Co-Authored By:  Dustin M. Dow

Almost three decades ago, the U.S. Supreme Court explained that state courts had to extend fundamental due process protections to absent class action members.  Now, a new petition for certiorari review presents the Court with the opportunity to demonstrate that it meant what it said.

Allstate Insurance Company has petitioned the Court to review a decision by the Montana Supreme Court to certify a declaratory and injunctive class against Allstate.  That certification, under Montana’s version of Rule 23(b)(2), is noteworthy because the plaintiff and the Montana court acknowledge that the class-wide injunction is only the first step toward securing monetary relief.  Wal-Mart Stores, Inc., v. Dukes, 131 S. Ct. 2541 (2011), however, emphatically stated that such a class would not be permissible under Federal R. Civ. P. 23(b)(2).  After Dukes, federal damage-seeking classes require the due process hallmarks of notice and opt-out that exist only under Rule 23(b)(3). Mandatory classes that exclusively seek class-wide injunctive relief, properly brought under Rule 23(b)(2), neither consider nor have a need to provide for this due process protection.

In Allstate Ins. Co. v. Jacobsen, No. 13-916, the Rule 23(b)(2) class purports to seek class-wide injunctive relief.  But that relief is a precursor to follow-up individual damage determinations.  So the central question before the U.S. Supreme Court is whether the state courts must also provide due process protection when implementing their own versions of Rule 23.  The Supreme Court answered the question in the affirmative in 1985 in Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985).  There, the Court found that the Kansas Supreme Court violated the due process rights of out-of-state class members by applying Kansas substantive law to all class members’ claims.  Now the issue is more squarely presented as whether a state court can apply its own interpretation of the state Rule 23 certification requirements regardless of the due process impact.

State courts resolve a major portion of all those class actions filed.  So, the Montana Supreme Court opinion has attracted substantial interest from amici in support of Allstate.  In fact, BakerHostetler attorneys filed an amicus brief for the Cato Institute and the Center for Class Action Fairness, arguing that (b)(2) certification denies absent class members and defendants due process rights when it sets the stage for damages claims without providing notice or the right to individually contest liability.  A copy of that brief is available here.  Other amici include the U.S. Chamber of Commerce, DRI — the Voice of the Defense Bar, the Washington Legal Foundation, the International Association of Defense Counsel, major companies such as Altria Group, General Electric, and Google, and the Equal Employment Advisory Council (“EEAC”).  The respondent’s brief is due April 2, after which the Court will decide whether to accept the case as part of its 2014 Term beginning in October.

As the EEAC’s brief points out, even after Dukes, employment-based class action litigation continues to increase.  As more of those cases avoid federal court jurisdiction, state courts are likely to take charge of outlining the due process boundaries of Rule 23.  In other words, the U.S. Supreme Court again is presented with the need to provide guidance on what due process requires when state courts certify actions for class treatment.

The Bottom Line:  The Montana Supreme Court certified an injunctive class, that contrary to federal Rule 23 and the dictates of due process,  ultimately seeks individual damage determinations.  The Supreme Court review, supported by several amici, could establish universal due process requirements for Rule 23 certification regardless of state or federal jurisdiction.  That constitutional review is vital for employers and other businesses, as well as putative class members who increasingly face class allegations in state courts that do not adhere to federal Rule 23.