Tuesday, March 20, 2007

Stays pending Rule 23(f) appeals

We often write about preemption here, but we suffered an odd type of preemption yesterday.

Sometimes we pre-write these blog posts. If we're facing a hectic week, we'll write something on Sunday and then post it on Tuesday, to give repeat visitors fresh content throughout the week. This Sunday, we cleverly pre-wrote a blog post about stays pending Rule 23(f) appeals, because we were sure -- sure! -- that the Fifth Circuit would soon be issuing a stay pending appeal in the Enron Securities Litigation.

After all, the parties briefed and argued the Enron Rule 23(f) appeal on an expedited basis. The Fifth Circuit heard argument on the propriety of class certification on February 5, 2007. The trial itself was scheduled to begin on April 16, 2007. The district court denied defendants' motion to stay the trial to give the Fifth Circuit a chance to rule on the class certification issue. The defendants then sought a stay from the Fifth Circuit. We could feel in our bones the issuance of an appellate stay. And that would have been very interesting.

Here's the backstory: As readers of this blog surely know, Federal Rule of Civil Procedure 23(f) permits discretionary appeals from class certification orders. Simply allowing one of those appeals, however, "does not stay proceedings in the district court unless the district judge or the court of appeals so orders." Rule 23(f).

There's now a fair amount of law at the district court level discussing whether trial courts should stay proceedings pending a Rule 23(f) appeal. See, e.g., Castano v. American Tobacco Co., 162 F.R.D. 112, 117-18 (E.D. La. 1995) (granting stay pending class certification appeal before Rule 23(f) was enacted) . There's surprisingly little law on this point, however, at the appellate level.

Only two circuit courts -- the Seventh and Second Circuits -- have discussed the standards applicable to motions for stays pending appeals under Rule 23(f). Both courts denied the motions before them. In Blair v. Equifax Check Services, 181 F.3d 832 (7th Cir. 1999), Judge Easterbrook wrote that "a stay would depend on a demonstration that the probability of error in the class certification decision is high enough that the costs of pressing ahead in the district court exceed the costs of waiting."

In Sumitomo Copper v. Credit Credit Lyonnais Rouse, Ltd., 262 F.3d 134 (2d Cir. 2001), the Second Circuit held that "a stay will not issue unless the likelihood of error on the part of the district court tips the balance of hardships in favor of the party seeking the stay."

So when the Fifth Circuit ruled in Enron, we were going to be all over this issue for you: quickest on the draw when the first appellate court granted a stay pending a Rule 23(f) appeal.

What happened? The Fifth Circuit reached the merits of the Rule 23(f) appeal yesterday. The motion for a stay to permit the court to reach the merits was of course routinely denied.

But here's the good news for readers of this blog: The Fifth Circuit's decision added another voice to the chorus of federal appellate courts that are concerned about the pendency of certified class actions coercing defendants to settle: "it is appropriate to provide appellate review before settlement may be coerced by an erroneous class certification decision."

And the Fifth Circuit (again, quite properly) permitted review of underlying legal issues that were intertwined with the class certification decision: "This case gives rise to unsettled questions of law concerning the entanglement of the merits with the class certification decision," so the appellate court could consider legal issues upon which the plaintiffs' theory of class certification rested.

That's good news, of course. But it sure hurts when you spend so much of your life arguing in favor of preemption and then find your blog post on Rule 23(f) to be, well, almost preempted.

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