Baker v. Microsoft: Appellate Jurisdiction after Denial of Class Certification

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On January 15, 2016, the U.S. Supreme Court granted Microsoft’s petition for a writ of certiorari in Baker, et al. v. Microsoft Corporation, a Ninth Circuit Court of Appeals decision which allows plaintiffs in a class action lawsuit to appeal an order denying class certification after the named plaintiffs voluntarily dismiss their claims with prejudice. See No. 12-35946, 797 F.3d 607 (9th Cir. 2015) (slip op. available here). Following the passing of Justice Antonin Scalia, oral argument in Baker was postponed until next term, possibly in an effort to avoid issuing a ruling with an eight-Justice Supreme Court.

In Baker, the plaintiffs alleged that a design defect in the Xbox caused game discs to become scratched from movements of the Xbox during game play. Slip op. at 6. U.S. District Court Judge Richard Martinez deferred to the earlier class certification denial order in a consolidated case in the same district court, In re Microsoft Xbox 360 Scratched Disc Litig., No. C07-1121 (W.D. Wash. Oct. 5, 2009), which had denied the plaintiffs’ motion for class certification (reasoning that individual questions of causation and damages precluded certification) and granted Microsoft’s motion to strike the class allegations based on comity. Slip op. at 10-11. The Baker plaintiffs sought permissive review under Federal Rule of Civil Procedure (FRCP) 23(f) which was denied by the Ninth Circuit. The plaintiffs then voluntarily dismissed their individual claims, and filed a notice of appeal pursuant to 28 U.S.C. § 1291.

The Ninth Circuit reversed the district court, reasoning that while individual factors may affect when disc damage occurred and how extensive it was, they do not affect whether the Xbox was sold to consumers with a design defect. Slip op. at 15. More significantly, the court found appellate jurisdiction under 28 U.S.C. § 1291 existed, distinguishing a stipulated, voluntary dismissal of an individual claim from a failure to prosecute claims, as in Huey v. Teledyne, Inc., 608 F.2d 1234 (9th Cir. 1979), finding that a plaintiff who engages in the former has given up a valuable right and created “an adverse and appealable final judgment,” whereas a plaintiff engaged in the latter has forfeited their right to appeal the denial of class certification. Id. at 12-13, n.4. Exercising mandatory appellate jurisdiction, the appeals court remanded to the district court for further proceedings. Microsoft petitioned the Ninth Circuit for rehearing en banc, which was denied on July 20, 2015.

The Ninth Circuit’s decision provided a much-needed shortcut to the appeals process for class action plaintiffs, who would otherwise have to seek an interlocutory appeal under FRCP 23(f), which appellate courts grant sparingly, or wait for a final judgment, effectively ending any meaningful right to appeal class certification in many cases. Some see the Ninth Circuit decision as a revival of the “death knell” doctrine that some federal appellate courts recognized as grounds for appeal under 28 U.S.C. § 1291 several decades ago, which allowed appeals for denial of class certification when the denial would “end the lawsuit for all practical purposes.” Eisen v. Carlisle & Jacquelin, 370 F.2d 119, 120 (2d Cir. 1966). However, the doctrine was abandoned in Coopers & Lybrand v. Livesay, 437 U.S. 463 (1978), where the Supreme Court found orders regarding class certification not independently appealable prior to judgment under 28 U.S.C. § 1291. Congress then responded to the Coopers & Lybrand decision by allowing the Supreme Court to provide for appeals to interlocutory decisions under 28 USC § 1292(e), and, in 1998, the Supreme Court adopted FRCP 23(f). However, due to the infrequent usage of Rule 23(f), Congress’ attempt to fill the void of the “death knell” doctrine was largely ineffective until the Baker case.

Instead of creating grounds for interlocutory appeal, Baker allows plaintiffs to appeal class certification upon voluntarily dismissing their claims, effectively replacing one way of demonstrating the case had ended for all practical purposes with another. Slip op. at 12 (citing Berger v. Home Depot USA, Inc., 741 F.3d 1061, 1065 (9th Cir. 2014)). Circuit courts are split on this issue, as there is case law forbidding voluntary dismissal as a vehicle for appellate review in the Third, Fourth, Seventh, Tenth, and Eleventh Circuits, but case law permitting such dismissal as a vehicle for appellate review in the Second and Ninth Circuits. It is difficult to predict how the Supreme Court will rule, especially after the passing of Justice Scalia, who historically had been hostile towards class actions. Both plaintiffs’ and defense counsel will have to await oral argument next term for an indication of the direction the Supreme Court may take.

Authored by: 
Ishan Dave, Associate