United States: Supreme Court Hears Arguments In Microsoft v. Baker To Address When A Named Plaintiff Can Appeal The Denial Of Class Certification

Last Updated: March 22 2017
Article by Archis A. Parasharami

Earlier today, the Supreme Court heard oral argument (pdf) in Microsoft Corp. v. Baker, a case that raises complicated questions about federal appellate jurisdiction and Article III standing, but ultimately involves an important practical question in class action litigation: Can a named plaintiff engineer a right to an immediate appeal of the denial of class certification by voluntarily dismissing his or her claims with prejudice and appealing from the resulting judgment?

From the argument, it was clear that a number of Justices believe that the answer should be "no." As Justice Ginsburg pointed out several times, the committee charged with amending the Federal Rules of Civil Procedure crafted Rule 23(f) to give courts discretion to decide whether to allow immediate appeals of orders granting or denying class certification. But plaintiffs maintain that they should be free to challenge the denial of certification immediately by appealing from what their counsel described as a "manufactured final judgment." In other words, as Justice Ginsburg put it, "any time ... that a class action is brought against a corporation, [Rule] 23(f) is out the window."

As discussed below, there are many ways in which the Court could decide the issue. That said, businesses should be cautiously optimistic that the Court will reverse the Ninth Circuit and thus reject a dysfunctional regime in which class-action plaintiffs can appeal the denial of class certification while defendants remain able to appeal orders granting class certification only by grace.


As most lawyers who litigate class actions know, the decision whether to certify a class is often the make-or-break decision in a class-action lawsuit. If a district court certifies a class—whether correctly or not—a defendant is far more likely to settle on a class-wide basis to avoid the risks of a potentially massive verdict at trial (whether the claims have merit or not). Conversely, if a district court denies class certification (whether rightly or wrongly), a named plaintiff in a class action must decide whether to pursue his or her individual claim in order to obtain a final judgment on the merits and appeal the denial of class certification or instead either abandon the claim or (more typically) accept an individual settlement, bringing the case to a close.

Given these stakes, it's unsurprising that both plaintiffs and defendants would prefer an unfettered right to immediately appeal an adverse decision concerning class certification. But nearly 40 years ago, the Supreme Court held in Coopers & Lybrand v. Livesay that orders granting or denying class certification are not "final" orders within the meaning of 28 USC § 1291, the statute that gives the federal courts of appeals jurisdiction over "appeals from all final decisions of the district courts[.]"

In response, Rule 23 was amended in 1998 to add Rule 23(f), which authorizes courts of appeals to allow permissive immediate appeals of orders granting or denying class certification. The courts of appeals have sole discretion whether to hear such appeals, and the different circuits exercise this discretion with varying degrees of enthusiasm. But it is clear that Rule 23(f) does not, by its terms or in practice, permit automatic interlocutory appeals of orders granting or denying class certification.

Defendants are largely stuck with this state of affairs; if a class is certified and their attempt to appeal under Rule 23(f) fails, they must either face a class-wide trial or settle the case. But plaintiffs' counsel have developed a tactic for securing immediate appeals that the Ninth Circuit has countenanced. Specifically, if a district court denies class certification, and the plaintiff's Rule 23(f) appeal fails, the plaintiff then seeks a voluntary dismissal with prejudice—ordinarily viewed as surrendering in full—then files an appeal aimed at challenging the order denying class certification, contending that the dismissal amounted to a "final" judgment within the meaning of Section 1291. In the process, the plaintiff leapfrogs over a trial on the merits of his or her own claims.

In practical terms, then, the plaintiff has executed an end-run around Rule 23(f). Is that permissible? Today's arguments in Microsoft Corp. v. Baker may answer that question. The issue presented in Baker, as formulated by the Court, is: "Whether a federal court of appeals has jurisdiction under both Article III and 28 U.S.C. § 1291 to review an order denying class certification after the named plaintiffs voluntarily dismiss their claims with prejudice."

Procedural history

Baker involves the latest in a set of putative class actions about Microsoft's popular Xbox 360 video game console. In these cases, the plaintiffs contended that the Xbox 360 was designed in a manner that causes game discs to be scratched due to vibrations, in breach of both express and implied warranties. In the first round of cases, the district court denied class certification, the Ninth Circuit rejected a 23(f) appeal, and the individual cases were resolved individually. Subsequently, the plaintiffs in Baker, represented by the same plaintiffs' counsel, filed a new suit. Microsoft won a motion to strike the class allegations, and the Ninth Circuit denied plaintiffs' Rule 23(f) petition to appeal. This time, the plaintiffs dismissed their claims "with prejudice" with the goal of generating a seemingly "final" judgment that they could appeal to the Ninth Circuit as of right.

The Ninth Circuit approved this tactic and, in analyzing class certification, reversed the district court's decision, remanding the case for further consideration of the parties' class certification arguments.

The Supreme Court granted certiorari in early 2016, and (after the passing of Justice Scalia) announced that it would defer oral arguments until the following Term.

Discussion of oral argument

The theme I took away from today's oral arguments was that many Justices seemed concerned with the use of a tactic that respondents' own counsel characterized as a "manufactured final judgment."

As noted above, Justice Ginsburg pointed to Rule 23(f) repeatedly, stating, for example:

Let me ask you, because you mentioned Rule 23. The rule makers went through a lot of work to figure out what to do with an interlocutory ruling on class action status. And [they] came up with 23(f). And this device seems to be just a way to get around 23(f)."

She went on to say: "If the rule makers wanted to have these class action decisions go up on appeal as of right, they could have made it, or asked Congress to make it, one of the interlocutory orders that is immediately appealable, like a preliminary injunction. Along similar lines, Justice Breyer suggested that "looking to try to simplify procedure, we [could] say ... people in your position [should] [a]sk the [c]ourt of appeals for permission under [Rule 23(f)]. Now, sometimes they'll wrongfully deny it. Well, if they wrongly deny it, here's what you do. Go litigate your case and lose, or give up"—for example, by accepting an adverse summary judgment on the merits—"and then appeal that final judgment for [defendants]."

Asked to identify his best case, counsel for respondents pointed to United States v. Procter & Gamble Co., in which the Government—the plaintiff in an antitrust case—had been ordered to produce a grand jury transcript in discovery. As Justice Kennedy pointed out, "the Court was very careful to say when the government proposed dismissal for failure to obey [the order to turn over the transcript], it had lost on the merits." He followed up telling respondents' counsel: "That is not your case"—presumably because denial of class certification is not the same thing as losing on the merits.

The issue of Article III standing received comparatively little express discussionThe Chief Justice seemed the most interested in the issue, telling respondents' counsel: "The reversal that you're looking for does not go to the merits of the judgment that you voluntarily agreed to have entered against you. ... [T]hat's what raises the Article III question. Nothing that you're arguing on appeal is going to change the fact that you lose. .... [Y]ou told the district court to enter a judgment against you, so you can't argue that it shouldn't have done that."

To be sure, both sides received hard questions. Justice Breyer posited a hypothetical circumstance where the named plaintiff had only a claim for "10 cents"; if class certification were denied, Justice Breyer asked, "what is the plaintiff supposed to do?" Would the plaintiff's counsel proceed to trial on "a claim that's only going to be worth 10 cents, because, of that, he's most likely to get no more than two cents for the lawyer himself"? And the Chief Justice noted that, in light of litigation costs, even a claim for $10,000 might not motivate a plaintiff who lost class certification to proceed to trial. In response, Microsoft's counsel pointed out that (1) in fact, named plaintiffs often do proceed ahead with their individual claims when class certification has been denied; (2) the state-law claims at issue come with fee-shifting provisions that would provide attorneys' fees for a prevailing individual plaintiff; and (3) "if the plaintiffs believe in their case, ... there's every reason to go ahead"—presumably because after prevailing on the merits at trial, they could pursue a reversal of the order denying class certification.

Final thoughts

There is a legitimate policy debate over whether the approach taken by Rule 23(f)—authorizing only permissive interlocutory appeals of orders granting or denying class certification—is preferable to allowing either party aggrieved by a class certification order to have an automatic right to an immediate appeal (the proposed approach in the class action reform bill (pdf) recently passed by the House of Representatives.) But an approach to appellate jurisdiction that gives only one side (plaintiffs and their counsel) the ability to secure an immediate appeal at will would unfairly increase the already outsized leverage that plaintiffs have in class-action litigation.

Originally published March 21, 2017

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