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June 13, 2017

Microsoft v. Baker: Supreme Court Blocks Plaintiffs' Path to Immediate Appeal of Orders Denying Class Certification

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In an important ruling for class action litigants, the Supreme Court held yesterday in Microsoft v. Baker that appellate courts lack jurisdiction to review orders denying class certification following voluntary dismissal with prejudice by the plaintiffs. The ruling reversed a Ninth Circuit decision, Baker v. Microsoft, 797 F.3d 607 (9th Cir. 2015), and resolved a circuit split. It also puts an end to the practice of plaintiffs voluntarily dismissing their claims following denial of class certification in order to “manufacture” an appealable final judgment. The decision is a positive development for class action defendants, as plaintiffs can no longer circumvent the final-judgment rule to take immediate appeals of orders denying certification.

The named plaintiffs in Baker sued Microsoft for breach of express and implied warranties, alleging a defect in the Xbox 360 game console and seeking to recover on behalf of a national class comprising all Xbox 360 owners. The district court struck the class allegations, and the plaintiffs sought permission for an interlocutory appeal under Federal Rule of Civil Procedure 23(f). After the Ninth Circuit denied permission to appeal under Rule 23(f), the plaintiffs voluntarily dismissed their case with prejudice. They then appealed the order striking class allegations to the Ninth Circuit, arguing that their voluntary dismissal constituted an appealable “final decision” establishing appellate jurisdiction under 28 U.S.C. § 1291. The Ninth Circuit agreed, holding that a voluntary dismissal with prejudice, without a settlement, constitutes a final decision under § 1291. After concluding that appellate jurisdiction existed, the Ninth Circuit reversed the order striking the class allegations. Microsoft appealed to the Supreme Court, which granted certiorari.

The Baker decision, authored by Justice Ginsburg, is grounded in the “final-judgment rule,” codified in § 1291, which grants jurisdiction to federal appellate courts to review only “final decisions of the district courts.” The opinion holds that the plaintiffs’ voluntary dismissal with prejudice “subverts the final-judgment rule” and “invites protracted litigation and piecemeal appeals.” The Court therefore reversed the Ninth Circuit, holding that federal courts of appeals do not have jurisdiction under § 1291 to review an order denying class certification or striking class allegations following voluntary dismissal with prejudice by the named plaintiffs.

The Court’s analysis relies in large part on Rule 23(f), which provides for a permissive, discretionary interlocutory appeal from an order granting or denying class certification. Under this rule, courts of appeals “wield ‘unfettered discretion’” to hear appeals from class certification orders. Describing the rule as the “product of careful calibration,” the Court noted that the plaintiffs’ manufactured dismissal tactic would deprive the appellate courts of the discretion afforded them under the rule, empowering plaintiffs to create jurisdiction for immediate appeals simply by dismissing their claims with prejudice.

Further, the Court expressed concern that the voluntary-dismissal device would facilitate repeated interlocutory appeals throughout the course of litigation and provide a one-sided benefit, permitting “plaintiffs only, never defendants, to force an immediate appeal of an adverse certification ruling.” The Court concluded that it “is not the prerogative of litigants or federal courts to disturb” Rule 23(f)’s “evenhanded prescription.”

Notably, Justices Thomas, Roberts, and Alito concurred in the judgment only (Justice Gorsuch took no part in the decision), eschewing the majority’s analysis under the final-judgment rule in favor of an argument based on the case-or-controversy requirement of Article III to the United States Constitution.

The concurrence, authored by Justice Thomas, argues that the plaintiffs’ dismissal is a “final decision” under § 1921 because it “ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.” But the concurrence concludes that the appellate court nevertheless lacked jurisdiction because the plaintiffs dismissed their claims with prejudice: “they consented to the judgment against them and disavowed any right to relief from Microsoft”; the parties were thus no longer adverse on any claims. Moreover, the concurrence noted, class allegations in the absence of underlying individual claims cannot satisfy the Article III case-or-controversy requirement.

Regardless of the analytical framework, this result is welcome news for class action defendants. Without the opportunity to manufacture a right to appeal through voluntary dismissal, plaintiffs who lose on certification now face a daunting path forward: they can seek an interlocutory appeal under Rule 23(f) or the more stringent requirements of 28 U.S.C. § 1292; settle their individual claims; or continue to litigate their individual claims. The inability of plaintiffs to fashion appealable final judgments through voluntary dismissal protects the rights of defendants, preserves the appellate courts’ discretion as to interlocutory appeals, and prevents the costly and inefficient practice of plaintiffs filing multiple interlocutory appeals throughout the course of litigation.

Read the full decision of Microsoft v. Baker.

For more individualized analysis on the impact of this decision and how it may affect your cases, please feel free to contact the authors or any member of Bowman and Brooke's Class Action and Multidistrict Litigation practice group.