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In Narrowly Construing 'Relitigation Exception' to Anti-Injunction Act, Supreme Court Holds District Court Had No Authority to Enjoin State Court Class Action Proceedings Unless Parties and Claims Were Identical to Those Previously Denied Class Status

Authors: Stephen G. Harvey and Leah Greenberg Katz


On June 16, 2011, just four days before issuing its much-publicized decision in Wal-Mart Stores, Inc. v. Dukes,1 the Supreme Court issued another class action decision in Smith v. Bayer Corporation, No. 09-1205. The Smith decision does not have the same broad policy implications as Wal-Mart, but it does provide important guidance to federal courts adjudicating class action lawsuits. In Smith, the Court held that under the Anti-Injunction Act a federal district court could not enjoin a state court from relitigating substantially similar class certification issues previously decided by the federal court unless the issues and parties were the same. The Court held that the issues in the federal and state actions were not the same, even though the West Virginia class action rule is nearly identical to Federal Rule of Civil Procedure 23, because the West Virginia Supreme Court interprets the predominance requirement of the West Virginia rule differently than federal courts have interpreted the same requirement of Federal Rule 23. The Court also held that the parties were not the same because Mr. Smith was not a party to the federal court action and it made no difference that he would have been a member of the class if it had been certified, because it was not certified.

Justice Kagan wrote the decision for a nearly unanimous Court. All nine justices joined the decision, except that Justice Thomas, without explanation, declined to join Part II-B, which addressed the issue whether Mr. Smith qualified as a party to the federal court action in which the trial court denied class certification.

Noting that “this case does not even strike us as close,” the Court held that the district court should not have enjoined the state court class action proceedings under the “relitigation exception” to the Anti-Injunction Act, 28 U.S.C. § 2283, a federal statute enacted in 1793. The Anti-Injunction Act reads as follows: “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.” The Anti-Injunction Act “broadly commands that [state] tribunals ‘shall remain free from interference by federal courts,’” subject to “only ‘three specifically defined exceptions.’” The relitigation exception is based on the statutory reference to the ability of a federal court “to protect or effectuate its judgments” and mirrors the rules of issue preclusion. It “authorizes an injunction to prevent state litigation of a claim or issue ‘that previously was presented to and decided by the federal court.’” The Court has “taken special care to keep [the relitigation exception] ‘strict and narrow’” because deciding the preclusive effect of prior litigation is usually the “bailiwick of the second court” and issuing an injunction under the relitigation exception is “resorting to heavy artillery,” in Justice Kagan’s words.

Smith addressed the relitigation exception in the context of two separate putative class actions against Bayer Corporation related to the drug Baycol. Both actions sought certification of identical classes and involved the same substantive allegations related to products liability. In 2001, George McCollins filed the first action in West Virginia state court. It was followed a month later by a second action by Keith Smith, also in West Virginia state court. Bayer removed the McCollins action to federal district court. The Smith action remained in state court as complete diversity was lacking (although today it could be subject to federal court removal under the Class Action Fairness Act of 2005 (CAFA), as Justice Kagan noted in a footnote.)

In 2008, both the federal and state courts faced class certification motions. The federal court reached a conclusion first, denying class certification under Rule 23(b)(3) on the ground that individualized issues of fact predominated over any class-wide issues. Bayer then asked the federal court to enjoin the West Virginia state court from deciding class certification on the grounds that it would amount to relitigation of the issue already decided by the federal court. The federal district court granted the injunction and the Eighth Circuit Court of Appeals affirmed.

The Supreme Court granted certiorari to address two circuit splits and held that in granting the injunction the district court exceeded its authority under the relitigation exception. To properly invoke the exception, there are two requirements: (1) the same issue must be before both courts; and (2) the party seeking relitigation of the issue must have been a party to the prior federal action or fall into one of a few explicit non-party exceptions to the requirement of mutuality. The Court held that neither requirement was satisfied.

First, the Court held that the district court overlooked the critical distinctions between the West Virginia class action rule and Federal Rule 23. The text of the rules is nearly identical, but the West Virginia Supreme Court has not interpreted the West Virginia rule in the same manner that federal courts have interpreted Rule 23. Specifically, the Supreme Court noted, the highest court in West Virginia has interpreted its rule as permitting class certification in situations in which no class could be certified in federal court because of the requirement that common issues “predominate” over individual issues. Because the legal standards differ, the Court held that the issues before the courts were not the same: “[a] federal court and a state court apply different law. That means they decide distinct questions.” Thus, a federal court seeking to invoke the relitigation exception must examine whether the state law mirrors that of the federal court and the existence of any substantive differences in the standards means that the state law is not the same as the federal law.

The Court held that the second requirement of the relitigation exception was not met because the plaintiff in the second lawsuit, Mr. Smith, was not a party to the federal action. The federal court’s judgment can only bind a party to the action, or those who fall into a “handful of discrete and limited exceptions” to the requirement of party status. Bayer argued that Smith qualified as a party to the federal court litigation. Justice Kagan rejected this contention: “[t]he definition of the term ‘party’ can on no account be stretched so far as to cover a person like Smith, whom the plaintiff in a lawsuit was denied leave to represent.” Similarly, she rejected the argument that Smith could be bound under the recognized exception to the rule against non-party preclusion for members of class actions, because the federal district court had denied class certification: “Neither a proposed class action nor a rejected class action may bind nonparties.”

Smith stands for the proposition that a federal court may not enjoin a state court proceeding unless the issues before the federal and state court are identical, and any difference in the procedural rules, even if that confers a substantive advantage or disadvantage, defeats the request for injunctive relief. Likewise, the party to the action sought to be enjoined must have been either a named party to the first action or, if a class has been certified, a member of the class.

Justice Kagan noted that concern may be raised that under Smith class counsel may make repeated efforts to certify a class by filing the same action and request for class certification over and over with a new and different plaintiff each time. She rejected that concern as inherent in the rule against non-party preclusion: “our legal system generally relies on principles of stare decisis and comity among courts to mitigate the sometimes substantial costs of similar litigation brought by different plaintiffs. We have not thought that the right approach (except in the discrete categories of cases we have recognized) lies in binding nonparties to a judgment.” She also noted that CAFA enables “defendants to remove to federal court any sizable class action involving minimal diversity of citizenship.”2

Smith reminds us that that there may be real advantage for a plaintiff to bring an action in state court, if the state court provides a rule of procedure that is more favorable than the rule in federal court. Specifically with regard to class actions, the implications of the decision will be limited because most state court class actions with more than $5 million in controversy are subject to federal court removal under CAFA.


1 For our report and analysis of the Wal-Mart decision, please see “Supreme Court in Wal-Mart Stores, Inc. v. Dukes Rejects Certification of Largest Gender Discrimination, Employment Class Action in Nation’s History, Holds Plaintiffs Cannot Prove Common Class Claims, Raises Bar for Certification of All Claims,” available at http://www.pepperlaw.com/publications_update.aspx?ArticleKey=2133.

2 For our report and analysis of CAFA, please see “What the Class Action Fairness Act Means to You,” available at http://www.pepperlaw.com/publications_article.aspx?ArticleKey=458.

Stephen G. Harvey and Leah J. Greenberg

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