On November 7, 2014, in State of California v. Intelligender, LLC, the US Court of Appeals for the Ninth Circuit held that a Class Action Fairness Act (CAFA) class action settlement did not act as res judicata against the State's subsequent enforcement action. However, res judicata precluded the State from seeking restitution in its enforcement action for individual members of the settlement class (No. 13-56806, (9th Cir. Nov. 7, 2014)).

On April 23, 2012, a federal district court granted final approval to a CAFA settlement. In the action, a nationwide certified class of purchasers of a fetal gender prediction test sought recovery for misleading advertising against Intelligender, which sold and advertised the test. The settlement called for, among other things, restitution for members of the class. Intelligender provided requisite notice of the proposed settlement to the appropriate state and federal officials under CAFA’s class action settlement notice requirement (28 U.S.C. § 1715), and no objection was raised.

On November 9, 2012, the People of the State of California filed suit against Intelligender for violations of California's unfair competition and false advertising laws. The State raised many of the same claims as the previously-approved class action. The State sought civil penalties, restitution and injunctive relief. Intelligender moved for injunctive relief to enforce the district court's final order approving the class action settlement and to enjoin the State’s enforcement action. Intelligender also moved for injunctive relief against the State’s restitution claims only. The district court denied both motions and this appeal followed.

The Ninth Circuit affirmed the denial of Intelligender’s motion to enjoin the State's enforcement action. The court, while acknowledging the importance of private suits in enforcement actions, noted that public enforcement actions serve as a far greater deterrent and provide greater protection to public interests. The court also noted that the government generally is not bound by private litigation when the government's action seeks to enforce a federal statute that implicates both public and private interests. Here, since the State's action was brought on behalf of the people and therefore implicated broader public interests as well as private interests, the CAFA class action settlement did not act as res judicata against the State in its sovereign capacity, even though many of the same claims were included in both actions. Therefore, the district court was correct in denying Intelligender's motion.

The court then turned to Intelligender's motion to enjoin the State's claims for restitution alone and reversed the district court's denial of the motion. The court found that, since the class had pursued restitution and the State was seeking the same for those individual class members, sufficient privity of interests existed between the CAFA class members and the State with respect to the claims for restitution to warrant the application of res judicata. The court noted that allowing the state to seek restitution for those class members who were bound by the bargained-for restitution in the CAFA settlement would amount to a double recovery for those individuals and would also undercut CAFA's purpose of increasing fairness and consistency of class action settlements. The court also found dispositive the fact that the appropriate state officials were notified yet chose not to participate in the class action settlement approval process.

Practitioners in the Ninth Circuit should be aware that public enforcement actions may not be precluded by a prior CAFA class action settlement. However, the subsequent public enforcement action may not seek restitution if privity exists between the class members and the State.