end in settlement.
Finally, under limited circumstances, it may be possible for a defendant to enjoin prosecution of a competing class case. To the extent a federal court is authorized to issue such an injunction, its authority derives from the All Writs Act (AWA), 28 U.S.C. § 1651, and exceptions to the Anti-Injunction Act (AIA), 28 U.S.C. § 2283.
The AWA provides that “[t]he Supreme Court and all courts established by Act of Congress may issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law.” 28 U.S.C. § 2283. The AIA provides that “[a] court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments.” In limited circumstances, these statutes together enable a federal court to take the extraordinary step of issuing an injunction against continued state court litigation, which the state court must accede to under the Supremacy Clause of the U.S. Constitution.
Acknowledging the extraordinary force of a federal injunction, courts have recognized that such relief should be used sparingly; the AIA’s core message is one of respect for state courts. As such, in order to be sustainable on appeal, any injunction of a state proceeding must fit within one of the AIA’s three exceptions: (1) specific authorization by act of Congress (not addressed here), (2) injunctions “in aid of” the federal court’s jurisdiction, or (3) injunctions to “protect or effectuate” the federal court’s judgments.
In aid of jurisdiction exception. The “in aid of jurisdiction” exception to the AIA typically applies only when a res is at stake and thus only to actions in rem. Courts may also apply an “in aid of jurisdiction” injunction, however, where a federal court has “retained jurisdiction over complex, in personam lawsuits,” resolution of which is threatened by competing state court litigation. See, e.g., In re Bayshore Ford Truck Sales, Inc., 471 F.3d 1233, 1251–52 (11th Cir. 2006). The most common use of this exception occurs where a “complex and carefully crafted settlement” in federal court “would be undermined by a state court adjudication.” Id. at 1252.
The “in aid of jurisdiction” exception has been used in other contexts in class action litigation, as well—if rather sparingly. In Winkler v. Eli Lilly & Co., 101 F.3d 1196, 1203 (7th Cir. 1996), for example, the Seventh Circuit, while vacating an AIA injunction as overbroad, held that the AWA and AIA “permit a district court . . . to issue an injunction to safeguard a pre-trial ruling like [a] discovery order.” See also Newby v. Enron Corp., 338 F.3d 467, 476 (5th Cir. 2003) (holding district court’s stay of discovery in related state court action appropriate under AWA). Conversely, many courts have held that the mere existence of a parallel lawsuit seeking to adjudicate the same in personam cause of action does not itself provide sufficient grounds for an injunction against a state action in favor of a pending federal action.
Re-litigation exception. The AWA also permits injunctions against state proceedings where necessary to “protect and effectuate” the federal court’s judgments. Whether the re-litigation exception applies turns on principles of claim and issue preclusion, which are to be strictly and narrowly construed. Chick Kam Choo v. Exxon Corp., 486 U.S. 140, 148 (1988). Because a state court’s erroneous refusal to give preclusive effect to a federal judgment can be reviewed by state appellate courts and ultimately the U.S. Supreme Court, a federal court should ordinarily not dictate to a state court the preclusive consequences of the federal court’s judgment.
The Supreme Court’s decision in Smith v. Bayer Corp., 564 U. S. 299 (2011), its most recent pronouncement on the re-litigation exception, casts doubt on whether that exception has any vitality outside the context of a final federal judgment on the merits. Smith involved an appeal from an injunction by a federal district court, which had denied class certification, against prosecution of a state court class action brought against the same defendant. The Supreme Court unanimously reversed, holding that because the analysis for class certification under Federal Rule of Civil Procedure 23 was a different question from the state court’s analysis of its own class action rule, there was no identity of issues in the two actions regarding class certification. The Court also held that an unnamed member of a putative and uncertified class could not be deemed a party for preclusion purposes and, thus, that there was no identity of parties. The Court noted awareness of the problem of “serial relitigation of class certification” but observed that the passage of the Class Action Fairness Act enables defendants to remove most significant class actions to federal court, where either MDL consolidation or “principles of comity” among federal courts should minimize conflicting certification decisions.
In the wake of Smith, some courts refused to view previous certification denials as significant. See, e.g., Smentek v. Dart, 683 F.3d 373, 376 (7th Cir. 2012); Thorogood v. Sears, Roebuck & Co., 678 F.3d 546, 551–52 (7th Cir. 2012). Other courts have relied heavily on previous certification denials. See, e.g., Edwards v. Zenimax Media, Inc., 2012 WL 4378219, at *4 (D. Colo. Sept. 25, 2012); Ott v. Mortg. Inv’rs Corp. of Ohio, 65 F. Supp. 3d 1046, 1063 (D. Or. 2014).
One weapon decidedly not in a defendant’s arsenal in dealing with competing class actions is an anti-suit injunction by a state court against a federal court. The law is settled that a state court has no authority to enjoin prosecution of federal court in personam proceedings, even if the state proceeding has been reduced to final judgment. See Gen. Atomic Co. v. Felter, 434 U.S. 12, 12 (1977) (per curiam); Donovan v. City of Dallas, 377 U.S. 408, 412–13 (1964).
John E. Goodman is a partner with Bradley in Birmingham, Alabama.
Copyright © 2018, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).