Materials on Proposed Changes to Rule 23
Prepared for the First Annual Civil Procedure Workshop
July 2015
1 of 234 June 17, 2015
Colleagues,
As you know, the Advisory Committee on Civil Rules is presently considering amendments to Rule 23 of the Federal Rules of Civil Procedure. Several members of the Advisory Committee will attend a session of the Civil Procedure Workshop on July 17, 2015, to discuss their work with attendees.
I have assembled materials on several of these proposed amendments, should any of you wish to prepare for our roundtable discussion with the Advisory Committee members. These materials consist chiefly of Advisory Committee documents, significant U.S. Court of Appeals decisions on the issues that several of the proposed amendments address, and pertinent sections from the American Law Institute’s Principles of the Law of Aggregate Litigation. I have not included any secondary literature, with the exception of a Judicature article by Richard Marcus introducing the Advisory Committee’s agenda. (Prof. Marcus is the committee’s associate reporter.) If you wish to read more than what I have excerpted here, I have compiled a short list of some additional reading below.
The included materials and the suggested articles are based on a judgment as to what would be helpful in getting someone up to speed on the Advisory Committee’s deliberations. They are hardly comprehensive, and I harbor no illusion that I have necessarily identified all the key texts. I’m hopeful that they will help get you started.
See you in Seattle,
Dave Marcus Professor of Law University of Arizona Rogers College of Law
Suggested Additional Reading
General • Robert H. Klonoff, The Decline of Class Actions, 90 Wash. U. L. Rev. 729 (2013) • Judith Resnik, Diffusing Disputes: The Public in the Private of Arbitration, the Private in Courts, and the Erasure of Rights, 124 Yale L.J. ___ (forthcoming 2015), at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2601132 • Stephen B. Burbank & Sean Farhang, Class Actions and the Counterrevolution Against Federal Litigation, available on SSRN. (Contact David Marcus for a copy if you can’t find it)
Settlement Classes • Howard M. Erichson, The Problem of Settlement Class Actions, 82 Geo. Wash. L. Rev. 951 (2014)
Issues Certification • Patricia Bronte et al., “Carving at the Joint”: The Precise Function of Rule 23(c)(4), 62 DePaul L. Rev. 745 (2013) • Elizabeth Chamblee Burch, Constructing Issues Classes, __ Va. L. Rev. __ (forthcoming), at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2600219
Cy Pres • Rhonda Wasserman, Cy Pres in Class Action Settlements, 88 S. Cal. L. Rev. 97 (2014) • Martin H. Redish, Cy Pres Relief and the Pathologies of the Modern Class Action: A Normative and Empirical Analysis, 62 Fla. L. Rev. 617 (2010)
Ascertainability • Myriam Gilles, Class Dismissed: Contemporary Judicial Hostility to Small-Claims Consumer Class Actions, 59 DePaul L. Rev. 305 (2010) • Geoffrey C. Shaw, Note, Class Ascertainability, 124 Yale L.J. 2354 (2015) • John H. Beisner et al., The Implicit Ascertainability Requirement for Class Actions (2014), at http://www.skadden.com/sites/default/files/publications/The%20Implicit%20Ascertainab ility%20Requirement%20for%20Class%20Actions.pdf
Rule 68/Rule 23 • Charles Alan Wright et al., Federal Practice & Procedure § 3001.1 (updated 2015) • Jake Starcher, Note, Addressing What Isn’t There: How District Courts Manage the Threat of Rule 68’s Cost-Shifting Provision in the Context of Class Actions, 114 Colum. L. Rev. 129 (2014) Table of Contents
1. Introductory Materials 5 a. Marcus, Once More Unto the Breach 6 b. Standing Committee Report Excerpts 17 c. Rule 23 Subcommittee Report 26
2. Settlement Criteria 68 a. ALI, Principles Excerpt 69
3. Certification of a Settlement Class 77 a. ALI, Principles Excerpt 78
4. Issues Certification 83 a. In re Nassau County Strip Search Cases 84 b. McReynolds v. Merrill Lynch 97
5. Cy Pres 108 a. ALI, Principles Excerpt 109 b. In re Baby Products 118 c. In re BankAmerica 138 d. Lane v. Facebook 151 e. Statement of CJ Roberts, Marek v. Lane 176
6. Offers of Judgment 178 a. Damasco v. Clearwire 179 b. Stein v. Buccaneers Ltd. P’ship 186 c. Gomez v. Campbell-Ewald 198 d. Notice of Grant of Certiorari, Campbell-Ewald 210
7. Ascertainability 211 a. Carrera v. Bayer 212 b. Carrera v. Bayer, en banc opinions 225 c. Lilly v. Jamba Juice 229
8. Tyson Foods 235 a. Eighth Circuit opinion 235 b. Notice of Grant of Certiorari 250
Introductory Materials
(1) Richard Marcus, Once More Unto the Breach?: Further Reforms Considered for Rule 23, 99 Judicature 57 (2015). (2) Excerpts from Advisory Committee on Civil Rules, Report to the Standing Committee, May 2, 2015. (3) Excerpts from Advisory Committee on Civil Rules, Rule 23 Subcommittee Report with Appendices, April 2015.
4 of 234 VOLUME 99 NUMBER 1 REPRINTED WITH PERMISSION SUMMER 2015
JUDICATUREThe Scholarly Journal for Judges
6 of 234 JUDICATURE 57
ONCE MORE UNTO THE BREACH?
FURTHER REFORMS CONSIDERED FOR RULE 23
by Richard Marcus
EVEN HENRY V PROBABLY failing to modify the rule to adapt to warrant attention, as explained below. COULD NOT EXHORT THE evolving litigation conditions might During 2015, work will move forward, RULE MAKERS TO ACTION,1 produce greater problems than under- but the earliest that draft amendments but reported needs of the procedural taking change. could be published for comment would system may do so. Surely the class- The Advisory Committee on Civil be the summer of 2016. This article action rule is one of the most import- Rules has formed a subcommittee to serves as something of an invitation for ant in the rulebook. Equally surely, it consider whether constructive changes reactions to the issues described below has vocal supporters and opponents. can be made to Rule 23, and this arti- and also to suggest additional issues Indeed, it has even attracted inter- cle is designed to introduce the current that may warrant attention. Because national detractors.2 Changing the discussions and invite readers to make the work is moving forward, the earlier rule therefore is a project that must suggestions about them.3 This project comments are received the more help- be approached carefully and deliber- is in its formative stages, and it seems ful they likely will be. ately. Only after much thought should singularly appropriate for this journal It should be clear from the outset, change proceed. Only after further to include a report about the current however, that there is no assurance evaluation, and public comment, orientation. The subcommittee has that any change will actually be should a change be adopted. But already identifed issues that seem to formally proposed. And as the history
7 of 234 58 VOL. 99 NO. 1 of past amendment proposals shows, more functional attitude.8 Although a formal proposal by no means leads As Professor Miller (soon there was some controversy within automatically to an actual amend- to become Reporter to the Advisory Committee about the ment. So it makes sense to begin proposed changes, it is not clear now with the rulemaking background and “ the Advisory Committee) whether the drafters foresaw — or then introduce the ideas now under explained in 1979, some could have foreseen — the variety of consideration. ways in which the rule would be used in subsequent decades.9 As Professor THE PRE-MODERN CLASS on the basis of “rather Arthur Miller, who was present during ACTION the deliberations leading up to the The 1966 amendment of Rule 23 conclusory assertions of 1966 amendments, explained: was the great watershed between the compliance with Rule modern rule and the “pre-modern” The Committee obviously could not class action. As Professor Stephen 23(a) and (b),” and “the predict the great growth in complicated Yeazell has demonstrated,4 the modern procedure fell victim to federal and state substantive law that class action is a lineal descendent of the would take place in such felds as race, medieval group litigation in England. overuse by its champions gender, disability, and age discrimina- In England, that sort of litigation and misuse by some who tion; consumer protection; fraud; prod- was often an in-court expression of ucts liability; environmental protection; an existing social reality. Thus, the sought to exploit it for and pension litigation, let alone the citizens of the Village of X might seek exponential increase in class actions and reasons external to the relief collectively against the lord. In multiparty/multi-claim practice that somewhat the same vein, the American merits of the case.” would fow from the expansion of those Supreme Court in 1853 recognized a legal subjects.10 class action on behalf of some 1500 travelling preachers of the southern But it does seem that the drafters branch of the Methodist Episcopal elect to join the case, but unless they soon realized that new Rule 23 could Church against 3800 travelling did the decree would not bind them. have major importance, and that preachers of the northern branch of Many were unhappy with the oper- changing it could raise major issues. So the church in a dispute over church ation of original Rule 23. Professor they resolved to refrain from consid- property resulting from disputes about Zechariah Chaffee, for example, ering further changes for a quarter slavery.5 criticized it in 1950 on the ground century thereafter.11 Although there was an Equity Rule that he had as much trouble telling a Almost immediately, the rule was that dealt with class actions, there “common” from a “several” right as embraced by some and used in a signif- were not many cases. Nonetheless, telling whether some ties are green or icant number of cases. As Professor Rule 23 was included in the original blue. On balance, he concluded, “the Miller (soon to become Reporter to Federal Rules of Civil Procedure to situation is so tangled and bewildering the Advisory Committee) explained carry forward the old equity practice.6 that I sometimes wonder whether the in 1979, some classes were certifed Original Rule 23 did so by embracing world would be any the worse off if the on the basis of “rather conclusory “jural relationships” to distinguish class-suit device had been left buried assertions of compliance with Rule among three types of class actions — in the learned obscurity of Calvert on 23(a) and (b),” and “the procedure fell the “true” class action, involving a Parties to Suits in Equity.”7 victim to overuse by its champions and “joint” or “common” right, as in the misuse by some who sought to exploit case involving the Methodist Episcopal THE 1966 MAKEOVER AND ITS it for reasons external to the merits of preachers, a “hybrid” class action, EFFECTS the case.”12 Decisions curtailing use where the rights were “several” rather Unhappiness with the original version of class actions followed. By the late than “joint,” but the action sought an of Rule 23 contributed to the deci- 1980s, some were predicting that the adjudication regarding specifc prop- sion to develop a revised rule in the class action would soon pass from the erty. Finally, there was a “spurious” 1960s. That effort produced the 1966 scene.13 But at the same time, concern class action, involving a right that was amendments, which abandoned the with mass torts prompted some to try “several” but presenting a common focus of the original rule on the sorts to adapt class actions so they could question and seeking common relief. of legal categories that frustrated provide solutions to those problems. In such instances, class members could Professor Chaffee and emphasized a If it had a near-death experience
8 of 234 JUDICATURE 59 in the late 1980s, the class action sion be made “when practicable” rather Unlike the 1996-98 experience, in surely returned in the 1990s, and the than “as soon as practicable.”18 this amendment package most of the rulemakers focused on it again. (4) Modifying the settlement approval proposed changes went forward and provisions of Rule 23(e) to require the became effective in 2003.23 Because THE 1996 AMENDMENT court to hold a hearing on whether to these rule changes were adopted, they PACKAGE approve a proposed class settlement.19 are likely more familiar to contempo- In March 1991, the Judicial (5) Adding Rule 23(f), permitting rary readers than the proposals that Conference approved a recommen- immediate appellate review of a deci- were not adopted, so a brief recounting dation of its Ad Hoc Committee on sion whether to certify a class, at the should suffce: Asbestos Litigation and requested discretion of the court of appeals.20 that the Advisory Committee study (1) Timing and Content of Certifcation whether changes to Rule 23 should There was a great deal of public Decision: Rule 23(c) was amended to be made to accommodate the needs comment on these proposals. Much of direct that the certifcation decision be of mass tort litigation.14 Beginning in it was critical. Eventually Judge Paul made “[a]t an early practicable time,” 1991, the Advisory Committee ended Niemeyer, then Chair of the Advisory and that the certifcation order defne its quarter-century abstinence and Committee, had the commentary the class, and the class claims and resumed consideration of Rule 23. At bound as a four-volume set of records defenses. It also was amended to direct frst, there was some consideration of a on this rule-amendment episode. that the notice of certifcation to Rule comprehensive rethinking of the rule Meanwhile, other events moved 23(b)(3) classes “clearly and concisely like the one done in 1966. forward. In particular, the Supreme state, in plain, easily understood But the actual proposals that Court granted certiorari in Amchem language” at least seven specifc things emerged were less aggressive. After fve Products, Inc. v. Windsor21 and decided that had not all been spelled out in the years of work, the Advisory Committee the case, approving some differences in prior rule. produced a preliminary draft of certifcation standards for settlement (2) Settlement Approval Criteria and proposed amendments to the rule.15 and litigation classes. After reviewing Procedures: Until 2003, Rule 23(e) was Rather than fundamentally rework the the public commentary and consider- almost entirely devoid of specifcs on 1966 format, the package included ing the possible impact of the Amchem how a court was to decide whether to several recommended revisions of that decision, the Advisory Committee approve a proposed class-action settle- format: decided to recommend adoption only ment. Amended Rule 23(e) contains of the addition of new Rule 23(f), a standard for judicial approval — (1) Revising the list of criteria for and that new rule provision went into that the proposed settlement is “fair, certifying a class under Rule 23(b)(3) to effect on Dec. 1, 1998. This history reasonable, and adequate.” It also adds include, among others, the “maturity” may be cloudy or unknown to many a number of specifcs — that the parties of related litigation and consideration who are concerned about the contem- must identify any “side agreements” “whether the probable relief to individ- porary operation of class actions, but made in connection with the proposed ual class members justifes the costs and it is relevant to the question whether settlement, that any class member may burdens of class litigation.”16 further changes to the rule should be object, but may withdraw an objection (2) Adding a new Rule 23(b)(4), pursued now. only with the court’s approval, and which would permit the parties to that the court may refuse to approve submit a proposed settlement of a THE 2003 AMENDMENTS the settlement unless a second opt-out Rule 23(b)(3) class action to the court Beginning in 2000, the Advisory is permitted in a Rule 23(b)(3) class for approval and permit the court to Committee turned its attention to a action if the original time to opt out has approve it as a binding class-action somewhat different sort of Rule 23 expired. settlement even though the require- amendments from the ones included (3) Class Counsel: It had long been ments of Rule 23(b)(3) might not be in the 1996 package — procedural recognized that class counsel play met for purposes of trial.17 This proposal revision of the certifcation and settle- an extremely prominent role in the was prompted in part by rulings of the ment-approval process rather than conduct and success of class actions. Third Circuit that class actions could substantive revision of the certifcation But there were no provisions in the not be certifed for settlement unless criteria.22 As in the 1991-96 period, rule explicitly about counsel, although they could also be certifed for trial. this consideration of options included courts had considered their capacity (3) Modifying the timing requirement review of an extensive array of possibil- under the Rule 23(a)(4) adequacy for certifcation decisions under Rule ities and gradual winnowing of the list prong. In 2003, Rule 23(g) was added, 23(c) so that it directed that the deci- of possible amendment ideas. providing a standard for appointment,
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requiring consideration of four matters Moreover, the law keeps (1) Refning Settlement Review Criteria: and authorizing consideration of any Only since 2003 has the rule contained other pertinent matters, and permitting evolving. The Supreme any specifcs about how judges should appointment of interim class counsel evaluate proposed class settlements. Court has decided a before class certifcation. The rule also “ Now it says that the courts should articulates the duty of class counsel to remarkable number of focus on whether a proposed settlement “fairly and adequately represent the is “fair, reasonable, and adequate.”28 interests of the class.” class-action cases in That set of criteria was largely based on (4) Attorney’s Fees: By 2003, it had also recent years. In 2005, existing case law. long been recognized that attorney’s fee In the view of some, that exist- awards played an important role in the Congress passed the ing case law has shortcomings. For functioning and fairness of class actions Class Action Fairness example, the American Law Institute in general and class-action settlements Principles of Aggregate Litigation in particular. But as with class coun- Act. In the wake of these report: sel, there had been no rule provision developments, some addressed to this important issue. Rule The current case law on the criteria 23(h) was added in 2003 to guide believe class actions are in for evaluating settlements is in disar- these decisions. Among other things, decline, but others seem ray. Courts articulate a wide range of it requires that class members be given factors to consider, but rarely discuss notice of the motion for attorney’s to see them as a threat to the signifcance to be given to each fees, provides that a class member may the economy. factor, let alone why a particular factor object, and directs that the court must is probative. . . . hold a hearing and make fndings of fact Many of these criteria may have and state conclusions of law in connec- questionable probative value in various tion with its resolution of fee award threat to the economy. In some quar- circumstances. For instance, although a matters. ters, concerns about predatory class court might give weight to the fact that settlement objectors have emerged.26 counsel for the class or the defendant In sum, 2003 could be viewed as Meanwhile, more than a decade has favors the settlement, the court should a “procedural” watershed for Rule 23 passed since the 2003 amendments to keep in mind that the lawyers who in that an array of specifcs about how Rule 23 went into effect. negotiated the settlement will rarely class-action matters should be handled Altogether, these developments offer anything less than a strong favor- were added to the rule. Often the — and others — suggested that it able endorsement.29 rule provisions built on prior judicial would make sense for the Advisory experience with class actions. Certainly Committee to return its attention To remedy this problem, the ALI the amendments were not designed to Rule 23. In 2011, the Advisory Principles propose that a court approv- primarily to change judicial practice. Committee appointed a Rule 23 ing a proposed settlement must make Subcommittee. In 2011-12, it made fndings on several “mandatory” topics: TOPICS CURRENTLY UNDER a preliminary survey of possible issues CONSIDERATION for rule reform. Beginning in early (1) the class representatives and class Many possible subjects for Rule 23 2014, the Subcommittee returned to counsel have been and currently are amendments have been examined over its list and reconsidered the importance adequately representing the class; the years, but few rule changes have of the items originally identifed.27 (2) the relief afforded to the class actually been adopted. Concerns about The experience of the last two (taking into account any ancillary agree- the use of class actions, and the smooth decades shows that reforming Rule 23 ment that may be part of the settle- functioning of these cases, continue. is a challenging and time-consuming ment) is fair and reasonable given the Moreover, the law keeps evolving. The process. The process of winnowing costs, risks, probability of success, and Supreme Court has decided a remark- (and expanding) the list of topics to delays of trial and appeal; able number of class-action cases in address as possible candidates for rule (3) class members are treated equi- recent years.24 In 2005, Congress passed changes is ongoing and almost certain tably (relative to each other) based on the Class Action Fairness Act. In the to evolve. But enough winnowing has their facts and circumstances and are wake of these developments, some already occurred to make it useful to not disadvantaged by the settlement believe class actions are in decline,25 identify the candidates that presently considered as a whole; and but others seem to see them as a seem to be “front-burner” subjects: (4) the settlement was negotiated at
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arm’s length and was not the product of adopted rules that exempt settlement collusion.30 classes from the stringent requirements for certifying a litigation class. This These Principles do not make ON THE Section does not require a settlement any other consideration irrelevant to class to satisfy all of the same criteria as settlement approval, but do direct that FRONT a class certifed for purposes of litiga- a court may not approve a settlement tion. For example, settlement classes unless it can make the fndings listed BURNER should not be subject to a rigorous 31 above. Components of Rule 23 evidentiary showing that, in a contested As it moves forward, the Advisory trial, common issues would outweigh Committee will need to consider currently under consider- individualized issues. So long as there is whether more precise criteria would ation for reform include: suffcient commonality to establish the improve the handling of settlement case is generally cohesive, the propri- review — either by ensuring that • Settlement ety of a settlement need not depend certain essential matters are always review criteria on satisfaction of a “predominance” addressed or assuring that other inap- requirement.36 propriate matters are not emphasized. • Settlement class It will also need to consider whether Is this proposal a promising there is a genuine need for a rule response to a real problem? It does that attempts to do these things, and • Cy pres provisions seem contrary to the language in the whether adopting such a rule could Amchem opinion about the role of the produce negative consequences. • The role of objectors predominance factor in the settlement (2) Settlement Class Certifcation: • Mootness and Rule 68 context, at least in a Rule 23(b)(3) class In 1996, a preliminary draft of a action. Its emphasis on the importance new Rule 23(b)(4) was published to offers of judgment of fnding the settlement proposal enable certifcation only for settlement • Issues classes satisfactory appears at a tension with purposes of a Rule 23(b)(3) class action the Amchem Court’s view that Rule that could not meet the requirements • Notice to class members 23(e) review is no substitute for scru- for litigation certifcation. Some argue tiny under Rule 23(a) and (b).37 Would that the certifcation requirements for that be an appropriate change in the litigation should not be relaxed at all to revisit something like the 1996 rule? Or would it be too broad an for settlement certifcation.32 Clearly Rule 23(b)(4) proposal for a settle- invitation to courts to implement what the Supreme Court’s Amchem decision ment-certifcation rule provision? the Amchem Court called “a grand-scale says that there are differences between The ALI Principles of Aggregate compensation scheme,” which it said certifying a settlement and a litigation Litigation propose that settlement was “a matter for legislative consider- class. But the Court’s opinion also certifcation depend on satisfying the ation.”38 Would it be preferable instead said that the Rule 23(b)(3) predomi- standards for approval of the proposed to weaken or remove predominance nance requirement should apply in the settlement and that (1) “signifcant” from the Rule 23(b)(3) calculus rather settlement-review setting. In partial common issues exist; (2) the class than superseding more of Rules 23(a) dissent, Justice Stephen Breyer said he is suffciently numerous to warrant and (b) in instances in which the court was bewildered by how the predom- classwide treatment; and (3) the class is satisfed with the proposed settle- inance prong of the rule should work defnition is suffcient to ascertain who ment under the standards of Rule when settlement was proposed, given is included in the class.35 The drafters 23(e)? that the issues before the court were explain this proposal: The 1996 Rule 23(b)(4) proposal fairness, reasonableness, and adequacy.33 was limited to settlement certifcation Since 1997, an abiding question For many years, courts and commen- under Rule 23(b)(3). If more aggres- has existed about whether the Amchem tators have debated whether the sive action is warranted to facilitate standards for settlement certifcation strict requirements for certifying a settlement certifcation in those cases, unduly cramped settlement opportu- class action for litigation purposes should it be extended to classes certi- nities. Some see the increased resort to should apply in the context of a case fed under Rules 23(b)(1) and (2)? As MDL processes as proving that settling in which certifcation is sought solely to “mandatory” class certifcation such class actions has become too diffcult.34 for purposes of achieving a classwide as that authorized in “limited fund” If that is a troubling trend, is it time settlement. … Some states … have situations covered by Rule 23(b)(1)(B),
11 of 234 62 VOL. 99 NO. 1 it may be argued that predominance that possibility? If so, should that be of common questions has no role to limited to settlement class actions? For play in deciding whether class-action some time, a related notion of “fuid treatment is warranted, and that this recovery” was urged in some cases,47 treatment is not suitable for purposes and it may be that such a provision of settlement in situations in which could be adopted in a litigated class it would not be justifed for purposes action in which some class members of full litigation.39 But it may be could not be identifed. that Rule 23(b)(2) class actions for Many questions might arise were injunctive relief are peculiarly suited such a rule provision under consider- to settlement class certifcation, as ation. Should the availability of such an injunction limited to some in the measures depend on a legal basis from class seems inherently inadequate, and Chief Justice outside the rules? The law of some Rule 23(b)(1)(A) class certifcation states may explicitly authorize cy pres Roberts recently may raise similar issues. So a related measures.48 If distribution of a residue issue is whether, should some provision observed, while to someone other than class members for settlement class certifcation go “ is contemplated, should the class be forward, it should include cases relying concurring in entitled to notice of this possibility? on Rule 23(b)(1) or (2). denial of To whom should the court be autho- (3) Cy Pres Provisions: Cy pres rized to distribute the funds? Often provisions in class-action settlements certiorari in the the proposal is that the money be paid have provoked much interest and also case before the to individuals or organizations that produced some uneasiness among further the interests asserted in the judges. Chief Justice John Roberts Court, that the underlying suit. But in some instances recently observed, while concurring in Supreme Court it might be argued that remaining denial of certiorari in the case before the funds could appropriately be deliv- Court, that the Supreme Court “may “may need to ered to “public interest” organizations need to clarify the limits on the use of clarify the limits whatever their particular focus.49 such remedies.”40 Perhaps a clarifying Would that be a desirable feature of a rule provision would be an alternative on the use of rule provision? route for dealing with the topic. such [cy pres] (4) The Role of Objectors: Class The drafters of the ALI Principles members are entitled to notice of a of Aggregate Litigation included a remedies.” proposed settlement50 and to object section about cy pres treatment among to the proposal.51 If they object, “the their proposals.41 The proposal seeks The “premise” of the ALI proposal objection may be withdrawn only to limit use of this technique, and is that the settlement funds are with the court’s approval.”52 At least would direct that if class members can “presumptively the property of the on occasion, there seem to be concerns be identifed with reasonable effort class members.”44 So distributing that objectors seek to extract tribute and the amount of money is suffcient the money to others should only be by delaying consummation of the to make individual distributions to considered when delivering the money proposed settlement rather than raising them economically viable, distribu- to the class is not economically viable. genuine objections to the settlement tions must be made to them, not to Returning the residue to the defendant proposal.53 How often this behavior others.42 Recognizing that after such (a “reversion”) is viewed as unwise occurs is uncertain. But there certainly distributions there is often a residue of because it “would undermine the are examples of objectors who make settlement funds, the proposal further deterrence function of class actions and genuine objections to the merits of directs that this residue must be also the underlying substantive-law basis of proposed settlements rather than seek- distributed to class members unless the recovery by rewarding the alleged ing to proft from obstruction. the amounts involved would be too wrongdoer simply because distribution One goal of the provision requiring small to make individual distributions to the class would not be viable.”45 court approval for withdrawing an economically viable.43 Only when indi- This ALI proposal has been adopted objection was to enable the court to vidual distributions to class members by some courts.46 But the rule currently exercise some control over the behavior are not economically viable may the says nothing about cy pres arrange- of objectors. It is uncertain whether court authorize distributions to others. ments. Should it be revised to address that provision achieved its objective.
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In part, it may be that some objectors tive recovery.56 Until 2003, Rule worth considering to address the “pick- escape it by noticing an appeal when 23(e) was interpreted to require court off” problem, it might be debated the court approves the settlement approval for a dismissal of any action what they should be. One possibility despite their objections, and then fled as a class action.57 As amended in would be to restore to Rule 23(e) the withdrawing their appeal for a payoff. 2003, however, the rule now requires requirement previously recognized that Given the amount of time it takes to court approval only for the settlement even individual settlements require dispose of an appeal — compared to of a “certifed class.”58 Although a court approval. Another might be to the time needed to review and approve proposal for a classwide settlement change Rule 68 to make it inappli- a proposed settlement — it may be would therefore require court approval, cable to class actions (and derivative that this tactic is effective. a proposal for an “individual” settle- actions) since the court-approval Some have urged that district courts ment would not. And in 2013 the requirement would prevent using the counter this sort of behavior by impos- Supreme Court held (by a 5-4 margin) rule to settle with the class. But Rule ing a bond requirement on objectors that a Rule 68 offer could moot a 68 does not itself speak to mootness; who appeal. But it seems diffcult to proposed collective action under the indeed, it precludes fling the offer in support such measures under current Fair Labor Standards Act (FLSA), court unless it is accepted and then law, which permits only limited although it said that class actions are directs immediate entry of judgment, recovery of costs on appeal.54 It may be different.59 something ill-suited to the class-action that rule revisions to the Appellate and For defendants facing claimants with settlement setting. It may be that these Civil Rules might create a requirement small individual claims that they assert problems will cure themselves in the of court approval for withdrawing an on behalf of potentially large putative relatively near future. appeal once fled (analogous to the classes, making a Rule 68 offer to moot (6) Issues Classes: Rule 23(c)(4) says existing requirement of approval to the case may be an inviting method to that “[w]hen appropriate, an action withdraw an objection in the district pick off a putative class action before may be brought or maintained as a court), but it may be that such a provi- it becomes a full-fedged class action. class action with respect to partic- sion should enable the district judge In the Seventh Circuit, it seems that ular issues.” Rule 23(b)(3), on the (more familiar with the case) to pass class-action plaintiffs who seek to other hand, says that a class action on the request to withdraw the appeal, forestall that sort of thing must fle may be certifed only when common as the district judge can already pass “out-of-the-chute” class-certifcation issues predominate. For some time, it on the request to withdraw an objec- motions.60 But judges in other circuits appeared that a confict existed among tion. It might also be that requiring have not welcomed such “out-of-the- the courts of appeals on whether Rule some disclosure of “side agreements” chute” class-certifcation motions. 23(b)(3) classes could be certifed in connection with withdrawal of an Consider the views of a district judge in under Rule 23(c)(4) without satisfying objection or appeal comparable to that Alabama asked to defer ruling on such the predominance requirement. The required of the settling parties55 would a premature certifcation motion: Fifth Circuit declared in a footnote in be desirable. But such provisions its Castano decision: “A district court might themselves introduce further [T]his might be compelling if this cannot manufacture predominance delays in situations in which delay Court were situated in the Seventh through the nimble use of subdivision should be avoided, and might also call Circuit, if the law of the Seventh Circuit (c)(4).”63 The Second Circuit declared for delicate treatment of the respective governed this proceeding, or if the in 2006 that it disagreed, and that (c) roles of district judges and courts of Seventh Circuit approach constituted (4) may be used to certify a class as to appeals. either a majority rule or one as to which some but not all issues.64 More recently, So there remain questions about the Eleventh Circuit had expressed favor. some commentators have argued that whether problems caused by objec- This is not the case. In fact, the Seventh actually the Fifth Circuit has embraced tors justify addressing such compli- Circuit acknowledged the uniqueness of issue classes.65 cations, and how rule changes could its formulation of the mootness rule in Whether this is an occasion for best address these problems if they are pick-off situations … .61 seriously considering a rule change is serious enough. uncertain. On the one hand, one might (5) Mootness and Rule 68 Offers of Whether these issues are serious say there is almost an inherent tension Judgment: It has long been true that enough to justify a rule amendment between Rule 23(b)(3) and (c)(4). a defendant could attempt to moot is not certain. At least some courts of On the other hand, if the courts have a proposed class action by offering appeals seem unreceptive to arguments reached agreement on how to imple- the named plaintiff an amount that based on the Supreme Court’s FLSA ment these rule provisions as currently exceeded his or her individual prospec- decision.62 If rule amendments are written, it would seem a rule change
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(3) class members who can be identi- not mean that rule changes should or The question whether fed with reasonable effort. Except in will emerge to address the issues listed there are promising the settlement context, however, the above. In addressing that question, rule calls for no notice at all to class the Advisory Committee continues “ avenues for rule members in Rule 23(b)(1) or (b)(2) to seek guidance, and that guidance amendments — either classes. In 2001, a proposal to require could include identifying other issues some efforts to give notice of class that might proftably be addressed by along the lines sketched certifcation in (b)(1) and (b)(2) class changing the rule. Although Henry V above or otherwise — actions was published for comment. was exhorting his troops to do battle,70 It was not included in the eventual the Advisory Committee is only inter- remains very much open. amendment package, however. During ested in making improvements in the the public comment period, opposi- rules that will produce improvements tion was expressed on the ground that in practice. The question whether would be worth considering only to the cost of giving notice would deter there are promising avenues for rule change that treatment. A rule change lawyers from taking public interest amendments — either along the could attempt to clarify either: (a) cases. lines sketched above or otherwise — that (c)(4) may only be used for a class Viewed from the 21st century remains very much open. action that already satisfes Rules 23(a) perspective, a legal requirement for and (b); or (b) that despite the predom- “snail mail” notice seems antique. inance requirement of (b)(3) a class Certainly most Americans rely heav- could be certifed under (c)(4) “when ily on other means of communication appropriate.” In either event, one that are faster and cheaper. Indeed, it might favor addressing something that may be that the concerns expressed in may be uncertain under the current 2001 about the cost of notice in (b) rule — what does the court do after (1) and (b)(2) cases might no longer be resolving the issue for which the class troubling. The notion that frst-class was certifed? It is unclear what sort of mail must still be used surely does judgment would then be appropriate, look troubling, if it is still seriously but not obvious how the court would embraced. RICHARD MARCUS is the be expected to resolve all other issues So the questions include: (a) Distinguished Professor of Law, involving individual class members so whether the rule should be changed on Horace O. Coil Chair in Litigation, that a full judgment could be entered. manner of giving notice; (b) whether at the University The ALI Aggregate Litigation notice requirements should be broad- of California- Principles generally favor discretion ened to include all class actions; and Hastings to employ issue classes,66 but add that (c) what substitute methods of notice College of Law. interlocutory appeals should be autho- should be accepted or adopted. In He is a lead rized for the district court’s decision of addition, such issues might include author of the those common issues.67 Current Rule consideration of online methods West case- 23 does not have such a provision. for class members to use to submit books Complex So another possibility — if the rule claims, either to a settlement fund or Litigation (5th should be amended to facilitate the in connection with an adjudication of ed. 2010) and Civil Procedure: A use of issues classes, and possibly even liability (perhaps in an issues class). Modern Approach (6th ed. 2013). if current practice adequately fosters He is also an author of several use of (c)(4) certifcation — might be a CONCLUSION volumes of the Federal Practice & rule amendment to provide for imme- Nearly 40 years ago, Professor Abram Procedure treatise (known as Wright diate appellate review. But an abiding Chayes observed: “I think it unlikely & Miller) and serves on a variety of question is whether any amendments that the class action will ever be committees dealing with practice should be seriously considered to deal taught to behave in accordance with issues. Since 1996, he has served as with issues classes. the precepts of the traditional model Associate Reporter to the Advisory (7) Notice to Class Members: The of litigation.”69 It may be that the Committee on Civil Rules of the Supreme Court’s 1974 Eisen decision68 Advisory Committee’s subsequent Judicial Conference of the United declared that the rule requires notice experience with Rule 23 somewhat States. by frst class mail to all Rule 23(b) confrms that prediction. But that does
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1 See William Shakespeare, Henry V, act Rejuvenation of Aggregate Litigation: A Systemic 28 Fed. R. Civ. P. 23(e)(2). 5, sc. 1, 1-2 (Harfeur, France): “Once more Imperative, 64 Emory L.J. 293, 295 (2014). 29 A.L.I., Principles of the Law of Aggre- unto the breach, dear friends, once more/Or 11 See Rabiej, supra note 9, at 328 (referring gate Litigation § 3.05, comment a (2010). close the wall up with our English dead.” to “a self-imposed moratorium on further 30 Id. § 3.05(a). 2 Examples abound. For example, Profes- amendments” from 1966 to 1991). 31 See id. § 3.05(b). sor Hodges of Oxford began his study of 12 Arthur Miller, Of Frankenstein Monsters, 32 See Howard Erichson, The Problem of European techniques of group litigation by and Shining Knights: Myth, Reality, and the Settlement Class Actions, 82 Geo. Wash. L. emphasizing that other countries need not “Class Action Problem,” 92 Harv. L. Rev. 664, Rev. 951, 987-88 (2014) (arguing that the depend on “a US-style court-based mecha- 678 (1979). nism” to afford group relief. Christopher settlement class device should be abandoned). 13 See Douglas Martin, The Rise and Fall of Hodges, The Reform of Class and 33 See Amchem Products, Inc. v. Windsor, 521 the Class-Action Lawsuit, N.Y. Times, Jan. 8, Representative Actions in European U.S. 591, 634 (1997) (Breyer, J., partially 1988 (reporting that “class actions had their Legal Systems 1 (2008). Somewhat simi- dissenting) (“Nor do I understand how one day in the sun and kind of petered out”). larly, Professor Walker of Osgoode Hall in could decide whether common questions 14 Canada introduced a panel on group litiga- Memorandum from Hon. Patrick Higgin- ‘predominate’ in the abstract — without tion procedures at a conference in Moscow by botham, Chair, Advisory Committee on looking at what is likely to be at issue in the suggesting that “everyone, at least outside the Civil Rules, to Hon. Alicemarie Stotler, proceedings that will ensure, namely, the United States, seems also to agree that they Chair, Standing Committee on the Rules of settlement”). Practice and Procedure of the Judicial Confer- do not want to adopt US-style class actions 34 See, e.g., Edward Sherman, The MDL Model ence of the U.S., Proposed Rules, reprinted in their systems.” Janet Walker, “General for Resolving Complex Litigation if a Class Action in 167 F.R.D. 535, 536 (1996). Report,” in Civil Procedure in Cross-Cul- is Not Possible, 82 Tulane L. Rev. 2205, 15 tural Dialogue: Eurasia Context 413, See id. at 559-60 2206 (2008) (“Developments in recent years 414 (D. Maleshin, ed. 2012). 16 Id. at 559. have made the MDL model more attractive as 3 Since 1996, I have served as Associate 17 Id. a central device for resolving complex litiga- Reporter of the Advisory Committee on tion. A number of federal courts have applied 18 Id. Civil Rules, and I presently serve as Reporter increasingly stringent requirements for class to the Rule 23 Subcommittee of that body. 19 Id. at 560. certifcation, particularly for cases arising in This article reports about current discussions 20 Id. multiple states.”). of class-action issues. Although it refects 21 521 U.S. 591 (1997). 35 See supra note 29 at § 3.06(b). discussions that have occurred and are ongo- 22 36 ing, it is not in any way an offcial statement See Rabiej, supra note 9, at 369 (“the 2003 Id. comment a. of the Advisory Committee and does not amendments were procedural in nature, often 37 “Rule 23(e), on settlement of class actions, . represent the thoughts of anyone but the embodying the ‘best practices’ of the courts”). . . was designed to function as an additional author. 23 This is not meant to say that all of the draft requirement, not a superseding direction, for 4 See generally Stephen Yeazell, From Medi- amendment ideas published for comment in the ‘class action’ to which Rule 23(e) refers eval Group Litigation to the Modern 2001 were adopted, or that those what were is one qualifed for certifcation under Rule Class Action (1987). remained exactly as they had been presented 23(a) and (b).” 521 U.S. at 620-21. in the original package of preliminary drafts 38 5 See Smith v. Swormstedt, 57 U.S. 288 (1853). Id. at 622; see also Richard Marcus, They of amendments. Several were revised after the Can’t Do That, Can They? Tort Reform Via Rule 6 The Committee Note accompanying original public comment period. 23, 80 Cornell L. Rev. 858, 872-82 (1995) Rule 23 said that the rule was a “substan- 24 For an examination of some of these deci- (examining various then-recent class action tial restatement of Equity Rule 38 (Repre- sions, see Mary Kay Kane, The Supreme settlements, including the one later before sentatives of Class) as that rule has been Court’s Recent Class Action Jurisprudence: Gazing the Court in Amchem, and raising questions construed.” Fed. R. Civ. P. 23(a) Committee Into a Crystal Ball, 16 Lewis & Clark L. about the lawmaking power of federal judges Note (1937). Rev. 1015 (2012). under Erie R.R. v. Tompkins, 304 U.S. 64 7 Zechariah Chaffee, Some Problems of 25 See Robert Klonoff, The Decline of Class (1938), not the Rules Enabling Act). Equity 257 (1950). Actions, 90 Wash. U. L. Rev. 729 (2013). 39 See Marcus, supra note 38, at 900 (discussing 8 Amendments were made to the other joinder 26 See, e.g., John Lopatka & D. Brooks Smith, such issues). rules at the same time, and the various Class Action Professional Objectors: What To Do 40 Marek v. Lane, 134 S. Ct. 8, 9 (2013) amendments invoked similar terms and About Them?, 39 Fla. St. U. L. Rev. 865 (Roberts, C.J., statement regarding denial of considerations. But those other rules (Rules (2012); Brian Fitzpatrick, The End of Objec- cert.). 13, 14, 19, 20, and 24) have not produced tor Blackmail, 62 Vand. L. Rev. 1623 (2009). 41 concerns of the magnitude that Rule 23 has A.L.I. Principles, supra note 29, § 3.07. 27 produced. For those interested, details on the various 42 Id. § 3.07(a). topics that have been considered can be found 9 For a very informative analysis of the rule 43 Id. § 3.07(b). in the reports of the Rule 23 Subcommittee from its origins in 1938, see John Rabiej, 44 to the Advisory Committee contained in Id. § 3.07 comment b, at 218. The Making of Class Action Rule 23 — What the agenda materials for the March 2012, 45 Id. at 219. Were We Thinking?, 24 Miss. C. L. Rev. 323 November 2014, and April 2015 meetings. 46 (2005). The discussion of the 1966 amend- See, e.g., In re BankAmerica Corp. Sec. Litig., Those agenda materials are available on the ments is at pp. 333-45. 775 F.3d 1060 (8th Cir. 2015). www.uscourts.gov website via the link for 47 10 See A.L.I. Principles, supra note 29, § 3.07 Arthur Miller, The Preservation and Rules and Archives of the Rules Committees.
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comment a, at 218 (“A related remedy, supplemental record on appeal. The court 61 Church v. Accretive Health, Inc., 299 F.R.D. known as fuid recovery, provides relief to held that items (1) and (2) could not be the 676, 677 (S.D. Ala. 2014). future consumers to reasonably approximate ground for a bond because these items were 62 See Stein v. Buccaneers Ltd. P’ship, 772 F.3d the interests being pursued by the aggrieved not costs ordinarily recoverable on appeal. It 698, 703 (11th Cir. 2014) (“We agree with class when class members cannot reasonably also reduced the amount for item (3) from the Symczyk dissent.”). be identifed.”). $25,000 to $5,000. 63 Castano v. Am. Tobacco Co., 84 F.3d 734, 745 48 55 See Cal. Civ. Proc. Code § 384 (forbidding See Fed. R. Civ. P. 23(e)(3) (requiring the n.21 (5th Cir. 1996). reversions and providing directions for use of settling parties to “fle a statement identify- 64 See In re Nassau Cnty. Strip Search Cases, 461 residue after distribution to class members). ing any agreement made in connection with F.3d 219, 226-27 (2d Cir. 2006) 49 Cal. Civ. Proc. Code § 384(b), for example, the proposal”). 65 See Patricia Bronte, George Robot & provides for payment “to child advocacy 56 12 Charles Wright, Arthur Miller & Darin Williams, “Carving at the Joint”: The programs, or to nonproft organizations Richard Marcus, Federal Practice and Precise Function of Rule 23(c)(4), 62 DePaul providing civil legal services to the indigent.” Procedure § 3001.1 (3d. ed. 2014) L. Rev. 745 (2013) (arguing that more recent Note that 28 U.S.C. § 1712(e) includes the 57 See, e.g., Shelton v. Pargo, Inc., 582 F.2d 1298 Fifth Circuit cases show that it accepts issue following regarding coupon settlements: (4th Cir. 1978) (holding that the court must certifcation). “The court, in its discretion, may also require approve the proposed “individual” settlement 66 See, e.g., A.L.I. Principles, supra note 29, § that a proposed settlement agreement provide reached in an action fled as a class action). for the distribution of a portion of the value 2.02(a); 2.08. 58 Fed. R. Civ. P. 23(e). of unclaimed coupons to 1 or more charitable 67 See id. § 2.08(c). 59 See Genesis Healthcare Corp. v. Symczyk, 133 S. or governmental organizations, as agreed to 68 Eisen v. Carlisle & Jacquelin, 417 U.S. 156 Ct. 1523 (2013). by the parties.” (1974). 50 60 Damasco v. Clearwire Corp., 662 F.3d 891 (7th Fed. R. Civ. P. 23(e)(1). 69 Abram Chayes, The Role of the Judge in Public Cir. 2011). Compare Smith v. Greystone Alliance, 51 Fed. R. Civ. P. 23(e)(5). Law Litigation, 89 Harv. L. Rev. 1281, 1291 LLC, 772 F.3d 448 (7th Cir. 2014) (reversing 52 (1976). Id. This provision was added in 2003. ruling that Rule 68 offer mooted a proposed 53 See Fitzpatrick, supra note 26; Lopatka & class action because the district court reached 70 See supra text accompanying note 1. Smith, supra note 26. this conclusion only by “whittling down” the 54 See Tennille v. W. Union Co., F.3d 1249 (10th amount of the individual plaintiff’s claim, so Cir. 2014), in which the court of appeals the offer did not encompass all relief plaintiff overturned district court order that a class-ac- sought in the case). See also Scott v. Westlake tion objector post a bond of over $1 million Services LLC, 740 F.3d 1124, 1126 n.1 (7th to cover (1) the cost of re-noticing the class, Cir. 2014) (recognizing that this court’s view (2) the cost of maintaining the settlement of mootness due to a Rule 68 offer may need during the pendency of the appeal, and to be reconsidered in light of the views of the (3) the costs of printing and copying the four Justices who dissented in the Supreme Court’s FLSA case). a note TO OUR SUBSCRIBERS The Duke Law Center for Judicial Studies is pleased to take over publication of Judicature and to carry on the great tradition of publishing research, scholarship, and opinion on matters relating to the judiciary and the administration of justice. Because of the transfer of ownership from the American Judicature Society to Duke Law, all subscriptions must be renewed. Subscribers and AJS members will receive the next two editions of Judicature at no cost, but must resubscribe thereafter. (Federal judges and state supreme court justices receive Judicature free of charge and need not resubscribe.)
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II.B. RULE 68
The offer-of-judgment provisions of Rule 68 have stirred controversy for many years. Proposals for dramatic amendments were published in 1983 and then again, with many changes, in 1984. They were withdrawn after encountering vigorous protests. Rule 68 was taken up again in the early 1990s. That effort was abandoned without advancing to publication of any proposals. Successive drafts had become increasingly complex in attempts to address the uncertainties that continued to compound as specific difficulties were examined. There also was some doubt about the nature of the Rule 68 enterprise.
If Rule 68 has proved difficult to manage in the rulemaking process, it has continued to be a popular subject of proposals requesting that the Committee amend it. The proposals rest on the shared perception that Rule 68 is not much used, even in cases where it can cut off a statutory right to attorney fees if a plaintiff wins a judgment less favorable than a rejected Rule 68 offer. And most of the proposals advance a common suggestion that Rule 68 should be invigorated by requiring a party who rejected an offer to pay post-offer attorney fees incurred by the offeror if the judgment is not more favorable than the offer.
Discussion at the October, 2014 meeting concluded that Rule 68 should not be put aside again without attempting to learn something more about possible revisions. The first avenue of inquiry will examine state practices to see whether actual experience shows good results from working under a different model. The Administrative Office has done preliminary work in identifying state rules that correspond to Rule 68 and in assembling a bibliography of secondary literature, some of it empirical. Resources were not available to delve deeper into these materials in time for the Committee’s April, 2015 meeting. Rule 68 remains on the agenda
The Committee remains eager to receive information about experience with Rule 68 or similar state-court rules, and for suggestions whether Rule 68 should be developed to become more “effective,” left alone, or studied for abrogation.
II.C. RULE 23 SUBCOMMITTEE
The Rule 23 Subcommittee has made significant strides in identifying issues on which to focus and in exploring ideas about how rule changes might address those issues. For the Advisory Committee’s April, 2015, meeting, it submitted for discussion a series of preliminary sketches of possible amendment ideas, designed to prompt more concrete discussion than presentation of the issues alone would stimulate. A copy of the Subcommittee’s memorandum, including the sketches, is attached to this report as Appendix I.
In order to broaden its appreciation of the issues presented, the Subcommittee has undertaken to send representatives to a variety of meetings and conferences convened by a variety of groups. The groups include bar organizations regarded as both plaintiff- and defense- side, ABA conferences, and law professor conferences. The day before the Advisory Committee's April meeting, the George Washington Law School arranged an extremely
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informative roundtable discussion involving prominent judges, lawyers, and law professors. The Subcommittee is also planning to hold a mini-conference to address pending Rule 23 issues on Sept. 11, 2015, and hopes to have draft rule ideas and some Committee Note language available for review by participants in that mini-conference. A complete listing of those events is contained in Appendix I.
The Subcommittee's “outreach” efforts have already borne fruit. Nearly 20 submissions to the Advisory Committee from various groups and individuals have endorsed consideration of various issues. These submissions can be found on the A.O. website via the link for “Archived Rules Suggestions” for the Civil Rules Committee.
The suggestions received so far range from fundamental reformulation of Rule 23 to more focused attention to specific issues. The Subcommittee is not presently inclined to favor major structural changes to the rule.
Instead, the Subcommittee’s focus has been on more limited amendment ideas, as presented in Appendix I. In developing these ideas, it has been much aided by the American Law Institute’s Principles of Aggregate Litigation (2010). The “front burner” ideas can generally be grouped into seven categories, which are summarized below.
As it has worked forward, the Subcommittee has invited suggestions about additional topics that seem to warrant serious attention, as well as suggestions about removing issues it had identified from the “front burner” list. As noted below, one result of the April Advisory Committee meeting and the George Washington University roundtable has been to identify two additional issues that the Subcommittee intends to examine carefully in the coming months.
“Front burner” issues
1. Settlement Approval Criteria: Until 2003, Rule 23(e) said nothing about how a court was to decide whether to approve the settlement or dismissal of a class action. Every circuit developed criteria, largely during the 1970s, for performing that task. As the ALI put it, this case law “is in disarray” because courts of appeals have “articulate[d] a wide range of factors to consider,” leaving district judges with long lists of “checkoff” factors but little guidance on how to weigh those factors. ALI, Principles of Aggregate Litigation § 3.05, Comment a at 205 (2010).
In 2003, Rule 23(e) was amended to specify that the criterion for settlement approval is whether the proposed settlement is “fair, reasonable, and adequate.” The ALI proposed substituting a set of four criteria for the long and divergent lists of factors in many circuits, adapted by the Subcommittee as follows in its sketch:
(i) the class representatives and class counsel have been and currently are adequately representing the class;
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(ii) the relief awarded to the class (taking into account any ancillary agreement that may be part of the settlement) is fair, reasonable, and adequate given the costs, risks, probability of success, and delays of trial and appeal;
(iii) class members are treated equitably (relative to each other) based on their facts and circumstances and are not disadvantaged by the settlement considered as a whole; and
(iv) the settlement was negotiated at arm's length and was not the product of collusion.
The Subcommittee’s sketch permits settlement approval only if the court finds all four of these criteria satisfied, but it also would permit the court to reject a settlement that supports all four findings on the basis of any other matter pertinent to approval. During the Advisory Committee meeting, it was suggested that the Subcommittee reconsider recognizing authority to reject a settlement that satisfies all four listed criteria, and it will reexamine that question.
The goal of this approach would be to substitute the above four criteria for the variety of additional factors identified in decisions from the various circuits, thus fostering both national uniformity and more focused settlement review. At least some of the criteria used in some circuits — support for the settlement from the lawyers who negotiated it is a recurrent example — seem not to be helpful. But one might argue that the elasticity of the rule sketch may leave courts free to consider most or all of the factors on a given circuit's checklist in determining what is fair, reasonable, and adequate.
The discussions in April focused particular attention on the court’s decision whether a proposed settlement has enough apparent merit to justify sending notice to the class. The Subcommittee intends to focus on this subject as it moves forward. The topic is introduced under the heading “additional possible issues” at the end of this section of the agenda book. It is possible that a more focused set of criteria for final approval of a settlement, like the ideas above, might assist both the court and the lawyers in making that initial decision about whether to give notice to the class.
2. Settlement class certification: In 1996, the Committee published a proposal to add a new Rule 23(b)(4), permitting certification for purposes of settlement in a Rule 23(b)(3) class action even though the proposed class might not meet all the certification requirements for purposes of trial. At that time, some prominent cases had stated that, to be certified for settlement, cases had to satisfy the same certification criteria as for certification for trial. Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (1997), ruled that those seeking certification for settlement need not satisfy everything that is required of certification for trial. But uncertainty remained — particularly about the role of predominance — and there followed a move toward use of MDL procedures to achieve settlements in situations that might also be suitable for class- action treatment.
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The Subcommittee's sketches of a new Rule 23(b)(4) concept have focused attention on several issues. The first is whether present obstacles to achieving settlement class certification actually justify serious consideration of a new category of class action. A related question is whether a new Rule 23(b)(4) should be limited (like the 1996 proposal) to cases seeking certification under Rule 23(b)(3). On that subject, it has been suggested that Rule 23(b)(2) class actions for injunctive relief may often be settled. That still leaves open the question whether a settlement class should be certified for (b)(2)-type relief when the same class could not be certified for trial. Another question is whether a settlement should require satisfaction of all Rule 23(a) factors or only some of them.
Some of the ideas under consideration diverge from the Supreme Court’s analysis in Amchem. One is to remove predominance as a critical factor in approving settlement certification. Because predominance is required only for Rule 23(b)(3) classes, downplaying it would fit with opening up settlement certification approval for Rule 23(b)(2) class actions. It might be that separate settlement class certification rules could be designed for (b)(2) and (b)(3) cases, but that possibility seems cumbersome and could involve intricate drafting. And there is also the question whether settlement class certification should be available for "mandatory" Rule 23(b)(1) class actions.
Another issue is whether to place primary emphasis on Rule 23(e) review of the fairness of the proposed settlement rather than the Rule 23(a) and (b) factors. In Amchem, the Court said that Rule 23(e) is not a substitute for vigorous application of the Rule 23(a) and (b) requirements (even in the settlement context), except to the extent that the Rule 23(b)(3) manageability factor may play a reduced role.
(3) Addressing cy pres settlement provisions in the rule: It may be that cy pres provisions are becoming more frequent in proposed settlements. Chief Justice Roberts reflected concerns about this practice in his statement in Marek v. Lane, 134 S. Ct. 8 (2013), that the Supreme Court “may need to clarify the limits on the use of such remedies.” More recently, the court in In re BankAmerica Securities Litigation, 775 F.3d 1060 (8th Cir. 2015), noted a concern about “the substantial history of district courts ignoring and resisting circuit court cy pres concerns.” Id. at 1064.
Sketches prepared by the Subcommittee have attempted to address these concerns; the present effort is not designed to expand authority for using cy pres provisions so much as to develop criteria and guidelines for using them. One recurrent reality is that any claims procedure creates a possibility that a residue will be left once distributions are made in accordance with settlement guidelines to all class members who seek compensation through the claims process. Unless this residue is to revert to the settling defendant, some alternative provision should be made for it. This concern might support vigorous Committee Note admonitions (or even rule provisions) regarding reverter provisions and/or simplified settlement claims processes (to ward off the risk that reverter provisions might tempt defendants to insist on unreasonably demanding claims processes). At the same time, the existence of a possibility there will be a residue may
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justify including cy pres provisions in a significant number of settlements, given the possibility that notice might have to be sent to the class a second time (concerning such cy pres treatment) if the possibility were not included in the original settlement agreement.
Issues that have been identified in the discussions so far include whether the rule should affirmatively authorize the court to approve cy pres provisions. The Subcommittee has not embraced amending the rule to create new authority; as the Eighth Circuit noted (quoted above), it seems that many courts presently are exercising such authority. Instead, the focus of the Subcommittee (building on the proposal of the ALI Principles of Aggregate Litigation, which has already been adopted by some courts) is to provide guidelines for what is already going on. Accordingly, the Subcommittee's current sketch articulates limits on use of cy pres:
(A) If individual class members can be identified through reasonable effort, and the distributions are sufficiently large to make individual distributions economically viable, settlement proceeds must be distributed directly to individual class members;
(B) If the proposal involves individual distributions to class members and funds remain after distributions, the settlement must provide for further distributions to participating class members unless the amounts involved are too small to make individual distributions economically viable or other specific reasons exist that would make such further distributions impossible or unfair;
(C) The proposal may provide that, if the court finds that individual distributions are not viable under Rule 23(e)(3)(A) or (B), a cy pres approach may be employed if it directs payment to a recipient whose interests reasonably approximate those being pursued by the class. [The court may presume that individual distributions are not viable for sums of less than $100.] [If no such recipient can be identified, the court may approve payment to a recipient whose interests do not reasonably approximate the interests being pursued by the class if such payment would serve the public interest.]
This sketch raises questions. A basic one is whether to permit cy pres provisions only “if authorized by law.” Some states have such statutory authorizations, but it is likely that not many do. More importantly, this is a settlement, and settlements are not usually limited to relief “authorized by law.” To the contrary, they may be attractive because they include features (such as an apology) that cannot be obtained by a court judgment. At the same time, settlement by a class representative may differ in important ways from settlement by a participating party. It is not obvious that defendant’s agreement, elicited by the desire for res judicata, justifies surrender of class members’ interests.
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Bracketed language above identifies further questions. The Subcommittee has been informed that class action settlement administration has improved to a point that makes excusing distributions smaller than $100 (suggested by a proposed uniform class-action law for states) inappropriate. And the question whether to affirmatively authorize distribution to “public service” organizations whose interests do not correspond to the claims asserted in the action may be a step too far.
(4) Issues about objectors: In 2003, Rule 23(e)(5) was added, providing that any class member may object to a settlement submitted for the court’s approval, and that any such objection “may be withdrawn only with the court's approval.”
The starting point is that objectors play a valuable role for the court, which is ordinarily called upon to evaluate a proposed resolution that is supported by all the lawyers and parties with whom the court has been dealing. The refinement of the factors to be considered in approving such proposed settlements (Issue (1) above), and the possible additional focus on what must be submitted at the outset when the court is asked to direct notice to the class (mentioned below), may make more useful information available to class members in deciding whether to raise questions about the proposed settlement.
But another starting point is that repeated reports indicate that some objectors seek to exploit the process to extract unjustified tribute. The requirement of court approval for withdrawing objections added in 2003 was designed to curtail such activity. Reports indicate that it has worked reasonably well. The problem has been that the Rule 23(e)(5) requirement ceases to constrain objectors after a notice of appeal is filed. And the time necessary to resolve an appeal means that a bad-faith objector gets considerable additional leverage from filing a notice of appeal, while also seemingly escaping from the requirement for court approval to withdraw the appeal.
The problem has drawn suggestions to the Appellate Rules Committee that it amend the FRAP to provide that withdrawal of the appeal also require court approval, and to direct further that the appellate courts may not approve such a withdrawal if anything of value is provided to the objector or the objector’s counsel in return for withdrawing the appeal.
Absolutely forbidding any consideration for dropping the appeal might unduly limit the ability to resolve appeals asserting that the objector’s special situation justifies special treatment. But permitting some withdrawals to be approved despite consideration could produce further difficulties. Much might be said in favor of having such a decision made, at least initially, by the district court (which is very familiar with the case) rather than by the appellate court (which is not). Moreover, assuming that the appellate court has motions panels to rule on such matters that are constituted separately from merits panels, the issue might be presented to a panel of appellate judges who would never be involved in passing judgment on the underlying settlement approval, imposing a possibly substantial burden on the appellate court when the district court would be entirely up to speed.
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The Rule 23 Subcommittee stands ready to collaborate with the Appellate Rules Committee in addressing methods of achieving the desired goal.
Meanwhile, the Rule 23 Subcommittee has sketched two possible ideas for changing Rule 23. One would add a requirement that “side agreements” be submitted along with a request for permission to withdraw an objection before the district court. The other would add to Rule 23 some sanction authority for bad-faith objections. It is uncertain whether either of these ideas would make productive additions to the rule.
(5) Mootness and Rule 68 offers of judgment: In recent years, Rule 68 offers of judgment have been used with some frequency in efforts to moot proposed class actions by offering “full” relief to the individual plaintiff who brings the suit. They may become more common due to a recent Supreme Court decision in a Fair Labor Standards Act collective action, although the Court was at some pains to say that collective actions and class actions are different in this regard. The Subcommittee has developed various ideas about how to address this issue, seeking a simple solution. The question whether rulemaking is justified by this problem remains also.
(6) Issue Classes: Rule 23(b)(3) says that a court may certify a class only on finding that common questions predominate and that class treatment is superior to individual litigation. Rule 23(c)(4) says that, “if appropriate,” a court may certify with regard only to “particular issues.” Whether there is an inherent tension between these two provisions can be debated. At least at a point in time, the Fifth and Second Circuits seemed at loggerheads about whether a court could resort to issue certification under (c)(4) only in cases that already have been found certifiable under (b)(3). The Fifth Circuit said that “nimble use” of (c)(4) could not circumvent the predominance requirement of (b)(3). But it may be that more recent Fifth Circuit decisions show that issue certification is (at least sometimes) approved by that court.
The Subcommittee has developed a sketch of a change to Rule 23(b)(3) designed to show that a court may resort to issue certification under (c)(4) even though it cannot conclude that, overall, common issues predominate. That leaves unresolved the question what happens next after the common issues are resolved, since that would not ordinarily lead to entry of a judgment. The Subcommittee therefore has also developed a sketch of an amendment to Rule 23(f) that would permit discretionary court of appeals review of the resolution of the common issue before further (and possibly burdensome) proceedings in the district court or elsewhere to resolve remaining issues. One variation of that provision would require that the district court find that immediate review would be desirable before a petition to the appellate court would be allowed.
(7) Notice: In Eisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974), the Court said that in (b)(3) actions individual notice (seemingly by first class mail) was required for every class member who could be identified with reasonable effort. Requiring snail mail seems inappropriate in the 21st century. It also seems that courts have moved to embrace more modern methods of giving notice to class members. See, e.g., In re Online DVD-Rental Antitrust Litigation, 779 F.3d 934, 941 (9th Cir. 2015): “Initial e-mail notice of the settlement was
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provided to some 35 million class members. Notice was mailed to more than 9 million class members whose email addresses were invalid such that the email notice ‘bounced back.’ * * * The notice encourages class members to visit the class website for more details.”
The Subcommittee sketch would add the phrase “by electronic or other means” to Rule 23(c)(2)(B) to take account of improvements in methods of communication.
In addition, the Subcommittee has had some discussions about whether some notice requirement should exist for litigated (b)(1) and (b)(2) actions. At present, the rule does not require any notice in those cases, although Rule 23(c)(2)(A) does say that “the court may direct appropriate notice to the class.” But it is possible that a fully litigated (b)(2) case would proceed to judgment without any notice at all to class members. (If a settlement were proposed, Rule 23(e) would require “notice in a reasonable manner to all class members who would be bound by the settlement.”) In 2001, a proposal to direct some notice to class members was published for comment, but then not pursued after adverse public comment, which focused on the cost of giving such notice. Whether technological development since then has changed the situation is uncertain.
Additional possible issues
As noted above, the April Advisory Committee meeting and the George Washington roundtable brought to the fore two additional issues that the Subcommittee expects to examine as it moves forward:
(1) Specifics necessary for decision to order notice to class about proposed settlement: Recent discussions have emphasized the importance of the initial decision whether to direct that notice be sent to the class about the proposed settlement (thereby triggering the time to object). Although the rule does say that notice should be sent to the class, it does not address the standards a court should use in making that decision or the showing that the settling parties should make to support giving notice to the class. In some cases, it may be that the court does not get a full picture of the proposed settlement until later, when the matter is presented for final approval. Similarly, it may be that full information about the proposed settlement would be beneficial to class members in making decisions whether to object, so that having that information before the court from the outset could have the additional advantage of making it available to class members trying to evaluate the proposed resolution.
The Subcommittee expects to examine these issues as it moves forward, with an eye to the possibility of adding something to the rule. The ALI Principles of Aggregate Litigation caution against regarding the decision to send notice as a “preliminary approval” of the settlement, on the ground that class members have not even had a chance to evaluate the settlement and that the court should not already be taking a position in favor of it. But if information roughly identical to that required at the final approval stage must be provided before notice is authorized, it may appear that the decision to give notice should assume even more importance.
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A related potential problem is that, as one increases the information available at this stage, one also strengthens arguments for immediate appellate review under Rule 23(f), even before the class members get a chance to object. If a “preliminary approval” includes approval of settlement class certification, that might arguably fit within Rule 23(f), which authorizes immediate review of “an order granting or denying class-action certification.” In In re National Football League Players Concussion Injury Litigation, 775 F.3d 570 (3d Cir. 2014), the court held that such approval for purposes only of giving notice is not an event that supports immediate Rule 23(f) appeal. If the Subcommittee goes forward on this issue, that potential problem will be kept in mind; the Subcommittee’s current thinking is not to multiply the occasions for interlocutory review.
(2) Ascertainability: Recently there has been much concern about what must be shown to demonstrate that a proposed class is “ascertainable,” largely resulting from Third Circuit decisions. This concern seems to be limited to Rule 23(b)(3) class actions. See Shelton v. Bledsoe, 775 F.3d 554 (3d Cir. 2014) (ascertainability is not required in a class action seeking only injunctive relief). And the Third Circuit treatment of the issue may be evolving. See, e.g., Byrd v. Aaron’s Inc., ___ F.3d ___, 2015 WL 3887938 (3d Cir., April 16, 2015), in which the panel stated that “it is necessary to address the scope and source of the ascertainability requirement that our cases have articulated” and added that “[w]e seek here to dispel any confusion.” (Judge Rendell, concurring in reversal of the district court’s denial of certification, suggested that “it is time to retreat from our heightened ascertainability requirement in favor of following the historical meaning of ascertainability under Rule 23.”)
The Subcommittee intends to examine this issue; it is not certain at present whether a rule change might be indicated.
* * * * *
The Subcommittee continues to seek input on whether the issues listed above should be pursued, and whether others should considered as well.
II.D. DISCOVERY: REQUESTER-PAYS
The Discovery Subcommittee continues to have the “requester pays” topic on its agenda. The Advisory Committee had an initial discussion of these issues at its November, 2013, meeting, but the full Committee was occupied thereafter addressing the public commentary on the amendment package published for public comment in August, 2013. On April 29, 2015, the Supreme Court adopted rule changes resulting from that effort.
In early 2015, the Discovery Subcommittee had two conference calls about these issues. At its April, 2015, meeting the Advisory Committee had a further discussion. The issues appear both difficult and contentious, and the Advisory Committee is not recommending any rulemaking action at this time.
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RULE 23 SUBCOMMITTEE REPORT
The Rule 23 Subcommittee has continued to work on the areas it identified before the Advisory Committee's October, 2014, meeting. This work has included conference calls on Dec. 17, 2014, Feb. 6, 2015, and Feb. 12, 2015. Notes on those calls should be included with these agenda materials. The Subcommittee continues its efforts to become fully informed about pertinent issues regarding Rule 23 practice today. Besides generally keeping an eye out to identify pertinent developments and concerns, Subcommittee members have attended, and expect to attend a considerable number of events about class action practice that together should offer a broad range of views. These events include the following:
ABA 18th Class Action Institute (Chicago, Oct. 23-24, 2014).
Lawyers for Civil Justice Membership Meeting (New York, Dec. 4-5, 2014).
The Impact Fund 13th Annual Class Action Conference (Berkeley, CA, Feb. 26-27, 2015).
George Washington University Roundtable on Settlement Class Actions (Washington, D.C. April 8, 2015).
ALI discussion of Rule 23 issues (Washington, D.C., May 17, 2015).
ABA Litigation Section Meeting (San Francisco, June 19) American Assoc. for Justice Annual Meeting (Montreal, Canada, July 11-14)
Civil Procedure Professors' Conference (Seattle, WA, July 17)
Duke Law Conference on Class-Action Settlement (Washington, D.C., July 23-24)
Defense Research Institute Conference on Class Actions (Washington, D.C., July 23-24) Discovery Subcommittee Mini-Conference (DFW Airport, Sept. 11, 2015).
Association of American Law Schools Annual Meeting (New York, Jan. 6-10, 2016) [Participation in this event has not been arranged, but efforts are underway to make such arrangements.] As should be apparent, the Subcommittee is trying to gather information from many sources as it moves forward. Its present intention is to be in a position to present drafts for possible amendments to the full Committee at its Fall 2015 meeting. If that proves possible, it may be that a preliminary discussion of those amendment ideas can be had with the Standing Committee during its January, 2016, meeting, and a final review of amendment proposals at the Advisory Committee's Spring, 2016, meeting. That schedule would permit submission of proposed preliminary drafts to the Standing Committee at its meeting in May or June of 2016, with a recommended August, 2016,
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26 of 234 Appendix - Rule 23 Subcommittee Report with Appendices (April 2015) Report of Advisory Committee on Civil Rules Page 2 date for publication for public comment. If that occurred, rule changes could go into effect as soon as Dec. 1, 2018. But it is by no means clear that this will prove to be a realistic schedule.
For the present, the key point is that there is no assurance that the Subcommittee will ultimately recommend any amendments. In addition, although it has identified issues that presently seem to warrant serious examination, it has not closed the door on other issues. Instead, it remains open to suggestions about other issues that might justify considering a rule change, as well as suggestions that the issues it has identified are not important or are not likely to be solved by a rule change. Even if the Subcommittee does eventually recommend that the full Committee consider changes to Rule 23, the recommendations may differ from the ideas explored in this memorandum.
The purpose of this memorandum, therefore, is to share with the full Committee the content and fruit of the Subcommittee's recent discussions. The hope is that the discussion at the full Committee meeting will illuminate the various ideas generated so far, and also call attention to additional topics that seem to justify examination by the Subcommittee.
The time has come for moving beyond purely topical discussion, however. In order to make the discussion more concrete, this memorandum presents conceptual sketches of some possible amendments, sometimes accompanied with possible Committee Note language that can provide an idea of what a Note might actually say if rule changes along the lines presented were proposed. These conceptual sketches are not intended as initial drafts of actual rule change proposals, and should not be taken as such. By the time the Subcommittee convenes its mini-conference in September, 2015, it may be in a position to offer preliminary ideas about such drafts. But as the array of questions in this memorandum attests, it has not reached that point yet.
The Subcommittee's work has been greatly assisted by review of the ALI Principles of Aggregate Litigation. Those Principles embody a careful study of some of the issues covered in this memorandum, and occasionally provide a starting point in analysis of those issues, and in drafting possible rule provisions to address them.
The topics covered in this memorandum are:
(1) Settlement Approval Criteria (2) Settlement Class Certification (3) Cy Pres Treatment (4) Dealing With Objectors (5) Rule 68 Offers and Mootness (6) Issue Classes (7) Notice Appendix I: Settlement Review Factors -- 2000 Draft Note Appendix II: Prevailing Class Action Settlement Approval Factors Circuit- By-Circuit
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(1) Settlement Approval Criteria
In 2003, Rule 23(e) was amended to expand its treatment of judicial review of proposed class-action settlements. To a considerable extent, those amendments built on existing case law on settlement approval. As amended in 1966, Rule 23(e) required court approval for settlement, compromise, or voluntary dismissal of a class action, but it provided essentially no direction about what the court was to do in reviewing a proposed settlement.1
Left to implement the rule's requirement of court approval of settlement, the courts developed criteria. To a significant extent, that case law development occurred during the first two decades after Rule 23 was revised in 1966. It produced somewhat similar, but divergent, lists of factors to be employed in different circuits. The Subcommittee has compiled a list of the factors used in the various circuits that is attached as an Appendix to this memorandum.
Several points emerge from the lists of factors. One is that, although they are similar, they are not the same. Thus, lawyers in different circuits, even when dealing with nationwide class actions, would need to attend to the particular list employed in the particular circuit. A second point is that at least some of the factors that some courts adopted in the 1970s seem not to be very pertinent to contemporary class action practice. Yet they command obeisance in the circuits that employ them even though they probably do not facilitate the court's effort to decide whether to approve a proposed settlement. A third point is that there are other matters, not included in the courts' 1970s-era lists, that contemporary experience suggests should matter in assessing settlements.
The ALI Aggregate Litigation Principles proposed a different approach, which is partly reflected in the conceptual discussion draft below. The ALI explanation for its approach was as follows:
The current case law on the criteria for evaluating settlements is in disarray. Courts articulate a wide range of factors to consider, but rarely discuss the significance to be given to each factor, let alone why a particular factor is probative. Factors mentioned in the cases include, among others [there follows a list of about 17 factors].
Many of these criteria may have questionable probative value in various circumstances. For instance, although a court might give weight to the fact that counsel for the class or the defendant favors the settlement, the court should keep in mind that the lawyers who negotiated the settlement will rarely offer anything less than a strong favorable endorsement.
ALI Aggregate Litigation Principles § 3.05 Comment (a) at 205-06.
1 From 1966 to 2003, Rule 23(e) said, in toto: "A class action shall not be dismissed or compromised without the approval of the court, and notice of the proposed dismissal shall be given to all members of the class in such manner as the court directs."
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There are two appendices at the end of the memorandum that offer further details and ideas. Appendix I is the draft Committee Note developed early in the evolution of Rule 23(e) amendments in 2000-02. It offers a list of factors that might be added to a rule revision, or to a Committee Note. The approach of the conceptual draft of the rule amendment idea below, however, trains more on reducing the focus to four specified considerations that seem to be key to approval, adding authority to decline approval based on other considerations even if positive findings can be made on these four topics.
Appendix II offers a review of the current "approval factors" in the various circuits, plus additional information about the California courts' standards for approving settlements and the ALI Principles approach.
As Committee members consider this conceptual draft and the alternative details in Appendix I and Appendix II, one way of approaching the topic is to ask whether adopting a rule like this would provide important benefits. Balanced against that prospect is the likelihood that amending the rule would also produce a period of uncertainty, particularly if it supersedes current prevailing case law in various circuits. At the same time, it may focus attention for courts, counsel, and even objectors, on matters that are more important than other topics included on some courts' lists of settlement-approval factors.
Conceptual Discussion Draft of Rule 23(e) Amendment Idea
1 (e) Settlement, Voluntary Dismissal, or Compromise. The claims, issues, or defenses of a 2 certified class may be settled, voluntarily dismissed, or compromised only with the court's 3 approval. The following procedures apply to a proposed settlement, voluntary dismissal, or 4 compromise: 5 6 * * * * * 7 8 (2) If the proposal would bind class members, 9 10 Alternative 1 11 12 (A) the court may approve it only after a hearing and on finding that it is fair, 13 reasonable, and adequate. The court may make this finding only on finding 14 that: 15 16 Alternative 2 17 18 (A) the court may approve it only after a hearing and on finding that: it is fair, 19 reasonable, and adequate. 20 21 22 (i) the class representatives and class counsel have been and currently are
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23 adequately representing the class; 24 25 (ii) the relief awarded to the class (taking into account any ancillary 26 agreement that may be part of the settlement) is fair, reasonable, and 27 adequate given the costs, risks, probability of success, and delays of 28 trial and appeal; 29 30 (iii) class members are treated equitably (relative to each other) based on 31 their facts and circumstances and are not disadvantaged by the 32 settlement considered as a whole; and 33 34 (iv) the settlement was negotiated at arm's length and was not the product of 35 collusion. 36 37 (B) The court may also consider any other matter pertinent to approval of the proposal, and may refuse to approve it on any such ground.
Conceptual Sketch of Committee Note Ideas
1 In 2003, Rule 23(e) was amended to direct that a court may approve a settlement proposal 2 in a class action only on finding that it is "fair, reasonable, and adequate." This provision was based 3 in large measure on judicial experience with settlement review. Since 2003, the courts have gained 4 more experience in settlement review. 5 6 Before 2003, many circuits had developed lists of "factors" that bore on whether to approve 7 proposed class-action settlements. Although the lists in various circuits were similar, they differed 8 on various specifics and sometimes included factors of uncertain utility in evaluating proposed 9 settlements. The divergence among the lists adopted in various circuits could sometimes cause 10 difficulties for counsel or courts. 11 12 This rule is designed to supersede the lists of factors adopted in various circuits with a 13 uniform set of core factors2 that the court must find satisfied before approving the proposal. Rule 14 23(e)(2)(A) makes it clear that the court must affirmatively find all four of the enumerated factors 15 satisfied before it may approve the proposal. 16 17 But this is not a closed list; under Rule 23(e)(2)(B) the court may consider any matter 18 pertinent to evaluating the fairness of the proposed settlement.3 The rule makes it clear that the court
2 Is this really accurate? The rule permits the court to refer to "any other matter pertinent to approval of the proposal." Should the point be to offer evaluations of factors endorsed in the past by some courts? See Appendix II regarding the factors presently employed in various circuits.
3 It might be that a much more extensive discussion of other factors could be added here, along the lines of the material in Appendix I.
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19 may disapprove the proposal on such a ground even though it can make the four findings required 20 by Rule 23(e)(2)(A). Some factors that have sometimes been identified as pertinent seem ordinarily 21 not to be, however. For example, the fact that counsel for the class and the class opponent support 22 the proposal would ordinarily not provide significant support for a court's approval of the proposal. 23 Somewhat similarly, particularly in cases involving relatively small individual relief for class 24 members, the fact the court has received only a small number of objections may not provide 25 significant support for a finding the settlement is fair.4 26 27 [Before notice is sent to the class under Rule 23(e)(1), the court should make a preliminary 28 evaluation of the proposal. If it is not persuaded that the proposal provides a substantial basis for 29 possible approval, the court may decline to order notice. But a decision to order notice should not 30 be treated as a "preliminary approval" of the proposal, for the required findings and the decision to 31 approve a proposal must not be made until objections are evaluated and the hearing on the proposal 32 occurs.]5 33 34 The first factor calls for a finding that the class representatives and class counsel have 35 provided adequate representation. This factor looks to their entire performance in relation to the 36 action. One issue that may be important in some cases is whether, under the settlement, the class 37 representatives are to receive additional compensation for their efforts.6 Another may in some 38 instances be the amount of any fee for class counsel contemplated by the proposed settlement.7 In
4 Is this discussion of "suspect" factors sufficient?
5 This paragraph attempts to introduce something endorsed by the ALI Principles – that preliminary authorization for notice to the class not become "preliminary approval." Whether saying so is desirable could be debated. Whether saying so in the Note is sufficient if saying so is desirable could also be debated. One could, for example, consider revising Rule 23(e)(1) along the following lines:
(1) The court must, after finding that giving notice is warranted by the terms of the proposed settlement, direct notice in a reasonable manner to all class members who would be bound by the proposal.
6 This factor seems worth mentioning, but perhaps it should not be singled out. It could cut either way. In a small-claim case, it might be sensible to provide reasonable additional compensation for the representative, who otherwise might have had to do considerable work for no additional compensation. The better the "bonus" corresponds to efforts expended by the representation working on the case, the stronger this factor may favor the settlement. The more the amount of compensation reflects some sort of "formula" or set amount unrelated to effort from the representative, the more it may call the fairness of the settlement into question. When the individual recovery is small and the incentive bonus for the class representatives is large, that may, standing alone, raise questions about the settlement, given that the class representatives may have much to lose if the settlement is not approved but little to gain if the case goes to trial and the class recovers many times what the settlement provides.
7 This factor also seems worth mentioning in the Note. Presumably an agreement that says the court will set the attorney fee, and nothing more, raises fewer concerns than one that says the defendant will not oppose a fee up to $X. But the amount of the fee is often included in the Rule 23(e) notice of proposed settlement so that an additional notice is not mandated by Rule 23(h)(1).
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39 some instances, the court has already appointed class counsel under Rule 23(g).8 The court would 40 then need only review the performance of counsel since that time. In making this determination 41 about the performance of class counsel in connection with the negotiation of the proposal, the court 42 should be as exacting as Rule 23(g) requires for appointment of class counsel. 43 44 The second factor calls for the court to assess the relief awarded to the class under the 45 proposed settlement in light of a variety of practical matters that bear on whether it is adequate. In 46 connection with this factor, it may often be important for counsel to provide guidance to the court 47 about how these considerations apply to the present action. For example, the prospects for success 48 on the merits, and the likely dimensions of that success, should be evaluated. It may also be 49 important for the court to attend to the degree of development of the case to determine whether the 50 existing record affords a sufficient basis for evaluation of these factors. There is no "minimum" 51 amount of discovery, or other work, that must be done before the parties reach a proposed 52 settlement, but the court may seek assurance that it has a firm foundation for assessing the 53 considerations listed in the second factor.9 54 55 The third factor requires the court to find that the proposed method of allocating the benefits 56 of the settlement among members of the proposed class is equitable. A pro rata distribution is not 57 required, but the court may inquire into the proposed method for allocating the benefits of the 58 settlement among members of the class. [It is possible that this inquiry may suggest the need for 59 subclassing.]10 60 61 The fourth factor partly reinforces the first factor, and may take account of any agreements 62 identified pursuant to Rule 23(e)(3). The court should pay close attention to specifics about the 63 manner and content of negotiation of the proposed settlement. Any "side agreements" that emerged 64 from the negotiations deserve scrutiny. These inquiries may shed light on the second and third 65 factors as well. 66 67 Any other factors that are pertinent to whether to approve the proposed settlement deserve 68 attention in the settlement-review process. The variety of factors that might bear on a given 69 proposed settlement is too large for enumeration in a rule, although some that have been mentioned 70 by some courts – such as support from the counsel who negotiated the settlement – would ordinarily 71 not be entitled to much weight. 72 73 This rule provides guidance not only for the court, but also for counsel supporting a proposed
8 This would include the appointment of "interim counsel" under Rule 23(g)(3), and that fact could be mentioned in the Note if it were considered desirable to do so.
9 This paragraph attempts to invite appropriate judicial scrutiny of the possible risks of a cheap "early bird" settlement, but also to ward off arguments that no settlement can be approved until considerable "merits" discovery has occurred, or something of the sort.
10 Is this bracketed language a desirable thing to include in the Note? The point seems obvious in some ways, but the consequences of subclassing may be to delay, or perhaps derail, a settlement.
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74 settlement and for objectors to a proposed settlement. [The burden of supporting the proposed 75 settlement falls initially on the proponents of the proposal. As noted above, the court's initial 76 decision that notice to the class was warranted under Rule 23(e)(1) does not itself constitute a 77 "preliminary" approval of the proposal's terms.]11 78 79 [As noted in Rule 23(e)(4) regarding provision of a second opt-out right, the court may 80 decline to approve a proposed settlement unless it is modified in certain particulars. But it may not 81 "approve" a settlement significantly different from the one proposed by the parties. Modification 82 of the proposed settlement may make it necessary to give notice the class again pursuant to Rule 83 23(e)(1) to permit class members to offer any further objections they may have, or (if the 84 modifications increase significantly the benefits to class members) for class members who opted out to opt back into the class.]12 13
(2) Settlement Class Certification
The Committee is not writing on a blank slate in addressing this possibility. In 1996, it published a proposal to adopt a new Rule 23(b)(4) explicitly authorizing certification for settlement purposes, under Rule 23(b)(3) only, in cases that might not qualify for certification for litigation
11 This language about the burden of supporting the settlement seems implicit in the rule, and corresponds to language in ALI § 3.05(c).
12 This paragraph pursues suggestions in ALI § 3.05(e). Are these ideas worthy of inclusion in the Note?
13 The above sketch of a draft Note says little about the claims process. It may be that more should be said. ALI § 3.05 comment (f) urges that, when feasible, courts avoid the need for submission of claims, and suggests that direct distributions are usually possible when the settling party has reasonably up-to-date and accurate records. This suggestion is not obviously tied to any black letter provision.
The whole problem of claims processing may deserve attention. It is not currently the focus of any rule provisions. It may relate to the cy pres phenomenon discussed in part (3) below. If defendant gets back any residue of the settlement funds, it may have an incentive to make the claims procedure long and difficult. Keeping an eye on that sort of thing is a valid consideration for the court when it passes on the fairness of the settlement. In addition, in terms of valuing the settlement for the class as part of the attorneys' fee decision, the rate of actual claiming may be an important criterion. Cf. 28 U.S.C. § 1712(a) (requiring, in "coupon settlement" cases, that the focus in setting attorney fees be on "the value to class members of the coupons that are redeemed"). If there is a way to avoid the entire effort of claims submission and review, that might solve a number of problems that have plagued some cases in the past. At the same time, a "streamlined" claims payment procedure may benefit some class members at the expense of others. A more particularized claims process might differentiate between class members in terms of their actual injuries in ways not readily achievable using only the defendant's records.
Altogether, these issues present challenges. Whether they are suitable topics for a rule provision is another matter. Up until now, they have largely been regarded as matters of judicial management rather than things to be addressed by rule. See Manual for Complex Litigation (4th) § 21.66 (regarding settlement administration).
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purposes. This history may be very familiar to some members of the Committee, but for some it may have receded from view. In order to provide that background, the 1996 rule proposal and accompanying Committee Note are set out. In addition, footnotes call attention to developments since then and contemporary issues that seem relevant to the matter currently before the Committee.
1 (b) Types of Class Actions. A class action may be maintained if Rule 23(a) is satisfied 2 and if: 3 4 * * * * * 5 6 7 (4) the parties to a settlement request certification under subdivision (b)(3) for 8 purposes of settlement, even though the requirements of subdivision (b)(3) might not be met for purposes of trial.
* * * * *
The draft Committee Note that accompanied that proposal was as follows (with some footnotes to mention issues presented by doing the same thing as before).
1 Subdivision (b)(4) is new. It permits certification of a class under subdivision (b)(3) 2 for settlement purposes, even though the same class might not be certified for trial. Many 3 courts have adopted the practice reflected in this new provision. See, e.g., Weinberger v. 4 Kendrick, 698 F.2d 61, 72-73 (2d Cir.1982); In re Beef Industry Antitrust Litigation, 607 5 F.2d 167, 170-71, 173-78 (5th Cir.1979). Some very recent decisions, however, have stated 6 that a class cannot be certified for settlement purposes unless the same class would be 7 certified for trial purposes. See Georgine v. Amchem Products, Inc., 83 F.3d 610 (3d 8 Cir.1996); In re General Motors Corp. Pick-Up Trick Fuel Tank Litigation, 55 F.3d 768 (3d 9 Cir. 1995). This amendment is designed to resolve this newly apparent disagreement.14 10 11 Although subdivision (b)(4) is formally separate, any class certified under its terms 12 is a (b)(3) class with all the incidents of a (b)(3) class, including the subdivision (c)(2) rights 13 to notice and to request exclusion from the class. Subdivision (b)(4) does not speak to the 14 question whether a settlement class may be certified under subdivisions (b)(1) or (b)(2).15
14 Obviously resolving that 1996 circuit conflict is no longer necessary given the Amchem decision; the issue now is whether to modify what Amchem said or implied.
15 Deleting the limitation to (b)(3) classes would speak to that question. In speaking to it, one could urge that, at least where there really is "indivisible" relief sought, it does seem that a settlement class should be possible. Perhaps a police practices suit would be an example. Could the SDNY stop-and-frisk class action have been resolved as a settlement class action? It may be that using a class action would be essential to avoid standing issues. See City of Los Angeles v. Lyons, 461 U.S. 95 (1983) (holding that plaintiff injured by police use of choke-hold could sue for damages, but not for an injunction because he could not show it would likely be used on him again). Issues of class definition, and particularly ascertainability, may present
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15 As with all parts of subdivision (b), all of the prerequisites of subdivision (a) must be 16 satisfied to support certification of a (b)(4) settlement class.16 In addition, the predominance 17 and superiority requirements of subdivision (b)(3) must be satisfied.17 Subdivision (b)(4) 18 serves only to make it clear that implementation of the factors that control certification of 19 a (b)(3) class is affected by the many differences between settlement and litigation of class 20 claims or defenses. Choice-of-law difficulties, for example, may force certification of many 21 subclasses, or even defeat any class certification, if claims are to be litigated.18 Settlement 22 can be reached, however, on terms that surmount such difficulties. Many other elements are 23 affected as well. A single court may be able to manage settlement when litigants would 24 require resort to many courts. And, perhaps most important, settlement may prove far 25 superior to litigation in devising comprehensive solutions to large-scale problems that defy 26 ready disposition by traditional adversary litigation.19 Important benefits may be provided 27 for those who, knowing of the class settlement and the opportunity to opt out, prefer to 28 participate in the class judgment and avoid the costs of individual litigation. 29 30 For all the potential benefits, settlement classes also pose special risks. The court's 31 Rule 23(e) obligations to review and approve a class settlement commonly must surmount 32 the information difficulties that arise when the major adversaries join forces as proponents 33 of their settlement agreement.20 Objectors frequently appear to reduce these difficulties, but
challenges in such cases. But it may be that recognizing that settlements are available options in such cases as to future conduct is desirable. It is worth noting that Rule 23 currently has no requirement of notice of any sort to the class in (b)(2) actions unless they are settled.
16 On this score, the application of (a)(2) in Wal-Mart Stores, Inc. v. Dukes may be of particular importance.
17 This sentence was written before Amchem was decided; the Supreme Court fairly clearly said that predominance remained important, but that manageability (a factor in making both the predominance and superiority decision) did not. Whether to continue to require predominance to be established in (b)(4) class actions is open to discussion and raised by an alternative possible rule change explored below in text.
18 Choice-of-law challenges might be precisely the sort of thing that could preclude settlement certification under a strong view of the predominance requirement. As Sullivan v. DB Investment suggests, differing state law may be accommodated in the settlement context.
19 Arguably there is a principled tension among the courts of appeal that is pertinent to this point. The Third Circuit has said several times that class-action settlements are desirable to achieve a nationwide solution to a problem. The Seventh Circuit, on the other hand, has on one occasion at least said that "the vision of 'efficiency' underlying this class certification is the model of the central planner. * * * The central planning model – one case, one court, one set of rules, one settlement price for all involved – suppresses information that is vital to accurate resolution." In re Bridgestone/Firestone, 288 F.3d 1012, 1020 (7th Cir.2002).
20 It should be noted that when this draft Note was written Rule 23(e) was relatively featureless, directing only that court approval was required for dismissal. In 2003, it was augmented with many specifics, and part (1) of this memorandum offers a proposal to refine and focus those specifics.
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34 it may be difficult for objectors to obtain the information required for a fully informed 35 challenge. The reassurance provided by official adjudication is missing. These difficulties 36 may seem especially troubling if the class would not have been certified for litigation, or was 37 shaped by a settlement agreement worked out even before the action was filed. 38 39 These competing forces are reconciled by recognizing the legitimacy of settlement 40 classes but increasing the protections afforded to class members. Certification of a 41 settlement class under (b)(4) is authorized only on request of parties who have reached a 42 settlement. Certification is not authorized simply to assist parties who are interested in 43 exploring settlement, not even when they represent that they are close to agreement and that 44 clear definition of a class would facilitate final agreement.21 Certification before settlement 45 might exert untoward pressure to reach agreement, and might increase the risk that the 46 certification could be transformed into certification of a trial class without adequate 47 reconsideration.22 These protections cannot be circumvented by attempting to certify a 48 settlement class directly under subdivision (b)(3) without regard to the limits imposed by 49 (b)(4). 50 51 Notice and the right to opt out provide the central means of protecting settlement 52 class members under subdivision (b)(3),23 but the court also must take particular care in 53 applying some of Rule 23's requirements. As to notice, the Federal Judicial Center study 54 suggests that notices of settlement do not always provide the clear and succinct information 55 that must be provided to support meaningful decisions whether to object to the settlement
21 Note that, as added in 2003, Rule 23(g)(3) authorizes appointment of interim class counsel, a measure that may enable the court to exercise some control over the cast authorized to negotiate a proposed class settlement in the pre-certification phase of the litigation. The Committee Note accompanying this rule addition in 2003 explained:
Settlement may be discussed before certification. Ordinarily, such work is handled by the lawyer who filed the action. In some cases, however, there may be rivalry or uncertainty that makes formal designation of interim counsel appropriate. [The new rule provision] authorizes the court to designate interim counsel to act on behalf of the putative class before the certification decision is made. Failure to make the formal designation does not prevent the attorney who filed the action from proceeding in it. Whether or not formally designated interim counsel, an attorney who acts on behalf of the class before certification must act in the best interests of the class as a whole. For example, an attorney who negotiates a pre-certification settlement must seek a settlement that is fair, reasonable, and adequate for the class.
22 This comment seems designed to make the point in ALI § 3.06(d) – that statements made in support of settlement class certification should not be used against a party that favored such certification but later opposes litigation certification. Perhaps that asks too much of the judge.
23 Needless to say, this comment is not applicable to (b)(1) or (b)(2) certification, if those were included in (b)(4). It could be noted that 23(e) requires notice (but not opt out) in such cases.
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56 or – if the class is certified under subdivision (b)(3) – whether to request exclusion.24 One 57 of the most important contributions a court can make is to ensure that the notice fairly 58 describes the litigation and the terms of the settlement. Definition of the class also must be 59 approached with care, lest the attractions of settlement lead too easily to an over-broad 60 definition. Particular care should be taken to ensure that there are not disabling conflicts of 61 interests among people who are urged to form a single class. If the case presents facts or law 62 that are unsettled and that are likely to be litigated in individual actions, it may be better to 63 postpone any class certification until experience with individual actions yields sufficient information to support a wise settlement and effective review of the settlement.
Conceptual Draft of 23(e) Amendment Idea
The animating objective of the conceptual draft below is to place primary reliance on superiority and the invigorated settlement review (introduced in part (1) of this memorandum) to assure fairness in the settlement context, and therefore to remove emphasis on predominance when settlement certification is under consideration.
An underlying question is whether such an approach should be limited to (b)(3) class actions. There may be much reason to include (b)(2) class actions in (b)(4) but perhaps less reason to include (b)(1) cases.
Another question is whether it should be required that in any case seeking certification for purposes of settlement under (b)(4) the parties demonstrate that all requirements of Rule 23(a) are satisfied. Arguably, some of those – typicality, for example – don’t matter much at the settlement stage. Concern that the past criminal history of the class representative might come into evidence at trial (assuming that makes the representative atypical) may not matter then. On the other hand, introducing a new set of "similar" criteria that are different could produce difficulties. This conceptual draft therefore offers an Alternative 2 that does not invoke Rule 23(a), but the discussion focuses on Alternative 1, which does invoke the existing rule. If the Alternative 2 approach is later preferred, adjustments could be made.
1 (b) Types of Class Actions. A class action may be maintained if Rule 23(a) is satisfied 2 and if: 3 4 * * * * * * 5 6 Alternative 1 7 8 9 (4) the parties to a settlement [in an action to be certified under subdivision (b)(3),] 10 request certification and the court finds that the action satisfies Rule 23(a), that the
24 Note that, as amended in 2003, Rule 23(c)(2)(B) responds to the sorts of concerns that were raised by the FJC study.
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11 proposed settlement is superior to other available methods for fairly and efficiently 12 adjudicating the controversy, and that it should be approved under Rule 23(e). 13 14 Alternative 2 15 16 (4) the parties to a settlement [in an action to be certified under subdivision (b)(3),] 17 request certification and the court finds that significant common issues exist, that the 18 class is sufficiently numerous to warrant classwide treatment, and that the class 19 definition is sufficient to ascertain who is and who is not included in the class. The 20 court may then grant class certification if the proposed settlement is superior to other 21 available methods for fairly and efficiently adjudicating the controversy, and that it should be approved under Rule 23(e).25
This approach seems clearly contrary to Amchem, which said that Rule 23(e) review of a settlement was not a substitute for rigorous application of the criteria of 23(a) and (b). It also may appear to invite the sort of "grand compensation scheme" quasi-legislative action by courts that the Court appeared to disavow in Amchem. Particularly if this authority were extended beyond (b)(3),26 and a right to opt out were not required, this approach seems very aggressive. Below are some thoughts about the sorts of things that might be included in a sketch of a draft Committee Note.
Sketch of Draft Committee Note ideas [Limited to Alternative 1]
1 Subdivision (b)(4) is new. In 1996, a proposed new subdivision (b)(4) was published for 2 public comment. That new subdivision would have authorized certification of a (b)(3) class for 3 settlement in certain circumstances in which certification for full litigation would not be possible. 4 One stimulus for that amendment proposal was the existence of a conflict among the courts of 5 appeals about whether settlement certification could be used only in cases that could be certified for 6 full litigation. That circuit conflict was resolved by the holding in Amchem Products, Inc. v.
25 ALI § 3.06(b) says that "a court may approve a settlement class if it finds that the settlement satisfies the criteria of [Rule 23(e)], and it further finds that (1) significant common issues exist; (2) the class is sufficiently numerous to warrant classwide treatment, and (3) the class definition is sufficient to ascertain who is and who is not included in the class. The court need not conclude that common issues predominate over individual issues."
26 On this score, note that ALI § 3.06(c) said:
In addition to satisfying the requirements of subsection (b) of this Section [quoted in a footnote above], in cases seeking settlement certification of a mandatory class, the proponents of the settlement must also establish that the claims subject to settlement involve indivisible remedies, as defined in the Comment to § 2.04.
Needless to say, "indivisible remedies" is not a term used in the civil rules. Attempting to define them, or some alternative term, might be challenging. § 2.04 has three subsections, and is accompanied by six pages of comments and six pages of Reporters' Notes.
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7 Windsor, 521 U.S. 591 (1997), that the fact of settlement is relevant to class certification. The (b)(4) 8 amendment proposal was not pursued after that decision. 9 10 Rule 23(f), also in the package of amendment proposals published for comment in 1996, was 11 adopted and went into effect in 1998. As a consequence of that addition to the rule, a considerable 12 body of appellate precedent on class-certification principles has developed. In 2003, Rule 23(e) was 13 amended to clarify and fortify the standards for review of class settlements, and subdivisions (g) and 14 (h) were added to the rule to govern the appointment of class counsel, including interim class 15 counsel, and attorney fees for class counsel. These developments have provided added focus for the 16 court's handling of the settlement-approval process under Rule 23(e). 17 18 Concerns have emerged about whether it might sometimes be too difficult to obtain 19 certification solely for purposes of settlement. Some reported that alternatives such as multidistrict 20 processing or proceeding in state courts have grown in popularity to achieve resolution of multiple 21 claims. 22 23 This amendment is designed to respond to those concerns by clarifying and, in some 24 instances, easing the path to certification for purposes of settlement. Like the 1996 proposal, this 25 subdivision is available only after the parties have reached a proposed settlement and presented it 26 to the court. Before that time, the court may, under Rule 23(g)(3), appoint interim counsel to 27 represent the interests of the putative class. 28 29 [Subdivision (b)(4) is not limited to Rule 23(b)(3) class actions. It is likely that actions 30 brought under subdivision (b)(3) will be the ones in which it is employed most frequently, but 31 foreclosing pre-certification settlement in actions brought under subdivisions (b)(1) or (b)(2) seems 32 unwarranted. At the same time, it must be recognized that approving a class-action settlement is a 33 challenging task for a court in any class action. Amendments to Rule 23(e) clarify the task of the 34 judge and the role of the parties in connection with review of a proposed settlement.27 ] 35 36 Like all class actions, an action certified under subdivision (b)(4) must satisfy the 37 requirements of Rule 23(a).28 Unless these basic requirements can be satisfied, a class settlement 38 should not be authorized. 39 40 Increasing confidence in the ability of courts to evaluate proposed settlements, and tools 41 available to them for doing so, provide important support for the addition of subdivision (b)(4). For 42 that reason, the subdivision makes the court's conclusion under Rule 23(e) an essential component
27 This treatment may be far too spare. Note that the ALI proposal limited the use of "mandatory class action" settlement to cases involving "indivisible relief," a term that is not presently included in the civil rules and that the ALI spent considerable effort defining.
28 This is a point at which Alternative 2, modeled on the ALI approach, would produce different Committee Note language. Arguments could be made that Wal-Mart Stores, Inc. v. Dukes has raised the bar under Rule 23(a)(2) too high. The ALI approach is to say that "significant common issues" are presented. See ALI § 3.06(b).
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43 to settlement class certification. Under amended Rule 23(e), the court can make the required 44 findings to approve a settlement only after completion of the full Rule 23(e) settlement-review 45 process. Given the added confidence in settlement review afforded by strengthening Rule 23(e), the 46 Committee is comfortable with reduced emphasis on some provisions of Rule 23(a) and (b).29 47 48 Subdivision (b)(4) also borrows a factor from subdivision (b)(3) as a prerequisite for 49 settlement certification – that the court must also find that resolution through a class-action 50 settlement is superior to other available methods for fairly and efficiently adjudicating the 51 controversy. Unless that finding can be made, there seems no reason for the court or the parties to 52 undertake the responsibilities involved in a class action. 53 54 Subdivision (b)(4) does not require, however, that common questions predominate in the 55 action. To a significant extent, the predominance requirement, like manageability, focuses on 56 difficulties that would hamper the court's ability to hold a fair trial of the action. But certification 57 under subdivision (b)(4) assumes that there will be no trial. Subdivision (b)(4) is available only in 58 cases that satisfy the common-question requirements of Rule 23(a)(2), which ensure commonality 59 needed for classwide fairness. Since the Supreme Court's decision in Amchem, the courts have 60 struggled to determine how predominance should be approached as a factor in the settlement 61 context. This amendment recognizes that it does not have a productive role to play and removes it.30 62 63 Settlement certification also requires that the court conclude that the class representatives 64 are typical and adequate under Rule 23(a)(3) and (4).31 Under amended Rule 23(e), the court must 65 also find that the settlement proposal was negotiated at arms length by persons who adequately 66 represented the class interests, and that it provides fair and adequate relief to class members, treating 67 them equitably. 68 69 In sum, together with changes to Rule 23(e), subdivision (b)(4) ensures that the court will 70 give appropriate attention to adequacy of representation and the fair treatment of class members 71 relative to each other and the potential value of their claims. At the same time, it avoids the risk that 72 a desirable settlement will prove impossible due to factors that matter only to a hypothetical trial 73 scenario that the settlement is designed to avoid. 74 75 [Should the court conclude that certification under subdivision (b)(4) is not warranted – 76 because the proposed settlement cannot be approved under subdivision (e) or because the 77 requirements of Rule 23(a) or superiority are not met – the court should not rely on the parties' 78 statements in connection with proposed (b)(4) certification in relation to later class certification or
29 Without exactly saying so, this sentence is meant to counter the assertion in Amchem that Rule 23(e) is an additional factor, not a superseding consideration, when settlement certification is proposed.
30 This material attempts to address Amchem's assertion that superiority continues to be important. Is it persuasive? If so, should the Note say that it is changing what the Supreme Court said in Amchem, perhaps by citing the passage in the decision where the court discussed superiority?
31 As at other points, adopting Alternative 2 would change this.
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32 The ALI Principles include such a provision in the rule. This suggests a comment the Note. The ALI provision seems to have been prompted by one 2004 Seventh Circuit decision, Carnegie v. Household Int'l, Inc., 376 F.3d 656, 660 (7th Cir. 2004). Carnegie was a rather remarkable case. It first came to the Seventh Circuit in Reynolds v. Beneficial National Bank, 288 F.3d 277 (7th Cir. 2002), after the district judge granted settlement class certification and, on the strength of that, enjoined litigation in various state courts against the same defendants on behalf of statewide classes. The Court of Appeals reversed approval of the proposed settlement in the federal court, "concerned that the settlement might have been the product of collusion between the defendants, eager to minimize their liability, and the class lawyers, eager to maximize their fees." 376 F.3d at 659.
The Court of Appeals (under its Local Rule 36), then directed that the case be assigned on remand to a different judge, and the new judge approved the substitution of a new class representative (seemingly an objector the first time around) and appointed new class counsel. This new judge later certified a litigation class very similar to the settlement class originally certified. Defendants appealed that class-certification decision, objecting that the new judge had improperly directed the defendants initially to state their objections to litigation certification, thereby imposing on them the burden of proving that certification was not justified instead of making plaintiff justify certification. The Seventh Circuit rejected this argument because the new judge "was explicit that the burden of persuasion on the validity of the objections [to certification] would remain on the plaintiffs." 376 F.3d at 662. The Court of Appeals also invoked the doctrine of judicial estoppel, which it explained involved an "antifraud policy" that precluded defendants "from challenging [the class's] adequacy, at least as a settlement class," noting that "the defendants benefitted from the temporary approval of the settlement, which they used to enjoin the other * * * litigation against them." Id. at 660. At the same time, the court acknowledged "that a class might be suitable for settlement but not for litigation." It added comments about the concern that its ruling might chill class-action settlement negotiations (id. at 663):
The defendants tell us that anything that makes it easier for a settlement class to molt into a litigation class will discourage the settlement of class actions. * * * * But the defendants in this case were perfectly free to defend against certification; they just didn't put up a persuasive defense. Whether this decision poses a significant problem is debatable. The situation seems distinctive, if not unique. The value of a rule provision concerning the "binding" effect of defendants' support for certification for settlement, or even a comment in the Note is therefore also debatable. In any event, it might not prevent a state court from doing what it says should not be done. Recall that in the original Reynolds appeal (described above), there was an injunction against state-court litigation. Whether a federal rule can prevent a state court from giving weight to these sorts of matters is an interesting issue. As a general matter, this subject reminds us of other provisions about the preclusive effect of class-certification rulings or to decisions disapproving a proposed class settlement. That has been an intriguing prospect in the past, but one the Advisory Committee has not followed.
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(3) Cy pres
The development of cy pres provisions in settlements has not depended meaningfully on any precise provisions of Rule 23. The situations in which this sort of arrangement might be desired probably differ from one another. Several come to mind:
(1) Specific individual claimants cannot be identified but measures to "compensate" them can be devised. The famous California case of Daar v. Yellow Cab, 433 P.2d 732 (Cal. 1967), is the prototype of this sort of thing – because the Yellow Cab meters had been set too high in L.A. for a period of time, the class action resolution required that the Yellow Cab meters be set a similar amount too low for a similar period, thereby conferring a relatively offsetting benefit on more or less the same group of people, people who used Yellow Cabs in L.A. (Note that competing cab companies in this pre-Uber era may not have liked the possibility that customers would favor Yellow Cab cabs because they would be cheaper.)
(2) Individual claimants could be identified, but the cost of identifying them and delivering money to them would exceed the amount of money to be delivered.
(3) A residue is left after the claims process is completed, and the settlement does not provide that the residue must be returned to the defendant. (If it does provide for return to the defendant, there may be an incentive for the defendant to introduce extremely rigorous criteria class members have to satisfy to make claims successfully.)
Whether all these kinds of situations (and others that come to mind) should be treated the same is not certain. In some places state law may actually address such things. See Cal. Code Civ. Proc. § 384, which contains specific directions to California judges about residual funds left after payments to class members.
Much concern has been expressed in several quarters about questionable use of cy pres provisions, and the courts' role in approving those arrangements under Rule 23. Most notable is the Chief Justice's statement regarding denial of certiorari in Marek v. Lane, 134 S.Ct. 8 (2013) that the Court "may need to clarify the limits on the use of such remedies." Id. at 9. That case involved challenges to provisions in a settlement of a class action against Facebook alleging privacy claims.
§3.07 of the ALI Principles directly addresses cy pres in a manner that several courts of appeals have found useful. One might argue that the courts' adoption of §3.07 makes a rule change unnecessary. On the other hand, the piecemeal adoption by courts of the ALI provision seems a dubious substitute, and it may be wise to have in mind the Chief Justice's suggestion that the Supreme Court may need to take a case to announce rules for the subject.
The ALI provision could be a model for additions to Rule 23(e):
1 (e) Settlement, Voluntary Dismissal, or Compromise. The claims, issues, or defenses of a 2 certified class may be settled, voluntarily dismissed, or compromised only with the court's
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3 approval. The following procedures apply to a proposed settlement, voluntary dismissal, or 4 compromise: 5 6 * * * * * 7 8 (3) The court may approve a proposal that includes a cy pres remedy [if authorized by 9 law]33 even if such a remedy could not be ordered in a contested case. The court 10 must apply the following criteria in determining whether a cy pres award is 11 appropriate: 12 13 (A) If individual class members can be identified through reasonable effort, and the 14 distributions are sufficiently large to make individual distributions 15 economically viable, settlement proceeds must34 be distributed directly to 16 individual class members; 17 18 (B) If the proposal involves individual distributions to class members and funds 19 remain after distributions, the settlement must provide for further 20 distributions to participating class members unless the amounts involved are 21 too small to make individual distributions economically viable or other 22 specific reasons exist that would make such further distributions impossible 23 or unfair; 24 25 (C) The proposal may provide that, if the court finds that individual distributions are 26 not viable under Rule 23(e)(3)(A) or (B), a cy pres approach may be 27 employed if it directs payment to a recipient whose interests reasonably 28 approximate those being pursued by the class. [The court may presume that
33 This bracketed qualification is designed to back away from creating new authority to use cy pres measures. It is clear that some courts have been authorizing cy pres treatment. Indeed, the Eighth Circuit's recent opinion in In re BankAmerica Corp. Securities Lit., 775 F.3d 1060 (8th Cir. 2015), suggested that it is impatient with their willingness to do so. It is less clear where the authority for them to do so comes from. In some places, like California, there is statutory authority, but there are probably few statutes. It may be a form of inherent power, though that is a touchy subject. Adding a phrase of this sort is designed to make clear that the authority does not come from this rule.
On the other hand, one might say that the inclusion of cy pres provisions in the settlement agreement is entirely a matter of party agreement and not an exercise of judicial power. But one might respond that the binding effect of a settlement class action judgment is dependent on the exercise of judicial power, and that the court has a considerable responsibility to ensure the appropriateness of that arrangement before backing it up with judicial power. So the rule would guide the court in its exercise of that judicial power.
In any event, it may be that there is not need to say "if authorized by law" in the rule because – like many other agreements included in settlements – cy pres provisions do not depend on such legal authorization, even if their binding effect does depend on the court's entry of a judgment.
34 The ALI uses "should," but "must" seems more appropriate.
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29 individual distributions are not viable for sums of less than $100.]35 [If no 30 such recipient can be identified, the court may approve payment to a recipient 31 whose interests do not reasonably approximate the interests being pursued by 32 the class if such payment would serve the public interest.]36 33 (43) The parties seeking approval * * *
As noted above, the ALI proposal has received considerable support from courts. A recent example is In re BankAmerica Securities Litigation, 775 F.3d 1060 (8th Cir. 2015), in which the majority vigorously embraced ALI § 3.07, in part due to "the substantial history of district courts ignoring and resisting circuit court cy pres concerns and rulings in class action cases." It also resisted the conclusion that the fact those class members who had submitted claims had received everything they were entitled to receive under the settlement is the same as saying they were fully compensated, which might respond to arguments against proposed (3)(B) above that further distributions to class members who made claims should not occur if they already received the maximum they could receive pursuant to the settlement.
The possibility of Enabling Act issues should be noted, but the solution may be that this is an agreement subject to court approval under Rule 23(e), not a new "remedy" provided by the rules for litigated actions. The situation in California may be illustrative.
Cal. Code Civ. Proc. § 384 directs a California state court to direct left-over funds to groups furthering the proposes sought in the class action or to certain public interest purposes. In a federal court in California, one might confront arguments that §384 dictates how such things must be handled. Reports indicate that the federal courts in California do not regard the statute as directly applicable to cases in federal court, but that they do find it instructive as they apply Rule 23.
35 There have been reports that in a significant number of cases distributions of amounts less than $100 can be accomplished. This provision is borrowed from a proposed statutory class-action model prepared by the Commissioners on Uniform State Laws. It may be that technological improvements made such an exclusion from the mandatory distribution requirements of (e)(3)(A) and (B) unnecessary.
36 This bracketed material is drawn from the ALI proposal. It might be questioned on the ground that it goes beyond what the Enabling Act allows a rule to do. But this provision is about approving what the parties have agreed, not inventing a new "remedy" to be used in litigated actions. It may be that in some litigated actions there is a substantive law basis for a court-imposed distribution measure of the sort the bracketed language describes. Claims for disgorgement, for example, might support such a measure. Though the substantive law upon which a claim is based might, therefore, support such a measure, this provision does not seek to authorize such a remedy.
Note that the Class Action Fairness Act itself has a small provision that authorizes something along this line. Thus, 28 U.S.C. § 1712(e) provides: "The court, in its discretion, may also require that a proposed settlement agreement provide for the distribution of a portion of the value of unclaimed coupons to 1 or more charitable or governmental organizations, as agreed to by the parties." This section of the statute deals with coupon settlements more generally, and not in a manner that encourages parties to use them. It is not certain whether resort to the cy pres aspect of CAFA has been attempted with any frequency.
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An argument in favor of Enabling Act authority could invoke the Supreme Court's Shady Grove decision and say that Rule 23 occupies this territory and the state law provision on cy pres treatment cannot be applied in federal court as a result. If that argument is right, it seems to provide some support for a rule that more explicitly deals with the sort of thing addressed above. But the bracketed sentence at the end of (C) might raise Enabling Act concerns. The bracketed "if authorized by law" suggestion in the draft rule above is a first cut at a way to sidestep these issues.
It may be said that the bracketed language is not necessary because this provision is only about settlement agreements. Settlement agreements can include provisions that the court could not order as a remedy in a litigated case. So there is latitude to give serious attention to adding references to cy pres treatment in the settlement-approval rule. But it can also be emphasized that the real bite behind the agreement comes from the court's judgment, not the agreement itself.
If the rule can provide such authority, should it so provide? Already quite a few federal judges have approved cy pres arrangements. Already some federal courts have approved the principles in the ALI's § 3.07, from which the first sketch above is drawn.
Despite all those unresolved issues, it may nonetheless be useful to reflect on what sorts of things a Committee Note might say:
Sketch of Draft Committee Note ideas
1 When a class action settlement for a payment of a specified amount is approved by the court 2 under Rule 23(e), there is often a claims process by which class members seek their shares of the 3 fund. In reviewing a proposed settlement, the court should focus on whether the claims process 4 might be too demanding, deterring or leading to denial of valid claims.37 Ideally, the entire fund 5 provided will be used (minus reasonable administrative costs) to compensate class members in 6 accord with the provisions of the settlement. 7 8 On occasion, however, funds are left over after all initial claims have been paid. Courts 9 faced with such circumstances have resorted on occasion to a practice invoking principles of cy pres 10 to support distribution of at least some portion of the settlement proceeds to persons or entities not 11 included in the class. In some instances, these measures have raised legitimate concerns. 12 13 Subdivision (e)(3) recognizes and regularizes this activity. The starting point is that the 14 settlement funds belong to the class members and do not serve as a resource for general "public 15 interest" activities overseen or endorsed by the court.38 Nonetheless, the possibility that there will
37 It might be attractive to be more forceful (and probably negative) somewhere about reversionary provisions. For example, the Note might say that if there is a reverter clause the court should look at the claims process very carefully to make sure that it does not impose high barriers to claiming. Probably that belongs in the general Rule 23(e) Committee Note about approving settlement proposals. It seems somewhat out of place here, even though it logically relates to the topic at hand.
38 Is this too strongly worded, or too much a bit of "political" justification?
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16 be a residue after the settlement distribution program is completed makes provision for this 17 possibility appropriate. Unless there is no prospect of a residue after initial payment of claims, the 18 issue should be included in the initial settlement and evaluated by the court along with the other 19 provisions of that proposal.39 [If no such provision is included in the initial proposal but a residue 20 exists after initial distribution to the class, the court may address the question at that point, but then 21 should consider whether a further notice to the class should be ordered regarding the proposed 22 disposition of the residue.40 ] 23 24 Subdivision (e)(3) does not create a new "remedy" for class actions. Such a remedy may be 25 available for some sorts of claims, such as disgorgement of ill-gotten funds, but this rule does not 26 authorize such a remedy for a litigated class action. The cy pres provision is something the parties 27 have included in their proposal to the court, and the court is therefore called upon to decide whether 28 to approve what the parties have agreed upon to resolve the case. 29 30 Subdivision (e)(3) provides rules that must be applied in deciding whether to approve cy pres 31 provisions. Paragraph (A) requires that settlement funds be distributed to class members if they can 32 be identified through reasonable effort when the distributions are large enough to be to make 33 distribution economically viable. It is not up to the court to determine whether the class members 34 are "deserving," or other recipients might be more deserving.41 Thus, paragraph (A) makes it clear 35 that cy pres distributions are a last resort, not a first resort. 36 37 Paragraph (B) follows up on the point in paragraph (A), and provides that even after the first 38 distribution is completed there must be a further distribution to class members of any residue if a 39 further distribution is economically viable. This provision applies even though class members have 40 been paid "in full" in accordance with the settlement agreement. Settlement agreements are 41 compromises, and a court may properly approve one that does not provide the entire relief sought 42 by the class members through the action. Unless it is clear that class members have no plausible 43 legal right to receive additional money, they should receive additional distributions.42 44
39 Is this too strong? It seems that addressing these issues up front is desirable, and giving notice to the class about the provision for a residue is also valuable. That ties in with the idea that this is about the court's general settlement review authority, and it may prompt attention to whether the claims process is too demanding.
40 Note that the Eighth Circuit raised the question whether, in the latter situation, there would be a need to notice the class a second time about this change in circumstances and the cy pres treatment under consideration. It seems that the better thing is to get the matter on the table at the outset, although that might make it seem that the parties expect the claims process to have faults. Probably devising a "perfect" claims process is very difficult, so a residue is not proof that the claims process was seriously flawed.
41 This responds to an argument made in the Eight Circuit case -- that the funds distributed would be to institutional investors, who were less deserving than the legal services agencies that would benefit from the cy pres distributions.
42 This is an effort to deal with the "paid in full" or "overcompensation" point.
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45 Paragraph (C), therefore, deals only with the rare case in which individual distributions are 46 not viable. The court should not assume that the cost of distribution is prohibitive unless presented 47 with evidence firmly supporting that conclusion.43 It should take account of the possibility that 48 electronic means may make identifying class members and distributing proceeds to them 49 inexpensive in some cases.44 [The rule does provide that the court may so assume for distributions 50 of less than $100.45 ] When the court finds that individual distributions would be economically 51 infeasible, it may approve an alternative use of the settlement funds if the substitute recipient's 52 interests "reasonably approximate those being pursued by the class." In general, that determination 53 should be made with reference to the nature of the claim being asserted in the case. [Only if no such 54 recipient can be identified may the court authorize distribution to another recipient, and then only if such distribution would serve the public interest.46 ]
(4) Objectors
The behavior of some objectors has aroused considerable ire among class-action practitioners. But it is clear that objectors play a key role in the settlement-approval process. Rule 23(e)(5) says that class members may object to the proposed settlement, and Rule 23(h)(2) says they may object to the proposed attorney fee award to class counsel. Judges may come to rely on them. CAFA requires that state attorneys general (or those occupying a comparable state office) receive notice of proposed settlements, and they may be a source of useful information to the judge called upon to approve or disapprove a proposed settlement.
The current rules place some limits on objections. Rule 23(e)(5) also says that objections may be withdrawn only with the court's permission. That requirement of obtaining the court's permission was added in 2003 in hopes that it would constrain "hold ups" that some objectors allegedly used to extract tribute from the settling parties.
Proposals have been made to the Appellate Rules Committee to adopt something like the approval requirement under rule 23(e)(5) for withdrawing an appeal from district-court approval of a settlement. Since the delay occasioned by an appeal is usually longer than the period needed to
43 If we are to authorize the "only cy pres" method, what can we say about the predicate for using it? The Note language addresses cost. How about cases in which there simply is no way to identify class members? Should those fall outside this provision?
44 This assertion is based on a hunch.
45 Should we include such a provision? As noted above, smaller distributions are reportedly done now. Suppose a bank fee case in which the bank improperly charged thousands of account holders amounts less than $100. Assuming the bank could easily identify those account holders and the amount of improperly charged fees, why not direct that their accounts be credited?
46 This is in brackets in the rule and the Note because, even if the parties agree and the class receives notice of the agreement, it seems a striking use of judicial power. Perhaps, as indicated above in the Note, it is mainly the result of the parties' agreement, not the court's power, which is limited to reviewing and deciding whether to approve the parties' agreement.
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review a proposed settlement at the district-court level, that sort of rule change might produce salutary results. But it might be that the district judge would be better positioned to decide whether to permit withdrawal of the appeal than the court of appeals. The Rule 23 Subcommittee intends to remain in touch with the Appellate Rules Committee on these issues as it proceeds with its attention to the civil rules.
Another set of ideas relates to requiring objectors to post a bond to appeal. In Tennille v. Western Union Co., 774 F.3d 1249 (10th Cir. 2014), the district court, relying on Fed. R. App. P. 7, entered an order requiring objectors who appealed approval of a class-action settlement to post a bond of over $1 million to cover (1) the anticipated cost of giving notice to the class a second time, (2) the cost of maintaining the settlement pending resolution of the appeals, and (3) the cost of printing and copying the supplemental record in the case (estimated at $25,000). The court of appeals ruled that the only costs for which a bond could be required under Appellate Rule 7 were those that could be imposed under a statute or rule, so the first two categories were entirely out, and the third category was possible, but that the maximum amount the appellate court could uphold would be $5,000. Other courts have occasionally imposed bond requirements. But the Subcommittee is not presently suggesting any civil rule changes on this subject.
Regarding the civil rules, it is not certain whether the adoption of the approval requirement in Rule 23(e)(5) in 2003 had a good effect in district court proceedings, although some reports indicate that it has. Two sets of ideas are under consideration. One slightly amplifies the Rule 23(e)(5) process by borrowing an idea from Rule 23(3)(2) -- that the party seeking to withdraw an objection advise the court of any "side agreements" that influenced the decision to withdraw. The other follows a suggestion in the ALI Aggregate Litigation principles for imposition of sanctions on those who make objections for improper purposes.
Adding a reporting obligation to (e)(5)
1 (e) Settlement, Voluntary Dismissal, or Compromise. The claims, issues, or defenses of a 2 certified class may be settled, voluntarily dismissed, or compromised only with the court's 3 approval. The following procedures apply to a proposed settlement, voluntary dismissal, or 4 compromise: 5 6 * * * * * 7 8 Alternative 1 9 10 (5) Any class member may object to the proposal if it requires court approval under this 11 subdivision (e); the objection may be withdrawn only with the court's approval, and 12 the parties must file a statement identifying any agreement made in connection with 13 the withdrawal. 14 15 Alternative 2 16 17 (5) Any class member may object to the proposal if it requires court approval under this
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18 subdivision (e); the objection may be withdrawn only after the filing of a statement 19 identifying any agreement made in connection with the withdrawal, and court approval of the request to withdraw the objection with the court's approval.
If it is true that the current provision requiring court approval for withdrawing an objection does the needed job, there may be no reason to add this reporting obligation. There is at least some reason to suspect that class counsel may take the position that there is already some sort of implicit reporting obligation. Experience with the efficacy of the existing reporting provision in (e)(3) may also shed light whether adding one to (e)(5) would be desirable.
Objector sanctions
§ 3.08(d) of the ALI Principles says:
If the court concludes that objectors have lodged objections that are insubstantial and not reasonably advanced for the purpose of rejecting or improving the settlement, the court should consider imposing sanctions against objectors or their counsel under applicable law.
Comment c to this section says that it "envisions that sanctions will be invoked based upon existing law (e.g., Fed. R. Civ. P. 11, 28 U.S.C. § 1927)."
This proposal raises a number of questions. One idea might be to say explicitly that any objection is subject to Rule 11. That may seem a little heavy handed with lay objectors, and a statement in the class settlement notice appearing to threaten sanctions might do more harm than good. Another idea might be to indicate in a rule that § 1927 is a source of authority to impose sanctions. But that would be a peculiar rule, since it would not provide any authority but only remind the court of its statutory authority. The ALI proposal's "should consider" formulation seems along that line. It does not say the court should do it, but only that the court should think about imposing sanctions.
It seems that a provision along these lines could serve a valuable purpose. In the 2000-02 period, when the 2003 amendments were under consideration, there was much anguish about how to distinguish "good" from "bad" objectors. There is no doubt whatsoever that there are good ones, whose points assist the court and improve the settlement in many instances. But it seems very widely agreed that there are also some bad objectors who seek to profit by delaying final consummation of the deal.
Defining who is a "good" or a "bad" objector in a rule is an impossible task. But there is reason to think that judges can tell in the specific context of a given case and objection. So the goal here would be to rely on the judge's assessment of the behavior of the objector rather than attempt in a rule to specify. Discussion on this topic has only begun in the Subcommittee, but for purposes of broader airing of the issues the following conceptual draft ideas might be informative:
Alternative 1
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1 (5) Any class member may, subject to Rule 11, object to the proposal if it requires court 2 approval under this subdivision (3); the objection may be withdrawn only with the 3 court's approval. 4 5 Alternative 2 6 7 (5) Any class member may object to the proposal if it requires court approval under this 8 subdivision (e); the objection may be withdrawn only with the court's approval. If the 9 court finds that an objector has made objections that are insubstantial [and] {or} not 10 reasonably advanced for the purpose of rejecting or improving the settlement, the 11 court [should] {may} impose sanctions on objectors or their counsel {under applicable law}.
Simply invoking Rule 11 (Alternative 1) may be simplest. But as noted above, it may also deter potential objectors too forcefully. One might debate whether the certifications of Rule 11(b) are properly applied here. Invoking Rule 11(c) in this rule might be simpler than trying to design parallel features here. On the other hand, (e)(5) says that the objector may withdraw the objection only with the court's approval while Rule 11's safe harbor provision seems not to require any court approval but instead to permit (perhaps to prompt) a unilateral withdrawal. Rule 11(c) also requires that the party who seeks Rule 11 sanctions first prepare and serve (but not file) a motion for sanctions, which might be a somewhat wasteful requirement.
Alternative 2 is more along the lines of the ALI proposal. But perhaps a provision like this one should create authority for imposing sanctions. The ALI approach seems to rely on authority from somewhere else. If the rule does not create such authority, it sounds more like an exhortation than a rule. The choice between possible verbs – "should" or "may" – seems to bear somewhat on this issue. To say "may" is really saying only that courts are permitted to do what the rules already say they may do; it's like a reminder. To say "should" is an exhortation. Does it supplant the "may" that appears in Rule 11? Perhaps judges are to be quicker on the draw with objectors than original parties. One could also consider saying "must," but since that was rejected for Rule 11 it would seem odd here. In any event, if the rule creates authority to impose sanctions, perhaps it should say what sanctions are authorized.
The description in Alternative 2 of the finding that the court must make to proceed to sanctions on the objector deserves attention. There is a choice between "and" and "or" regarding whether objections that are "insubstantial" were also not advanced for a legitimate purpose. Probably a judge would not distinguish between these things; if the objection is substantial, maybe it is nonetheless advanced for improper reasons. But would a judge ever think so? Does the fact of proposed withdrawal show that an objection was insubstantial? Seemingly not. Objectors often abandon objections when they get a full explanation of the details of the proposed settlement. So for them the use of "and" seems important; they withdraw the objections when they learn more about the deal, and that shows that they were not interposing the objections for an improper purpose. Could an objector who raises substantial objections but also has an improper purpose be sanctioned? The ALI proposal does not condition sanctions on a finding that the objection is meritless. Maybe the judge will act on the objection even though the objector has tried to withdraw it.
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It seems worthwhile to mention another question that might arise if sanctions on objectors were considered – should the court consider sanctions on the parties submitting a flawed proposal to settle? If it is really a "reverse auction" type of situation – odious to the core – should the court be reminded that Rule 11 surely does apply to the submissions in support of the proposal? Should it at least be advised to consider replacing class counsel or the class representative or both to give effect to the adequate representation requirements of Rule 23(a)(4)?
It is obvious that much further attention will be needed to sort through the various issues raised by the sanctions possibility. For the present, the main question is whether it is worthwhile to sort through those difficult questions. The sketches above are offered only to provide a concrete focus for that discussion.
(5) Rule 68 Offers and Mootness
The problem of settlement offers made to the proposed class representative that fully satisfy the representative's claim and thereby "pick off" and moot the class action seems to exist principally in the Seventh Circuit. Outside the 7th Circuit there is little enthusiasm for "picking off" the class action with a Rule 68 offer or other sort of settlement offer. Below are three different (perhaps coordinated) ways of dealing with this problem. The first is Ed Cooper's sketch circulated on Dec. 2.
First Sketch: Rule 23 Moot (Cooper approach)
1 (x) (1) When a person sues [or is sued] as a class representative, the action can be terminated by a 2 tender of relief only if 3 (A) the court has denied class certification and 4 (B) the court finds that the tender affords complete relief on the representative’s 5 personal claim and dismisses the claim. 6 (2) A dismissal under Rule 23(x)(1) does not defeat the class representative’s standing to appeal the order denying class certification.
Committee Note
1 A defendant may attempt to moot a class action before a certification ruling is made by 2 offering full relief on the individual claims of the class representative. This ploy should not be 3 allowed to defeat the opportunity for class relief before the court has had an opportunity to rule on 4 class certification. 5 6 If a class is certified, it cannot be mooted by an offer that purports to be for complete class 7 relief. The offer must be treated as an offer to settle, and settlement requires acceptance by the class 8 representative and approval by the court under Rule 23(e). 9 10 Rule 23(x)(1) gives the court discretion to allow a tender of complete relief on the 11 representative’s claim to moot the action after a first ruling that denies class certification. The tender
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12 must be made on terms that ensure actual payment. The court may choose instead to hold the way 13 open for certification of a class different than the one it has refused to certify, or for reconsideration 14 of the certification decision. The court also may treat the tender of complete relief as mooting the 15 representative’s claim, but, to protect the possibility that a new representative may come forward, 16 refuse to dismiss the action. 17 18 If the court chooses to dismiss the action, the would-be class representative retains standing 19 to appeal the denial of certification. [say something to explain this?] 20 21 [If we revise Rule 23(e) to require court approval of a settlement, voluntary dismissal, or compromise of the representative’s personal claim, we could cross-refer to that.]
Rule 68 approach
Rule 68. Offer of Judgment
* * * * *
1 (e) Inapplicable in Class and Derivative Actions. This rule does not apply to class or derivative actions under Rules 23, 23.1, or 23.2.
This addition is drawn from the 1984 amendment proposal for Rule 68. See 102 F.R.D. at 433.
This might solve a substantial portion of the problem, but does not seem to get directly at the problem in the manner that the Cooper approach does. By its terms, Rule 68 does not moot anything. It may be that an offer of judgment strengthens an argument that the case is moot, because what plaintiffs seek are judgments, not promises of payment, the usual stuff of settlement offers. Those judgments do not guarantee actual payment, as the Cooper approach above seems intended to do with its tender provisions. But a Committee Note to such a rule might be a way to support the conclusion that we have accomplished the goal we want to accomplish. Here is what the 1984 Committee Note said:
The last sentence makes it clear that the amended rule does not apply to class or derivative actions. They are excluded for the reason that acceptance of any offer would be subject to court approval, see Rules 23(e) and 23.1, and the offeree's rejection would burden a named representative-offeree with the risk of exposure to potentially heavy liability that could not be recouped from unnamed class members. The latter prospect, moreover, could lead to a conflict of interest between the named representative and other members of the class. See, Gay v.Waiters & Dairy Lunchmen's Union, Local 30, 86 F.R.D. 500 (N.D. Cal. 1980).
Alternative Approach in Rule 23
Before 2003, there was a considerable body of law that treated a case filed as a class action
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as subject to Rule 23(e) at least until class certification was denied. A proposed individual settlement therefore had to be submitted to the judge for approval before the case could be dismissed. Judges then would try to determine whether the proposed settlement seemed to involve exploiting the class-action process for the individual enrichment of the named plaintiff who was getting a sweet deal for her "individual" claim. If not, the judge would approve it. If there seemed to have been an abuse of the class-action device, the judge might order notice to the class of the proposed dismissal, so that other class members could come in and take up the litigation cudgel if they chose to do so. Failing that, the court might permit dismissal.
The requirement of Rule 23(e) review for "individual" settlements was retained in the published preliminary draft in 2003. But concerns arose after the public comment period about how the court should approach situations in which the class representative did seem to be attempting to profit personally from filing a class action. How could the court force the plaintiff to proceed if the plaintiff wanted to settle? One answer might be that plaintiff could abandon the suit, but note that "voluntary dismissal" is covered by the rule's approval requirement. Another might be that the court could sponsor or encourage some sort of recruitment effort to find another class representative. In light of these difficulties, the amendments were rewritten to apply only to claims of certified classes.
1 (e) Settlement, Voluntary Dismissal, or Compromise. 2 3 (1) Before certification. An action filed as a class action may be settled, voluntarily 4 dismissed, or compromised before the court decides whether to grant class-action 5 certification only with the court's approval. The [parties] {proposed class 6 representative} must file a statement identifying any agreement made in connection 7 with the proposed settlement, voluntary dismissal, or compromise. 8 9 (2) Certified class. The claims, issues, or defenses of a certified class may be settled, 10 voluntarily dismissed, or compromised only with the court's approval. The following 11 procedures apply to a proposed settlement, voluntary dismissal, or compromise: 12 13 (A1) The court must direct notice in a reasonable manner * * * * * 14 15 (3) Settlement after denial of certification. If the court denies class-action 16 certification, the plaintiff may settle an individual claim without prejudice to seeking appellate review of the court's denial of certification.
The Committee Note could point out that there is no required notice under proposed (e)(1). It could also note that prevailing rule before 2003 that the court should review proposed "individual" settlements. The ALI Principles endorsed such an approach:
This Section favors the approach of requiring limited judicial oversight. The potential risks of precertification settlements or voluntary dismissals that occur without judicial scrutiny warrant a rule requiring that such settlements take effect only with prior judicial approval, after the court has had the opportunity to review the terms of the settlement, including fees paid to counsel. Indeed the very requirement of court approval
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may deter parties from entering into problematic precertification settlements.
ALI Principles § 3.02 comment (b).
Proposed (e)(3) seeks to do something included also in the Cooper approach above -- ensure that the proposed class representative can appeal denial of certification even after settling the individual claim. Whether something of the sort is needed is uncertain. The issues involved were the subject of considerable litigation in the semi-distant past. See, e.g., United States Parole Comm'n v. Geraghty, 445 U.S. 388 (1980); Deposit Guaranty Nat. Bank v. Roper, 445 U.S. 326 (1980); United Airlines, Inc. v. McDonald, 432 U.S. 385 (1977). It is not presently clear whether this old law is still good law. It might also be debated whether the class representative should be allowed to appeal denial of certification. Alternatively, should class members be given notification that they can appeal? In the distant past, there were suggestions that class members should be notified when the proposed class representative entered into an individual settlement, so that they could seek to pursue the class action.
(6) Issue Classes
A major reason for considering possible rule amendments to deal with issue classes is that there has seemed to be a split in the circuits about whether they can only be allowed if (b)(3) predominance is established. At a point in time, it appeared that the Fifth and Second Circuits were at odds on this subject. But recent reports suggest that all the circuits are coming into relative agreement that in appropriate cases Rule 23(c)(4) can be used even though full Rule 23(b)(3) certification is not possible due to the predominance requirement. If agreement has arrived, it may be that a rule amendment is not in order. But even if agreement has arrived, an amendment might be in order to permit immediate appellate review of the district court's decision of the issue on which the class was certified, before the potentially arduous task of determination of class members' entitlement to relief begins.
Clarifying that predominance is not a prerequisite to 23(c)(4) certification
1 (3) the court finds that the questions of law or fact common to class members 2 predominate over any questions affecting only individual members, subject to 3 Rule 23(c)(4), and that a class action is superior to other available methods for fairly 4 and efficiently adjudicating the controversy. The matters pertinent to these findings include: * * * *
The goal of placement here is to say that predominance, but not superiority, is subject to Rule 23(c)(4). A Committee Note could amplify this point. It might also say that a court trying to decide whether issue certification is "appropriate" (as (c)(4) says it should decide) could consider the factors listed in (A) through (D) of (b)(3). It does not seem there would be a need to consider changing (A) through (D) in (b)(3). In 1996, draft amendments to those factors were published for public comment and, after a very large amount of public comment, not pursued further. The relation between (b)(3) and (c)(4) does not seem to warrant considering changes to the factors.
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Allowing courts of appeals to review decision of the common issues immediately rather than only after final judgment
Because the resolution of the common issue in a class action certified under Rule 23(c)(4) is often a very important landmark in the action, and one that may lead to a great deal more effort to determine individual class members' entitlement to relief, it seems desirable to offer an avenue of immediate review. Requiring that all that additional effort be made before finding out whether the basic ruling will be reversed may in many instances be a strong reason for granting such immediate review. But there may be a significant number of cases in which this concern is not of considerable importance.
§ 2.09(a) of the ALI Principles endorses this objective: "An opportunity for interlocutory appeal should be available with respect to * * * (2) any class-wide determination of a common issue on the merits * * * ." The ALI links this interlocutory review opportunity to review of class certification decisions (covered in ALI § 2.09(a)(1)). It seems that the logical place to insert such a provision is into Rule 23(f), building on the existing mechanism for interlocutory review of class- certification orders:
1 (f) Appeals. A court of appeals may permit an appeal from an order granting or 2 denying class-action certification under this rule, or from an order deciding an issue 3 with respect to which [certification was granted under Rule 23(c)(4)] {a class action 4 was allowed to be maintained under Rule 23(c)(4)} [if the district court expressly 5 determines that there is no just reason for delay], if a petition for permission to appeal is filed with the circuit clerk within 14 days after the order is entered. * * *
The Subcommittee has only recently turned its attention to these issues; as a result the above conceptual sketch is particularly preliminary. Several choices are suggested by the use of brackets or braces around language in the draft above.
One is whether to say "certification was granted under Rule 23(c)(4)" or to stick closer to the precise language of (c)(4) – “was allowed to be maintained under Rule 23(c)(4)." It may be that referring to "class certification" would be preferred because it ties in with the term used in the current provisions of the rule. Rule 23(b) says "may be maintained" but that terminology is not repeated in current 23(f) when addressing the decision that it may be maintained. On the other hand, it is not that decision that would be subject to review under the added provision of the rule. Instead, it is the later resolution of that issue by further proceedings in the district court.
Another choice is suggested by the bracketed language referring to district-court certification that there is no just reason for delay. That is modeled on Rule 54(b). It might be useful to intercept premature or repeated efforts to obtain appellate review with regard to issues as to which (c)(4) certification was granted. For example, could a defendant that moved for summary judgment on the common issue contend that the denial of the summary-judgment motion "decided" the issue? Perhaps it would be desirable to endow the district court with some latitude in triggering the opportunity to seek appellate review, since a significant reason for allowing it is to avoid wasted
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On the other hand, if the goal of the amendment is to ensure the losing party of prompt review of the decision of the common issue, it might be worrisome if the district judge's permission were required. It is not required with regard to class-certification decisions, and there may be instances in which parties contend that the district court has delayed resolution of class certification, thereby defeating their right to obtain appellate review of certification.
Lying in the background is the question whether this additional provision in Rule 23(f) would serve an actual need. As noted above, it appears that use of issue classes has become widespread. What is the experience with the "mop up" features of those cases after that common issue is resolved? Does that "mop up" activity often consume such substantial time and energy that an interlocutory appeal should be allowed to protect against waste? Are those issues straightened out relatively easily, leading to entry of a final judgment from which appeal can be taken in the normal course? Is there a risk that even a discretionary opportunity for interlocutory appeal would invite abuse? Are there cases in which the court declines to proceed with resolution of all the individual issues, preferring to allow class members to pursue them in individual litigation? If so, how is a final appealable judgment entered in such cases? If that route is taken, what notice is given to class members of the need to initiate further proceedings?
So there are many questions to be addressed in relation to this possible addition to the rules. Another might be whether it should be considered only if the amendment to Rule 23(b)(3) went forward. If it seems that amendment is not really needed because the courts have reached a consensus on whether issue classes can be certified even when (b)(3) would not permit certification with regard to the entire claim, there could still be a need for a revision to Rule 23(f) along the lines above. Answers to the questions in the previous paragraph about what happens now might inform that background question about the importance of proceeding on the 23(f) possibility.
(7) Notice
Changing the notice requirement in (b)(3) cases
In Eisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974), the Court observed (id. at 173-71, emphasis in original):
Rule 23(c)(2) provides that, in any class action maintained under subdivision (b)(3), each class member shall be advised that he has the right to exclude himself from the action on request or to enter an appearance through counsel, and further that the judgment, whether favorable or not, will bind all class members who not requesting exclusion. To this end, the court is required to direct to class members "the best notice practicable under the circumstances including individual notice to all members who can be identified through reasonable effort." We think the import of this language is unmistakable. Individual notice must be sent to all class members whose names and addresses may be ascertained through reasonable effort.
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The Advisory Committee's Note to Rule 23 reinforces this conclusion. The Advisory Committee described subdivision (e)(2) as "not merely discretionary" and added that the "mandatory notice pursuant to subdivision (c)(2) . . . is designed to fulfill requirements of due process to which the class procedure is of course subject." [The Court discussed Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306 (1950), and Schroeder v. City of New York, 371 U.S. 208 (1962), emphasizing due process roots of this notice requirement and stating that "notice by publication is not enough with respect to a person whose name and address are known or very easily ascertainable."]
Viewed in this context, the express language and intent of Rule 23(c)(2) leave no doubt that individual notice must be provided to those class members who are identifiable through reasonable effort.
Research would likely shed light on the extent to which more recent cases regard means other than U.S. mail as sufficient to give "individual notice." The reality of 21st century life is that other means often suffice. The question is whether or how to alter Rule 23(c)(2) to make it operate more sensibly. Here are alternatives:
1 (2) Notice 2 3 * * * * * 4 5 (B) For (b)(3) Classes. For any class certified under Rule 23(b)(3), the court must direct 6 to class members the best notice that is practicable under the circumstances, 7 including individual notice by electronic or other means to all members who can be identified through reasonable effort. * * * * *
It is an understatement to say that much has changed since Eisen was decided. Perhaps it is even correct to say that a communications revolution has occurred. Certainly most Americans are accustomed today to communicating in ways that were not possible (or even imagined) in 1974. Requiring mailed notice of class certification seems an anachronism, and some reports indicate that judges are not really insisting on it.
Indeed, the current ease of communicating with class members has already arisen with regard to the cy pres discussion, topic (3) above. There, the possibility of excusing payouts to class members for amounts smaller than $100 is raised as a possibility, but it is also suggested that much smaller payouts can now be made efficiently using refined electronic means. More generally, it appears that enterprises that specialize in class action administration have gained much expertise in communicating with class members. Particularly in an era of "big data," lists of potential class members may be relatively easy to generate and use for inexpensive electronic communications.
For the present, the main question is whether there is reason not to focus on some relaxation of the current rule that would support a Committee Note saying that first class mail is no longer required by the rule. Such a Note could presumably offer some observations about the variety of alternative methods of communicating with class members, and the likelihood that those methods
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Notice in Rule 23(b)(1) or (b)(2) actions
Another question that could be raised is whether these developments in electronic communications also support reconsideration of something that was considered but not done in 2001-02.
The package of proposed amendments published for comment in 2001 included a provision for reasonable notice (not individual notice, and surely not mandatory mailed notice) in (b)(1) and (b)(2) class actions. Presently, the rule contains no requirement of any notice at all in those cases, although Rule 23(c)(2)(A) notes that the court "may direct appropriate notice to the class." In addition, Rule 23(d)(1)(B) invites the court to give "appropriate notice to some or all class members" whenever that seems wise. And if a settlement is proposed, the notice requirement of Rule 23(e)(1) applies and "notice in a reasonable manner" is required. But if a (b)(1) or (b)(2) case is fully litigated rather than settled, the rule does not require any notice at any time.
It is thus theoretically possible that class members in a (b)(1) or (b)(2) class action might find out only after the fact that their claims are foreclosed by a judgment in a class action that they knew nothing about.
In 2001-02, there was much forceful opposition to the proposed additional rule requirement of some reasonable effort at notice of class certification on the ground that it was already difficult enough to persuade lawyers to take such cases, and that this added cost would make an already difficult job of getting lawyers to take cases even more difficult, and perhaps impossible. The idea was shelved.
Is it time to take the idea off the shelf again? One question is whether the hypothetical problem of lack of notice is not real. It is said that (b)(2) classes exhibit more "cohesiveness," so that they may learn of a class action by informal means, making a rule change unnecessary. It may also be that there is almost always a settlement in such cases, so that the Rule 23(e) notice requirement does the needed job. (Of course, that may occur at a point when notice is less valuable than it would have been earlier in the case.) And it may be that the cost problems that were raised 15 years ago have not abated, or have not abated enough, for the vulnerable populations that are sometimes the classes in (b)(2) actions.
The Subcommittee has not devoted substantial attention to these issues. For present purposes, this invitation is only to discuss the possibility of returning to the issues not pursued in 2002. If one wanted to think about how a rule change might be made, one could consider replacing the word "may" in Rule 23(c)(2)(A) with "must." A Committee Note might explore the delicate issues that courts should have in mind in order to avoid unduly burdening the public interest lawyers often called upon to bring these cases, and the public interest organizations that often provide support to counsel, particularly when the actions may not provide substantial attorney fee or cost awards.
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Appendix I
Settlement Review Factors: 2000 Draft Note
As an alternative approach to factors, particularly not on the list of four the conceptual draft rule endorses as mandatory findings for settlement approval, the following is an interim draft of possible Committee Note language considered during the drafting of current Rule 23(e).
Reviewing a proposed class-action settlement often will not be easy. Many settlements can be evaluated only after considering a host of factors that reflect the substance of the terms agreed upon, the knowledge base available to the parties and to the court to appraise the strength of the class’s position, and the structure and nature of the negotiation process. A helpful review of many factors that may deserve consideration is provided by In re: Prudential Ins. Co. America Sales Practice Litigation Agent Actions, 148 F.3d 283, 316-324 (3d Cir.1998). Any list of these factors must be incomplete. The examples provided here are only examples of factors that may be important in some cases but irrelevant in others. Matters excluded from the examples may, in a particular case, be more important than any matter offered as an example. The examples are meant to inspire reflection, no more.
Many of the factors reflect practices that are not fully described in Rule 23 itself, but that often affect the fairness of a settlement and the court’s ability to detect substantive or procedural problems that may make approval inappropriate. Application of these factors will be influenced by variables that are not listed. One dimension involves the nature of the substantive class claims, issues, or defenses. Another involves the nature of the class, whether mandatory or opt-out. Another involves the mix of individual claims — a class involving only small claims may be the only opportunity for relief, and also pose less risk that the settlement terms will cause sacrifice of recoveries that are important to individual class members; a class involving a mix of large and small individual claims may involve conflicting interests; a class involving many claims that are individually important, as for example a mass-torts personal-injury class, may require special care. Still other dimensions of difference will emerge. Here, as elsewhere, it is important to remember that class actions span a wide range of heterogeneous characteristics that are important in appraising the fairness of a proposed settlement as well as for other purposes.
Recognizing that this list of examples is incomplete, and includes some factors that have not been much developed in reported decisions, among the factors that bear on review of a settlement are these:
(A) a comparison of the proposed settlement with the probable outcome of a trial on the merits of liability and damages as to the claims, issues, or defenses of the class and individual class members;
(B) the probable time, duration, and cost of trial;
(C) the probability that the [class] claims, issues, or defenses could be maintained through trial on a class basis;
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(D) the maturity of the underlying substantive issues, as measured by the information and experience gained through adjudicating individual actions, the development of scientific knowledge, and other facts that bear on the ability to assess the probable outcome of a trial and appeal on the merits of liability and individual damages as to the claims, issues, or defenses of the class and individual class members;
(E) the extent of participation in the settlement negotiations by class members or class representatives, a judge, a magistrate judge, or a special master;
(F) the number and force of objections by class members;
(G) the probable resources and ability of the parties to pay, collect, or enforce the settlement compared with enforcement of the probable judgment predicted under Rule 23(e)(5)(A);
(H) the existence and probable outcome of claims by other classes and subclasses;
(I) the comparison between the results achieved for individual class or subclass members by the settlement or compromise and the results achieved — or likely to be achieved — for other claimants;
(J) whether class or subclass members are accorded the right to opt out of the settlement;
(K) the reasonableness of any provisions for attorney fees, including agreements with respect to the division of fees among attorneys and the terms of any agreements affecting the fees to be charged for representing individual claimants or objectors;
(L) whether the procedure for processing individual claims under the settlement is fair and reasonable;
(M) whether another court has rejected a substantially similar settlement for a similar class; and
(N) the apparent intrinsic fairness of the settlement terms.
Apart from these factors, settlement review also may provide an occasion to review the cogency of the initial class definition. The terms of the settlement themselves, or objections, may reveal an effort to homogenize conflicting interests of class members and with that demonstrate the need to redefine the class or to designate subclasses. Redefinition of the class or the recognition of subclasses is likely to require renewed settlement negotiations, but that prospect should not deter recognition of the need for adequate representation of conflicting interests. This lesson is entrenched by the decisions in Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999), and Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (1997).
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Appendix II
Prevailing Class Action Settlement Approval Factors Circuit-By-Circuit
First Circuit
No "single test." See: In re Compact Disc Minimum Advertised Price Antitrust Litigation, 216 F.R.D. 197-206-207 (D. Me. 2003) (Hornby, J.):
"There is no single test in the First Circuit for determining the fairness, reasonableness and adequacy of a proposed class action settlement. In making this assessment, other circuits generally consider the negotiating process by which the settlement was reached and the substantive fairness of the terms of the settlement compared to the result likely to be reached at trial. See, e.g., Weinberger v. Kendrick, 698 F.2d 61, 73-74 (2d Cir. 1982). Specifically, the appellate courts consider some or all of the following factors: (1) comparison of the proposed settlement with the likely result of litigation; (2) reaction of the class to the settlement; (3) stage of the litigation and the amount of discovery completed; (4) quality of counsel; (5) conduct of the negotiations; and (6) prospects of the case, including risk, complexity, expense and duration. [citing cases.] Finally, the case law tells me that a settlement following sufficient discovery and genuine arm's-length negotiation is presumed fair." [citing cases.]
Second Circuit
"Grinnell Factors"
City of Detroit v. Grinnell, 495 F.2d 448, 463 (2d Cir. 1974):
". . (1) the complexity, expense and likely duration of the litigation . . .; (2) the reaction of the class to the settlement . . .; (3) the stage of the proceedings and the amount of discovery completed . . .; (4) the risks of establishing liability . . .; (5) the risks of establishing damages . . .; (6) the risks of maintaining the class action through the trial . . .; (7) the ability of the defendants to withstand a greater judgment; (8) the range of reasonableness of the settlement fund in light of the best possible recovery . . .; (9) the range of reasonableness of the settlement fund to a possible recovery in light of all the attendant risks of litigation. . . ."
Third Circuit
"Girsh Factors" (adopts Grinnell factors)
Girsh v. Jepson, 521 F.2d 153, 157 (3rd Cir. 1975)
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Fourth Circuit
"Jiffy Lube Factors"
In re Jiffy Lube Securities Litigation, 927 F.2d 155, 158-159 (4th Cir. 1991):
"In examining the proposed . . . settlement for fairness and adequacy under Rule 23(e), the district court properly followed the fairness factors listed in Maryland federal district cases which have interpreted the Rule 23(e) standard for settlement approval. See In re Montgomery County Real Estate Antitrust Litigation, 83 F.R.D. 305 (D. Md. 1979).) The court determined that the settlement was reached as a result of good-faith bargaining at arm's length, without collusion, on the basis of (1) the posture of the case at the time settlement was proposed, (2) the extent of discovery that had been conducted, (3) the circumstances surrounding the negotiations, and (4) the experience of counsel in the area of securities class action litigation. . . .
The district court's assessment of the adequacy of the settlement was likewise based on factors enumerated in Montgomery: (1) the relative strength of the plaintiffs' case on the merits, (2) the existence of any difficulties of proof or strong defenses the plaintiffs are likely to encounter if the case goes to trial, (3) the anticipated duration and expense of additional litigation, (4) the solvency of the defendants and the likelihood of recovery on a litigated judgment, and (5) the degree of opposition to the settlement."
Fifth Circuit
"Reed Factors"
Reed v. General Motors Corp., 703 F.2d 170, 172 (5th Cir. 1983):
"(There are six focal facets: (1) the existence of fraud or collusion behind the settlement; (2) the complexity, expense, and likely duration of the litigation; (3) the stage of the proceedings and the amount of discovery completed; (4) the probability of plaintiffs' success on the merits; (5) the range of possible recovery; and (6) the opinions of the class counsel, class representatives, and absent members."
Sixth Circuit
"UAW Factors"
Int'l Union, United Auto. Workers, etc. v. General Motors Corp., 497 F.3d 615 (Sixth Cir. 2007):
"Several factors guide the inquiry: (1) the risk of fraud or collusion; (2) the complexity, expense and likely duration of the litigation; (3) the amount of discovery engaged in by the parties; (4) the likelihood of success on the merits; (5) the opinions of class counsel and class representatives; (6) the reaction of absent class members; and (7) the public interest. See
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Granada Invs., Inc. v. DWG Corp., 962 F.2d 1203, 1205 (6th Cir. 1992); Williams v. Vukovich, 720 F.2d 909, 922-23 (6th Cir. 1983).
Seventh Circuit
"Armstrong Factors"
Armstrong v. Jackson, 616 F.2d 305, 315 (7th Cir. 1980):
"Although review of class action settlements necessarily proceeds on a case-by-case basis, certain factors have been consistently identified as relevant to the fairness determination. The district court's opinion approving the settlement now before us listed these factors:
Among the factors which the Court should consider in judging the fairness of the proposal are the following:
"(1) " * * * the strength of the case for plaintiffs on the merits, balanced against the amount offered in settlement';
"(2) "(T)he defendant's ability to pay';
"(3) "(T)he complexity, length and expense of further litigation';
"(4) "(T)he amount of opposition to the settlement';"
Professor Moore notes in addition the factors of:
"(1) * * *
"(2) Presence of collusion in reaching a settlement;
"(3) The reaction of members of the (class to the settlement;
"(4) The opinion of competent counsel;
"(5) The stage of the proceedings and the amount of discovery completed."
3B Moore's Federal Practice P 23.80(4) at 23-521 (2d ed. 1978)"
Eighth Circuit
"Grunin Factors"
Grunin v. International House of Pancakes, 513 F.2d 114, 124 (8th Cir. 1975):
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"The district court must consider a number of factors in determining whether a settlement is fair, reasonable, and adequate: the merits of the plaintiff's case, weighed against the terms of the settlement; the defendant's financial condition; the complexity and expense of further litigation; and the amount of opposition to the settlement. Grunin, 513 F.2d at 124. . . .; Van Horn v. Trickey, 840 F.2d 604, 607 (8th Cir. 1988).”
Ninth Circuit
"Hanlon Factors"
Hanlon v. Chrysler Corp., 150 F.3d 1011, 1026 (9th Cir. 1998):
"Assessing a settlement proposal requires the district court to balance a number of factors: the strength of the plaintiffs' case; the risk, expense, complexity, and likely duration of further litigation; the risk of maintaining class action status throughout the trial; the amount offered in settlement; the extent of discovery completed and the stage of the proceedings; the experience and views of counsel; the presence of a governmental participant; and the reaction of the class members to the proposed settlement."
Tenth Circuit
"Jones Factors"
Jones v. Nuclear Pharmacy, 741 F.2d 322 (10th Cir. 1984):
"In exercising its discretion, the trial court must approve a settlement if it is fair, reasonable and adequate. In assessing whether the settlement is fair, reasonable and adequate the trial court should consider:
(1) whether the proposed settlement was fairly and honestly negotiated;
(2) whether serious questions of law and fact exist, placing the ultimate outcome of the litigation in doubt;
(3) whether the value of an immediate recovery outweighs the mere possibility of future relief after protracted and expensive litigation; and
(4) the judgment of the parties that the settlement is fair and reasonable."
Eleventh Circuit
"Bennett Factors"
Bennett v. Behring Corp., 737 F.2d 982, 986 (11th Cir. 1984) (quoting Cotton v. Hinton, 559 F.2d at 1330-31 (5th Cir. 1977):
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"Our review of the district court's order reveals that in approving the subject settlement, the court carefully identified the guidelines established by this court governing approval of class action settlements. Specifically, the court made findings of fact that there was no fraud or collusion in arriving at the settlement and that the settlement was fair, adequate and reasonable, considering (1) the likelihood of success at trial; (2) the range of possible recovery; (3) the point on or below the range of possible recovery at which a settlement is fair, adequate and reasonable; (4) the complexity, expense and duration of litigation; (5) the substance and amount of opposition to the settlement; and (6) the stage of proceedings at which the settlement was achieved."
D.C. Circuit
No "single test." Courts consider factors from other jurisdictions.
See In re Livingsocial Marketing and Sales Practice Litigation, 298 F.R.D. 1, 11 (D.R.C. 2013):
"There is "no single test" for settlement approval in this jurisdiction; rather, courts have considered a variety of factors, including: "(a) whether the settlement is the result of arms-length negotiations; (b) the terms of the settlement in relation to the strengths of plaintiffs' case; (c) the status of the litigation proceedings at the time of settlement; (d) the reaction of the class; and (e) the opinion of experienced counsel." In re Lorazepam & Clorazepate Antitrust Litig., 205 F. R. D. 369, 375 (D.D.C. 2002) ("Lorazect") (collecting cases)."
Federal Circuit
Dauphin Island Property Owners Assoc. v. United States, 90 Fed. Cl. 95 (2009):
"The case law and rules of this court do not provide definitive factors for evaluating the fairness of a proposed settlement. Many courts have, however, considered the following factors in determining the fairness of a class settlement:
(1) The relative strengths of plaintiffs' case in comparison to the proposed settlement, which necessarily takes into account:
(a) The complexity, expense and likely duration of the litigation; (b) the risks of establishing liability; (c) the risks of establishing damages; (d) the risks of maintaining the class action through trial; (e) the reasonableness of the settlement fund in light of the best possible recovery; (f) the reasonableness of the settlement fund to a possible recovery in light of all the attendant risks of litigation; (g) the stage of the proceedings and the amount of discovery completed; (h) the risks of maintaining the class action through trial;
(2) The recommendation of the counsel for the class regarding the proposed settlement, taking into account the adequacy of class counsels' representation of the
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class;
(3) The reaction of the class members to the proposed settlement, taking into account the adequacy of notice to the class members of the settlement terms;
(4) The fairness of the settlement to the entire class;
(5) The fairness of the provision for attorney fees;
(6) The ability of the defendants to withstand a greater judgment, taking into account whether the defendant is a governmental actor or a private entity. . . .
Most importantly, this court must compare the terms of the settlement agreement with the potential rewards of litigation and consider the negotiation process through which agreement was reached."
California
Kullar v. Foot Locker Retail Inc., 168 Cal. App. 4th 116, 128 (Cal. App. 2008) (quoting Dunk v. Ford Motor Co., 48 Cal. App. 4th 1794, 1801 (Cal. App. 1996):
"The well-recognized factors that the trial court should consider in evaluating the reasonableness of a class action settlement agreement include "the strength of plaintiffs' case, the risk, expense, complexity and likely duration of further litigation, the risk of maintaining class action status through trial, the amount offered in settlement, the extent of discovery completed and the stage of the proceedings, the experience and views of counsel, the presence of a governmental participant, and the reaction of the class members to the proposed settlement."
Principles of Aggregate Litigation (ALI 2010)
§ 3.05 Judicial Review of the Fairness of a Class Settlement
(a) Before approving or rejecting any classwide settlement, a court must conduct a fairness hearing. A court reviewing the fairness of a proposed class-action settlement must address, in on-the-record findings and conclusions, whether:
(1) the class representatives and class counsel have been and currently are adequately representing the class;
(2) the relief afforded to the class (taking into account any ancillary agreement that may be part of the settlement) is fair and reasonable given the costs, risks, probability of success, and delays of trial and appeal;
(3) class members are treated equitably (relative to each other) based on their
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facts and circumstances and are not disadvantaged by the settlement considered as a whole; and
(4) the settlement was negotiated at arm's length and was not the product of collusion.
(b) The court may approve a settlement only if it finds, based on the criteria in subsection (a), that the settlement would be fair to the class and to every substantial segment of the class. A negative finding on any of the criteria specified in subsections (a)(1)-(a)(4) renders the settlement unfair. A settlement may also be found to be unfair for any other significant reason that may arise from the facts and circumstances of the particular case.
(c) The burden is on the proponents of a settlement to establish that the settlement is fair and reasonable to the absent class members who are to be bound by that settlement. In reviewing a proposed settlement, a court should not apply any presumption that the settlement is fair and reasonable.
(d) A court may approve or disapprove a class settlement but may not of its own accord amend the settlement to add, delete, or modify any term. The court may, however, inform the parties that it will not approve a settlement unless the parties amend the agreement in a manner specified by the court. This subsection does not limit the court's authority to set fair and reasonable attorneys' fees.
(e) If, before or as a result of a fairness hearing, the parties agree to modify the terms of a settlement in any material way, new notice must be provided to any class members who may be substantially adversely affected by the change. In particular:
(1) For opt-out classes, a new opportunity for class members to opt out must be granted to all class members substantially adversely affected by the changes to the settlement.
(2) When a settlement is modified to increase significantly the benefits to the class, class members who opted out before such modifications must be given notice and a reasonable opportunity to opt back into the class.
(f) For class members who did not opt out of the class, new notice and opt-out rights are not required when, as a result of a fairness hearing, a settlement is revised and the new terms would entitle such class members to benefits not substantially less than those proposed in the original settlement.
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Settlement Criteria
(1) American Law Institute, Principles of the Law of Aggregate Litigation § 3.05 (2010)
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§ 3.05Judicial Review of the Fairness of a Class Settlement, Principles of the Law of...
Principles of the Law - Aggregate Litigation
Principles of the Law of Aggregate Litigation
Chapter 3. Aggregate Settlements
Topic 2. Class Settlements
Comment: Reporters' Notes Case Citations - by Jurisdiction
(a) Before approving or rejecting any classwide settlement, a court must conduct a fairness hearing. A court reviewing the fairness of a proposed class-action settlement must address, in on-the-record findings and conclusions, whether:
(1) the class representatives and class counsel have been and currently are adequately representing the class;
(2) the relief afforded to the class (taking into account any ancillary agreement that may be part of the settlement) is fair and reasonable given the costs, risks, probability of success, and delays of trial and appeal;
(3) class members are treated equitably (relative to each other) based on their facts and circumstances and are not disadvantaged by the settlement considered as a whole; and
(4) the settlement was negotiated at arm's length and was not the product of collusion.
(b) The court may approve a settlement only if it finds, based on the criteria in subsection (a), that the settlement would be fair to the class and to every substantial segment of the class. A negative finding on any of the criteria specified in subsections (a)(1)-(a)(4) renders the settlement unfair. A settlement may also be found to be unfair for any other significant reason that may arise from the facts and circumstances of the particular case.
(c) The burden is on the proponents of a settlement to establish that the settlement is fair and reasonable to the absent class members who are to be bound by that settlement. In reviewing a proposed settlement, a court should not apply any presumption that the settlement is fair and reasonable.
(d) A court may approve or disapprove a class settlement but may not of its own accord amend the settlement to add, delete, or modify any term. The court may, however, inform the parties that it will not approve a settlement unless the parties amend the agreement in a manner specified by the court. This subsection does not limit the court's authority to set fair and reasonable attorneys' fees.
(e) If, before or as a result of a fairness hearing, the parties agree to modify the terms of a settlement in any material way, new notice must be provided to any class members who may be substantially adversely affected by the change. In particular:
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§ 3.05Judicial Review of the Fairness of a Class Settlement, Principles of the Law of...
(1) For opt-out classes, a new opportunity for class members to opt out must be granted to all class members substantially adversely affected by the changes to the settlement.
(2) When a settlement is modified to increase significantly the benefits to the class, class members who opted out before such modifications must be given notice and a reasonable opportunity to opt back into the class.
(f) For class members who did not opt out of the class, new notice and opt-out rights are not required when, as a result of a fairness hearing, a settlement is revised and the new terms would entitle such class members to benefits not substantially less than those proposed in the original settlement.
Comment: a. Settlement criteria. The current case law on the criteria for evaluating settlements is in disarray. Courts articulate a wide range of factors to consider, but rarely discuss the significance to be given to each factor, let alone why a particular factor is probative. Factors mentioned in the cases include, among others, the risks of establishing liability; the risks of establishing damages; the likelihood of recovery at trial; the likely amount recoverable at trial; the public interest served by the settlement; whether the negotiations were at arm's length; the experience of counsel; the views of counsel; the expense, complexity, and likely duration of further litigation; the risk of not maintaining class-certification status throughout trial; the ability of the defendant to withstand a larger judgment at trial; whether a governmental entity participated in the negotiations or approved the settlement; the nature and extent of objections to the settlement; the reasonableness of the proposed attorneys' fees; the extent of discovery completed; the stage of proceedings; the extent of opt-outs; the vigor with which the case was prosecuted; evidence of coercion or collusion that may have marred the negotiations; and the strength of plaintiffs' case.
Many of these criteria may have questionable probative value in various circumstances. For instance, although a court might give weight to the fact that counsel for the class or the defendant favors the settlement, the court should keep in mind that the lawyers who negotiated the settlement will rarely offer anything less than a strong, favorable endorsement. For that reason, in determining whether to give weight to the fact that counsel for the class and for defendant favor the settlement, the court should consider the presence or absence of an incentive for class counsel to recommend an inadequate settlement. When class counsel shares class members' interest in maximizing claim values, counsel's willingness to propose a settlement may be entitled to some weight.
A court, in reviewing a settlement, should not give any predetermined weight either to the fact that the case was pending for a substantial period of time before a settlement was reached or to the fact that a settlement was reached early in the case. The timing of a settlement may or may not be probative on the issue of fairness. For instance, an early settlement may simply reflect a realistic appraisal of a case rather than a settlement negotiated without an adequate knowledge of the facts or merits of the case.
Similarly, the mere fact that a settlement occurred many months (or even many years) after the case was originally filed does not in itself ensure that the agreement is fair and reasonable. Likewise, whether a settlement is proposed following an adversarial hearing on class certification may or may not be probative of whether the negotiations were conducted at arm's length. And the resolution of a case before certification does not necessarily reflect collusiveness or a lack of arm's-length negotiations.
By the same token, the number of objectors may or may not be probative of the settlement's fairness. Class members are sometimes urged to object by lawyers with similar lawsuits who are unhappy that they did not achieve the settlement themselves, thus missing out on attorneys' fees, or by lawyers who may seek private gain from interposing strategically motivated objections. In such instances, lawyer-driven objections have little merit. Likewise, the absence of a significant number of objections does
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§ 3.05Judicial Review of the Fairness of a Class Settlement, Principles of the Law of... not necessarily reflect tacit approval of class members to the fairness of the settlement. For instance, a settlement may raise serious fairness issues, but the amounts involved per class member may be so small that no class member has a sufficient incentive to object. The court, therefore, should focus on the substance of the objections, not on a mechanical head count.
As another example, the extent of opt-outs may or may not be probative of the settlement's fairness. In most class-action settlements, the number of opt-outs is small. In some cases with large numbers of opt-outs, the large number is simply the result of orchestrated efforts by lawyers, hoping to have a chair at settlement negotiations or hoping to bring further litigation on behalf of the opt-outs. Thus, the number of opt-outs may in fact tell the court little about the actual fairness of the settlement.
Apart from the fact that many of the criteria have questionable probative value, the sheer number of these criteria has led to confusion. Some of these criteria, such as whether the settlement is in the “public interest,” are amorphous and seem poorly directed to the protection of the class. Courts have ended up picking and choosing from among these factors, with little or no discussion of why some criteria are selected and others are not. Moreover, with so many potential factors, courts are unable to provide any guidance as to the relative importance of each factor. In many cases, certain factors appear to be highlighted merely because they support a predetermined outcome.
Finally, the sheer number of factors—and the confusion about their relative merit—make it difficult for class counsel, counsel for the defendant, and counsel for the objectors to address the pertinent considerations in a meaningful way. b. Proposed changes regarding settlement criteria. This Section articulates four simple but important factors that courts should consider in reviewing any settlement. Moreover, as noted in subsection (b), these four factors do not preclude the court from considering other facts relevant to a particular settlement. All four factors, and any additional fact-specific considerations, should be addressed in on-the-record findings and conclusions. Because each of the (a)(1)-(a)(4) criteria is so critical, failure to satisfy any of them renders the settlement unfair. Subsection (b) recognizes that facts specific to a settlement may render the settlement unfair, even if the settlement satisfies (a)(1)-(a)(4).
With respect to the first factor, the court should assess the adequacy of representation provided to the class, as described in § 2.07(a)(1). In “settlement classes,” in which the request for class certification and approval of the settlement are made at the same time, the adequacy of representation is considered as part of the approval process. In cases that have already been certified before settlement, however, a decision will already have been made on the adequacy of representation. Yet, that decision may be cast in doubt by the lawyer's subsequent handling of the litigation and the proposed settlement, and a court that considers only fairness and not adequacy at the time of settlement may overlook important concerns bearing on the fairness of the settlement. Indeed, a fresh examination of adequacy may be the most productive way to assess the ultimate fairness of the settlement.
Because, in the settlement context, neither the class nor the defense will have any interest in raising adequacy concerns with the court, the court may need to take an active role in investigating the adequacy of representation, especially when no helpful objections have been filed. As contemplated by Rule 23(g), for example, the court may need to request specific, detailed information from the parties to address the adequacy of class counsel. In some cases, the court may also consider the need to appoint a special master or special officer to scrutinize the adequacy of representation. See § 3.09. Although such a new appointee will face some of the same obstacles as a court in reviewing a completed settlement, a special master or special officer may have more time and resources to devote to the task. The court may also need to study with care any objections to the settlement that are lodged.
Second, the court should address the relief afforded by the settlement in light of the relief sought by the class and ascertain whether that relief is meaningful and sufficient, given the strength and risks of the case and the potential recovery in the event of a favorable verdict. Also, a proposed settlement in which the class receives an insubstantial payment while the fees requested by counsel are substantial could raise fairness concerns. As with the issue of adequacy, both class counsel and defense counsel
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§ 3.05Judicial Review of the Fairness of a Class Settlement, Principles of the Law of... will have every incentive to highlight the strengths of the settlement and to downplay its weaknesses. Thus, the court may need to assume greater responsibility, again possibly including the appointment of a special master or special officer.
Third, the court should look at whether class members are treated equitably among themselves and whether the settlement accounts for material differences among class members. For instance, an agreement that gives the same monetary remedy to all members of the class, despite significant differences in the nature of their claims or injuries, may not be fair and reasonable. In addition, the court should consider whether class members might be disadvantaged by the settlement. For example, a broad release going beyond the claims that are the subject of the litigation may be inappropriate in light of the nature of the recovery under the proposed settlement.
Fourth, the court should ensure that the settlement was the product of arm's-length negotiations and was not the result of collusion. c. Burdens of proof. Some courts have adopted a presumption that a settlement is fair and reasonable if the attorneys offering the settlement are experienced class-action lawyers, the negotiations were conducted at arm's length, and relatively few class members object. These presumptions may not be warranted. As noted above, for example, the presence or absence of objectors may or may not be probative. Likewise, the experience of the lawyers should not normally lighten the parties' burden of demonstrating fairness based on the specific facts of the settlement. Finally, as reflected in § 3.05(a)(4), the existence of arm's- length negotiations should be a feature of every fair class settlement.
As set forth in this Section, the burden of proof rests with the proponents of the settlement. The purpose of the court's inquiry is to ensure that the interests of the absent class members are adequately protected so that they may fairly be bound by the outcome of the case. As such, the responsibility for ensuring the fairness of the settlement rests with the class representatives, class counsel, and the court. d. No option to impose different or additional terms. Subsection (d) follows existing law in giving courts only two options when faced with a proposed settlement: approval or disapproval. Of course, the court can identify terms that, if added or deleted, would cause the court to approve the settlement, but the decision whether to incorporate the changes or additions suggested by the court rests solely with the parties. The court may not unilaterally modify the settlement or force terms upon the parties. The court does, however, have authority to set attorneys' fees, despite the fees requested by plaintiffs' counsel. e. Modifications during the fairness process. Under subsection (e), material changes to a settlement may necessitate (1) new notice to all adversely affected class members, including any who previously opted out, and (2) new opt-out rights for members of opt-out classes. When changes adversely affect only a subpart of the class, new notice and opt-out rights should be limited to that subpart. Permitting material changes in the absence of such procedural protections would be unfair to those who relied upon the earlier terms in deciding whether to remain in the class or whether to object. For instance, a class member may have opted out because of a concern that the recovery was too low. That person should have a chance to reconsider that opt-out decision if the recovery has been substantially increased. Similarly, a class member may have decided not to opt out because the settlement afforded a certain type of important remedy. If that remedy is eliminated after the opt-out period, the class member should have the opportunity to reconsider whether to opt out. The courts have taken varying approaches, with some allowing even substantial changes without new notice and opt-out rights, but with others requiring additional protections for all substantial amendments that may adversely affect class members' interests. This Section opts for the latter approach.
Illustrations: Illustrations:
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1. Under a class settlement involving defective computer systems, class members would be paid $100 for each computer system purchased. Several class members exercise their right to opt out. Because the judge opines that the payment is too low, the parties agree to change the amount to $200. Before the settlement becomes final, notice should be sent to all opt-outs, permitting them to opt back into the class.
2. Same initial settlement as in Illustration 1, but the settlement is modified to defer payment of attorneys' fees by 30 days. No new notice is required.
3. Same initial settlement as in Illustration 1, but the settlement is modified so that class members are now offered only $1000 credit towards a new computer system instead of the original cash offer. New notice to the entire class, including opt-outs, is required. f. Direct distribution of settlement proceeds. Courts should approve direct pro rata or per capita distributions of the settlement proceeds to class members when feasible, without requiring class members to submit claims. This is so even if the parties have proposed a traditional claims process. Direct distributions are usually feasible when the settling party has reasonably up-to-date and accurate records. This approach avoids the costs of administering a claims process and allows class members to receive the fullest practicable benefits of class actions prosecuted on their behalf.
Reporters' Notes
Comment a.For examples of the wide variety of approaches to settlement, see, e.g., In re Am. Bank Note Holographics, Inc. Sec. Litig., 127 F.Supp.2d 418, 426-428 (S.D.N.Y. 2001) (addressing, inter alia, the difficulty of proving claims and damages, “litigation risks,” the possible bankruptcy of one of the defendants, the threat of protracted litigation, the “arm's length” nature of negotiations between “skilled attorneys,” the extent of discovery completed, and giving “ ‘great weight’ ” to the views of counsel); In re Austrian & German Bank Holocaust Litig., 80 F.Supp.2d 164, 174-178 (S.D.N.Y. 2000) (addressing, among other things, plaintiffs' “difficulty in establishing damages at a trial,” the “arm's length” nature of negotiations, whether defendants could withstand a greater judgment, and the small number of objections); Wal-Mart Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d 96, 117 (2d Cir. 2005) (considering nine factors); In re Warfarin Sodium Antitrust Litig., 391 F.3d 516, 534-535 (3d Cir. 2004) (considering nine factors); Ngwanyia v. Gonzales, 376 F.Supp.2d 923, 928 (D. Minn. 2005) (considering four factors).
As noted, many of the criteria utilized by courts have questionable probative value. For instance, reliance on the number of opt-outs or objectors may be unwarranted, given that “on average, less than 1 percent of class members opt-out and about 1 percent of class members object to class-wide settlements.” Theodore Eisenberg & Geoffrey Miller, The Role of Opt-Outs and Objectors in Class Action Litigation: Theoretical and Empirical Issues, 57 Vand. L. Rev. 1529, 1532 (2004). Moreover, objections may represent nothing more than “ ‘canned’ objections filed by professional objectors who seek out class actions to simply extract a fee by lodging generic, unhelpful protests….” Shaw v. Toshiba Am. Info. Sys., Inc., 91 F.Supp.2d 942, 973-974 (E.D. Tex. 2000).
Likewise, the timing of a settlement may also be of questionable relevance to the fairness of a settlement. In Molski v. Gleich, 318 F.3d 937 (9th Cir. 2003), the court struck down a class settlement in a suit under the Americans with Disabilities Act, 42 U.S.C. § 12101 et seq. One of the grounds was that “the named plaintiff and defendants reached an agreement regarding the primary components of the consent decree within four months.” 318 F.3d at 955. Although not finding collusion per se, the court noted that the short time span to settlement “indicates that the named plaintiff and class counsel ‘failed to prosecute or defend the action with due diligence and reasonable prudence.’ ” Id. at 956 (citation omitted). In a concurring opinion, Judge Graber raised concerns about the majority's rationale regarding the timing of settlement:
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Early dispute resolution is salutary, and we should not encourage the unnecessary expense, delay, and uncertainty caused by lengthy litigation when the parties are prepared to compromise. Nor should we hold, as the majority does, that a prompt settlement necessarily suggests a failure to prosecute or defend the action with due diligence and reasonable prudence. To the contrary, an early resolution may demonstrate that the parties and their counsel are well prepared and well aware of the strengths and weaknesses of their positions and of the interests to be served by an amicable end to the case.
318 F.3d at 959 (citation omitted). This Section agrees with the approach of Judge Graber.
For cases requiring a heightened level of scrutiny when parties seek settlement and certification simultaneously, see, e.g., In re Ins. Brokerage Antitrust Litig., 579 F.3d 241, 258 (3d Cir. 2009); Warfarin Sodium Antitrust Litig., 391 F.3d at 534; Hanlon v. Chrysler Corp., 150 F.3d 1011, 1026 (9th Cir. 1998).
Comment b.For discussions of the so-called “fiduciary” role served by courts in class actions, see, e.g., Reynolds v. Beneficial Nat'l Bank, 288 F.3d 277, 279-280 (7th Cir. 2002) (Posner, J.); Chris Brummer, Note, Sharpening the Sword: Class Certification, Appellate Review, and the Role of the Fiduciary Judge in Class Action Lawsuits, 104 Colum. L. Rev. 1042, 1058-1071 (2004). For a discussion of the importance of addressing adequacy at the time of the fairness hearing, see G. Donald Puckett, Note, Peering Into a Black Box: Discovery and Adequate Attorney Representation for Class Action Settlements, 77 Tex. L. Rev. 1271, 1294-1295 (1999).
Comment c.For cases imposing a presumption that a class settlement is fair, see, e.g., In re Cendant Corp. Litig., 264 F.3d 201, 232 n.18 (3d Cir. 2001) (applying presumption of fairness when settlement is negotiated at arm's length after sufficient discovery, the proponents are experienced in class litigation, and few class members object); In re Heritage Bond Litig., Nos. 02-ML-1475-DT(RCX) et al., 2005 WL 1594403, at *11 (C.D. Cal. June 10, 2005) (presumption of fairness arises when case involves experienced counsel, arm's-length negotiations, and sufficient discovery).
Comment d.Numerous courts have recognized that a court may accept or reject a settlement but may not impose terms on unwilling parties. See, e.g., Evans v. Jeff D., 475 U.S. 717, 726-727 (1986) (“[T]he power to approve or reject a settlement negotiated by the parties before trial does not authorize the court to require the parties to accept a settlement to which they have not agreed.”); In re Domestic Air Transp. Antitrust Litig., 148 F.R.D. 297, 305 (N.D. Ga. 1993) (“[The court] may not rewrite the settlement as requested by numerous objectors.”).
Comment e.Several courts have taken the approach urged in subsection (e) insofar as they require new notice only for substantial adverse changes. See, e.g., In re Diet Drugs Prods. Liab. Litig., 226 F.R.D. 498, 506 (E.D. Pa. 2005) (not requiring new notice for “technical changes” to the settlement); In re Compact Disc Minimum Advertised Price Antitrust Litig., 292 F.Supp.2d 184, 186 (D. Me. 2003) (notice of “improvements” to settlement sent to objectors and opt-outs but not to class members). Other courts, however, have not required new notice even for substantial changes. See Jack B. Weinstein & Karin S. Schwartz, Notes from the Cave: Some Problems of Judges in Dealing with Class Action Settlements, 163 F.R.D. 369, 377 (1995) (discussing conflicting case law and arguing that notice to the class is required if changes to settlement are material).
Effect on current law. Because case law specifies precise factors that a court must consider in reviewing a settlement, and because the requisite considerations vary significantly from jurisdiction to jurisdiction, a rule change would be necessary in most jurisdictions to implement this Section.
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Case Citations - by Jurisdiction
C.A.5 C.A.7, D.Me. S.D.Tex.
C.A.5
C.A.5, 2010. Subsec. (c) cit. in sup. In consolidated actions, residents sued public and private entities, alleging that they were harmed by catastrophic flooding caused by levee and floodwall failures during hurricanes. The district court certified a limited fund mandatory settlement class and approved the settlement over the objections of two groups of dissenting class members. Reversing, this court held, among other things, that the settlement proponents failed to meet their burden of showing that the settlement was fair, reasonable, and adequate, and that class members would receive some benefit in exchange for the divestment of their due process rights in a mandatory class settlement; among other things, there was no basis for proponents' assertion that there would be money remaining after payment of attorney's fees and administrative costs to effect even a cy pres distribution, let alone a monetary distribution. In re Katrina Canal Breaches Litigation, 628 F.3d 185, 196.
C.A.7,
C.A.7, 2014. Subsec. (a) and com. (b) cit. in disc. One of the class counsel in a consumer class action against credit-reporting agency for violations of the Fair Credit Reporting Act appealed the district court's order authorizing defendant to draw money from the settlement fund as reimbursement for the cost of settling post-settlement claims (PSCs) of those class members who had retained the right, under the settlement, to bring their individual claims separately. This court affirmed, even though more than 70,000 of the PSCs had been gathered by lawyers not previously involved in the case who had solicited nonsettling class members, and had filed the PSCs as substantially identical but formally separate individual suits, whose settlement had consumed around $35 million of the $75 million settlement fund. The court rejected counsel's arguments that the district court's distribution order impermissibly modified the terms of the original settlement, that the PSCs were brought as prohibited class or aggregate actions, and that defendant should reimburse the fund for money spent on settling PSCs that it could have defeated at little cost. In re Trans Union Corp. Privacy Litigation, 741 F.3d 811, 813.
D.Me.
D.Me.2011. Subsecs. (a)(3), (b), and (c) quot. in sup., subsecs. (e) and (f) quot. in ftn., subsec. (d) cit. in ftn., com. (b) quot. in sup., com. (d) cit. in ftn., com. (e) quot. in ftn. As part of a consolidated nationwide class action, indirect purchasers of vehicles sued vehicle manufacturers and others, alleging that defendants conspired to manipulate the price of vehicles sold or leased in the United States. After a fairness hearing on two settlements and a plan of distribution, this court rejected plaintiffs' position that indirect purchasers who resided in the District of Columbia, Hawaii, Iowa, and North Carolina were not entitled to be included in the agreements' cash allocation, because there were no class representatives from those jurisdictions; while plaintiffs could not obtain certification of alitigating class for the state-law claims of residents of states where they had no class representative, here it was the settlement class at issue, and plaintiffs were purporting to settle the state-law claims of the residents of all states. In re New Motor Vehicles Canadian Export Antitrust Litigation, 800 F.Supp.2d 328, 332-334.
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S.D.Tex.
S.D.Tex.2012. Com. (b) quot. in sup. Payment-card holders filed a consumer class action against payment-card processor, after defendant disclosed that hackers had breached its computers systems and obtained confidential payment-card information for over one hundred million consumers. Granting plaintiffs' motion to certify a settlement class, this court held that the proposed settlement, in which class members with valid claims would receive the amount of their claims and any remaining unclaimed funds would be spread between three nonprofit organizations that focused on improving payment-card security, was fair, reasonable, and adequate. The court, however, reduced the amount of attorney's fees requested by class counsel, in order to avoid a fee award that was disproportionately high in relation to the benefit the class received. In re Heartland Payment Systems, Inc. Customer Data Sec. Breach Litigation, 851 F.Supp.2d 1040, 1063.
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Certification of a Settlement Class
(1) American Law Institute, Principles of the Law of Aggregate Litigation § 3.06 (2010)
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Principles of the Law - Aggregate Litigation
Principles of the Law of Aggregate Litigation
Chapter 3. Aggregate Settlements
Topic 2. Class Settlements
Comment: Reporters' Notes Case Citations - by Jurisdiction
(a) In any case in which the parties simultaneously seek certification and approval of the settlement, the case need not satisfy all of the requirements for certification of a class for purposes of litigation, but instead need satisfy only the requirements of subsections (b) and (c) of this Section.
(b) Subject to subsection (c) of this Section, a court may approve a settlement class if it finds that the settlement satisfies the criteria of § 3.05, and it further finds that (1) significant common issues exist, (2) the class is sufficiently numerous to warrant classwide treatment, and (3) the class definition is sufficient to ascertain who is and who is not included in the class. The court need not conclude that common issues predominate over individual issues.
(c) In addition to satisfying the requirements of subsection (b) of this Section, in cases seeking settlement certification of a mandatory class, the proponents of the settlement must also establish that the claims subject to settlement involve indivisible remedies, as defined in the Comment to § 2.04.
(d) If a proposed settlement class is not approved, no statements, representations, or arguments made by the proponents of the settlement in the settlement context may be used against the proponent making the statement in any subsequent litigation of class-certification or merits issues.
Comment: a. Comparison with current law. Some class-action settlements are reached long after the case is certified as a class action. In such cases, when courts consider the requirements for class certification, they assume that the case will proceed to trial, even though most cases that are certified as class actions eventually settle, just as most non-class cases settle before trial. In other instances, the parties reach a class settlement early in the case, before the court has even rendered a ruling on the propriety of class certification. In this latter situation, courts addressing the requirements for class certification know with certainty that, assuming the settlement is approved and upheld on appeal, the case will not go to trial.
For many years, courts and commentators have debated whether the strict requirements for certifying a class action for litigation purposes should apply in the context of a case in which certification is sought solely for purposes of achieving a classwide settlement. Under current federal law, all requirements for certifying a litigation class under Rule 23(b)(3) apply with respect
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§ 3.06Approval of a Settlement Class, Principles of the Law of Aggregate Litigation §... to a settlement class, except for the requirement that the court consider “the likely difficulties in managing a class action.” Some states, by contrast, have adopted rules that exempt settlement classes from the stringent requirements for certifying a litigation class. This Section does not require a settlement class to satisfy all of the same criteria as a class certified for purposes of litigation. For example, settlement classes should not be subject to a rigorous evidentiary showing that, in a contested trial, common issues would outweigh individualized issues. So long as there is sufficient commonality to establish that the class is generally cohesive, the propriety of a settlement need not depend on satisfaction of a “predominance” requirement. However, the inability to certify a class for litigation purposes may be important evidence of the lack of leverage by proposed class counsel and thus may suggest the possibility of inadequate representation. See § 3.05(a)(1).
As subsection (b) makes clear, certain core requirements remain applicable even for settlement classes. Every class—whether for settlement or litigation—must satisfy the basic core requirements for certifying any class action, namely, commonality, adequacy of class representation, numerosity, and a class definition that is sufficient to ascertain who is and who is not in the class. (The adequacy-of-representation requirement at the settlement stage is contained in § 3.05(a)(1).) The court, however, need not find that common issues outweigh individual issues. The elimination of any mechanical requirement that common issues predominate should help to facilitate settlements, provided that the central indicia of fair and adequate representation are met. b. Settlements seeking certification of mandatory classes. Settlement classes seeking certification of mandatory classes pose special issues. Mandatory treatment of classes seeking divisible remedies raises issues of constitutional due process (see § 2.07) and are, at the very least, strongly disfavored. Accordingly, before a court is permitted to certify a settlement class as a mandatory class, the proponents must show that the claims subject to settlement involve indivisible remedies, in addition to satisfying the other requirements for the approval of a settlement class. c. Nonbinding effect of arguments in support of certification of a settlement class. A notable case has created a possible risk for defendants who support certification of a settlement class: if the settlement does not go forward, the defendant may be bound, in a contested class-certification proceeding, by having conceded at the settlement stage that the case was suitable for class certification. This use of statements at the settlement stage could deter defendants from entertaining classwide settlement proposals out of fear that they could harm their position if a class settlement does not materialize, or that such a statement could have preclusive effects in other litigation. Subsection (d) makes clear that positions on certification taken at the settlement stage cannot be used against the declarant or its client in the context of a contested class-certification proceeding or merits proceedings. Of course, subsection (d) does not preclude a court from awarding sanctions if the proponents of the settlement have misrepresented the benefits of the proposed settlement or have taken positions that were not reasonably advanced for the purpose of maintaining a valid settlement. See § 3.08(c).
Reporters' Notes
Comment a.Current federal law is set forth in Amchem Products, Inc. v. Windsor, 521 U.S. 591 (1997). There, the Court reviewed the Third Circuit's decision in Georgine v. Amchem Products, Inc., 83 F.3d 610 (3d Cir. 1996). In Georgine, the Third Circuit held that all of the requirements for certification of a litigation class applied to a settlement class. In Amchem, the Supreme Court held that, while “a district court need not inquire whether the case, if tried, would present intractable management problems,” see Fed. R. Civ. P. 23(b)(3)(D), the other requirements of Rule 23—“those designed to protect absentees by blocking unwarranted or overbroad class definitions—demand undiluted, even heightened, attention in the settlement context.” 521 U.S. at 620.
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Before Amchem, the Advisory Committee on Civil Rules had been considering a proposed amendment (new Rule 23(b)(4)) that would have provided: “[T]he parties to a settlement [may] request certification under subdivision (b)(3) for purposes of settlement, even though the requirements of subdivision (b)(3) might not be met for purposes of trial.” 167 F.R.D. 523, 559 (1997). After the Supreme Court decided Amchem, the Advisory Committee did not move forward on this proposal.
The Advisory Committee's proposal generated mixed reactions. For examples of negative reactions, see, e.g., Christopher J. Willis, Collision Course or Coexistence? Amchem Products v. Windsor and Proposed Rule 23(B)(4), 28 Cumb. L. Rev. 13, 27-36 (1997). For favorable reactions, see, e.g., Linda S. Mullenix, The Constitutionality of the Proposed Rule 23 Class Action Amendments, 39 Ariz. L. Rev. 615, 622-639 (1997); Eric D. Green, What Will We Do When Adjudication Ends? We'll Settle in Bunches: Bringing Rule 23 into the Twenty-First Century, 44 UCLA L. Rev. 1773, 1798-1799 (1997).
For recent commentary critical of Amchem, see Elizabeth J. Cabraser, The Class Action Counterreformation, 57 Stan. L. Rev. 1475, 1476 (2005) (“[T]he multibillion-dollar settlement, rejected by the Supreme Court, was lost forever, and thousands of claimants who would gladly have traded their pristine due process rights for substantial monetary compensation have been consigned to the endless waiting that characterizes asbestos bankruptcies.”).
For state rules that do not require a settlement class to meet the requirements of a litigation class, see, e.g., La. Code Civ. Proc. Ann. art. 591(B)(4) (1997).
For discussion of the concern that the inability to certify a litigation class may compromise the ability of class counsel to negotiate a favorable settlement, see, e.g., Amchem, 521 U.S. at 621; Charles Silver, “We're Scared to Death”: Class Certification and Blackmail, 78 N.Y.U. L. Rev. 1357, 1368 (2003); John C. Coffee, Jr.,Class Wars: The Dilemma of the Mass Tort Class Action, 95 Colum. L. Rev. 1343, 1379-1380 (1995).
The Amchem Court, in holding that the requirements of Rule 23(a) and (b)(3) apply to settlement classes (with the exception of Rule 23(b)(3)(D)'s manageability requirement), gave two rationales. First, the Court noted that the text of the rule foreclosed the Court's ability to carve out exceptions to the requirements for certification in the context of settlement classes, because the Rule 23(a) and (b) requirements apply without regard to whether there is a settlement. 521 U.S. at 620-621. That rationale does not in itself constrain a potential amendment of the rule that would, as suggested here, provide different criteria for settlement classes.
Second, the Amchem Court noted that, if a class could be certified without satisfying the requirements for a litigation class, “[c]lass counsel confined to settlement negotiations could not use the threat of litigation to press for a better offer….” Id. at 593. There are at least two difficulties with this proposition. To begin with, oftentimes in mass-harm cases, the global resolution is driven by the press of individual cases. It may well be that class counsel is able to use the threat of litigation outside the class context to drive a favorable overall settlement. Second, it is often not clear during precertification settlement negotiations whether the court would certify the case for litigation purposes. It is often the possibility—but not certainty—of class certification that drives the parties to settle. In all events, the concern raised by the Court is ultimately premised on the lack of adequate representation, which requires a broader inquiry than simply the certifiability vel non of the global dispute as a class action for litigation purposes. The proposal contained herein (which incorporates the criteria of § 3.05) specifically requires the court, in any settlement class, to find that the class has been adequately represented. A settlement arrived at through a lack of bargaining power would lack indicia of adequacy and would almost certainly be so deficient that it could not satisfy the fairness criteria of § 3.05.
The primary effect of this proposal would be to refocus attention on the adequacy of representation and the fair treatment of class members relative to each other and to the potential value of their claims. This approach would move the judicial inquiry at the class-settlement stage away from a hypothetical trial scenario and towards the critical indicia of proper representation.
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Comment c.For an example of a court holding under the particular facts presented that a defendant was judicially estopped from opposing class certification after supporting certification of a settlement class, see Carnegie v. Household Int'l, Inc., 376 F.3d 656, 660 (7th Cir. 2004) (Posner, J.) (reasoning that, “having reaped a benefit from their pertinacious defense of the class treatment of the case for purposes of settlement [defendants] cannot now be permitted to seek a further benefit from reversing their position”).
For criticism of Carnegie on the ground that it misapplies judicial estoppel and discourages defendants from attempting to reach class settlements, see Jon B. Nelsen, Note, Fast and Loose Litigants and Courts: Carnegie v. Household International, Inc. and the End of Settlement Classes, 84 Tex. L. Rev. 541 (2005). Indeed, before Carnegie, many courts and commentators had assumed that defendants could fully litigate the issue of class certification if a proposed settlement did not become final. Id. at 552 n.52 (citing case law and commentary).
For cases holding that courts must be more vigilant in reviewing the fairness of class settlements when certification of the class and class settlement are sought simultaneously, see Reporters' Notes to § 3.05.
Effect on current law. As explained above, subsections (a) and (c) would move away from Amchem's interpretation of Rule 23 and thus would potentially require a rule change in jurisdictions whose class-action rule is patterned after the Federal Rules and that look to federal case law for guidance. With respect to subsection (d), a rule change is not necessary but would be helpful in making clear that a court may not give preclusive effect to representations in the settlement context.
Case Citations - by Jurisdiction
E.D.N.Y. S.D.Tex.
E.D.N.Y.
E.D.N.Y.2008. Com. (a) quot. in disc. (citing § 3.06 of Council Draft No. 2, 2008. § 3.06 has since been revised; see Official Text). Minority students, who attended a high school at which enrollment was overwhelmingly African-American and Latino, along with their parents, brought a class action against city department of education and city board of education for de facto constitutional violations, alleging that they and many others were deliberately denied a high school education. Certifying the class of students denied educational rights and a subclass of students “most clearly harmed by wrongful practices and policies who should receive compensatory education assistance,” and approving settlement, this court found, inter alia, that questions of law and fact were common to subclass members; although some students would benefit more than others by the settlement, the very nature of education discrimination was that it would stunt some students almost irreparably, and others less so, and thus these differences among class members did not prevent an appropriate class remedy. D.S. ex rel. S.S. v. New York City Dept. of Educ., 255 F.R.D. 59, 73.
S.D.Tex.
S.D.Tex.2012. Com. (a) quot. in sup. Payment-card holders filed a consumer class action against payment-card processor, after defendant disclosed that hackers had breached its computers systems and obtained confidential payment-card information for 130 million consumers. Granting plaintiffs' motion to certify a settlement class, this court held, among other things, that the requirement of predominance was satisfied, because the proposed class was sufficiently cohesive to warrant adjudication by
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§ 3.06Approval of a Settlement Class, Principles of the Law of Aggregate Litigation §... representation. The court noted that the proposed settlement drew only one objector, and that any state-law variations here did not approach the level of precluding the ability of class members in certain states to state a claim. In re Heartland Payment Systems, Inc. Customer Data Sec. Breach Litigation, 851 F.Supp.2d 1040, 1058.
End of Document © 2015 Thomson Reuters. No claim to original U.S. Government Works.
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 5 82 of 234
Issues Certification
(1) In re Nassau County Strip Search Cases, 461 F.3d 219 (2d Cir. 2006) (2) McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 672 F.3d 482 (7th Cir. 2012)
83 of 234 IN RE NASSAU COUNTY STRIP SEARCH CASES 219 Cite as 461 F.3d 219 (2nd Cir. 2006) months detailing the sanctions actions. trict Court for the Eastern District of New Finally, pursuant to the National Emer- York, Denis R. Hurley, J., denied plain- gencies Act, 50 U.S.C. § 1622, each Presi- tiffs’ class certification motions, and plain- dent has annually reported to Congress in tiffs appealed. order to continue the national emergency Holdings: The Court of Appeals, Straub, with respect to Iraq. Circuit Judge, held that: CONCLUSION (1) as a matter of first impression, district For the foregoing reasons, we affirm the court may certify a class on a particu- judgment. lar issue, such as liability, even if ac- tion as a whole does not satisfy certifi- cation rule’s predominance inquiry; , (2) as a matter of first impression, defen- dants’ concession as to liability did not eliminate common liability issues from In re NASSAU COUNTY STRIP predominance analysis; SEARCH CASES. (3) common issues predominated over in- dividual issues as to liability in present Gardy Augustin, Heidi Kane, Mary Katherine Pugliese, Gregg Wills, Ste- case; and ven Roth, Oscar Avelar, Ralph Diliel- (4) class action device was superior litiga- lo, John Iaffaldano, on Behalf of Him- tion mechanism as to issue of liability self and Others Similarly Situated, in present case. Francis O’Day, and Stuart Moskowitz, Reversed in part and remanded in part. Plaintiffs–Appellants, v. 1. Federal Courts 776, 817 Joseph P. Jablonsky, Sheriff of Nassau O Court of Appeals reviews district County, County of Nassau, Thomas S. court’s denial of class certification for Gulotta, Nassau County Executive, abuse of discretion, but reviews de novo Nassau County Sheriff’s Department, the district court’s conclusions of law that Division of Corrections, Port Wash- ington Police District and William informed its decision to deny class certifi- Kilfoil, Chief of Police, Port Washing- cation. ton Police Department, Jane/John 2. Federal Courts 817 Does 1–200, Defendants–Appellees. O Court of Appeals reviewing class cer- Docket Nos. 05–4206–CV(L), 05–4211– tification ruling is noticeably less deferen- CV(CON), 05–4242–CV(CON). tial when the district court has denied United States Court of Appeals, class status than when it has certified a Second Circuit. class. Argued: June 12, 2006. 3. Federal Civil Procedure 165 O Decided: Aug. 24, 2006. The class certification rule’s predomi- Background: Arrestees brought action nance inquiry, which looks at whether against county and others, challenging questions of law or fact common to the county correctional center’s blanket strip members of the class predominate over search policy for newly admitted, misde- any questions affecting only individual meanor detainees. The United States Dis- members, tests whether proposed classes
84 of 234 220 461 FEDERAL REPORTER, 3d SERIES are sufficiently cohesive to warrant adjudi- only individual members; that class-wide cation by representation. Fed.Rules Civ. proof as to liability issue came in form of Proc.Rule 23(b)(3), 28 U.S.C.A. concession did not alter fundamental cohe- 4. Federal Civil Procedure 161.1 sion of proposed class, nor establish that Class certification rule O encompasses liability was not an ‘‘issue,’’ elimination of those cases in which a class action would the conceded issue from analysis would achieve economies of time, effort, and ex- undermine goals of efficiency and unifor- pense, and promote uniformity of decision mity, and, as a practical matter, without as to persons similarly situated, without use of the class action mechanism, individ- sacrificing procedural fairness or bringing uals harmed by defendants’ policy and about other undesirable results. Fed. practice might lack an effective remedy Rules Civ.Proc.Rule 23, 28 U.S.C.A. altogether. Fed.Rules Civ.Proc.Rule 23(b)(3), 28 U.S.C.A. 5. Federal Civil Procedure 165 O Although a defense may arise and 8. Federal Civil Procedure 165 O may affect different class members differ- Because the predominance analysis in ently, this occurrence does not compel a a class certification determination, which finding that individual issues predominate looks at whether questions of law or fact over common ones, as would preclude class common to the members of the class pre- certification; so long as a sufficient constel- dominate over any questions affecting only lation of common issues binds class mem- individual members, tests whether the bers together, variations in the sources class is a sufficiently cohesive unit, all fac- and application of a defense will not auto- tual or legal issues that are common to the matically foreclose class certification. class inform the analysis; in turn, an issue Fed.Rules Civ.Proc.Rule 23(b)(3), 28 is common to the class when it is suscepti- U.S.C.A. ble to generalized, class-wide proof. Fed. 6. Federal Civil Procedure 165 Rules Civ.Proc.Rule 23(b)(3), 28 U.S.C.A. District court may certifyO a class on a particular issue, such as liability, even if 9. Federal Civil Procedure 186.10 O the action as a whole does not satisfy Common issues predominated over in- certification rule’s predominance inquiry, dividual issues as to liability in action chal- which looks at whether questions of law or lenging constitutionality of county correc- fact common to the members of the class tional center’s blanket policy of strip predominate over any questions affecting searching newly admitted, misdemeanor only individual members. Fed.Rules Civ. detainees, as would support certification of Proc.Rule 23(b)(3), (c)(4)(A), 28 U.S.C.A. plaintiff class consisting of persons arrest- 7. Federal Civil Procedure 186.10 ed for misdemeanors or non-criminal of- Concession of county andO other defen- fenses in county who thereafter were strip- dants as to liability, in action challenging searched at center pursuant to such policy, constitutionality of county correctional cen- practice and custom which required that ter’s blanket policy of strip searching new- all arrestees be strip-searched upon admis- ly admitted, misdemeanor detainees, did sion to the facility; determination of class not eliminate common liability issues from membership would be simple, class defini- analysis of whether, under class certifica- tion implicated two broad common liability tion rule, questions of law or fact common issues, and any individualized liability is- to the members of the putative class pre- sues were de minimis. Fed.Rules Civ. dominated over any questions affecting Proc.Rule 23(b)(3), 28 U.S.C.A.
85 of 234 IN RE NASSAU COUNTY STRIP SEARCH CASES 221 Cite as 461 F.3d 219 (2nd Cir. 2006)
10. Federal Civil Procedure 186.10 the Eastern District of New York (Denis Class action device was O superior liti- J. Hurley, Judge ) denying their repeated gation mechanism as to issue of liability in motions for class certification on the action challenging constitutionality of ground that individual issues predominated county correctional center’s blanket policy over common ones. See Fed.R.Civ.P. of strip searching newly admitted, misde- 23(b)(3) (requiring that ‘‘questions of law meanor detainees, thus supporting certifi- or fact common to the members of the cation of plaintiff class; class members had class predominate over any questions af- little interest in maintaining separate ac- fecting only individual members’’). tions in view of defendants’ concession of During the course of class certification liability, action already had progressed motion practice, plaintiffs requested that substantially, certifying class would simpli- the District Court certify a Rule 23(b)(3) fy and streamline litigation process, and class solely on the issue of liability, as managing a class action as to liability permitted by Rule 23(c)(4)(A). In re- would pose little difficulty. Fed.Rules Civ. Proc.Rule 23(b)(3), 28 U.S.C.A. sponse, defendants conceded their liability to plaintiffs. The District Court denied the motion. As an initial matter, the Dis- trict Court expressed serious doubt over whether it could certify a class on the issue Robert L. Herbst, Beldock Levine & of liability since it already had determined Hoffman LLP (Vera M. Scanlon, Spencer that plaintiffs’ claims, as a whole, failed the B. Freedman, on the brief), New York, predominance test. Even if it could do so, NY, for Plaintiffs–Appellants. the District Court reasoned that defen- Matthew D. Brinckerhoff, Emery Celli dants’ concession removed common liabili- Brinckerhoff & Abady LLP, New York, ty issues from the predominance analysis. NY, for Plaintiffs–Appellants. With common liability issues so excised, Jeffrey G. Smith, Wolf Haldenstein the Court concluded that individual liabili- Adler Freeman & Herz, LLP, New York, ty issues, such as the application of an NY, for Plaintiffs–Appellants. affirmative defense, predominated. The Dennis J. Saffran, Deputy County Attor- Court thus denied plaintiffs’ motions for ney (Lorna B. Goodman, County Attorney class certification on the issue of liability. of Nassau County, David B. Goldin, Depu- The precise issues on appeal are wheth- ty County Attorney, on the brief), Mineola, er (1) a court may certify a Rule 23(b)(3) NY, for Defendants–Appellees. class as to a particular issue when it al- Before: CABRANES, STRAUB, and ready has determined that the claim as a HALL, Circuit Judges. whole fails the predominance test; (2) common issues that are conceded remain STRAUB, Circuit Judge. part of the predominance analysis; and (3) This appeal is the latest installment in a the District Court exceeded its allowable series of litigations over the Nassau Coun- discretion by failing to certify a class on ty Correctional Center’s (‘‘NCCC’’) blan- the issue of liability. As set forth more ket strip search policy for newly admitted, fully below, we hold that (1) a court may misdemeanor detainees (‘‘the policy’’). employ rule 23(c)(4)(A) to certify a class as Plaintiffs, who were strip searched pursu- to an issue regardless of whether the claim ant to the policy, appeal from a series of as a whole satisfies the predominance test; orders entered in the District Court for (2) the District Court erred when it con-
86 of 234 222 461 FEDERAL REPORTER, 3d SERIES cluded that defendants’ concession elimi- Each action alleged that plaintiffs were nated liability issues from the predomi- arrested on misdemeanor charges unrelat- nance analysis; and (3) the District Court ed to weapons or drugs and thereafter exceeded its allowable discretion by failing strip searched, without individualized sus- to certify a class on the issue of liability picion, pursuant to the policy. Plaintiffs pursuant to Rules 23(b)(3) and (c)(4)(A). claimed that the strip searches violated Accordingly, we reverse the District 42 U.S.C. § 1983, the Fourth, Fifth, Court’s orders dated September 23, 2003 Eighth, and Fourteenth Amendments to and November 7, 2003 to the extent that the United States Constitution, and Arti- they deny certification as to the issue of cle 1, section 12 of the New York State liability, and we remand for proceedings Constitution. They sought compensatory consistent with this opinion. and punitive damages, a declaration that the policy was unconstitutional, and an in- BACKGROUND junction barring enforcement of the poli- In 1999, the District Court for the East- cy. They also sought to maintain each ern District of New York held that defen- litigation as a class action. dants’ blanket policy of strip searching In February of 2000, plaintiffs moved to newly admitted, misdemeanor detainees vi- consolidate all three actions and certify a olated clearly established Fourth Amend- unified class pursuant to Rule 23(b)(3).1 ment law. See Shain v. Ellison, 53 Plaintiffs defined the class as follows: F.Supp.2d 564 (E.D.N.Y.1999), aff’d, 273 ‘‘[A]ll persons arrested for or charged with F.3d 56 (2d Cir.2001). Although the policy has never been formally enjoined, Shain v. non-felony offenses who have been admit- Ellison, 356 F.3d 211 (2d Cir.2004) (vacat- ted to the Nassau County Correctional ing injunction for lack of standing), defen- Center and strip searched without particu- dants assert that following the District larized reasonable suspicion.’’ In an opin- Court’s 1999 decision, they ceased imple- ion and order dated March 8, 2001, the menting it. District Court granted that branch of the motion seeking consolidation and denied Shortly after the District Court’s 1999 that branch seeking class certification. decision, plaintiffs brought three separate See Augustin v. Jablonsky, No. 99 Civ. actions in the Eastern District of New 3126, 2001 WL 770839 (E.D.N.Y. Mar.8, York: Augustin v. Jablonsky, No. 99 Civ. 2001). 3126, O’Day et al. v. Nassau County Sher- iff’s Department, et al., No. 99 Civ. 2844, The District Court determined that and Iaffaldano v. County of Nassau, No. plaintiffs satisfied the four requirements 99 Civ. 4238. Together, plaintiffs named of numerosity, commonality, typicality, as defendants Nassau County, Sheriff Jo- and adequacy of representation. See Fed. seph P. Jablonsky, the Sheriff’s Depart- R.Civ.P. 23(a). However, it denied certifi- ment, County Executive Thomas S. Gulot- cation for lack of common issue predomi- ta, the Division of Corrections, the Port nance. The Court recognized certain Washington Police District and its chief of common questions, namely, (1) whether police, William Kilfoil, and up to 200 subor- defendants maintained a blanket strip dinate John and Jane Doe corrections offi- search policy; (2) whether that policy was cers. unconstitutional; and (3) whether some or
1. Because motion practice on the question of only those aspects of the District Court’s deci- class certification continued in various itera- sions that are relevant to our own. tions for more than four years, we describe
87 of 234 IN RE NASSAU COUNTY STRIP SEARCH CASES 223 Cite as 461 F.3d 219 (2nd Cir. 2006) all defendants may be held liable. None- In an opinion and order dated May 23, theless, it determined that individualized 2001, the Court agreed that plaintiffs’ for- issues predominated, in particular: (1) bearance of their claims against subor- whether subordinate Jane and John Doe dinate defendants ‘‘removes the possibility defendants might escape liability in some of individualized liability determinations.’’ cases because, notwithstanding the blan- ‘‘To be sure,’’ the Court acknowledged, ket policy, they had reasonable suspicion ‘‘the absence of individualized questions of to search certain detainees; (2) the exis- liability militates in favor of partial certifi- tence of proximate causation for each al- cation solely on that issue.’’ It neverthe- leged injury; and (3) compensatory and less denied the motion. punitive damages calculations. The District Court again noted its ‘‘con- The District Court noted the possibility cern that partial certification might not be of sua sponte certifying a class solely on appropriate in the first instance where the the issue of liability pursuant to Rule cause of action, as a whole, does not satisfy 23(c)(4)(A), which allows for class certifica- the predominance requirement of Rule tion ‘‘with respect to particular issues.’’ It 23(b)(3).’’ ‘‘Even assuming’’ that Rule declined to do so because it did not wish to 23(c)(4)(A) could be used in that fashion, ‘‘undertake plaintiffs’ burden’’ to ‘‘craft and the Court denied the motion because plain- submit a proposal,’’ and because, as a legal tiffs’ proposed class definition ‘‘would ne- matter, it perceived ‘‘considerable doubt as cessitate mini-trials just to determine class to the propriety of using Rule 23(c)(4)(A) membership.’’ In order to determine class in this fashion.’’ In particular, the Court membership, the Court believed, each relied on Castano v. Am. Tobacco Co., 84 would-be class member would have to F.3d 734 (5th Cir.1996) for the proposition show affirmatively that he was strip that courts may not employ Rule searched without particularized reasonable 23(c)(4)(A) to single out the issue of liabili- suspicion—a criterion that the definition ty for class treatment unless the ‘‘cause of incorporated. This burden was complicat- action, as a whole,’’ first satisfies Rule ed by the fact that defendants claimed that 23(b)(3)’s predominance requirement. Id. they had ceased the blanket strip search at 745 n. 21 (emphasis added by District policy after the Eastern District’s 1999 Court). decision in Shain, and thereafter conduct- Plaintiffs moved for reconsideration. ed strip searches only with particularized They first asserted that they would no reasonable suspicion. longer seek judgment against subordinate In January 2003, plaintiffs renewed their Jane and John Doe defendants. Since motion for class certification as to liability that modification would render the ques- and offered a new definition of the class as tion of liability identical for nearly all class follows: ‘‘[A]ll persons arrested for misde- members, plaintiffs next asserted that the meanors or noncriminal offenses in Nassau Court should certify a class on the issue of County who thereafter were strip-searched liability pursuant to Rule 23(c)(4)(A). at the NCCC pursuant to defendants’ They again defined the class as ‘‘all per- blanket policy, practice and custom which sons arrested for or charged with non- required that all arrestees be strip- felony offenses who have been admitted to searched upon admission to the facility the [Nassau County Correctional Center] TTTT’’ (alterations incorporated). By re- and strip searched without particularized ferring only to the ‘‘blanket policy,’’ this reasonable suspicion.’’ new definition did not require plaintiffs to
88 of 234 224 461 FEDERAL REPORTER, 3d SERIES show that reasonable suspicion was absent Plaintiffs moved again for reconsidera- in each case, and it excluded individuals tion on October 2, 2003. In an opinion and strip searched after the 1999 Shain deci- order dated November 7, 2003, the District sion, when defendants ceased implement- Court adhered to its earlier determinations ing the policy. Plaintiffs also reiterated and also concluded—for the first time— that they withdrew their claims against that for the same reasons informing its individual John and Jane Doe corrections predominance analysis, plaintiffs failed to officers. satisfy another one of Rule 23(b)(3)’s re- In response, defendants conceded ‘‘the quirements, specifically, that the proposed one common issue’’ that in their view class action be ‘‘superior to other available ‘‘might be appropriate for class certifica- methods for the fair and efficient adjudica- tion TTT namely, whether the NCCC’s tion of the controversy.’’ Fed.R.Civ.P. strip search policy during the class period 23(b)(3). In one last effort to ‘‘determine was constitutional.’’ (alterations incorporat- if its decision was in some other way im- ed). Specifically, defendants recognized proper,’’ the Court examined the policies of that they ‘‘are bound by Shain under the efficiency and uniformity animating Rule doctrine of collateral estoppel.’’ 23, and concluded that they did not favor The District Court denied the renewed certification. The Court also noted that motion. In an opinion and order dated individual plaintiffs would have little trou- September 23, 2003, the Court deter- ble securing counsel to pursue their claims mined that defendants’ concession re- because their damages likely would be moved all common liability issues from its large enough to provide the necessary eco- predominance analysis. Accordingly, the nomic incentive. only liability issue that remained was an The parties later reached a settlement in individual one: whether, notwithstanding which defendants paid the lump sum of the policy, some plaintiffs were searched $350,000 to the ten plaintiffs, who agreed based upon ‘‘reasonable and contempora- to split the funds equally. Plaintiffs re- neously held suspicion.’’ ‘‘With the liabili- served their right to appeal the District ty issue thus circumscribed,’’ the Court Court’s orders denying class certification, wrote, ‘‘certification as to that issue would which they timely exercised.2 not serve any purpose.’’ Interestingly, the Court recognized that the individual- DISCUSSION ized ‘‘ ‘reasonable suspicion inquiries’ will be de minimis’’ for two reasons: because I. Standard of Review defendants conceded that ‘‘such an inqui- [1, 2] We review the District Court’s ry will only be sought regarding a limited denial of class certification for abuse of number of plaintiffs,’’ and because pursu- discretion. Robinson v. Metro–North ant to United States v. Colon, 250 F.3d Commuter R.R. Co., 267 F.3d 147, 162 (2d 130, 138 (2d Cir.2001), reasonable suspi- Cir.2001). However, we ‘‘review de novo cion must be possessed by some law en- the district court’s conclusions of law that forcement officer at the time of the informed its decision to deny class certifi- search and may not be retroactively im- cation.’’ Parker v. Time Warner Entm’t puted. Co., 331 F.3d 13, 18 (2d Cir.2003) (quota-
2. Although these plaintiffs have settled their ‘‘seek or receive additional compensation for individual claims, they have reserved their attorney’s fees and [their] time and effort as right, in the event of a class settlement, to TTT class representative[s].’’
89 of 234 IN RE NASSAU COUNTY STRIP SEARCH CASES 225 Cite as 461 F.3d 219 (2nd Cir. 2006) tion marks omitted). Further, we are ‘‘no- fairness or bringing about other undesir- ticeably less deferential when the district able results.’’ Fed.R.Civ.P. 23(b)(3) adv. court has denied class status than when it comm. n. to 1966 amend. has certified a class.’’ Id. (quotation marks omitted and alterations incorporat- [5] In light of these purposes, we have ed); Robinson, 267 F.3d at 162. We note set forth that although ‘‘a defense may that while the application of the incorrect arise and may affect different class mem- legal principle often necessitates reversal bers differently, [this occurrence] does not under the ‘‘abuse of discretion’’ standard, compel a finding that individual issues pre- such reversal need not indicate any dominate over common ones.’’ In re Visa ‘‘abuse’’ by the District Court as that word Check, 280 F.3d at 138 (internal quotation is commonly understood. See Zervos v. marks omitted). So ‘‘long as a sufficient Verizon N.Y., Inc., 252 F.3d 163, 168–69 & constellation of common issues binds class nn. 4–6 (2d Cir.2001) (distinguishing members together, variations in the among various meanings of ‘‘abuse of dis- sources and application of a defense will cretion’’). not automatically foreclose class certifica- tion.’’ Id. (quotation marks omitted and II. The Requirements and Purpose of alterations incorporated). Rule 23(b)(3) In order to achieve class certification III. The District Court Erred in Fail- pursuant to Rule 23(b)(3), plaintiffs must ing to Certify a Class on the Issue (1) satisfy the four requirements of Rule of Liability Pursuant to Rules 23(a), which are numerosity, typicality, 23(b)(3) and (c)(4)(A) commonality, and adequacy of representa- tion; (2) demonstrate that common ‘‘ques- As set forth more fully below, we con- tions of law or fact’’ predominate over ‘‘any clude that the District Court erred by questions affecting only individual mem- failing to certify a class on the issue of bers’’; and (3) establish that the class ac- liability.3 We first conclude that, contrary tion mechanism is ‘‘superior to other avail- to the District Court’s reservations, a able methods for the fair and efficient court may employ Rule 23(c)(4)(A) to certi- adjudication of the controversy.’’ Fed. fy a class on a particular issue even if the R.Civ.P. 23(b)(3). action as a whole does not satisfy Rule [3, 4] As a general matter, the ‘‘Rule 23(b)(3)’s predominance requirement. 23(b)(3) predominance inquiry tests wheth- Second, we hold that the District Court er proposed classes are sufficiently cohe- committed legal error in concluding that sive to warrant adjudication by representa- defendants’ concession eliminated common tion.’’ In re Visa Check/MasterMoney liability issues from Rule 23(b)(3)’s predo- Antitrust Litig., 280 F.3d 124, 136 (2d minance analysis. Third, this error caused Cir.2001) (quotation marks omitted). The the District Court to exceed its allowable Rule ‘‘encompasses those cases in which a discretion in concluding that individualized class action would achieve economies of liability issues predominated over common time, effort, and expense, and promote uni- ones, and that the class action mechanism formity of decision as to persons similarly is not a superior litigation vehicle under situated, without sacrificing procedural these circumstances.
3. We reach this conclusion without consider- claims—an issue that, as set forth more fully ing whether the District Court should have below, we ask the District Court to revisit in certified a class as to plaintiffs’ entire light of our holdings.
90 of 234 226 461 FEDERAL REPORTER, 3d SERIES
A. A District Court May Certify a Circuit’s view. Rule 23(c)(4) provides as Class as to Specific Issues Re- follows: gardless of Whether the Entire When appropriate (A) an action may be Claim Satisfies Rule 23(b)(3) brought or maintained as a class action [6] Whether a court may employ Rule with respect to particular issues, or (B) 23(c)(4)(A) to certify a class as to a specific a class may be divided into subclasses issue where the entire claim does not satis- and each subclass treated as a class, and fy Rule 23(b)(3)’s predominance require- the provisions of this rule shall then be ment is a matter of first impression in this construed and applied accordingly. Circuit. See Robinson, 267 F.3d at 167 n. 12 (identifying question as one of first Fed.R.Civ.P. 23(c)(4) (emphases added). impression and declining to resolve it). It As the rule’s plain language and struc- also is a matter as to which the Circuits ture establish, a court must first identify have split. Id. the issues potentially appropriate for certi- The Fifth Circuit has adopted a ‘‘strict fication ‘‘and TTT then’’ apply the other application’’ of Rule 23(b)(3)’s predomi- provisions of the rule, i.e., subsection (b)(3) nance requirement. Id. Under this view, and its predominance analysis. See Gun- ‘‘[t]he proper interpretation of the interac- nells, 348 F.3d at 439 (reasoning that the tion between subdivisions (b)(3) and (c)(4) rule’s language provides this ‘‘express is that a cause of action, as a whole, must command’’ that ‘‘courts have no discretion satisfy the predominance requirement of (b)(3) and that (c)(4) is a housekeeping rule to ignore’’). that allows courts to sever the common Second, the Advisory Committee Notes issues for a class trial.’’ Castano v. Am. confirm this understanding. With respect Tobacco Co., 84 F.3d 734, 745 n. 21 (5th to subsection (c)(4), the notes set forth Cir.1996). that, ‘‘[f]or example, in a fraud or similar The Ninth Circuit holds a different view. case the action may retain its ‘class’ char- Pursuant to that court’s precedent, ‘‘[e]ven acter only through the adjudication of lia- if the common questions do not predomi- bility to the class; the members of the nate over the individual questions so that class may thereafter be required to come class certification of the entire action is in individually and prove the amounts of warranted, Rule 23 authorizes the district their respective claims.’’ Fed.R.Civ.P. court in appropriate cases to isolate the 23(c)(4) adv. comm. n. to 1966 amend. (em- common issues under Rule 23(c)(4)(A) and phasis added). As the notes point out, a proceed with class treatment of these par- court may employ Rule 23(c)(4) when it is ticular issues.’’ Valentino v. Carter–Wal- the ‘‘only’’ way that a litigation retains its lace, Inc., 97 F.3d 1227, 1234 (9th Cir. class character, i.e., when common ques- 1996); cf. Gunnells v. Healthplan Servs., tions predominate only as to the ‘‘particu- Inc., 348 F.3d 417, 439 (4th Cir.2003) (hold- lar issues’’ of which the provision speaks. ing that courts may employ Rule 23(c) to Further, the notes illustrate that a court certify a class as to one claim even though may properly employ this technique to all of plaintiffs’ claims, taken together, do separate the issue of liability from dam- not satisfy the predominance require- ages. ment). We agree with the Ninth Circuit’s view In addition, as the Fourth Circuit has of the matter. First, the plain language noted, the Fifth Circuit’s view renders and structure of Rule 23 support the Ninth subsection (c)(4) virtually null, which con-
91 of 234 IN RE NASSAU COUNTY STRIP SEARCH CASES 227 Cite as 461 F.3d 219 (2nd Cir. 2006) travenes the ‘‘well-settled’’ principle ‘‘that B. The District Court Erred When It courts should avoid statutory interpreta- Concluded that Defendants’ Con- tions that render provisions superfluous.’’ cession Eliminates Common Lia- State St. Bank & Trust Co. v. Salovaara, bility Issues from Rule 23(b)(3)’s 326 F.3d 130, 139 (2d Cir.2003). Pursuant Predominance Analysis to the Fifth Circuit’s view, ‘‘a court consid- [7] As noted above, the District Court ering the manageability of a class action— reasoned that the major liability issues a requirement for predominance under common to the class—whether defendants Rule 23(b)(3)(D)—[would have] to pretend implemented a blanket strip search policy, that subsection (c)(4)—a provision specifi- and if so, whether they are liable for it— cally included to make a class action more were eliminated from the predominance manageable—does not exist until after the analysis by defendants’ concession. manageability determination [has been] Whether a concession can limit the predo- made.’’ Gunnells, 348 F.3d at 439. Ac- minance analysis in that fashion also is a cordingly, ‘‘a court could only use subsec- question of first impression. For three reasons, we conclude that a concession tion (c)(4) to manage cases that the court does not eliminate a common issue from had already determined would be manage- the predominance calculus, and that the able without consideration of subsection District Court erred in holding otherwise. (c)(4).’’ Id. [8] First, because the predominance Finally, we note that the commentators analysis tests whether the class is a ‘‘ ‘suf- agree that courts may use subsection (c)(4) ficiently cohesive’ ’’ unit, In re Visa Check, to single out issues for class treatment 280 F.3d at 136, all factual or legal issues when the action as a whole does not satisfy that are common to the class inform the Rule 23(b)(3). See 7AA Wright & Miller, analysis. See Amchem Prods., Inc. v. Federal Practice & Procedure § 1790 (3d Windsor, 521 U.S. 591, 621, 117 S.Ct. 2231, ed.2005) (stating that subsection (c)(4) 138 L.Ed.2d 689 (1997) (‘‘Subdivisions (a) ‘‘best may be used to designate appropri- and (b) focus court attention on whether a ate classes or class issues at the certifica- proposed class has sufficient unity so that tion stage’’ so that ‘‘the court can deter- absent members can fairly be bound by mine whether, as so designated, the other decisions of class representatives.’’). In Rule 23 requirements are satisfied’’); 6 turn, an issue is common to the class when Alba Conte & Herbert B. Newberg, New- it is susceptible to generalized, class-wide berg on Class Actions § 18:7 (4th ed. proof. In re Visa Check, 280 F.3d at 136 2002) (‘‘Even cases which might not satisfy (‘‘In order to meet the predominance re- the predominance test when the case is quirement TTT a plaintiff must establish viewed as a whole may sometimes be certi- that the issues in the class action that are fied as a class limited to selected issues subject to generalized proof, and thus ap- that are common, under the authority of plicable to the class as a whole, predomi- Rule 23(c)(4).’’). nate over those issues that are subject only to individualized proof.’’ (internal quo- For those reasons, we hold that a court tation marks omitted and alteration incor- may employ subsection (c)(4) to certify a porated)); see also Heerwagen v. Clear class as to liability regardless of whether Channel Commc’ns, 435 F.3d 219, 226 (2d the claim as a whole satisfies Rule Cir.2006) (noting that ‘‘a plaintiff must 23(b)(3)’s predominance requirement. show that those issues TTT subject to gen-
92 of 234 228 461 FEDERAL REPORTER, 3d SERIES eralized proof outweigh those issues that single policy of defendants,’’ such as the are subject to individualized proof’’); blanket policy at issue here, the case pres- Moore v. PaineWebber, Inc., 306 F.3d ents ‘‘precisely the type of situation for 1247, 1252 (2d Cir.2002) (same). That the which the class action device is suited’’ class-wide proof comes in the form of a since many nearly identical litigations can simple concession rather than contested be adjudicated in unison. In re Visa evidence certainly shortens the time that Check, 280 F.3d at 146. the court must spend adjudicating the is- Eliminating conceded issues from Rule sue, but it does nothing to alter the funda- 23(b)(3)’s predominance calculus would un- mental cohesion of the proposed class, dermine the goal of efficiency by requiring which is the central concern of the predo- plaintiffs who share a ‘‘commonality of the minance requirement. See 2 Alba Conte & violation and the harm,’’ nonetheless to Herbert B. Newberg, Newberg on Class pursue separate and potentially numerous Actions § 4:25 (4th ed. 2002) (‘‘[T]he pre- actions because, ironically, liability is so dominance test does not involve a compari- clear. Id. (noting that class action man- son of court time needed to adjudicate agement ‘‘problems pale in comparison to common issues weighed against time need- the burden on the courts that would result ed to dispose of individual issuesTTTT’’); from trying the cases individually’’). Such 7AA Wright & Miller, Federal Practice a result also undermines the goal of unifor- and Procedure § 1778 (3d ed. 2005) mity by creating the risk of inconsistent (‘‘[C]lockwatching is not very helpful in decisions through the repeated litigation of ascertaining whether class-action treat- the same question; here, for example, each ment would be desirable in a particular individual plaintiff would have to establish case.’’). Similarly, the fact that an issue is anew that defendants were collaterally es- conceded or otherwise resolved does not topped by their prior concession and, if mean that it ceases to be an ‘‘issue’’ for the not, that defendants were liable on the purposes of predominance analysis. Even merits. Cf. Waste Mgmt. Holdings, Inc., resolved questions continue to implicate 208 F.3d at 299 (concluding that because the ‘‘common nucleus of operative facts certification was ‘‘necessary to determine and issues’’ with which the predominance whether the prior resolution carries res inquiry is concerned. See Waste Mgmt. judicata effect with respect to purported Holdings, Inc. v. Mowbray, 208 F.3d 288, class members,’’ the district court properly 299 (1st Cir.2000) (‘‘[T]he fact that an issue took account of ‘‘the common nucleus of has been resolved on summary judgment operative facts and issues, even though does not remove it from the predominance certain of these already had been re- calculus.’’). Just as much as do contested solved’’). Although defendants have con- issues, resolved issues bear on the key ceded liability to these plaintiffs, there is question that the analysis seeks to answer: no guarantee that they would concede lia- whether the class is a legally coherent unit bility in a case or series of cases involving of representation by which absent class significantly higher damages. Further, members may fairly be bound. courts might differ as to whether, in light Second, Rule 23 seeks greater efficiency of the settlement, the requirements of col- via collective adjudication and, relatedly, lateral estoppel were met, specifically, greater uniformity of decision as to simi- whether the issue of liability was ‘‘actually larly situated parties. See Fed.R.Civ.P. litigated and decided’’ and whether its 23(b)(3) adv. comm. n. to 1966 amend. For ‘‘resolution TTT was necessary to support a these reasons we have written that when valid and final judgment on the merits.’’ plaintiffs are ‘‘allegedly aggrieved by a Ball v. A.O. Smith Corp., 451 F.3d 66, 69
93 of 234 IN RE NASSAU COUNTY STRIP SEARCH CASES 229 Cite as 461 F.3d 219 (2nd Cir. 2006)
(2d Cir.2006); cf. In re Tamoxifen Citrate 23(b)(3)’s predominance analysis, and the Antitrust Litig., 429 F.3d 370, 387 n. 15 District Court erred when it concluded to (2d Cir.2005) (‘‘[I]t is clearly a permissible the contrary. byproduct of settlement that future hypo- thetical plaintiffs might be forced to reliti- C. The District Court Erred in Deter- gate the same issues involved in the set- mining that, as to Liability, Indi- tled cases.’’); Marvel Characters, Inc. v. vidual Issues Predominated Simon, 310 F.3d 280, 289 (2d Cir.2002). [9] As we have established, the Dis- Finally, we find further support for our trict Court was (1) free to certify a class on view in the specific circumstances of this the issue of liability notwithstanding its case. Defendants possess, but have not conclusion that the action as a whole did disclosed, records of all the newly-admit- not satisfy the predominance requirement ted misdemeanor detainees strip searched and (2) required to consider conceded com- pursuant to the blanket policy. Absent mon liability issues in its predominance class certification and its attendant class- analysis. We now apply these principles wide notice procedures, most of these indi- to the District Court’s opinion and order viduals—who potentially number in the dated September 23, 2003 in which it de- thousands—likely never will know that de- nied certification on the issue of liability, fendants violated their clearly established as well as that dated November 7, 2003 in constitutional rights, and thus never will which it adhered to its September decision. be able to vindicate those rights. As a The class definition at issue was as follows: practical matter, then, without use of the ‘‘[A]ll persons arrested for misdemeanors class action mechanism, individuals or non-criminal offenses in Nassau County harmed by defendants’ policy and practice who thereafter were strip-searched at the may lack an effective remedy altogether. NCCC pursuant to defendants’ blanket Cf. Deposit Guar. Nat. Bank v. Roper, 445 policy, practice and custom which required U.S. 326, 339, 100 S.Ct. 1166, 63 L.Ed.2d that all arrestees be strip-searched upon 427 (1980) (noting that in certain cases admission to the facility TTTT’’ (alterations ‘‘aggrieved persons may be without any incorporated). effective redress unless they may employ As noted, that definition obviated the the class-action device’’); Tardiff v. Knox need for individualized proceedings to de- County, 365 F.3d 1, 7 (1st Cir.2004) (‘‘[F]or termine class membership. The definition most strip search claimants, class status referenced only defendants’ ‘‘blanket poli- here is not only the superior means, but cy,’’ thus avoiding questions of probable probably the only feasible one (one-way cause and excluding individuals strip collateral estoppel aside), to establish lia- searched after the policy’s cessation. bility and perhaps damages.’’). Further, if Since defendants possess records of misde- defendants may utilize their concession to meanor detainees strip searched during defeat class certification, it would work the the policy period, determining class mem- perverse result of allowing them to escape bership would be simple. In re Visa the cost of their unconstitutional behavior Check, 280 F.3d at 142 (approving class precisely because their liability is too plain certification where ‘‘class members TTT can to be denied. No other court has sanc- be identified by defendants’ own records’’). tioned such a result; nor shall we. The class definition also implicated two Accordingly, we hold that defendants’ broad common liability issues: whether concession of liability does not eliminate the blanket policy existed and whether that otherwise common issue from Rule defendants are liable for its implementa-
94 of 234 230 461 FEDERAL REPORTER, 3d SERIES tion. The only countervailing, individual- class action.’’ See Fed.R.Civ.P. 23(b)(3). ized liability issue was whether, regard- Contrary to the District Court’s conclusion less of the policy, some plaintiffs were in its decision dated November 7, 2003, all strip searched based upon ‘‘reasonable of these factors—as well as the reasons set and contemporaneously held suspicion.’’ forth above regarding efficiency and fair- The existence of this defense does ‘‘not ness—favor class certification. TTT foreclose class certification.’’ Id. at First, the class members have little in- 138 (internal quotation marks omitted). terest in maintaining separate actions Further, as the District Court recognized, since there already exists a concession of ‘‘any such ‘reasonable suspicion inquiries’ liability in this action and, without class will be de minimis’’; indeed, defendants notification, most putative class members set forth that ‘‘such an inquiry will only will not even know that they suffered a be sought regarding a limited number of violation of their constitutional rights. plaintiffs.’’ In light of the pervasive char- Second, this action already has progressed acter of the common liability issues and substantially and, again, offers the benefit the admittedly de minimis nature of indi- of a liability phase that can be resolved vidualized liability issues, we conclude that quickly and conclusively. Third, concen- the District Court erred by holding that trating the litigation in one forum simpli- individual liability issues predominated fies and streamlines the litigation process. over common ones in its decisions dated Fourth, we perceive little difficulty in man- September 23, 2003, and November 7, aging a class action on the issue of liability, 2003. especially since the District Court already has noted that any individualized inquiries D. The District Court Erred in Con- will be few and far between. Accordingly, cluding that the Class Action De- we conclude that the District Court erred vice Is Not a Superior Litigation in holding that a class action was not the Mechanism most fair and efficient litigation vehicle [10] For Rule 23(b)(3) certification to under these circumstances. be proper, a class action also must be the most ‘‘fair and efficient’’ method of resolv- CONCLUSION ing this case. See Fed.R.Civ.P. 23(b)(3). We hold that (1) district courts may In analyzing that question, courts must employ Rule 23(c)(4)(A) to certify a class consider four nonexclusive factors: (1) the on a designated issue regardless of wheth- interest of the class members in maintain- er the claim as a whole satisfies the predo- ing separate actions; (2) ‘‘the extent and minance test; (2) conceded common issues nature of any litigation concerning the con- remain part of the predominance analysis; troversy already commenced by or against and (3) the District Court exceeded its members of the class’’; (3) ‘‘the desirabili- allowable discretion in denying Rule ty or undesirability of concentrating the 23(b)(3) and (c)(4)(A) class certification on litigation of the claims in the particular the issue of liability in its decisions dated forum’’; and (4) ‘‘the difficulties likely to September 23, 2003 and November 7, be encountered in the management of a 2003.4
4. Because we have found that certification as In re Visa Check, 280 F.3d at 147 (declining to to liability is proper pursuant to Rule 23(b)(3), review district court’s ruling on Rule 23(b)(2) there is ‘‘no necessity’’ of addressing alternate certification after concluding that Rule grounds for certification, such as Rule 23(b)(3) certification was proper) (internal 23(b)(2), that the District Court rejected. Cf. quotation marks omitted). Further, since we
95 of 234 ALMEIDA–AMARAL v. GONZALES 231 Cite as 461 F.3d 231 (2nd Cir. 2006)
In light of our direction to certify a class Holdings: The Court of Appeals, Calabre- on the issue of liability pursuant to the si, Circuit Judge, held that: definition set forth in the September 23 (1) exclusion of alien’s Brazilian passport decision, we also instruct the District and his statement to border patrol Court to consider anew whether to certify agent admitting that he was a Brazil- a class as to damages as well. The Dis- ian citizen was not warranted, and trict Court should bear in mind that ‘‘[t]here are a number of management (2) alien’s statements were not required to tools available to a district court to address be excluded because of alien’s age. any individualized damages issues,’’ such Petition denied. as bifurcation, the use of a magistrate or special master, alteration of the class defi- nition, the creation of subclasses, or even 1. Aliens, Immigration, and Citizenship decertification after a finding of liability. 404 O In re Visa Check, 280 F.3d at 141. On appeal from a decision of the In sum, we remand to the District Court Board of Immigration Appeals (BIA), is- with instructions to certify a class as to sues of law are reviewed de novo. Immi- liability and consider certifying a damages gration and Nationality Act, class as well. § 242(b)(4)(B), 8 U.S.C.A. § 1252(b)(4)(B). 2. Aliens, Immigration, and Citizenship 423 , O Exclusion of evidence in deportation
proceedings is warranted for Fourth Amendment violations that are egregious Werquely Jeanini ALMEIDA– either because the violation transgressed AMARAL, Petitioner, notions of fundamental fairness, or be- v. cause the violation undermined the proba- Alberto GONZALES,* Attorney General tive value of the evidence obtained. of the United States, Respondent. U.S.C.A. Const.Amend. 4. Docket No. 04–5841–AG. 3. Aliens, Immigration, and Citizenship United States Court of Appeals, 423 Second Circuit. O Exclusion of alien’s Brazilian passport Argued: May 16, 2006. and his statement to border patrol agent Decided: Aug. 24, 2006. admitting that he was a Brazilian citizen Background: Alien, a 17-year-old citizen was not warranted, on Fourth Amendment of Brazil, petitioned for review of the deci- grounds, in removal proceeding; although sion of the Board of Immigration Appeals the agent’s conduct in stopping alien with- (BIA), 2004 WL 2418673, which affirmed out reasonable suspicion infringed on his the immigration judge’s (IJ) removal or- Fourth Amendment rights, the alleged der. wrongfulness of the seizure by the agent
base our decision on the September 23, 2003 * Pursuant to Federal Rule of Appellate Proce- and November 7, 2003 orders, we need not dure 43(c)(2), Attorney General Alberto R. consider the District Court’s August 20, 2004 Gonzales is automatically substituted for for- order, in which it rejected a radically differ- mer Attorney General John Ashcroft as the ent class definition for failure to satisfy Rule respondent in this case. 23(a).
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848 (7th Cir.1994) (‘‘[D]ismissal of the fed- discrimination in violation of Title VII and eral claim on the eve of trial is not by itself § 1981. The United States District Court sufficient to justify resolving the remaining for the Northern District of Illinois, Rob- claims in federal court.’’ (citing Olive Can ert W. Gettleman, J., denied employees’ Co., 906 F.2d at 1153)). The fact that the motion for class certification, 2010 WL trial was near is not enough to displace the 3184179, the employees’ motion for recon- presumption in favor of remand. sideration, 2011 WL 658155, and the em- In short, we find no abuse of discretion. ployees’ amended motion for class certifi- While BP claims ‘‘the case should remain cation, 2011 WL 4471028. Employees filed in federal court because the district judge an interlocutory appeal. was familiar with both the facts and the Holdings: The Court of Appeals, Posner, law of the case and the parties have under- Circuit Judge, held that: taken discovery, these considerations are (1) Court of Appeals would permit inter- not adequate to make us ‘second-guess’ the locutory appeal from district court or- district court’s decision to relinquish juris- der denying employees’ amended mo- 2 diction.’’ Kennedy, 140 F.3d at 728. tion, and AFFIRMED. (2) issue of whether employer’s policies had a disparate impact on African– American employees was appropriate , for class-wide treatment. Reversed.
1. Federal Courts 653 O George McREYNOLDS, et al., on behalf Fourteen-day deadline for seeking of themselves and all others similarly leave to appeal an order granting or deny- situated, Plaintiffs–Appellants, ing class certification is not jurisdictional. v. Fed.Rules Civ.Proc.Rule 23(f), 28 U.S.C.A. MERRILL LYNCH, PIERCE, 2. Federal Courts 652.1 O FENNER & SMITH, INC., Court of Appeals would permit an in- Defendant–Appellee. terlocutory appeal from a district court No. 11–3639. order denying employees’ amended motion for class certification in employees’ action United States Court of Appeals, against employer alleging racial discrimi- Seventh Circuit. nation in violation of Title VII and § 1981, even though the district court denied the Argued Jan. 13, 2012. employees’ initial motion for class certifica- Decided Feb. 24, 2012. tion 11 months before the employees’ filed Background: African–American financial their amended motion, where the basis of advisor employees brought putative class the employees’ amended motion was the action against employer, alleging racial Supreme Court’s decision in Wal–Mart
2. BP moved for leave to supplement the rec- purporting to add a federal civil-rights claim. ord with certain materials filed in state court The state-court docket reflects that this following remand—in particular, the Desai amendment has been denied. We deny the plaintiffs’ proposed sixth amended complaint motion to supplement the record.
97 of 234 MCREYNOLDS v. MERRILL LYNCH, PIERCE, FENNER 483 Cite as 672 F.3d 482 (7th Cir. 2012)
Stores, Inc. v. Dukes, which was handed Before POSNER, WOOD, and down a month earlier, and was possibly a HAMILTON, Circuit Judges. milestone in the law governing class certi- fication in employment discrimination POSNER, Circuit Judge. cases. Fed.Rules Civ.Proc.Rule 23(f), 28 U.S.C.A. The plaintiffs have filed a class action suit that charges Merrill Lynch with racial 3. Federal Civil Procedure 184.10 O discrimination in employment in violation Issue of whether financial advisor em- of Title VII of the Civil Rights Act of 1964 ployer’s ‘‘teaming’’ policy, which authorized and 42 U.S.C. § 1981. The plaintiffs ask employees, rather than managers, to form that a class be certified for two purposes: staff teams, and its ‘‘account distribution’’ deciding a common issue, Fed.R.Civ.P. policy, which based account distributions 23(c)(4)—whether the defendant has en- on the past success of employees who were gaged and is engaging in practices that competing for the transfers, had a dispa- have a disparate impact (that is, a discrimi- rate impact on African-American employ- natory effect, though it need not be inten- ees would have been most efficiently deter- tional) on the members of the class, in mined on a class-wide basis, rather than in violation of federal antidiscrimination 700 individual lawsuits, making class certi- law—and providing injunctive relief. Fed. fication proper to resolve the issue, under R.Civ.P. 23(b)(2). They also want dam- provision of class action rule providing for ages. But while they asked the district maintenance of class action where party court to certify the class for purposes of opposing the class acted or refused to act seeking compensatory and punitive dam- on grounds generally to the class, in em- ages, see Rule 23(b)(3), at argument the ployees’ Title VII action; if the policies plaintiffs’ lawyer said she wasn’t asking— caused racial discrimination and were not not yet anyway—for such certification, justified by business necessity, then they though her opening brief had suggested violated Title VII, and whether the policies that if we found that the district court had caused racial discrimination and whether erred in refusing to certify for class treat- they nonetheless were justified by busi- ment the disparate impact issue and in- ness necessity were questions common to junctive relief, we should order the court the entire class. Civil Rights Act of 1964, to ‘‘consider [on remand] the extent to § 701 et seq., 42 U.S.C.A. § 2000e et seq.; 42 U.S.C.A. § 1981; Fed.Rules Civ.Proc. which damages issues also could benefit Rule 23(b)(2), (c)(4), 28 U.S.C.A. from class treatment, consistent with Allen v. International Truck & Engine Corp., 358 F.3d 469 (7th Cir.2004).’’ We defer that question to the end of our opinion. But we note here that without proof of Linda Debra Friedman (argued), Senior intentional discrimination, which is not an Attorney, Stowell & Friedman, Chicago, element of a disparate impact claim, the IL, for Plaintiffs–Appellants. plaintiffs cannot obtain damages, whether Timothy S. Bishop (argued), Stephen M. compensatory or punitive, but only equita- Shapiro, Attorneys, Mayer Brown LLP, ble relief (which might however include Chicago, IL, Jared R. Friedmann, Attor- backpay, and thus have a monetary dimen- ney, Weil, Gotshal & Manges LLP, New sion). 42 U.S.C. § 1981a(a)(1); Kolstad v. York, NY, for Defendant–Appellee. American Dental Association, 527 U.S.
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526, 534, 119 S.Ct. 2118, 144 L.Ed.2d 494 sought our leave to appeal. The defendant (1999). Section 1981a(a)(1) is explicit that asks us to treat the request for leave to damages cannot be awarded in respect of appeal as an untimely request to appeal ‘‘an employment practice that is unlawful the August 2010 denial of certification. because of its disparate impact.’’ That would amount to treating the plain- The district court denied certification, tiffs’ second motion for certification as an and the plaintiffs asked this court for leave untimely motion to reconsider the denial of to appeal the denial. A motions panel the first motion. granted leave, but the defendant argues The question of timeliness may seem to that the panel erred—that the appeal is be about jurisdiction, since most deadlines untimely. We begin with that question. for appeals from a district court have been Rule 23(f) of the civil rules permits ap- held to be jurisdictional. But as we noted peals from orders granting or denying recently in In re IFC Credit Corp., 663 class certification despite the general poli- F.3d 315, 319–20 (7th Cir.2011), the Su- cy (though one with many exceptions) preme Court has been moving toward a against allowing interlocutory appeals in definition of the subject-matter jurisdiction the federal court system. A denial of class of the federal courts that includes all cases certification often dooms the suit—the that these courts are ‘‘competent,’’ in the class members’ claims may be too slight to sense of legally empowered, to decide. justify the expense of individual suits. This implies that deadlines for appealing Conversely, because of the astronomical damages potential of many class action are not jurisdictional, since they regulate suits, a grant of certification may place the movement upward through the judicial enormous pressure on the defendant to hierarchy of litigation that by definition is settle even if the suit has little merit. See, within federal jurisdiction. Yet appeal e.g., CE Design Ltd. v. King Architectural deadlines either found in statutes or Metals, Inc., 637 F.3d 721, 723 (7th Cir. adopted by courts by direction of a statute 2011). And because class actions are cum- continue to be treated as jurisdictional— bersome and protracted, an early appellate though not all of them; the Supreme decision on whether a suit can be main- Court recently rejected such a ‘‘bright tained as a class action can speed the way line’’ rule in favor of requiring a ‘‘clear to termination of the litigation by abandon- indication’’ that the deadline was intended ment, summary judgment, or settlement. by Congress to be jurisdictional. E.g., Blair v. Equifax Check Services, Inc., Henderson v. Shinseki, ––– U.S. ––––, 131 181 F.3d 832, 834–35 (7th Cir.1999); New- S.Ct. 1197, 1203, 179 L.Ed.2d 159 (2011). ton v. Merrill Lynch, 259 F.3d 154, 162–65 (The power of Congress to impose such (3d Cir.2001). limits on the jurisdiction of the federal But Rule 23(f) requires that leave to courts is not questioned.) But because no appeal be sought from the court of appeals ‘‘clear indication’’ is to be found in the within 14 days of the entry of the order pertinent statutory texts, see, e.g., 28 granting or denying certification. The dis- U.S.C. §§ 2101(c), 2107(a), (c), the Court trict court denied the plaintiffs’ initial mo- has found itself saying such things as that tion for class certification in August 2010. Congress is not required to ‘‘use magic In July 2011 the plaintiffs filed an amend- words in order to speak clearly on this ed motion for class certification, which the point’’ and that ‘‘context, including [the district judge denied in September, and Supreme Court’s] interpretation of similar within 14 days of that denial the plaintiffs provisions in many years past, is relevant.’’
99 of 234 MCREYNOLDS v. MERRILL LYNCH, PIERCE, FENNER 485 Cite as 672 F.3d 482 (7th Cir. 2012)
Henderson v. Shinseki, supra, 131 S.Ct. at line as jurisdictional. The time limit in 1203, quoting Reed Elsevier, Inc. v. Mu- Rule 23(f), having been created by the chnick, ––– U.S. ––––, 130 S.Ct. 1237, 176 Court rather than by Congress (no time L.Ed.2d 18 (2010). limits are specified in the Rules Enabling What we take away from this formula is Act—the Act is an enabler, not a specifier), that if the Court has traditionally treated a is governed by the ‘‘competence’’ standard particular statutory deadline as jurisdic- and therefore is not jurisdictional, for obvi- tional it will go on doing so, id. at 1203–06; ously the suit from which the appeal is John R. Sand & Gravel Co. v. United sought to be taken is within the jurisdic- States, 552 U.S. 130, 134, 128 S.Ct. 750, tion of the federal courts. 169 L.Ed.2d 591 (2008); Bowles v. Russell, But suppose our understanding of the 551 U.S. 205, 209–10 and n. 2, 127 S.Ct. evolving Supreme Court doctrine is wrong, 2360, 168 L.Ed.2d 96 (2007); In re Cater- and the deadline in Rule 23(f) is jurisdic- bone, 640 F.3d 108, 111–13 (3d Cir.2011), tional. The only difference between a even though doing so doesn’t comport with deadline that is jurisdictional and one that the new ‘‘competence’’ standard. Dead- is not is that a litigant cannot lose the lines for appealing are just a type of stat- benefit of the former type (until judgment ute of limitations, as acknowledged in John becomes final after exhaustion of appellate R. Sand & Gravel v. United States, supra, remedies) by failing to assert it, or because 552 U.S. at 133, 128 S.Ct. 750, and statutes the other party’s failure to comply would of limitations ordinarily are affirmative de- in nonjurisdictional settings be excused by fenses rather than jurisdictional bars. A such doctrines as equitable estoppel or deadline for bringing or appealing a feder- equitable tolling. The defendant has from al case presupposes that the case is within the outset vigorously contested the timeli- the competence of federal courts to decide. ness of the appeal, and the plaintiffs are [1] We declined in Asher v. Baxter not arguing that they should be excused Int’l Inc., 505 F.3d 736, 741 (7th Cir.2007), for having missed the deadline. Even if to rule on whether the deadline in Rule not jurisdictional, a deadline is mandatory 23(f), though it is promulgated by the Su- in the sense that if invoked by a party in preme Court under the authority of the timely fashion the court is bound by it. Rules Enabling Act, 28 U.S.C. § 2072, Eberhart v. United States, 546 U.S. 12, 19, rather than found in or directed to be 126 S.Ct. 403, 163 L.Ed.2d 14 (2005) (per adopted by a statute, is jurisdictional. But curiam); Asher v. Baxter Int’l Inc., supra, by now it is clear that it is not jurisdiction- 505 F.3d at 741; Maxwell v. Dodd, 662 al—that the exception to the ‘‘competence’’ F.3d 418, 421 (6th Cir.2011); Wilburn v. standard is limited to statutory deadlines, Robinson, 480 F.3d 1140, 1146–47 United States v. Neff, 598 F.3d 320, 322–23 (D.C.Cir.2007). (7th Cir.2010), for how can a court contract Rather, the plaintiffs’ argument is that or expand its jurisdiction except by force their 14 days to seek leave to appeal ran of a constitutional or statutory provision? anew from the denial of their amended If the deadline was made by Congress, motion for class certification. The defen- then whether it is jurisdictional depends dant points out that a deadline for appeal- on congressional intent, and, the Supreme ing cannot be extended by a motion for Court appears to be saying, in the absence reconsideration of a previous appealable of any clues to that intent on whether the order, Asher v. Baxter Int’l Inc., supra, courts traditionally have treated the dead- 505 F.3d at 739–40; Gary v. Sheahan, 188
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F.3d 891 (7th Cir.1999); Jenkins v. Bell- appeals is important. Appellate jurisdic- South Corp., 491 F.3d 1288, 1290–92 (11th tion in the federal system ordinarily is Cir.2007); McNamara v. Felderhof, 410 mandatory. With few exceptions, we have F.3d 277, 280–81 and n. 8 (5th Cir.2005), to decide all appeals that we have jurisdic- unless the motion is made within the time tion to hear; we do not have a discretion- allowed for taking the appeal, Blair v. ary appellate jurisdiction like the Supreme Equifax Check Services, Inc., supra, 181 Court. But because our jurisdiction to F.3d at 837, and this rule applies to ap- hear interlocutory appeals under Rule peals under Rule 23(f). Id. Otherwise the 23(f) is discretionary, there is little danger deadline for taking the appeal would be that the filing in the district court of a eviscerated. And this is so even if the second motion for certification based on motion for reconsideration doesn’t just say altered circumstances, followed if it is de- ‘‘and for the reasons stated in our original nied by a motion in this court for leave to motion we ask the court to reverse its appeal, will either delay the district court ruling’’ but adds ‘‘and by the way we have proceedings (Rule 23(f) provides that ‘‘an thought of some clever new arguments for appeal does not stay proceedings in the why our motion should have been grant- district court unless the district judge or ed.’’ Carpenter v. Boeing Co., 456 F.3d the court of appeals so orders’’) or burden 1183, 1190–91 (10th Cir.2006). For it is us or the opposing party. If the movant is easy to think up new arguments. playing a delay game, prompt denial by But it doesn’t follow that the failure to the motions panel of leave to appeal proba- take a timely appeal from one interlocu- bly will end it; if he persists he will be tory order operates as a forfeiture, juris- courting sanctions in both the district dictional or otherwise, of the right to ap- court and this court for filing frivolous peal a subsequent order. For the later pleadings. And by the way, we do not motion may not be, either in form or, more permit a party to circumvent the 14–day important, in substance, a motion to recon- deadline in Rule 23(f) by appealing a deni- sider the previous denial. A rule limiting al of class certification under 28 U.S.C. parties to one interlocutory appeal from a § 1292(b) (authorizing interlocutory ap- grant or denial of class certification would peals that present a controlling issue of disserve Rule 23(f). It is important that law on which there is substantial room for the question whether the case is to pro- disagreement and prompt resolution would ceed as a class action be resolved sooner expedite the litigation), Richardson Elec- rather than later. So if it becomes clear in tronics, Ltd. v. Panache Broadcasting, 202 the course of the lawsuit, as a result of F.3d 957, 959 (7th Cir.2000), which has no new law or newly learned facts, that the deadline. denial of certification was erroneous, and if years of litigation lie ahead before a final Dicta in the Tenth Circuit’s opinion in judgment can be expected, and if therefore Carpenter v. Boeing Co., supra, go beyond an appeal from the denial of certification the unexceptionable proposition that mere- may either end the litigation or at least ly presenting ‘‘new arguments’’ does not place it on a path to swift resolution, the change a motion for reconsideration of a court of appeals should have discretion to grant or denial of class certification into a allow the appeal. motion that if denied is appealable under The fact that the appellate court has a Rule 23(f). The opinion states (456 F.3d at discretionary jurisdiction over Rule 23(f) 1191) that
101 of 234 MCREYNOLDS v. MERRILL LYNCH, PIERCE, FENNER 487 Cite as 672 F.3d 482 (7th Cir. 2012) given the multifactor analysis that A court of appeals is never obliged to courts must apply in deciding the pro- engage in ‘‘contorted thinking’’ about a priety of class certification, [even appel- Rule 23(f) appeal, for it can always deny late review limited to whatever changed leave to appeal, and should do so if it circumstances had given rise to the would have to do mental contortions in fresh motion for certification] would of- order to make up its collective mind ten require contorted thinking that ex- whether appeal should be allowed. And if ceeds the capacities of even appellate the new motion for certification ‘‘raises courts. How can an appellate court say only a rather inconsequential new factor,’’ that one particular new factor would re- then the failure of the plaintiffs to have quire a different result regardless of sought interlocutory review of the denial of how the district court weighed the fac- the original motion for certification be- tors presented originally? In stating comes a reason to deny leave to appeal out that the new factor required a different of hand, without any ‘‘mental gymnastics.’’ result, the appellate court must engage As for ‘‘not expect[ing] the losing party to in weighing the factors weighed by the continue the litigation for months before district court in its original ruling but launching a new challenge to the ruling,’’ cannot know precisely how much weight the new challenge is timely if filed as soon the district court granted to each. In as the development warranting a new mo- particular, what if the district court tion for certification occurs, but untimely if clearly erred in giving dispositive weight the plaintiff dawdles. And if the appeal is to one factor? How is the appellate not ‘‘belated,’’ but based on developments court to ignore such error (in keeping that may warrant certification, allowing with the presumption that the original the appeal may very well speed up rather decision was correct) even when it ad- than slow down the litigation. In effect dresses a motion for reconsideration the court held in Carpenter that the new that raises only a rather inconsequential motion for certification was in substance new factor? TTT We are not inclined to an untimely motion for reconsideration. adopt a construction of Rule 23(f) that The holding is unexceptionable, but the would regularly require mental gymnas- dicta are not persuasive. tics just for the purpose of giving liti- gants a second bite at the interlocutory- [2] The basis of the plaintiffs’ renewed appellate-review apple. We note that motion for class certification in the present the very absence of a prompt appeal by case was the Supreme Court’s decision in the party aggrieved by the decision on Wal–Mart Stores, Inc. v. Dukes, ––– U.S. certification suggests that the concerns ––––, 131 S.Ct. 2541, 180 L.Ed.2d 374 justifying Rule 23(f) are, at the least, (2011), handed down a month earlier. less significant in the particular case. If That was an important development in the the decision whether or not to certify law governing class certification in employ- the class was truly outcome determina- ment discrimination cases—possibly a tive, one would not expect the losing milestone. It may seem a perverse basis party to continue the litigation for for a renewed motion for class certifica- months before launching a new chal- tion, since the Supreme Court reversed a lenge to the ruling. Any value in per- grant of certification in what the defendant mitting a belated interlocutory appeal is in our case insists is a case just like this overridden by the desirability of the dis- one. But the district judge, though he trict court’s proceeding expeditiously. again denied certification, didn’t think the
102 of 234 488 672 FEDERAL REPORTER, 3d SERIES plaintiffs were perverse in basing their there was no common issue to justify class new motion on Wal–Mart. On the con- treatment. trary, he said that ‘‘Wal–Mart does add a The district judge thought this case like lot to the landscape under Rule 23TTTT I Wal–Mart because Merrill Lynch, accused think this really cries out for a 23(f) ap- of discriminating against 700 black brokers peal, and I would support it. And I’m currently or formerly employed by it, dele- going to put that in my order [denying the gates discretion over decisions that influ- renewed motion for certification—and he ence the compensation of all the company’s did]TTTT [T]his is one [case] that really 15,000 brokers (‘‘Financial Advisors’’ is cries out for [a Rule 23(f) appeal] with the their official title) to 135 ‘‘Complex Di- change in the landscape by the Wal–Mart rectors.’’ Each of the Complex Directors opinion. Of course, you know, most defen- supervises several of the company’s 600 dants think that the change is in their branch offices, and within each branch of- interest, not in the plaintiffs’. But you’ve fice the brokers exercise a good deal of [the judge was addressing the plaintiffs’ autonomy, though only within a framework lawyer] made a good argument, and I established by the company. think it deserves to be put to rest one way or the other.’’ The judge was right. [3] Two elements of that framework Wal–Mart holds that if employment dis- are challenged: the company’s ‘‘teaming’’ crimination is practiced by the employing policy and its ‘‘account distribution’’ policy. company’s local managers, exercising dis- The teaming policy permits brokers in the cretion granted them by top management same office to form teams. They are not (granted them as a matter of necessity, in required to form or join teams, and many Wal–Mart’s case, because the company has prefer to work by themselves. But many 1.4 million U.S. employees), rather than others prefer to work as part of a team. implementing a uniform policy established Team members share clients, and the aim by top management to govern the local in forming or joining a team is to gain managers, a class action by more than a access to additional clients, or if one is million current and former employees is already rich in clients to share some of unmanageable; the incidents of discrimi- them with brokers who have complementa- nation complained of do not present a com- ry skills that will secure the clients’ loyalty mon issue that could be resolved efficiently and maybe persuade them to invest more in a single proceeding. Fed.R.Civ.P. with Merrill Lynch. As we said, there are 23(a)(2). Not that the employer would be lone wolves, but there is no doubt that for immune from liability even in such a case; many brokers team membership is a plus; if the local managers are acting within the certainly the plaintiffs think so. scope of their employment in discriminat- The teams are formed by brokers, and ing against their underlings on a forbidden once formed a team decides whom to ad- ground (sex, alleged in Wal–Mart, race in our case), the employer is liable for their mit as a new member. Complex Directors unlawful conduct under the doctrine of re- and branch-office managers do not select spondeat superior. But because there was the team’s members. no company-wide policy to challenge in Account distributions are transfers of Wal–Mart—the only relevant corporate customers’ accounts when a broker leaves policies were a policy forbidding sex dis- Merrill Lynch and his clients’ accounts crimination and a policy of delegating em- must therefore be transferred to other ployment decisions to local managers— brokers. Accounts are transferred within
103 of 234 MCREYNOLDS v. MERRILL LYNCH, PIERCE, FENNER 489 Cite as 672 F.3d 482 (7th Cir. 2012) a branch office, and the brokers in that uncertainty people tend to base decisions office compete for the accounts. The com- on emotions and preconceptions, for want pany establishes criteria for deciding who of objective criteria. will win the competition. The criteria in- Suppose a police department authorizes clude the competing brokers’ records of each police officer to select an officer jun- revenue generated for the company and of ior to him to be his partner. And suppose the number and investments of clients re- it turns out that male police officers never tained. select female officers as their partners and The Complex Directors, as well as the white officers never select black officers as branch-office managers, have a measure of their partners. There would be no inten- discretion with regard to teaming and ac- tional discrimination at the departmental count distribution; they can veto teams level, but the practice of allowing police and can supplement the company criteria officers to choose their partners could be for distributions. And to the extent that challenged as enabling sexual and racial these regional and local managers exercise discrimination—as having in the jargon of discretion regarding the compensation of discrimination law a ‘‘disparate impact’’ on the brokers whom they supervise, the case a protected group—and if a discriminatory is indeed like Wal–Mart. But the exercise effect was proved, then to avoid an adverse of that discretion is influenced by the two judgment the department would have to company-wide policies at issue: authoriza- prove that the policy was essential to the tion to brokers, rather than managers, to department’s mission. 42 U.S.C. § 2000e– form and staff teams; and basing account 2(k)(1)(A)(i); Ricci v. DeStefano, 557 U.S. distributions on the past success of the 557, 129 S.Ct. 2658, 2672–73, 174 L.Ed.2d brokers who are competing for the trans- 490 (2009); Bryant v. City of Chicago, 200 fers. Furthermore, team participation and F.3d 1092, 1098–99 (7th Cir.2000). That account distribution can affect a broker’s case would not be controlled by Wal–Mart performance evaluation, which under com- (although there is an undoubted resem- pany policy influences the broker’s pay blance), in which employment decisions and promotion. The plaintiffs argue that were delegated to local managers; it would these company-wide policies exacerbate ra- be an employment decision by top manage- cial discrimination by brokers. ment. The teams, they say, are little fraterni- Merrill Lynch’s broker teams are ties (our term but their meaning), and as formed by brokers, not managers, just as in fraternities the brokers choose as team in our hypothetical example police officers’ members people who are like themselves. partners are chosen by police officers, not If they are white, they, or some of them supervisors. If the teaming policy causes anyway, are more comfortable teaming racial discrimination and is not justified by with other white brokers. Obviously they business necessity, then it violates Title have their eyes on the bottom line; they VII as ‘‘disparate impact’’ employment dis- will join a team only if they think it will crimination—and whether it causes racial result in their getting paid more, and they discrimination and whether it nonetheless would doubtless ask a superstar broker to is justified by business necessity are issues join their team regardless of his or her common to the entire class and therefore race. But there is bound to be uncertainty appropriate for class-wide determination. about who will be effective in bringing and And likewise with regard to account dis- keeping shared clients; and when there is tributions: if as a result of racial prefer-
104 of 234 490 672 FEDERAL REPORTER, 3d SERIES ence at the team level black brokers em- wide practice from an exercise of discre- ployed by Merrill Lynch find it hard to tion by local managers this case falls. join teams, or at least good teams, and as a Echoing the district judge, the defen- result don’t generate as much revenue or dant’s brief states that ‘‘any discrimination attract and retain as many clients as white here would result from local, highly-indi- brokers do, then they will not do well in vidualized implementation of policies rath- the competition for account distributions er than the policies themselves.’’ That is either; and a kind of vicious cycle will set too stark a dichotomy. Assume that with in. A portion of a team’s pre-existing no company-wide policy on teaming or ac- revenues are transferred within a team to count distribution, but instead delegation a new recruit, who thus starts out with to local management of the decision wheth- that much ‘‘new’’ revenue credited to him er to allow teaming and the criteria for or her—an advantage, over anyone who is account distribution, there would be racial not on a team and thus must generate all discrimination by brokers or local manag- of his own ‘‘new’’ revenue, that translates ers, like the discrimination alleged in Wal– into a larger share of account distributions, Mart. But assume further that company- which in turn helps the broker do well in wide policies authorizing broker-initiated the next round of such distributions. This teaming, and basing account distributions spiral effect attributable to company-wide on past success, increase the amount of policy and arguably disadvantageous to discrimination. The incremental causal ef- black brokers presents another question fect (overlooked by the district judge) of common to the class, along with the ques- those company-wide policies—which is the tion whether, if the team-inflected account alleged disparate impact—could be most distribution system does have this dispa- efficiently determined on a class-wide ba- rate impact, it nevertheless is justified by sis. business necessity. We are not suggesting that there is in There is no indication that the corporate fact racial discrimination at any level with- level of Merrill Lynch (or its parent, Bank in Merrill Lynch, or that management’s of America) wants to discriminate against teaming and account distribution policies black brokers. Probably it just wants to have a racial effect. The fact that black maximize profits. But in a disparate im- brokers have on average lower earnings pact case the presence or absence of dis- than white brokers may have different criminatory intent is irrelevant; and per- causes altogether. The only issue at this mitting brokers to form their own teams stage is whether the plaintiffs’ claim of and prescribing criteria for account distri- disparate impact is most efficiently deter- butions that favor the already successful— mined on a class-wide basis rather than in those who may owe their success to having 700 individual lawsuits. been invited to join a successful or promis- The district judge exaggerated the im- ing team—are practices of Merrill Lynch, pact on the feasibility and desirability of rather than practices that local managers class action treatment of the fact that the can choose or not at their whim. There- exercise of discretion at the local level is fore challenging those policies in a class undoubtedly a factor in the differential action is not forbidden by the Wal–Mart success of brokers, even if not a factor that decision; rather that decision helps (as the overwhelms the effect of the corporate pol- district judge sensed) to show on which icies on teaming and on account distribu- side of the line that separates a company- tions. Obviously a single proceeding,
105 of 234 MCREYNOLDS v. MERRILL LYNCH, PIERCE, FENNER 491 Cite as 672 F.3d 482 (7th Cir. 2012) while it might result in an injunction, could ing, claimant-specific issues to individual not resolve class members’ claims. Each follow-on proceedings. class member would have to prove that his The kicker is whether ‘‘the accuracy of the compensation had been adversely affected resolution’’ would be ‘‘unlikely to be en- by the corporate policies, and by how hanced by repeated proceedings.’’ If re- much. So should the claim of disparate sisting a class action requires betting one’s impact prevail in the class-wide proceed- company on a single jury verdict, a defen- ing, hundreds of separate trials may be dant may be forced to settle; and this is necessary to determine which class mem- an argument against definitively resolving bers were actually adversely affected by an issue in a single case if enormous conse- one or both of the practices and if so what quences ride on that resolution. In re loss each class member sustained—and re- Bridgestone/Firestone, Inc., 288 F.3d 1012, member that the class has 700 members. 1020 (7th Cir.2002); In re Rhone–Poulenc But at least it wouldn’t be necessary in Rorer, Inc., 51 F.3d 1293, 1299–1300 (7th each of those trials to determine whether Cir.1995); contra, Klay v. Humana, Inc., the challenged practices were unlawful. 382 F.3d 1241, 1274 (11th Cir.2004). But Rule 23(c)(4) provides that ‘‘when appro- Merrill Lynch is in no danger of being priate, an action may be brought or main- destroyed by a binding class-wide determi- tained as a class action with respect to nation that it has committed disparate im- particular issues.’’ The practices chal- pact discrimination against 700 brokers, lenged in this case present a pair of issues although an erroneous injunction against that can most efficiently be determined on its teaming and account distribution poli- a class-wide basis, consistent with the rule cies could disadvantage it in competition just quoted. with brokerage firms that employ similar As said in Mejdrech v. Met–Coil Sys- policies—though we have no information tems Corp., 319 F.3d 910, 911 (7th Cir. on whether others do. 2003), The Mejdrech decision, and Bridge- class action treatment is appropriate and stone/Firestone and Rhone–Poulenc more is permitted by Rule 23 when the judi- fully, discuss the danger that resolving an cial economy from consolidation of sepa- issue common to hundreds of different rate claims outweighs any concern with claimants in a single proceeding may make possible inaccuracies from their being too much turn on the decision of a single, lumped together in a single proceeding fallible judge or jury. The alternative is for decision by a single judge or jury. multiple proceedings before different tri- Often, and as it seems to us here, these ers of fact, from which a consensus might competing considerations can be recon- emerge; a larger sample provides a more ciled in a ‘‘mass tort’’ case by carving at robust basis for an inference. But that is the joints of the parties’ dispute. If an argument for separate trials on pecuni- there are genuinely common issues, is- ary relief, and the only issue of relief at sues identical across all the claimants, present is whether to allow the plaintiffs to issues moreover the accuracy of the res- seek class-wide injunctive relief. There olution of which is unlikely to be en- isn’t any feasible method—certainly none hanced by repeated proceedings, then it has been proposed in this case—for with- makes good sense, especially when the holding injunctive relief until a series of class is large, to resolve those issues in separate injunctive actions has yielded a one fell swoop while leaving the remain- consensus for or against the plaintiffs.
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As far as pecuniary relief is concerned, there may be no common issues (though ADT SECURITY SERVICES, INC., then again there may be, see Allen v. et al., Plaintiffs–Appellees, International Truck & Engine Corp., su- v. pra, 358 F.3d at 472), and in that event the next stage of the litigation, should the LISLE–WOODRIDGE FIRE class-wide issue be resolved in favor of the PROTECTION DISTRICT, plaintiffs, will be hundreds of separate Defendant–Appellant. suits for backpay (or conceivably for com- No. 11–2905. pensatory damages and even punitive dam- United States Court of Appeals, ages as well, if the plaintiffs augment their Seventh Circuit. disparate-impact claim with proof of inten- tional discrimination). The stakes in each Argued Nov. 17, 2011. of the plaintiffs’ claims are great enough to Decided Feb. 27, 2012. make individual suits feasible. Most of Merrill Lynch’s brokers earn at least Background: Private fire alarm compa- $100,000 a year, and many earn much nies sued fire protection district, challeng- more, and the individual claims involve ing under federal and state law district’s multiple years. But the lawsuits will be ordinance mandating that commercial more complex if, until issue or claim pre- buildings and multi-family residences use clusion sets in, the question whether Mer- fire alarms equipped with wireless radio rill Lynch has violated the antidiscrimi- technology that would send alarm signals nation statutes must be determined anew directly to central monitoring board oper- in each case. ated by district, which contracted with one private alarm company to provide and ser- We have trouble seeing the downside of vice signaling equipment. The United the limited class action treatment that we States District Court for the Northern think would be appropriate in this case, District of Illinois, Milton I. Shadur, J., and we conclude that the district judge 799 F.Supp.2d 880, granted companies’ erred in deciding to the contrary (with motion for partial summary judgment and evident misgivings, however). The denial entered permanent injunction against ordi- of class certification under Rules 23(b)(2) nance’s implementation. District moved for and (c)(4) is therefore stay of enforcement of injunction. The Dis- trict Court, Shadur, J., 807 F.Supp.2d 742, REVERSED. denied motion. District appealed. Holdings: The Court of Appeals, Hamil- ton, Circuit Judge, held that: (1) as an issue of first impression, district could mandate that commercial and , multi-family buildings have fire alarm systems that communicated directly with district’s monitoring board; (2) as an issue of first impression, district could require that connections between fire alarm systems in commercial and multi-family buildings and district’s
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Cy Pres
(1) American Law Institute, Principles of the Law of Aggregate Litigation § 307 (2010) (2) In re Baby Products Antitrust Litig., 708 F.3d 163 (3d Cir. 2013) (3) In re BankAmerica Corp. Sec. Litig., 775 F.3d 1060 (8th Cir. 2015) (4) Lane v. Facebook, Inc., 696 F.3d 811 (9th Cir. 2012) (5) Statement of Chief Justice Roberts Respecting the Denial of Certiorari, Marek v. Lane, 134 S. Ct. 8 (2013)
108 of 234 Marcus, David 6/13/2015 For Educational Use Only
§ 3.07Cy Pres Settlements, Principles of the Law of Aggregate Litigation § 3.07 (2010)
Principles of the Law - Aggregate Litigation
Principles of the Law of Aggregate Litigation
Chapter 3. Aggregate Settlements
Topic 2. Class Settlements
Comment: Reporters' Notes Case Citations - by Jurisdiction
A court may approve a settlement that proposes a cy pres remedy even if such a remedy could not be ordered in a contested case. The court must apply the following criteria in determining whether a cy pres award is appropriate:
(a) If individual class members can be identified through reasonable effort, and the distributions are sufficiently large to make individual distributions economically viable, settlement proceeds should be distributed directly to individual class members.
(b) If the settlement involves individual distributions to class members and funds remain after distributions (because some class members could not be identified or chose not to participate), the settlement should presumptively provide for further distributions to participating class members unless the amounts involved are too small to make individual distributions economically viable or other specific reasons exist that would make such further distributions impossible or unfair.
(c) If the court finds that individual distributions are not viable based upon the criteria set forth in subsections (a) and (b), the settlement may utilize a cy pres approach. The court, when feasible, should require the parties to identify a recipient whose interests reasonably approximate those being pursued by the class. If, and only if, no recipient whose interests reasonably approximate those being pursued by the class can be identified after thorough investigation and analysis, a court may approve a recipient that does not reasonably approximate the interests being pursued by the class.
Comment: a. Purposes of the cy pres remedy. The cy pres remedy originated in the context of charitable trusts. The concept was that, if the testator's precise terms could not be carried out (for example, because a specific charitable organization no longer existed), the court could modify the trust in a manner that would best carry out the testator's intent (for example, by selecting a similar charity).
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A related remedy, known as fluid recovery, provides relief to future consumers to reasonably approximate the interests being pursued by the aggrieved class when class members cannot reasonably be identified. This Section uses the term cy pres broadly to refer to both remedies.
Courts have approved the cy pres remedy in settlements in two situations. First, many courts allow a settlement that directs funds to a third party when funds are left over after all individual claims have been satisfied. Subject to a narrow exception in subsection (c), this Section approves of that type of cy pres only when it is not feasible to make further distributions to class members and the third party's interests approximate those of the class members. Second, some courts allow a settlement to require a payment only to a third party, that is, to provide no recovery at all directly to class members. A fluid-recovery remedy fits into this second category. This Section approves of the latter type of cy pres remedy only when distribution of the funds directly to class members is not feasible and the third party's interests approximate those of the class members. b. Circumstances in which the cy pres remedy is appropriate. This Section begins from the premise that funds generated through the aggregate prosecution of divisible claims are presumptively the property of the class members (and that the settlement has not been structured so that any funds remaining revert to the defendant). Starting from this vantage point, this Section generally permits cy pres awards only when direct distributions to class members are not feasible—either because class members cannot be reasonably identified or because distribution would involve such small amounts that, because of the administrative costs involved, such distribution would not be economically viable. In such circumstances, there should be a presumed obligation to award any remaining funds to an entity that resembles, in either composition or purpose, the class members or their interests.
Assuming that class members can be reasonably identified and that direct distributions make economic sense, funds may remain because some class members could not be identified or chose not to file claims. Under this Section, assuming that further distributions to the previously identified class members would be economically viable, that approach is preferable to cy pres distributions. This Section rejects the position urged by a few commentators that a cy pres remedy is preferable to further distributions to class members. Those commentators reason that further direct distributions would constitute a windfall to those class members. However, few settlements award 100 percent of a class member's losses, and thus it is unlikely in most cases that further distributions to class members would result in more than 100 percent recovery for those class members. In any event, this Section takes the view that in most circumstances distributions to class members better approximate the goals of the substantive laws than distributions to third parties that were not directly injured by the defendant's conduct.
Cy pres is preferable to other options available to a court when direct distributions are not viable. One option is to return the remaining funds to the defendant even when the settlement does not contain a provision for reversion to the defendant. That option, however, would undermine the deterrence function of class actions and the underlying substantive-law basis of the recovery by rewarding the alleged wrongdoer simply because distribution to the class would not be viable. Another option, escheat to the state, would benefit all citizens equally, even those who were not harmed by the defendant's alleged conduct. A cy pres award to a recipient whose interests closely approximate those of the class is preferable to either of these options.
Section 3.07(c) provides that if an award to a recipient whose interests reasonably approximate the interests of the class is not practicable, the court may designate an alternative recipient. On the issues of practicability, the extent of effort that the court and parties must undertake to identify a recipient whose interests reasonably approximate those of the class will necessarily vary depending upon the facts of the case, most notably the amount of the distribution at stake. For small amounts, a court may be more inclined to approve an organization as a recipient without an extensive search of available entities, whereas a more exacting search will be required when more money is at stake.
A cy pres remedy should not be ordered if the court or any party has any significant prior affiliation with the intended recipient that would raise substantial questions about whether the selection of the recipient was made on the merits.
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Under subsection (c), before a court approves a recipient whose interests do not approximate the interests of the class, it must find that further distributions directly to class members are infeasible, and that despite thorough investigation and analysis, no recipient can be found that approximates the interests of the class. Once it has made these findings and is in the process of selecting an appropriate recipient, the court should give weight to the parties' choice of recipient, as demonstrated by the settlement agreement. If the settlement agreement does not designate a recipient, the court shall designate an appropriate recipient after soliciting input from the parties. Unless the court makes the specific findings required by subsection (c), cy pres may not be used when there is no close nexus between the proposed recipient and the class, regardless of how “worthy” the court and the parties consider the proposed recipient to be.
Nothing in this Section would require that a settlement actually recover money for class members, so long as the class is apprised of that fact in a properly constructed settlement notice. For instance, nothing in this Section prohibits a settlement that is limited entirely to injunctive relief. Likewise, nothing in this Section limits the ability of legislatures to designate appropriate recipients of remaining funds in particular circumstances, including pro bono legal-services providers.
Illustrations: Illustrations:
1. A taxicab company allegedly overcharged for taxi services during the four-year period before the filing of the lawsuit. The specific injured class members cannot be identified, and even if they could be, the award to a typical class member would likely be very small. The parties propose a settlement whereby the company will reduce taxi fares for a period of time to compensate for the overcharges. Although the beneficiaries of the settlement (future passengers) are not identical to the members of the injured class, the remedy is an effort, as near as possible, to compensate the victims. Such a settlement is a proper way of distributing the class-wide relief (leaving to the side whether it may unfairly disadvantage competing taxi companies).
2. In an employment-discrimination suit in which 100 individual African-American class members seek in excess of $50,000 each, the parties propose a settlement involving a payment of $5 million to the NAACP Legal Defense Fund. The settlement is improper; the employer has contact information for all or most class members, and the amounts involved are sufficient to expect most class members to make claims. On the other hand, if a settlement calls for individual payments to class members, and funds remain out of a $5 million fund at the end of the claims period, the donation of the balance to an entity that indirectly benefits class members and other victims of race discrimination, such as the NAACP Legal Defense Fund, would be appropriate if additional payments to identified class members would not be economically viable.
Reporters' Notes
Comment a.This Section addresses settlements in which the parties agree to a cy pres remedy, as opposed to the situation in which a court orders a cy pres distribution as a remedy in a contested class action.
For commentary discussing the difference between traditional cy pres and fluid recovery, see Martin H. Redish, Peter Julian, & Samantha Zyontz, Cy Pres Relief and the Pathologies of the Modern Class Action: A Normative and Empirical Analysis at 59-60 (unpublished manuscript, available at http://www.law.northwestern.edu/searlecenter/uploads/CyPresClassActions.pdf (last visited Jan. 28, 2010)).
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For authority discussing the history of the cy pres remedy and its application to class actions, see, e.g., Mirfasihi v. Fleet Mortgage Corp., 356 F.3d 781, 784-785 (7th Cir. 2004) (Posner, J.); In re Lupron Marketing and Sales Practices Litig., No. 01-CV-10861-RGS, 2009 WL 1395411, at *1-*2 (D. Mass. May 19, 2009) (citing to a previous draft of these Principles of Aggregate Litigation); S.E.C. v. Bear Stearns & Co., 626 F.Supp.2d 402, 414 (S.D.N.Y. 2009) (same); Schwab v. Philip Morris U.S.A., Inc., 449 F.Supp.2d 992, 1251-1271 (E.D.N.Y. 2006), rev'd, McLaughlin v. Philip Morris, 522 F.3d 215 (2d Cir. 2008); Susan Beth Farmer, More Lessons from the Laboratories: Cy Pres Distributions in Parens Patriae Antitrust Actions Brought By State Attorneys General, 68 Fordham L. Rev. 361, 391-399 (1999). See also Robert H. Klonoff & Mark Herrmann, The Class Action Fairness Act: An Ill-Conceived Approach to Class Settlements, 80 Tul. L. Rev. 1695, 1704-1705 (2006) (arguing that “cy pres should … be available … where portions of a settlement fund are likely to go unclaimed”).
For examples of a court using the cy pres doctrine to disburse excess settlement funds after all plaintiffs have been satisfied, see In re Publication Paper Antitrust Litigation, Nos. 3:04 MD 1631(SRU) et al., 2009 WL 2351724, at *1-*2 (D. Conn. July 30, 2009) (“ ‘With respect to the approval of settlements providing for a cy pres remedy, [a previous draft of these Principles of Aggregate Litigation] propose[d] a rule limiting Cy Pres “to circumstances in which direct distribution to individual class members is not economically feasible, or where funds remain after class members are given a full opportunity to make a claim.” ’ ”) (quoting Masters v. Wilhelmina Model Agency, Inc., 473 F.3d 423, 436 (2d Cir. 2007)); In re Tyco Intern., Ltd. Multidistrict Litig., 535 F.Supp.2d 249, 262 (D.N.H. 2007) (similarly citing to a previous draft of these Principles as consonant with the court's decision to apply the cy pres doctrine once pro rata disbursement of funds to class members is not “economically viable”).
For authority holding that a cy pres remedy may not be used in a contested class action to avoid manageability problems, see, e.g., McLaughlin v. Am. Tobacco Co., 522 F.3d 215, 231-233 (2d Cir. 2008); Six (6) Mexican Workers v. Ariz. Citrus Growers, 904 F.2d 1301, 1305 (9th Cir. 1990). Numerous courts, however, have indicated that cy pres remedies may be permissible in class settlements. See, e.g., Masters, 473 F.3d at 435-436; Six Mexican Workers, 904 F.2d at 1305. But even on this point, the courts are divided. For instance, the Ninth Circuit has stated that, even in the settlement context, a cy pres remedy may “circumvent individualized proof requirements and alter the substantive rights at issue.” Molski v. Gleich, 318 F.3d 937, 954 (9th Cir. 2003).
For an example of the use of cy pres in the settlement context because of the infeasibility of direct distributions to class members, see Block v. McDonald's Corp., No. 00 CH 9137 (Cir. Ct. of Cook County, Ill. Oct. 30, 2002), available at http:// www.edcombs.com/CM/Notices/Notices233.asp (last visited Jan. 28, 2010) (approving settlement of class suit alleging that McDonald's used beef tallow or beef extract in preparing french fries and hash-brown potatoes despite representing that those foods were cooked in vegetable oil; McDonald's agreed to pay $10 million to various vegetarian and nutrition organizations). For other examples, see Bruno v. Superior Court, 179 Cal.Rptr. 342 (Cal. Ct. App. 1981) (case alleging unlawful fixing of milk prices and seeking, inter alia, lowering of milk prices in affected area); Kerry Barnett, Equitable Trusts: An Effective Remedy in Consumer Class Actions, 96 Yale L.J. 1591 (1987) (giving case examples). For an example of a court's creative use of cy pres in a complex settlement involving millions of class members, see In re Holocaust Victim Assets Litig., 424 F.3d 132 (2d Cir. 2005) (one of several Second Circuit opinions affirming trial court's use of cy pres to distribute part of $1.25 billion class- action settlement to the neediest victims of Nazi looting).
On the importance of ensuring that recovery goes to class members, if possible, in the context of employment-discrimination cases, see Michael Selmi, The Price of Discrimination: The Nature of Class Action Employment Discrimination Litigation and Its Effects, 81 Tex. L. Rev. 1249, 1249-1252 (2003) (urging increased court participation to ensure “increased monetary damages for the plaintiffs and monitoring of the settlement”); see also Derrick A. Bell, Jr., Serving Two Masters: Integration Ideals and Client Interests in School Desegregation Litigation, 85 Yale L.J. 470 (1976).
In exceptional circumstances, courts may use their discretion in the disbursement of funds after all claims by the class have been satisfied. For example, in In re Pharmaceutical Industry Average Wholesale Price Litigation, 588 F.3d 24 (1st Cir. 2009),
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§ 3.07Cy Pres Settlements, Principles of the Law of Aggregate Litigation § 3.07 (2010) the court relied on an earlier draft of these ALI Principles in finding that a cy pres distribution was appropriate in litigation over the price of drugs used in part for the treatment of prostate cancer. The court found that the creation of a cy pres fund was appropriate where all class members were to receive treble actual damages before distribution of any funds, thereby insuring complete statutory compensation to the class, and residual amounts would be used to fund prostate- or cancer-related research or treatment. Id. at *9.
Comment b.For authority holding that cy pres remedies should be used only where class members are difficult to identify, when the funds involved are too small to distribute economically to individual class members, or when unclaimed funds exist, see Masters, 473 F.3d at 435-436. For a discussion of the need to designate a recipient “as near as possible” to the class, see id.
For commentary urging cy pres awards over additional distributions to class members, see, e.g., Farmer, More Lessons, 68 Fordham L. Rev. at 393 (distributing funds remaining after initial distribution to class members who submitted claims “is inequitable because class members who have already been fully compensated for their injury have no legitimate claim on any remainder”).
For examples of cy pres awards that are not within the contemplation of this Section because they do not involve a nexus to the class, do not contain specific findings that further distributions to class members are infeasible, and do not contain specific findings that no recipient can be found that approximates the interests of the class, see, e.g., Superior Beverage Co. v. Owens-Illinois, Inc., 827 F.Supp. 477 (N.D. Ill. 1993) (in alleged price-fixing case involving glass containers, court distributed unclaimed funds to, inter alia, an art museum and various legal-services organizations); Jones v. Nat'l Distillers, 56 F.Supp.2d 355 (S.D.N.Y. 1999) (undistributed funds in securities-fraud case awarded to legal-aid society).
For legislative enactments permitting residual funds to be distributed to legal-services organizations and certain other charitable organizations, see, e.g., Cal. Civ. Proc. Code § 384 (West 2004); 735 Ill. Comp. Stat. 5/2-807 (2008).
Illustration 1 is based on Daar v. Yellow Cab Co., 433 P.2d 732 (Cal. 1967). See Blue Chip Stamps v. Superior Court, 556 P.2d 755, 760 n.l (Cal. 1976) (Tobriner, J., concurring) (discussing Daar settlement).
Effect on current law. Case law has taken various approaches in terms of the types of cy pres remedies, if any, that are permissible. In some jurisdictions, a rule change may be necessary to establish the precise circumstances in which cy pres awards may be allowed.
Case Citations - by Jurisdiction
C.A.1 C.A.2 C.A.3, C.A.3 C.A.5 C.A.7, C.A.9 S.D.Fla. D.N.H.
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S.D.N.Y. S.D.Tex.
C.A.1
C.A.1, 2012. Cit. in sup., subsec. (b) quot. in ftn., subsec. (c) quot. in sup., com. (b) cit. and quot. in sup.; com. (b) cit. in cases cit. and quot. in disc. and sup. (citing § 3.07 of Prop. Final Draft, 2009. § 3.07 has since been revised; see Official Text). Small dissident group within a larger class of medical-patient consumers in a case alleging fraud in overcharging for a prescription medication for the treatment of prostate cancer, endometriosis, and other diseases appealed from the district court's cy pres distribution of unclaimed settlement monies to a cancer hospital and prostate-cancer foundation. Affirming, this court held that the district court did not abuse its discretion in either the process utilized or in the decision to make a cy pres award to the organizations chosen. The court adopted the “reasonable approximation” test, and stated a number of factors to be considered in determining whether a cy pres distribution reasonably approximated the class members' interests, including the purposes of the underlying statutes claimed to have been violated, the nature of the injury to the class members, and the characteristics and interests of the class members. In re Lupron Marketing and Sales Practices Litigation, 677 F.3d 21, 30, 32, 33, 37, 38.
C.A.1, 2009. Cit. in disc., cit. in ftn., com. (b) quot. in disc. (citing § 3.07 of Prop. Final Draft, 2009. § 3.07 has since been revised; see Official Text). Consumers brought a class action against pharmaceutical company, claiming that they overpaid on Medicare copayments because defendant inflated the price of one of its prescription drugs. The district court approved the settlement; one class representative appealed on grounds that the settlement created a cy pres fund of up to $10 million rather than distributing all recovery to class members. Affirming, this court held, as a matter of first impression, that the district court did not abuse its discretion by finding that the settlement provision, which provided that class members receive treble damages before any money was distributed to charity through cy pres, was fair, adequate, and reasonable, and that this result was entirely congruent with the approach of the Principles of Aggregate Litigation. In re Pharmaceutical Industry Average Wholesale Price Litigation, 588 F.3d 24, 35.
C.A.2
C.A.2, 2007. Quot. in sup. (citing § 3.08, Preliminary Draft No. 4, 2006, which is now § 3.07 of the Official Text). Plaintiffs, members of a class of present and former professional models, appealed the district court's orders approving settlements in a class action brought against defendant modeling agencies for conspiracy to fix commissions charged to members of the class, in violation of the Sherman Act. Vacating in part, this court held that, while the district court did not abuse its discretion in allocating to charities, under the cy pres doctrine, excess funds that remained after all class members were fully compensated for their actual losses, it failed to recognize that allocating excess funds to class members as treble damages lay within its discretion, and thus a treble-damages award should be considered on remand. The court noted that a draft of the Principles of the Law of Aggregate Litigation proposed limiting application of cy pres to circumstances where direct distributions to class members were not feasible, and that, here, neither side contended that it would be onerous or impossible to locate class members, or that each member's recovery would be so small as to make individual distribution impracticable. Masters v. Wilhelmina Model Agency, Inc., 473 F.3d 423, 436.
C.A.3,
C.A.3, 2013. Cit. in sup., quot. in ftn., subsec. (b) and com. (a) quot. in sup., subsec. (c) quot. in ftn. In consolidated antitrust actions by consumers against baby product retailers and manufacturers, an unnamed class member objected to a settlement approved by the district court, alleging that, although the parties contemplated that excess settlement funds would be distributed to charity after the bulk of the funds were distributed to class members, it appeared that the actual allocation would be just
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§ 3.07Cy Pres Settlements, Principles of the Law of Aggregate Litigation § 3.07 (2010) the opposite. This court vacated the settlement on the ground that the district court was apparently unaware of the amount of the funds that would be distributed to cy pres beneficiaries rather than directly to the class, and remanded for consideration of whether the approved settlement, or any alternative settlement, would provide sufficient direct benefit to the class. While inclusion of a cy pres provision by itself did not render a settlement unfair, unreasonable, or inadequate, direct distributions to the class were preferred over cy pres distributions, which were most appropriate where further individual distributions were economically infeasible. In re Baby Products Antitrust Litigation, 708 F.3d 163, 171-173, 180, 181.
C.A.3
C.A.3, 2010. Quot. in ftn. to conc. and diss. op. In consolidated class actions, consumers sued pet food manufacturers, alleging that they purchased, used, or obtained, or their pets consumed, pet food that was contaminated with melamine and cyanuric acid. The district court certified a settlement-only class and granted approval of a settlement. This court, among other things, affirmed a provision in the settlement providing that any funds remaining after administration of the settlement and payment of all valid claims would be distributed to animal-welfare related organizations. The concurring and dissenting opinion argued that any remaining funds should escheat to the government, maintaining that application of the cy pres doctrine was not appropriate in these actions, because they were not charitable, and noting that the Principles of the Law of Aggregate Litigation recommended that courts make numerous inquiries as to the viability of additional payments to the class before considering a cy pres remedy. In re Pet Food Products Liability Litigation, 629 F.3d 333, 363.
C.A.5
C.A.5, 2011. Subsec. (b) cit. in ftn., com. (a) quot. in sup. and cit. in ftn., com. (b) quot. in sup. and cit. and quot. in ftn. Plaintiffs, who lived or worked near agrochemical plant, filed a class action against plant's owner, seeking compensation for exposure to toxic chemicals allegedly emitted into the air by the plant. After the parties entered into a settlement that created three subclasses, one of which was to receive medical monitoring, and the monitoring program was completed, the district court ordered that unused medical-monitoring funds be distributed to nonparty charities. This court reversed and remanded with instructions that the funds be distributed to another subclass of persons suffering serious injuries, holding that the district court abused its discretion by ordering a cy pres distribution in the teeth of the bargained-for terms of the settlement, which required residual funds to be distributed within the class. Klier v. Elf Atochem North America, Inc., 658 F.3d 468, 474, 475, 478.
C.A.5, 2010. Com. (b) quot. in sup. In consolidated actions, residents sued public and private entities, alleging that they were harmed by catastrophic flooding caused by levee and floodwall failures during hurricanes. The district court certified a limited fund mandatory settlement class and approved the settlement over the objections of two groups of dissenting class members. Reversing, this court held, among other things, that the district court did not direct reasonable notice of the settlement to the class; among other things, the settlement notice did not provide interested parties with knowledge critical to an informed decision as to whether to object to class certification and settlement, because it did not inform class members of the possibility that they would not receive any direct benefit from the settlement if there were a cy pres distribution in lieu of any direct distribution of funds to class members. In re Katrina Canal Breaches Litigation, 628 F.3d 185, 198.
C.A.7,
C.A.7, 2013. Cit. in sup. Certified public accountant (CPA) firm filed a class action under the Telephone Consumer Protection Act against attorney, alleging that attorney sent unsolicited fax advertisements to firm and other CPAs in violation of the Act. The district court ordered attorney to pay $500 in statutory damages for each of 8,430 faxes sent, or $4,215,000, allocated specified amounts to the named plaintiff and to class counsel, and ordered that any residue, after payments to class members,
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§ 3.07Cy Pres Settlements, Principles of the Law of Aggregate Litigation § 3.07 (2010) be paid to a charitable organization that provided free legal services. This court affirmed on the merits but vacated the remedial order and remanded with instructions to enter a judgment requiring attorney to remit damages to the court's registry or to a third-party administrator. The court held that it had been premature for the district court to have directed that any remainder be turned over to a particular charity, especially given that, as a general rule, money not claimed by class members was to be used for the class's benefit to the extent possible, and, here, the charity selected did not directly or indirectly benefit CPAs. Ira Holtzman, C.P.A. v. Turza, 728 F.3d 682, 689-690.
C.A.9
C.A.9, 2011. Subsec. (c) quot. in ftn. in sup. Paid subscribers, on behalf of a nationwide class of more than 66 million, sued Internet service provider for allegedly violating federal and California law by inserting footers containing promotional messages into emails sent by subscribers. The district court approved a settlement reached by the parties, in which provider agreed to make a series of charitable donations in lieu of distributing the maximum potential recovery—three cents—to each class member. Reversing in part and remanding, this court held that the charities selected by the parties were not suitable cy pres beneficiaries, because a distribution to those charities would fail to account for the nature of plaintiffs' lawsuit, the objectives of the underlying statutes, and the interests of the silent class members, including their geographic diversity. The court indicated that nonprofit organizations working to protect Internet users from fraud, predation, and other forms of online misfeasance would make suitable beneficiaries. Nachshin v. AOL, LLC, 663 F.3d 1034, 1040.
S.D.Fla.
S.D.Fla.2011. Com. (b) quot. in sup. Account holders brought a class action against bank, alleging, among other things, that bank violated its contractual and good-faith duties owed to plaintiffs by resequencing plaintiffs' debit-card transactions for the sole purpose of maximizing its overdraft fee revenue. This court granted plaintiffs' motion for final approval of the settlement agreement, overruling certain class members' objections to the cy pres provision of the agreement, which directed unclaimed funds to respected organizations that promoted financial literacy. The court explained that it was not feasible to identify certain bank customers who incurred overdraft fees, and stressed that, as the settlement was structured, unclaimed funds would not revert to bank, which would truly be a legally unjustifiable result. In re Checking Account Overdraft Litigation, 830 F.Supp.2d 1330, 1355, 1356.
D.N.H.
D.N.H.2007. Cit. in sup.(citing § 3.07 of Discussion Draft No. 2, 2007. § 3.07 has since been revised; see Official Text). Pension funds, as lead plaintiffs in a multidistrict securities and accounting fraud class action against corporation, its former auditor, and others, petitioned for final approval of a proposed settlement with corporation and auditor. This court approved the settlement, and found that the plan of allocation, which compensated class members according to the nature and timing of their transactions in corporation's securities, dealt appropriately with the issue of what to do with excess funds by calling for the continued redistribution of unclaimed funds to class members according to their pro rata shares, until the costs of such redistributions made it economically unfeasible to continue doing so; if and when that point was reached, then the balance of the fund would be subject to a cy pres remedy designated by co-lead counsel with corporation's and auditor's consent. In re Tyco Intern., Ltd. Multidistrict Litigation, 535 F.Supp.2d 249, 262.
S.D.N.Y.
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S.D.N.Y.2009. Cit. and quot. in sup. (citing § 3.07 of Council Draft No. 2, 2004. § 3.07 has since been revised; see Official Text). SEC filed civil actions against investment banks and research analysts, seeking disgorgement and civil penalties to redress alleged securities violations. After the parties entered into consent judgments and the settlement funds were distributed, more than $79 million in undistributed funds remained. After noting that every possible avenue to distribute the funds to aggrieved investors had been exhausted consistent with the position of the Principles of the Law of Aggregate Litigation—i.e., that the use of a cy pres distribution in class-action settlements should be limited to only the most appropriate situations where individual distributions were not viable—this court ordered that certain additional remedial payments be made to victims and that the remaining funds be transferred to the United States Department of the Treasury. S.E.C. v. Bear, Stearns & Co. Inc., 626 F.Supp.2d 402, 416.
S.D.Tex.
S.D.Tex.2012. Subsec. (c) quot. in sup., subsecs. (b) and (c) and com. (a) quot. in ftn. Payment-card holders filed a consumer class action against payment-card processor, after defendant disclosed that hackers had breached its computers systems and obtained confidential payment-card information for 130 million consumers. Granting plaintiffs' motion to certify a settlement class, this court held that the proposed settlement, in which class members with valid claims would receive the amount of their claims and any remaining unclaimed funds would be spread between three nonprofit organizations that focused on improving payment-card security, was fair, reasonable, and adequate. Noting that only 300 class members had filed claims and that only 11 of those claims were valid, the court concluded that it would be impractical to distribute the balance of the settlement funds to absent class members not filing claims, and that it would provide an inappropriate windfall to the class members who filed valid claims if the balance was divided among them. In re Heartland Payment Systems, Inc. Customer Data Sec. Breach Litigation, 851 F.Supp.2d 1040, 1067, 1068, 1076.
End of Document © 2015 Thomson Reuters. No claim to original U.S. Government Works.
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 9 117 of 234 IN RE BABY PRODUCTS ANTITRUST LITIGATION 163 Cite as 708 F.3d 163 (3rd Cir. 2013) employees to allow people under their pro- acknowledged this by never enforcing the tection near the catenary unless the em- rules against conductor-flagmen. Viewing ployee knows for certain that the catenary Araujo’s argument in this context, NJT’s is de-energized. (Appellee’s Br. at 8.) arguments that Araujo committed an actu- Further, Araujo admitted that he was not al violation of the letter of the TRO–3 aware whether the catenary was energized rules does not shed any light on whether before the accident. NJT points out that NJT’s decision to enforce these rules Araujo correctly answered a question on against a conductor-flagman for the first an exam in 2006, showing that he knew time was retaliatory. that a conductor-flagman protecting con- tractors can allow the contractor to work We emphasize that Araujo has not artic- on an overhead bridge in electrified terri- ulated an overwhelming case of retaliation. tory only when the Class ‘‘A’’ employee He has not, for example, proffered any reports to the conductor-flagman that the evidence that NJT dissuaded him from catenary is de-energized and partially reporting his injury or expressed animus grounded. (Appellee’s Br. at 10.) at him for doing so. Araujo’s evidence is entirely circumstantial, and we express no The District Court found that this evi- opinion as to the strength of his evidence. dence of Araujo’s actual violation of the TRO–3 rules presented ‘‘clear and convinc- We only note that by amending the FRSA, ing evidence’’ that NJT’s actions were not Congress expressed an intent to be protec- retaliatory. See Araujo, 2012 WL tive of plaintiff-employees. Applying the 1044619, at *9 (‘‘[T]he evidence in the rec- AIR–21 burden-shifting framework, Arau- ord demonstrates that discipline was legiti- jo has shown enough to survive NJT’s mately imposed on Araujo as a result of motion for summary judgment. his violation of several electrical safety rules with tragic consequences.’’). We dis- IV. agree. While the facts in the record may show that Araujo was technically in viola- For the foregoing reasons, we will re- tion of written rules, they do not shed any verse the March 28, 2012 order of the light on whether NJT’s decision to file District Court, and remand to the District disciplinary charges was retaliatory. As Court for further proceedings. discussed, Araujo argues that he was fol- lowing the practice that all conductor-flag- men followed at the time, and that NJT had never previously disciplined any con- ductor-flagmen for TRO–3 rule violations. , While Araujo does not concede that he violated the letter of the TRO–3 rules, there is evidence in the record that Araujo did not know the extent of the catenary outage and was the only NJT employee directly supervising the contractors prior In re BABY PRODUCTS ANTITRUST to the accident. Assuming for a moment LITIGATION. that Araujo violated the letter of the TRO– 3 rules, Araujo nevertheless argues that Kevin Young, Appellant (No. 12–1165) NJT’s actual on-the-ground practices dif- fered from the written rules, and NJT Clark Hampe, Appellant (No. 12–1166)
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Allison Lederer, Appellant (5) intervention was sufficient to protect (No. 12–1167). interests of unnamed class members in appealing selection of cy pres recipi- Nos. 12–1165, 12–1166, 12–1167. ents. United States Court of Appeals, Vacated and remanded. Third Circuit. Argued Sept. 19, 2012. 1. Federal Courts 546 O Opinion filed: Feb. 19, 2013. Class members who timely objected to the approval of the settlement at a fairness Background: Consumers who allegedly hearing were entitled to appeal the settle- had paid inflated prices for baby products ment without the need to intervene formal- brought antitrust class action against re- ly. Fed.Rules Civ.Proc.Rule 23, 28 tailer, alleging that it had conspired with U.S.C.A. manufacturers to restrict competition. The 2. Compromise and Settlement 57 United States District Court for the East- Deposits in Court 11 O ern District of Pennsylvania, Anita B. Bro- A district court O does not abuse its dy, J., 638 F.Supp.2d 461, granted consum- discretion by approving a class action set- ers’ motion for class certification, and then tlement agreement that includes a cy pres granted parties petition for final approval component directing the distribution of ex- of settlement agreement, attorneys’ fees, cess settlement funds to a third party to expenses, special incentive awards, and fi- be used for a purpose related to the class nal approval of plan of allocation, 834 injury; inclusion of a cy pres provision by F.Supp.2d 329. Class members appealed. itself does not render a settlement unfair, unreasonable, or inadequate. Fed.Rules Holdings: The Court of Appeals, Ambro, Civ.Proc.Rule 23(e)(2), 28 U.S.C.A. Circuit Judge, held that: 3. Deposits in Court 11 (1) as a matter of first impression, a dis- O trict court does not abuse its discretion Inclusion of cy pres provision in class action settlement did not run counter to by approving class action settlement Rules Enabling Act, since procedural agreement that includes cy pres com- mechanism for permitting aggregation of ponent directing distribution of excess claims in federal court did not and could settlement funds to third party to be not alter underlying substantive law being used for purpose related to class inju- asserted and district court’s certification of ry; settlement simply recognized parties’ de- (2) district court’s orders approving settle- liberate decision to bind themselves ac- ment and fund allocation plan had to cording to mutually agreed-upon terms be vacated on basis that it had not without engaging in any substantive adju- properly assessed whether settlement dication of underlying causes of action. 28 U.S.C.A. § 2072; Fed.Rules Civ.Proc.Rule was in best interest of class as a whole; 23, 28 U.S.C.A. (3) district court’s order awarding attor- ney fees and costs had to be vacated 4. Deposits in Court 11 O because order had been based on set- Direct distributions to the class are preferred over cy pres distributions; cy tlement that no longer was in effect pres distributions imperfectly serve the and might be altered on remand; purpose in an aggregated private cause of (4) class settlement notice that did not action of recovery of compensatory dam- identify cy pres recipients who would ages for injuries by substituting an indi- receive excess settlement funds did not rect benefit for that direct compensation violate due process; and that is at best attenuated and at worse
119 of 234 IN RE BABY PRODUCTS ANTITRUST LITIGATION 165 Cite as 708 F.3d 163 (3rd Cir. 2013) illusory. Fed.Rules Civ.Proc.Rule 23(e)(2), aspects of class action settlements. Fed. 28 U.S.C.A. Rules Civ.Proc.Rule 23(e)(2), 28 U.S.C.A.
5. Deposits in Court 11 10. Compromise and Settlement 57 O Direct distributions to the class are O Deposits in Court 11 preferred over cy pres distributions; cy O pres distributions present a potential con- When considering a class cy pres set- flict of interest between class counsel and tlement, a thorough analysis of settlement their clients because the inclusion of a cy terms requires an inquiry into the degree pres distribution may increase a settle- of direct benefit provided to the class; in ment fund, and with it attorneys’ fees, making this determination, a district court without increasing the direct benefit to the may consider, among other things, the class; where a court fears counsel is con- number of individual awards compared to flicted, it should subject the settlement to both the number of claims and the estimat- increased scrutiny. Fed.Rules Civ.Proc. ed number of class members, the size of Rule 23(e)(2), 28 U.S.C.A. the individual awards compared to claim- 6. Deposits in Court 11 ants’ estimated damages, and the claims O Cy pres distributions in a class action process used to determine individual are most appropriate where further indi- awards. Fed.Rules Civ.Proc.Rule 23(e)(2), vidual distributions are economically in- 28 U.S.C.A. feasible. Fed.Rules Civ.Proc.Rule 11. Deposits in Court 11 23(e)(2), 28 U.S.C.A. O Barring sufficient justification, cy pres 7. Compromise and Settlement 2 O awards in a class action should generally Settlements are private contracts re- represent a small percentage of total set- flecting negotiated compromises. tlement funds. Fed.Rules Civ.Proc.Rule 8. Compromise and Settlement 57 23(e)(2), 28 U.S.C.A. O The role of a district court with re- 12. Compromise and Settlement 66.1 gard to settlement in a class action is not O to determine whether the settlement is the Deposits in Court 11 O fairest possible resolution; the court must If the parties have not on their own determine whether the compromises re- initiative supplied the information needed flected in the settlement, including those to make the necessary findings to make a terms relating to the allocation of settle- class cy pres settlement, the court should ment funds, are fair, reasonable, and ade- affirmatively seek out such information; quate when considered from the perspec- making these findings also may require a tive of the class as a whole. Fed.Rules court to withhold final approval of a settle- Civ.Proc.Rule 23(e)(2), 28 U.S.C.A. ment until the actual distribution of funds 9. Compromise and Settlement 57 can be estimated with reasonable accuracy, O Deposits in Court 11 and, alternatively, a court may urge the O To assess whether a settlement con- parties to implement a settlement struc- taining a cy pres provision satisfies the ture that attempts to maintain an appro- requirement of being fair, reasonable, and priate balance between payments to the adequate, a court should employ the same class and cy pres awards. Fed.Rules Civ. framework developed for assessing other Proc.Rule 23(e)(2), 28 U.S.C.A.
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13. Compromise and Settlement 64 18. Attorney and Client 155 O O Deposits in Court 11 Federal Civil Procedure 2737.13 O O Federal Courts 932.1 To assess the reasonableness of attor- O District court’s orders approving set- neys’ fees in a class action, courts general- tlement and fund allocation plan had to be ly use a percentage-of-recovery method, vacated, in consumers’ antitrust class ac- which resembles a contingent fee in that it tion against retailer alleging that they had awards counsel a variable percentage of paid allegedly inflated prices for baby the amount recovered for the class, or a products, on basis that it had not properly lodestar method, which calculates fees by assessed whether settlement was in best multiplying the number of hours expended interest of class as a whole because it had by some hourly rate appropriate for the approved settlement without being made region and for the experience of the law- aware that almost all claimants would fall yer. Fed.Rules Civ.Proc.Rule 23(h), 28 into compensation category that resulted U.S.C.A. in minimal, and likely insufficient, compen- 19. Attorney and Client 155 sation going directly to class members. O Clayton Act, § 4, 15 U.S.C.A. § 15; Fed. Federal Courts 932.1 O Rules Civ.Proc.Rule 23, 28 U.S.C.A. District court’s order awarding attor- ney fees and costs in common fund case 14. Federal Courts 813 O had to be vacated, in consumers’ antitrust A district court’s decision to approve a class action against retailer alleging that settlement is reviewed for abuse of discre- they had paid allegedly inflated prices for tion. baby products, since order had been based 15. Federal Courts 812 on settlement that no longer was in effect O An appellate court may find an abuse and might be altered on remand. Clayton of discretion where the district court’s de- Act, § 4, 15 U.S.C.A. § 15; Fed.Rules Civ. cision rests upon a clearly erroneous find- Proc.Rule 23(h), 28 U.S.C.A. ing of fact, an errant conclusion of law or 20. Federal Civil Procedure 2737.13 an improper application of law to fact. O Where a district court has reason to 16. Compromise and Settlement 59 believe that counsel has not met its re- O Because class actions are rife with sponsibility to seek an award that ade- potential conflicts of interest between class quately prioritizes direct benefit to the counsel and class members, district judges class, it is appropriate for the court to presiding over such actions are expected to decrease the fee award. Fed.Rules Civ. give careful scrutiny to the terms of pro- Proc.Rule 23(h), 28 U.S.C.A. posed settlement in order to make sure 21. Attorney and Client 155 that class counsel are behaving as honest O fiduciaries for the class as a whole. Fed. Courts have discretion to determine Rules Civ.Proc.Rule 23(e)(2), 28 U.S.C.A. on a case by case basis whether to de- crease attorneys’ fees where a portion of a 17. Deposits in Court 11 O fund will be distributed cy pres. Fed. Class cy pres distributions are not Rules Civ.Proc.Rule 23(h), 28 U.S.C.A. limited to instances where all claimants have received 100% of their estimated 22. Attorney and Client 155 O damages. Fed.Rules Civ.Proc.Rule When deciding whether attorneys’ 23(e)(2), 28 U.S.C.A. fees should be reduced in a class action
121 of 234 IN RE BABY PRODUCTS ANTITRUST LITIGATION 167 Cite as 708 F.3d 163 (3rd Cir. 2013) that had the potential to compensate class late due process, in consumers’ antitrust members significantly, but the current dis- class action against retailer alleging that tribution of settlement funds arguably ov- they had paid allegedly inflated prices for ercompensates class counsel at the ex- baby products; class members’ knowledge pense of the class, a court should begin by that there was possibility of cy pres award determining the distribution of funds with and that court would select among recipi- reasonable accuracy that will result from ents proposed by parties at later date was the claims process, and then the court adequate to allow any interested class should determine whether the level of dis- member to keep apprised of cy pres recipi- tribution provided to the class by the set- ent selection process, and court would en- tlement reflects a failure of class counsel sure parties make their proposals publicly to represent adequately the interests of available and would allow opportunity to the entire class. Fed.Rules Civ.Proc.Rule class members to object before it made 23(h), 28 U.S.C.A. selection. U.S.C.A. Const.Amend. 5; Clay- 23. Federal Civil Procedure 2737.13 ton Act, § 4, 15 U.S.C.A. § 15; Fed.Rules O The determination of the appropriate Civ.Proc.Rules 23(e)(1), 24(a)(2), 28 attorney fee award in a class action is left U.S.C.A. to the district court, which is more familiar 26. Deposits in Court 11 with the performance and skill of counsel, O the nature and history of the litigation, and Intervention was sufficient to protect the merits of the lawsuit. Fed.Rules Civ. interests of unnamed class members in Proc.Rule 23(h), 28 U.S.C.A. appealing selection of cy pres recipients, in consumers’ antitrust class action against 24. Compromise and Settlement 68 O retailer alleging that they had paid alleg- Constitutional Law 3981, 3983 edly inflated prices for baby products; if it O Federal Civil Procedure 179 did not, members could ask court to deter- O Although the rule governing class no- mine whether it was appropriate to create tice provides broad discretion to district new Devlin exception allowing them to courts with respect to the notice’s form appeal. Clayton Act, § 4, 15 U.S.C.A. and content, it must satisfy the require- § 15; Fed.Rules Civ.Proc.Rules 23, ments of due process; generally speaking, 24(a)(2), 28 U.S.C.A. the notice should contain sufficient infor- mation to enable class members to make informed decisions on whether they should take steps to protect their rights, including objecting to the settlement or, when rele- Christopher M. Arfaa, Esquire, Littleton vant, opting out of the class. U.S.C.A. Joyce Ughetta Park & Kelly, Radnor, PA, Const.Amend. 5; Fed.Rules Civ.Proc.Rule Theodore H. Frank, Esquire, (Argued), 23(e)(1), 28 U.S.C.A. Center for Class Action Fairness, Wash- 25. Compromise and Settlement 68 ington, DC, Daniel Greenberg, Esquire, O Little Rock, AK, for Appellant Kevin Constitutional Law 3983 O Young. Federal Civil Procedure 179 O Class settlement notice that did not Christopher A. Bandas, Esquire, Bandas identify cy pres recipients who would re- Law Firm, Corpus Christie, TX, for Appel- ceive excess settlement funds did not vio- lant Clark Hampe.
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James H. Price, Esquire, Lacy, Price & Michael J. Hahn, Esquire, Lowenstein Wagner, Knoxville, TN, for Appellant Alli- Sandler, Roseland, NJ, for Appellee Kids son Lederer. Line Inc. Theodore B. Bell, Esquire, Mary Jane Carolyn H. Feeney, Esquire, George G. E. Fait, Esquire, Wolf, Haldenstein, Adler, Gordon, Esquire, Joseph A. Tate, Esquire, Freeman & Herz, Chicago, IL, Steve W. Dechert, Philadelphia, PA, for Appellee Berman, Esquire, George W. Sampson, Medela Inc. Esquire, Anthony D. Shapiro, Esquire, Ivy Kendall Millard, Esquire, Barnes & A. Tabbara, Esquire, Hagens Berman So- Thornburg, Indianapolis, IN, for Appellee bol Shapiro, Seattle, WA, Thomas H. Burt, Peg Perego USA Inc. Esquire, Fred T. Isquith, Esquire, Wolf, Haldenstein, Adler, Freeman & Herz, New David R. Martin, Esquire, Atlanta, GA, York, NY, William G. Caldes, Esquire, Eu- Isaac J. Mitrani, Esquire, Mitrani Rynor gene A. Spector, Esquire, (Argued), Jef- & Adamsky, Miami, FL, for Appellee Re- frey L. Spector, Esquire, Spector, Rose- gal Lager Inc. man, Kodroff & Willis, Philadelphia, PA, Elizabeth A. Fegan, Esquire, Hagens Ber- Before AMBRO, GREENAWAY, JR., man Sobol Shapiro, Oak Park, IL, for Ap- and O’MALLEY,* Circuit Judges. pellee Carol M. McDonough. Harry H. Rimm, Esquire, Mark L. Wey- OPINION OF THE COURT man, Esquire, (Argued), Reed Smith, New AMBRO, Circuit Judge. York, NY, Melissa I. Rubenstein, Esquire, We address for the first time the use of Reed Smith, Philadelphia, PA, for Appel- cy pres distributions in class action settle- lees Toys R Us Inc., Babies R Us Inc., ments.1 ‘‘The term ‘cy pres’ is derived Toys R Us Delaware Inc. from the Norman French expression cy Neil E. McDonell, Esquire, Dorsey & pres comme possible, which means ‘as near Whitney, New York, NY, for Appellee as possible.’ ’’ Democratic Cent. Comm. v. Baby Bjorn AB. Washington Metro. Area Transit Comm’n, Alexander Maltas, Esquire, Marguerite 84 F.3d 451, 455 n. 1 (D.C.Cir.1996).2 M. Sullivan, Esquire, Edward M. William- When class actions are resolved through son, Esquire, Margaret M. Zwisler, Es- settlement, it may be difficult to distribute quire, Latham & Watkins, Washington, the entire settlement fund, after paying DC, Samuel W. Silver, Esquire, Schnader attorneys’ fees and costs along with fund Harrison Segal & Lewis, Philadelphia, PA, administration expenses, directly to its in- for Appellee Britax Child Safety Inc. tended beneficiaries—the class members.
* Honorable Kathleen M. O’Malley, United 2. The cy pres doctrine originated in trusts- States Court of Appeals for the Federal Cir- and-estates law as a rule of construction used cuit, sitting by designation. to preserve testamentary charitable gifts that otherwise would fail. ‘‘When it becomes im- 1. Although Judge Weis briefly discussed the possible to carry out the charitable gift as the desirability of cy pres distributions in a partial testator intended, the doctrine allows the concurrence and dissent, the majority in that ‘next best’ use of the funds to satisfy the case did not address the issue. See In re Pet testator’s intent ‘as near as possible.’ ’’ Id. Food Prods. Liab. Litig., 629 F.3d 333, 363–64 (quoting Natalie A. DeJarlais, Note, The Con- (3d Cir.2010) (Weis, J., concurring in part sumer Trust Fund: A Cy Pres Solution to Un- and dissenting in part). distributed Funds in Consumer Class Actions, 38 Hastings L.J. 729, 730 (1987)).
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Money may remain unclaimed if class ing three issues relating to the cy pres members cannot be located, decline to file provision on appeal.3 claims, have died, or the parties have over- (1) The District Court erred in approv- estimated the amount projected for distri- ing a settlement that would result in funds bution for some other reason. It may also being distributed to one or more cy pres be economically or administratively infeasi- recipients in lieu of fully compensating ble to distribute funds to class members if, class members for their losses. for example, the cost of distributing indi- vidually to all class members exceeds the (2) The Court should have discounted amount to be distributed. In these cir- the value of the cy pres distribution for cumstances, courts have permitted the purposes of calculating attorneys’ fees, parties to distribute to a nonparty (or non- which were awarded on a percentage-of- parties) the excess settlement funds for recovery basis. their next best use—a charitable purpose (3) The class notice was deficient be- reasonably approximating the interests cause it did not identify the recipients that pursued by the class. would receive the cy pres distributions. The cy pres award in this case was part Young’s overarching concern, and ours of a settlement of consolidated antitrust as well, is that the settlement has resulted class actions brought by several named in a troubling and, according to counsel for plaintiffs (collectively, the ‘‘Plaintiffs’’) on the parties, surprising allocation of the behalf of consumers against retailers Toys settlement fund. Cy pres distributions, ‘‘R’’ Us, Inc. and Babies ‘‘R’’ Us, Inc. along while in our view permissible, are inferior with several baby product manufacturers to direct distributions to the class because (the retailers and manufacturers are col- they only imperfectly serve the purpose of lectively referred to as the ‘‘Defendants’’). the underlying causes of action—to com- Pursuant to that settlement, which was pensate class members. Though the par- approved by the District Court, all settle- ties contemplated that excess funds would ment funds remaining after attorneys’ fees be distributed to charity after the bulk of and costs are paid, and individual distribu- the settlement fund was distributed to tions are made to claimants, would go to class members through an exhaustive one or more charitable organizations pro- claims process, it appears the actual alloca- posed by the parties and selected by the tion will be just the opposite. Defendants Court. The Court indicated it would en- paid $35,500,000 into a settlement fund. sure the funds are used for a purpose About $14,000,000 will go to class counsel underlying the interests of the class. in attorneys’ fees and expenses. Of the [1] Kevin Young, an unnamed class remainder, it is expected that roughly member who objected to the settlement $3,000,000 will be distributed to class before the District Court, raises the follow- members, while the rest—approximately
3. Three of the objectors to the settlement— judgment. 28 U.S.C § 1291. Although the Young, Clark Hampe, and Allison Lederer— objectors were not parties to the underlying have appealed, but only Young has filed brief- action, as class members who timely objected ing. Because the underlying suits alleged vio- to the approval of the settlement at a fairness lations of the Sherman and Clayton Acts, the hearing, they are permitted to appeal the set- District Court had subject matter jurisdiction tlement without the need to intervene formal- under 28 U.S.C. §§ 1331 & 1337. ly. See Devlin v. Scardelletti, 536 U.S. 1, 14, Our Court has appellate jurisdiction be- 122 S.Ct. 2005, 153 L.Ed.2d 27 (2002). cause this is a timely filed appeal from a final
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$18,500,000 less administrative expenses— cause the District Court did not permit the will be distributed to one or more cy pres subclass periods to extend beyond the date recipients. when the case was filed, Ariel Elliott and We vacate the District Court’s approval other named plaintiffs subsequently filed a of the settlement because the Court was related putative class action. In 2011, the apparently unaware of the amount of the parties in those actions signed an agree- fund that would be distributed to cy pres ment consolidating and settling their law- beneficiaries rather than being distributed suits. directly to the class. On remand, the The Court initially approved the settle- Court should consider whether this or any ment in January 2011. Notice was sent to alternative settlement provides sufficient putative class members informing them of direct benefit to the class before giving its their right to submit a claim, opt out, or approval. We also vacate the attorneys’ object. In July 2011, the Court held a fees award because its approval was based fairness hearing to consider any objections on the terms of a settlement that are no made by class members. The deadline for longer in effect and may be altered on submitting claims expired in August 2011. remand. Addressing Young’s argument Approximately four months later, the that attorneys’ fees should be reduced, we Court approved the settlement and a fund confirm that courts need to consider the allocation plan proposed by the parties. It level of direct benefit provided to the class also granted class counsel’s fee request for in calculating attorneys’ fees. We leave it $11,833,333.33, representing one-third of to the District Court’s discretion to assess the gross settlement amount, and what effect, if any, that consideration $2,229,775.60 for out-of-pocket litigation should have on any future fee award in expenses. this case. As there was no error in the notice provided to the class, we do not Per the settlement, Defendants deposit- reverse on that basis. ed $35,500,000 into a settlement fund. Af- ter payment of attorneys’ fees and ex- I. Background penses, the remainder of the fund was This appeal follows from two antitrust slated for distribution to the settlement 4 class actions consolidated for settlement class. In order to receive a cash distribu- purposes. In 2006, Carol McDonough and tion, a claimant must demonstrate that he other named plaintiffs filed a suit in the or she is a member of a settlement sub- United States District Court for the East- class by submitting a valid, sworn, and ern District of Pennsylvania alleging that timely claim form. Defendants conspired to set a price floor Claimants are entitled to different levels for the sale of certain baby products, caus- of compensation based on the evidence ing consumers to pay increased prices for submitted. Those who submit valid docu- these products. In 2009, class certification mentary proof of purchase and of the actu- of that resale-price-maintenance suit was al price paid for a product are eligible to granted and several subclasses were creat- receive 20% of the actual purchase price of ed based on the products purchased and each product purchased. Those who do the timeframe of those purchases. Be- not submit documentary proof of the actu-
4. The settlement class is comprised of all per- Us during prescribed time periods dating sons and entities who bought certain baby back to 1999. products from Babies ‘‘R’’ Us and Toys ‘‘R’’
125 of 234 IN RE BABY PRODUCTS ANTITRUST LITIGATION 171 Cite as 708 F.3d 163 (3rd Cir. 2013) al purchase price but submit a valid proof tions to receive the award. The District of purchase are eligible to receive 20% of Court, however, is entrusted with the re- the estimated retail price, as calculated by sponsibility of selecting one or more cy class counsel, of each product purchased.5 pres recipients that will receive distribu- (The 20% figure slightly exceeds the 18% tions. average overcharge an independent eco- We do not know the exact allocation of nomics expert hired by class counsel esti- the funds that will result from the current mated class members would have paid for settlement. At the time of the fairness a baby product covered by the settlement.) hearing in July 2011, class members had Those who do not submit any proof of submitted approximately 41,000 claims. purchase are eligible to receive a payment Because the deadline for submissions was of $5. not until August 2011, more claims likely Claims in the first two categories of were submitted. In response to a concern compensation—those receiving 20% of the regarding whether the $35,500,000 in the actual or estimated purchase price—are settlement fund would be sufficient to pay subject to pro rata enhancements. The counsel fees and expenses while compen- settlement class is divided into eight differ- sating class members under the terms of ent settlement subclasses, based on the the agreement, the District Court estimat- baby product purchased. If the claims ed that at most—assuming 45,000 claims, awarded do not exhaust the funds allocat- each entitling the claimant to three times ed to a particular settlement subclass, 20% of a $300 baby product—$8,100,000 these awards are enhanced by up to three would be distributed to class members. It times the baseline figure, consistent with appears, however, that far less will actual- Section 4 of the Clayton Act, 15 U.S.C. ly be distributed to them. At oral argu- § 15, which entitles private plaintiffs to ment, class and defense counsel informed receive treble damages for violations of the us that, largely because the vast majority antitrust laws. of the claims fell into the third category of The settlement terms establish an order compensation entitling claimants to $5 of priority for distributing any remaining payouts, class members will receive only funds. Funds in a subclass after the initial about $3,000,000 through the claims pro- distribution will be redistributed first to cess. the other settlement classes until all claims are fully satisfied in accordance with the II. Cy pres compensation categories and accompany- We have not ruled on whether class ing enhancements described. If funds re- action settlements may include cy pres main after that redistribution and the pay- provisions. Courts generally have ap- ment of administrative costs, they will be proved cy pres distributions in two circum- donated to one or more charitable organi- stances. zations—the cy pres recipients. Under First, many courts allow a settlement the terms of the settlement, Plaintiffs and that directs funds to a third party Defendants are each permitted to recom- when funds are left over after all indi- mend up to two not-for-profit organiza- vidual claims have been satisfiedTTTT
5. Under the allocation plan, valid documenta- Us, or other records that show the Authorized ry proof ‘‘may include but is not limited to Claimant purchased the Settlement Product(s) receipts, cancelled checks, credit card state- from Toys ‘R’ Us or Babies ‘R’ Us, and when ments, records from Toys ‘R’ Us or Babies ‘R’ the purchase was made.’’
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Second, some courts allow a settle- to the state, or distribution of the funds cy ment to require a payment only to a pres.6 Among these options, cy pres dis- third party, that is, to provide no re- tributions have benefits over the alterna- covery at all directly to class mem- tive choices. Reversion to the defendant bers. risks undermining the deterrent effect of American Law Institute (‘‘ALI’’), Princi- class actions by rewarding defendants for ples of the Law of Aggregate Litig. § 3.07, the failure of class members to collect comment a (2010). We deal with the for- their share of the settlement. Escheat to mer here. the state preserves the deterrent effect of class actions, but it benefits the community The use of cy pres recipients to dispose at large rather than those harmed by the of excess funds—first suggested in a stu- defendant’s conduct. Cy pres distributions dent comment in 1972, see Stewart R. also preserve the deterrent effect, but (at Shepherd, Comment, Damage Distribu- least theoretically) more closely tailor the tion in Class Actions: The Cy Pres Reme- distribution to the interests of class mem- dy, 39 U. Chi. L.Rev. 448 (1972)—has ac- celerated rapidly in recent years. bers, including those absent members who have not received individual distributions. From 1974 through 2000, federal courts granted or approved cy pres [2] We join other courts of appeals in awards to third party charities in thir- holding that a district court does not abuse ty class actions, or an average of ap- its discretion by approving a class action proximately once per year. [From] settlement agreement that includes a cy 2001 [through 2008], federal courts pres component directing the distribution granted or approved cy pres awards of excess settlement funds to a third party in sixty-five class actions, or an aver- to be used for a purpose related to the age of roughly eight per year. class injury.7 See Lane v. Facebook, Inc., Martin H. Redish et al., Cy Pres Relief 696 F.3d 811, 819–20 (9th Cir.2012); In re and the Pathologies of the Modern Class Pharm. Indus. Average Wholesale Price Action: A Normative and Empirical Litig., 588 F.3d 24, 33–36 (1st Cir.2009); Analysis, 62 Fla. L.Rev. 617, 653 (2010). see also 4 Herbert B. Newberg et al., This is unsurprising. When excess set- Newberg on Class Actions § 11:20 (4th tlement funds remain after claimants have ed.2012); ALI, supra, § 3.07. ‘‘The received the distribution they are entitled claims, issues, or defenses of a certified to under the terms of the settlement class may be settled, voluntarily dismissed, agreement, there are three principal op- or compromised only with the court’s ap- tions for distributing the remaining proval.’’ Fed.R.Civ.P. 23(e). That ap- funds—reversion to the defendant, escheat proval is warranted when the court finds
6. As we discuss directly below, the parties trial courts over the objections of the parties. may also agree to make further distributions See, e.g., Klier v. Elf Atochem N. Am., Inc., 658 to class members (e.g., expand eligibility for F.3d 468, 479 (5th Cir.2011) (‘‘Where the payments and/or lower the requirements for terms of a settlement agreement are suffi- making a successful claim). ciently clear, or, more accurately, insufficient 7. In contrast with cy pres distributions agreed to overcome the presumption that the settle- to by the parties as part of a settlement, ment provides for further distribution to class courts of appeals have greeted with more members, there is no occasion for charitable skepticism cy pres distributions imposed by gifts, and cy pres must remain offstage.’’ (foot-
127 of 234 IN RE BABY PRODUCTS ANTITRUST LITIGATION 173 Cite as 708 F.3d 163 (3rd Cir. 2013) that the settlement, taken as a whole, is ther individual distributions are infeasible. ‘‘fair, reasonable, and adequate’’ from the Those guidelines provide in pertinent part: perspective of the class. Fed.R.Civ.P. If the settlement involves individual 23(e)(2). Inclusion of a cy pres provision distributions to class members and by itself does not render a settlement un- funds remain after distributions (be- fair, unreasonable, or inadequate. cause some class members could not [3–5] We caution, however, that direct be identified or chose not to partici- distributions to the class are preferred pate), the settlement should presump- over cy pres distributions. The private tively provide for further distributions causes of action aggregated in this class to participating class members unless action—as in many others—were created the amounts involved are too small to by Congress to allow plaintiffs to recover make individual distributions economi- compensatory damages for their injuries. cally viable or other specific reasons See 15 U.S.C. § 15. Cy pres distributions exist that would make such further imperfectly serve that purpose by substi- distributions impossible or unfair. tuting for that direct compensation an indi- ALI, supra, § 3.07(b). The ALI does not rect benefit that is at best attenuated and explain further what ‘‘other specific rea- at worse illusory.8 Mirfasihi v. Fleet sons’’ would justify a cy pres distribution. Mortg. Corp., 356 F.3d 781, 784–85 (7th [6–8] Although we agree with the ALI Cir.2004). Cy pres distributions also pres- that cy pres distributions are most appro- ent a potential conflict of interest between priate where further individual distribu- class counsel and their clients because the tions are economically infeasible, we de- inclusion of a cy pres distribution may cline to hold that cy pres distributions are increase a settlement fund, and with it only appropriate in this context. Settle- attorneys’ fees, without increasing the di- ments are private contracts reflecting ne- rect benefit to the class. Where a court gotiated compromises. Sullivan, 667 F.3d fears counsel is conflicted, it should subject at 312. The role of a district court is not 9 the settlement to increased scrutiny. to determine whether the settlement is the To account for the inferiority of cy pres fairest possible resolution—a task particu- distributions, the ALI has published guide- larly ill-advised given that the likelihood of lines limiting them to instances where fur- success at trial (on which all settlements
note omitted)). We do not deal with that a settlement runs counter to the Rules En- situation here. abling Act. But see Klier, 658 F.3d at 481 (Jones, J., concurring) (suggesting that cy pres 8. Federal Rule of Civil Procedure 23, under distributions arguably violate the Rules En- which this class settlement was approved, is a abling Act and present Article III problems); procedural mechanism permitting the aggre- In re Pet Food Prods. Liab. Litig., 629 F.3d gation of claims in federal court. Pursuant to 333, 362 (3d Cir.2010) (Weis, J., concurring and dissenting) (suggesting that excess funds the Rules Enabling Act, it does not and can- should escheat to the state instead of being not alter the underlying substantive law being distributed to cy pres recipients). The Rules asserted. 28 U.S.C. § 2072. Because ‘‘a dis- Enabling Act, however, provides further sup- trict court’s certification of a settlement sim- port for the proposition that courts should ply recognizes the parties’ deliberate decision favor class settlements that provide direct to bind themselves according to mutually compensation to the class through individual agreed-upon terms without engaging in any distributions. substantive adjudication of the underlying causes of action,’’ Sullivan v. DB Invs., Inc., 9. As discussed in the next section, see infra 667 F.3d 273, 312 (3d Cir.2011), we do not Part III, it may also be appropriate to de- believe the inclusion of a cy pres provision in crease attorneys’ fees in those circumstances.
128 of 234 174 708 FEDERAL REPORTER, 3d SERIES are based) can only be estimated imper- should generally represent a small per- fectly. The Court must determine wheth- centage of total settlement funds. er the compromises reflected in the settle- [12] We note that this inquiry needs to ment—including those terms relating to be, as much as possible, practical and not the allocation of settlement funds—are abstract. If ‘‘the parties have not’’ on fair, reasonable, and adequate when con- their own initiative ‘‘supplied the informa- sidered from the perspective of the class tion needed’’ to make the necessary find- as a whole. ings, the court should ‘‘affirmatively seek out such information.’’ In re Pet Food, [9] To assess whether a settlement 629 F.3d at 351 (citation omitted). Making containing a cy pres provision satisfies this these findings may also require a court to requirement, courts should employ the withhold final approval of a settlement un- same framework developed for assessing til the actual distribution of funds can be other aspects of class action settlements. estimated with reasonable accuracy. Al- In Girsh v. Jepson, 521 F.2d 153 (3d Cir. ternatively, a court may urge the parties 1975), we set out nine factors that courts to implement a settlement structure that should consider when deciding whether to attempts to maintain an appropriate bal- approve a settlement. Id. at 157. In In ance between payments to the class and cy re Prudential Insurance Co. America pres awards. For instance, it could condi- Sales Practice Litigation, 148 F.3d 283 (3d tion approval of a settlement on the inclu- Cir.1998), we expanded that analysis to sion of a mechanism for additional payouts include what may be termed the Pruden- to individual class members if the number tial considerations. Id. at 323. Unlike the of claimants turns out to be insufficient to Girsh factors, each of which the district deplete a significant portion of the total court must consider before approving a settlement fund. class settlement, the Prudential consider- ations are just that, prudential. They are [13] Turning to the particular cy pres permissive and non-exhaustive, ‘‘illus- distribution in this case, Young asserts trat[ing] TTT [the] additional inquiries that that the District Court failed to fulfill its in many instances will be useful for a oversight responsibility by approving a thoroughgoing analysis of a settlement’s class action settlement containing a cy pres terms.’’ See In re Pet Food, 629 F.3d at provision that permits the distribution of 350. funds to a third party without first fully compensating all claimants. As noted [10, 11] We add today that one of the above, the settlement directs a cy pres additional inquiries for a thorough analysis award after claimants receive cash distri- of settlement terms is the degree of direct butions via a three-tiered compensation benefit provided to the class. In making structure: claimants with valid documenta- this determination, a district court may ry proof of purchase and purchase price consider, among other things, the number receive up to three times 20% of the actual of individual awards compared to both the price of the product they purchased; number of claims and the estimated num- claimants with valid documentary proof of ber of class members, the size of the indi- purchase receive up to three times 20% of vidual awards compared to claimants’ esti- the estimated price; and claimants without mated damages, and the claims process any valid proof receive a $5 payout. used to determine individual awards. Bar- Young does not object to the 20% figure or ring sufficient justification, cy pres awards argue that the first two categories of
129 of 234 IN RE BABY PRODUCTS ANTITRUST LITIGATION 175 Cite as 708 F.3d 163 (3rd Cir. 2013) claimants will be undercompensated. In- administration) of the settlement were stead, he asserts that the cy pres award is designated for the class, but only around inappropriate because the third category $3,000,000 of that amount actually will be of claimants—those receiving a $5 payout distributed to class members, with the re- regardless of price of the product they mainder going to cy pres recipients after purchased—will not be fully compensated expenses relating to the administration of for their losses. the fund are paid. [14–16] We review a district court’s de- Though the claims period had concluded, cision to approve a settlement for abuse of counsel did not provide this information to discretion. Girsh, 521 F.2d at 156 & n. 7. the Court, preventing it from properly as- ‘‘ ‘An appellate court may find an abuse of sessing whether the settlement was in the discretion where the district court’s deci- best interest of the class as a whole. The sion rests upon a clearly erroneous finding of fact, an errant conclusion of law or an Court approved the $5 cap on compensa- improper application of law to fact.’ ’’ In tion for those without documentary proof re Prudential, 148 F.3d at 299 (quoting In of their claims in part because it believed re Gen. Motors Corp. Pick–Up Truck Fuel the standard of proof required to receive a Tank Prods. Liab. Litig., 55 F.3d 768, 783 higher award was ‘‘fairly low.’’ McDon- (3d Cir.1995)). Mindful that we are deal- ough v. Toys ‘‘R’’ Us, Inc., 834 F.Supp.2d ing with a settlement, we remain hesitant 329, 352 (E.D.Pa.2011). According to to undo an agreement that has resolved a counsel, however, the vast majority of hard-fought, multi-year litigation. See In claimants have not submitted documentary re Warfarin Sodium Antitrust Litig., 391 proof entitling them to a greater award, F.3d 516, 535 (3d Cir.2004). ‘‘Because casting doubt on this assumption. Similar- class actions are rife with potential con- ly, the Court found the $5 cap was justified flicts of interest between class counsel and by the need to ‘‘avoid encouraging fraud.’’ class members,’’ however, ‘‘district judges Id. While without doubt this is a good presiding over such actions are expected to goal, we do not believe the Court could give careful scrutiny to the terms of pro- have reasonably assessed whether these posed settlement in order to make sure concerns justified the cap without knowing that class counsel are behaving as honest the resulting allocation of funds. Other fiduciaries for the class as a whole.’’ Mir- means of preventing fraud could have been fasihi, 356 F.3d at 785 (collecting cases); explored. see also In re Gen. Motors, 55 F.3d at 785. We vacate the District Court’s orders Based on the information we now have, approving the settlement and the fund al- we remand for the Court to reconsider the location plan because it did not have the fairness of the settlement. The parties factual basis necessary to determine may wish to alter its terms on remand to whether the settlement was fair to the provide greater direct benefit to the class, entire class. Most importantly, it did not such as by increasing the $5 payment or know the amount of compensation that lowering the evidentiary bar for receiving will be distributed directly to the class. a higher award.10 After allowing them Removing attorneys’ fees and expenses, that opportunity, we ask the Court to approximately $21,500,000 (less costs of make the factual findings necessary to
10. Class members should be notified of any mitted to object to them before the Court material alterations to the settlement and per- approves the settlement.
130 of 234 176 708 FEDERAL REPORTER, 3d SERIES evaluate whether the settlement provides that this is the type of small claims case sufficient direct benefit to the class. where the potential awards were necessar- [17] We place no absolute requirement ily insufficient to motivate class members on the amount of direct compensation the to file claims. We think it more likely that third category of claimants must receive. many class members did not submit claims Courts of appeals have approved cy pres because they lacked the documentary distributions where all class members sub- proof necessary to receive the higher mitting claims have already been fully awards contemplated, and the $5 award compensated for their damages by prior they could receive left them apathetic. distributions. See, e.g., In re Lupron This casts doubt on whether agreeing to a Mktg. & Sales Practices Litig., 677 F.3d settlement with such a restrictive claims 21, 34–35 (1st Cir.2012). A cy pres distri- process was in the best interest of the bution is considered appropriate in that class. If Defendants decline to raise the circumstance because additional individual $5 cap or alter the documentary proof distributions would ‘‘overcompensat[e] requirement on remand, the Court will claimant class members at the expense of need to determine whether the class re- absent class members.’’ Id. at 35 (citing ceived sufficient direct benefit to justify In re Pharm. Indus., 588 F.3d at 34–36). the settlement as fair, reasonable, and ade- We agree, but do not limit cy pres distri- quate. Before doing so, though, it must butions to instances where all claimants have the requisite factual basis. have received 100% of their estimated damages. As the parties explain, the $5 III. Attorneys’ Fees payment to claimants in the third category [18] ‘‘In a certified class action, the can be seen as compensation for a full court may award reasonable attorney’s release of their claims rather than as an fees and nontaxable costs that are author- attempt to compensate them for their ized by law or by the parties’ agreement.’’ damages. Indeed, provided the class as a Fed.R.Civ.P. 23(h). Courts generally use whole received sufficient direct benefit, it one of two methods for assessing the rea- would not have been unreasonable to elimi- sonableness of attorneys’ fees—a percent- nate the $5 category altogether and re- age-of-recovery method or a lodestar quire class members to submit documenta- method. The former ‘‘resembles a contin- ry proof to receive any award. We do not gent fee in that it awards counsel a varia- intend to raise the bar for obtaining ap- ble percentage of the amount recovered proval of a class action settlement simply for the class.’’ In re Gen. Motors Corp. because it includes a cy pres provision. Pick–Up Truck Fuel Tank Prods. Liab. What we are concerned with in this case Litig., 55 F.3d 768, 819 n. 38 (3d Cir.1995). is that the Court approved the settlement The latter ‘‘calculates fees by multiplying without being made aware that almost all the number of hours expended by some claimants would fall into the $5 compensa- hourly rate appropriate for the region and tion category, resulting in minimal (and we for the experience of the lawyer.’’ Id. at doubt sufficient) compensation going di- 819 n. 37. Whichever method is chosen, rectly to class members. The baby prod- ‘‘we have noted previously that ‘it is sensi- ucts at issue cost up to $300, resulting in ble for a court to use a second method of damages, at the estimated 18% over- fee approval to cross check’ its initial fee charge, of over $50. Combined with the calculation.’’ In re Prudential Ins. Co. of possibility of treble damages, we doubt Am. Sales Practice Litig., 148 F.3d 283,
131 of 234 IN RE BABY PRODUCTS ANTITRUST LITIGATION 177 Cite as 708 F.3d 163 (3rd Cir. 2013)
333 (3d Cir.1998) (quoting In re Gen. Mo- See Young Reply Br. at 22. Take, for tors, 55 F.3d at 820). example, a settlement fund whereby [19] The District Court—as is ‘‘gener- $20,000,000 will be distributed for cy pres ally favored in cases involving a common purposes. Under Young’s approach, if a fund,’’ id.—awarded fees on a percentage- court believes that the cy pres award pro- of-recovery basis. We have identified a vides half the benefit of direct distribu- number of factors to aid courts in evaluat- tions, it should value the portion of the ing the reasonableness of percentage fee settlement being distributed cy pres at awards. In re Diet Drugs Prod. Liab. $10,000,000 for purposes of calculating at- Litig., 582 F.3d 524, 541 (3d Cir.2009) (cit- torneys’ fees as a percentage of the recov- ing Gunter v. Ridgewood Energy Corp., ery. 223 F.3d 190, 195 n. 1 (3d Cir.2000); In re Although the Supreme Court has not Prudential, 148 F.3d at 336–40). Applying addressed whether attorneys’ fees should these factors, the Court approved counsel’s be reduced when a portion of a settlement requested fees of $11,833,333.33 (one-third fund is distributed cy pres, it has confront- of the entire settlement fund) as reason- ed essentially the same issue when calcu- able. In addition to using a percentage of lating percentage fee awards against a set- recovery method, the Court applied a lode- tlement fund that will partially revert to star method crosscheck. It calculated, at the defendant. In Boeing Co. v. Van Ge- counsel’s regular billing rates, a total lode- mert, 444 U.S. 472, 100 S.Ct. 745, 62 star of $31,839,355.33, representing a nega- L.Ed.2d 676 (1980), the Supreme Court tive lodestar multiplier of .37 (i.e., class confirmed the permissibility of using the counsel’s fee request equaled 37 percent of entire fund as the appropriate benchmark, what they would have received at their at least where each class member needed regular billing rates). only to prove his or her membership in the We vacate the District Court’s order injured class to receive a distribution.11 awarding fees and costs because it is based Id. at 480–81, 100 S.Ct. 745. Boeing, how- on a settlement that is no longer in effect ever, did not address whether a district and may be altered on remand. Although court abuses its discretion by taking the in this circumstance we need not (and do converse approach, basing attorneys’ fees not) resolve whether the awarded fees on only the amount of the fund claimed by were reasonable, we note that the Court class members. did not address an issue raised by Young we believe worthy of discussion. He ob- Courts of appeals have taken a similar jected to the requested fees on the ground approach when they have addressed this that the Court should not consider the cy issue in the cy pres context. In Six Mexi- pres award as a class benefit for purposes can Workers v. Arizona Citrus Growers, of calculating attorneys’ fees. On appeal, 904 F.2d 1301 (9th Cir.1990), the District Young has softened his approach, asking Court had calculated attorneys’ fees as a instead that we require districts courts to percentage of the total fund even though discount—rather than to ignore entirely— unclaimed funds would be distributed to cy the value of cy pres distributions for pur- pres recipients. The Court of Appeals for poses of calculating percentage awards. the Ninth Circuit, relying on Boeing, held
11. In Boeing, the fund was created following 100 S.Ct. 745. We do not believe this signifi- the determination of plaintiffs’ claims rather cantly alters the analysis. than pursuant to a settlement. Id. at 474–75,
132 of 234 178 708 FEDERAL REPORTER, 3d SERIES that the District Court did not abuse its ment amount rather than individual distri- discretion in using the total fund amount butions creates a potential conflict of inter- as its benchmark. Id. at 1311. In Mas- est between absent class members and ters v. Wilhelmina Model Agency, Inc., their counsel. ‘‘Arrangements such as 473 F.3d 423 (2d Cir.2007), the Court of [these] TTT decouple class counsel’s finan- Appeals for the Second Circuit reviewed a cial incentives from those of the classTTTT percentage-fee award based on funds They potentially undermine the underlying claimed by class members rather than on purposes of class actions by providing de- the entire settlement fund, some of which fendants with a powerful means to enticing would ultimately be distributed to a cy class counsel to settle lawsuits in a manner pres recipient. Finding that the District detrimental to the class.’’ Int’l Precious Court abused its discretion, the Circuit Metals Corp. v. Waters, 530 U.S. 1223, Court held that the percentage fee should 1224, 120 S.Ct. 2237, 147 L.Ed.2d 265 have been calculated on the basis of the (2000) (denial of cert.) (O’Connor, J.) (dis- total fees made available because ‘‘[t]he cussing a percentage fee calculated against entire [settlement] [f]und, and not some the entire settlement fund even though a portion thereof, [was] created through the significant portion would revert to the de- efforts of counsel.’’ Id. at 437. It noted, fendant). Class members are not indiffer- however, that a court may within its dis- ent to whether funds are distributed to cretion decrease the percentage of the them or to cy pres recipients, and class fund awarded (rather than the benchmark counsel should not be either. value of the settlement) in appropriate cir- [20] Where a district court has reason cumstances to prevent attorneys from be- to believe that counsel has not met its ing improperly enriched. Id. responsibility to seek an award that ade- We think it unwise to impose, as Young quately prioritizes direct benefit to the requests, a rule requiring district courts to class, we therefore think it appropriate for discount attorneys’ fees when a portion of the court to decrease the fee award. See 12 an award will be distributed cy pres. Masters, 473 F.3d at 437; Williams v. There are a variety of reasons that settle- MGM–Pathe Commc’ns Co., 129 F.3d ment funds may remain even after an ex- 1026, 1027 (9th Cir.1997) (stating that al- haustive claims process—including if the though the entire common fund was the class members’ individual damages are appropriate benchmark for attorneys’ fees, simply too small to motivate them to sub- the percentage of the fund awarded may mit claims. Class counsel should not be be decreased ‘‘to account for any unusual penalized for these or other legitimate rea- circumstances’’); In re Heartland Pay- sons unrelated to the quality of represen- ment Sys., Inc. Customer Data Sec. tation they provided. Nor do we want to Breach Litig., 851 F.Supp.2d 1040, 1077 discourage counsel from filing class actions (S.D.Tex.2012) (‘‘The class benefit con- in cases where few claims are likely to be ferred by cy pres payments is indirect and made but the deterrent effect of the class attenuated. That makes it inappropriate action is equally valuable. to value cy pres on a dollar-for-dollar ba- We appreciate, however, that awarding sis.’’); cf. Dennis v. Kellogg Co., 697 F.3d attorneys’ fees based on the entire settle- 858, 867–68 (9th Cir.2012) (vacating an at-
12. Young also asks us to hold that fee awards able. For substantially similar reasons, we exceeding the amount directly distributed to do not adopt such a rule. class members are presumptively unreason-
133 of 234 IN RE BABY PRODUCTS ANTITRUST LITIGATION 179 Cite as 708 F.3d 163 (3rd Cir. 2013) torneys’ fees award because the District concern that those actions are brought pri- Court did not sufficiently scrutinize the marily to benefit class counsel, and award- valuation of a cy pres distribution consist- ing disproportionate class counsel fees only ing of ‘‘$5.5. million worth’’ of food, and incentivizes that behavior. Cy pres noting that ‘‘[t]his issue is particularly crit- awards—by ensuring that a settlement ical with a cy pres product settlement that fund is sufficiently large to command a has a tenuous relationship to the class substantial attorneys’ fee—can exacerbate allegedly damaged by the conduct in ques- this problem. See Mirfasihi v. Fleet tion’’).13 Mortg. Corp., 356 F.3d 781, 784–85 (7th Cir.2004); Martin H. Redish et al., Cy [21] For the reasons discussed, our ap- Pres Relief and the Pathologies of the proach is case by case, providing courts Modern Class Action: A Normative and discretion to determine whether to de- Empirical Analysis, 62 Fla. L.Rev. 617, crease attorneys’ fees where a portion of a 621–22, 649 (2010). Although, as noted, fund will be distributed cy pres. The ALI this class action had the potential to com- has adopted a similar approach. Accord- pensate class members significantly, the ing to its Principles of the Law of Aggre- current distribution of settlement funds gate Litigation, ‘‘[a]ttorneys’ fees in class arguably overcompensates class counsel at actions, whether by litigated judgment or the expense of the class. by settlement, should be based on both the actual value of the judgment or settlement [22, 23] We recognize the difficulty a to the class and the value of cy pres district court faces in deciding when attor- awardsTTTT’’ ALI, Principles of the Law neys’ fees should be reduced on this basis. of Aggregate Litig. § 3.13. The comment In evaluating a fee award, it should begin to that section clarifies, however, that ‘‘be- by determining with reasonable accuracy cause cy pres payments TTT only indirectly the distribution of funds that will result benefit the class, the court need not give from the claims process. This may re- such payments the same full value for quire it ‘‘to delay a final assessment of the purposes of setting attorneys’ fees as fee award to withhold all or a substantial would be given to direct recoveries by the part of the fee until the distribution pro- class.’’ Id. § 3.13, comment a. cess is complete.’’ Federal Judicial Cen- In this case, class counsel, and not their ter, Manual for Complex Litigation § 21.71 client, may be the foremost beneficiaries of (4th ed.2008). That court should then, re- the settlement. Some class actions are lying on the Gunter/Prudential factors and based on so-called negative value claims, its experience, determine whether the level that is, claims that could not be brought on of distribution provided to the class by the an individual basis because the transaction settlement reflects a failure of class coun- costs of bringing an individual action ex- sel to represent adequately the interests of ceed the potential relief. While aggregat- the entire class. We note that the use of a ing these claims in a class action may have lodestar cross-check may be helpful, al- an important deterrent value, there is a though not necessarily determinative, in
13. We note that, in enacting the Class Action U.S.C. § 1712(a). Although we do not deal Fairness Act, Congress required courts to with a coupon settlement, this statutory provi- base attorneys’ fees in coupon (as opposed to sion further supports the proposition that the cash) settlements ‘‘on the value to class mem- actual benefit provided to the class is an im- bers of the coupons that are redeemed’’ rath- portant consideration when determining at- er than on the face value of the coupons. 28 torneys’ fees.
134 of 234 180 708 FEDERAL REPORTER, 3d SERIES making this determination.14 Having ters, 473 F.3d at 438; Petrovic v. Amoco framed the relevant inquiry, we leave the Oil Co., 200 F.3d 1140, 1153 (8th Cir.1999); determination of the appropriate fee award In re Prudential Ins. Co. Am. Sales Prac- to the District Court, which is more famil- tice Litig., 148 F.3d 283, 326 (3d Cir.1998); iar with the performance and skill of coun- 3 Herbert B. Newberg et al., Newberg on sel, the nature and history of the litigation, Class Actions § 8:32 (4th ed.2012). and the merits of the lawsuits. [25] Young contends that the settle- ment notice was inadequate because it did IV. Class Notice not identify the cy pres recipients who will [24] After initially approving the set- receive excess settlement funds.15 His tlement, but before giving final approval, primary concern is that unnamed class Federal Rule of Civil Procedure 23(e)(1) members will not have the opportunity to requires a district court to ‘‘direct notice in object to the selection of the cy pres recip- a reasonable manner to all class members ients, who are intended to serve as proxies who would be bound by the proposal.’’ for the class members’ interests. While a Although the Rule provides broad discre- valid concern, failure to identify the cy tion to district courts with respect to the pres recipients is not a due process viola- notice’s form and content, it must satisfy tion. Class members know there is a pos- the requirements of due process. Zimmer sibility of a cy pres award and that the Paper Prods., Inc. v. Berger & Montague, Court will select among recipients pro- P.C., 758 F.2d 86, 90 (3d Cir.1985). Gener- posed by the parties at a later date. This ally speaking, the notice should contain knowledge is adequate to allow any inter- sufficient information to enable class mem- ested class member to keep apprised of bers to make informed decisions on wheth- the cy pres recipient selection process. er they should take steps to protect their We are confident the Court will ensure the rights, including objecting to the settle- parties make their proposals publicly ment or, when relevant, opting out of the available and will allow class members the class. See Rodriguez v. West Publ’g Corp., opportunity to object before it makes a se- 563 F.3d 948, 962–63 (9th Cir.2009); Mas- lection.16
14. This case demonstrates why use of the failed to raise this issue before the Court, it is lodestar is helpful but not outcome determi- waived on appeal. Franki Found. Co. v. Al- native. As noted, the District Court calculat- ger–Rau & Assocs., Inc., 513 F.2d 581, 586 ed a lodestar of $31,839,355.33 at regular (3d Cir.1975). We are unclear, however, billing rates, and the fees awarded represent- whether photographic evidence actually is ed a negative lodestar multiplier of .37. This valid proof of purchase under the settlement. suggests that class counsel would not be over- On remand, the Court, taking into account paid for their services if compensated as re- any changes to the settlement, should clarify quested, but it also suggests that counsel has the types of evidence that are valid. If that a significant financial incentive to cut its loss- evidence materially differs from the evidence es and settle the lawsuits. described as valid in the class notice, the Court should require that a supplemental no- 15. Young also asserts that the settlement no- tice be provided to the class. tice fails because it indicates that a potentially valid proof of purchase—certain forms of 16. Courts generally require the parties to photographic evidence—is invalid. Young be- identify ‘‘a recipient whose interests reason- came aware that photographic evidence ably approximate those being pursued by the might be permissible at the fairness hearing class.’’ ALI, Principles of the Law of Aggre- several months before the District Court gave gate Litig. § 3.07. In this case, the Court final approval to the settlement. Because he indicated that it would select a cy pres recipi-
135 of 234 IN RE BABY PRODUCTS ANTITRUST LITIGATION 181 Cite as 708 F.3d 163 (3rd Cir. 2013)
The delayed naming of cy pres recipi- here satisfies the requirements of due pro- ents presents a more nuanced issue with cess. Even without a Devlin exception, to respect to the opportunity of class mem- the extent putative class members have a bers to appeal the Court’s selection of cy property interest in the unclaimed funds pres recipients. As the Court of Appeals and object to the cy pres recipients select- for the First Circuit has recently ex- ed, they may typically intervene in the plained, lawsuit for purposes of appealing an even- [o]nly parties to a civil action may tual order directing a cy pres distribution. appeal from a final judgmentTTTT See Fed.R.Civ.P. 24(a)(2); see also Devlin, The Supreme Court has recognized 536 U.S. at 20, 122 S.Ct. 2005 (Scalia, J., only one exception to this rule: that dissenting) (describing the Devlin excep- ‘‘nonnamed class members TTT who tion as unnecessary because ‘‘class mem- have objected in a timely manner to bers will typically meet the requirements approval of the settlement at the fair- for intervention as of right under Federal ness hearing have the power to bring Rule of Civil Procedure 24, including inter- an appeal without first intervening.’’ vention only for the purpose of appeal, and TTT The question then becomes even after the class judgment has been whether Devlin [v. Scardelletti], which entered’’). We believe intervention will created an exception for unnamed prove sufficient to protect the interests of class members who have objected to unnamed class members in appealing the settlement agreements, extends to selection of cy pres recipients. And if it this situation in which unnamed class does not, they may ask us to determine members have objected to a cy pres whether it is appropriate to create a new distribution. Devlin exception allowing them to appeal. In re Lupron, 677 F.3d at 29–30 (second alteration in original) (quoting and citing V. Conclusion Devlin v. Scardelletti, 536 U.S. 1, 7, 14, 122 S.Ct. 2005, 153 L.Ed.2d 27 (2002)). The We summarize our rulings. First Circuit did not resolve whether class 1. We vacate the District Court’s or- members objecting to a cy pres distribu- ders approving settlement and the tion are permitted to appeal without inter- fund allocation plan because the vening, and we are unaware of any court of Court did not have the necessary appeals that has done so. factual information to determine [26] Despite this uncertainty, we be- whether the settlement will provide lieve the notice provided to class members sufficient direct benefit to the class.
ent (from among the organizations proposed and commentators in expressing our concern by the parties) that satisfies this standard. with district courts selecting cy pres recipi- ‘‘[H]aving judges decide how to distribute cy ents. See id. at 38–39; Nachshin v. AOL, pres awards both taxes judicial resources and LLC, 663 F.3d 1034, 1039 (9th Cir.2011) risks creating the appearance of judicial im- (‘‘[T]he specter of judges and outside entities propriety.’’ In re Lupron Mktg. & Sales Prac- dealing in the distribution and solicitation of tices Litig., 677 F.3d 21, 38 (1st Cir.2012). settlement money may create the appearance The judicial role is better limited to approving of impropriety.’’); ALI, Principles of the Law cy pres recipients selected by the parties. of Aggregate Litig. § 3.07(c) (‘‘The court, While we do not decide today whether ap- when feasible, should require the parties to proving a settlement with the cy pres selection identify a recipient whose interests reasonably process envisioned by the parties in this case approximate those being pursued by the is an abuse of discretion, we join other courts class.’’).
136 of 234 182 708 FEDERAL REPORTER, 3d SERIES
2. We vacate the Court’s order award- notice provided was inadequate. We ing attorneys’ fees and costs because note, however, that supplemental no- this award was based on the now- tice should be provided to the class vacated settlement. We confirm if the settlement is materially al- that the Court may, in its discretion, tered on remand. reduce attorneys’ fees based on the level of direct benefit provided to the class. , 3. We do not require that a corrected notice be sent to class members be- cause we do not believe that the
137 of 234 1060 775 FEDERAL REPORTER, 3d SERIES affirm the district court’s dismissal of that (2) agreement and order stating that cy claim. pres distribution would be made in dis- trict court’s ‘‘sole discretion’’ was void ab initio as contrary to controlling , precedent; (3) non-profit legal services organization was not ‘‘next best’’ recipient of un- In re BANKAMERICA CORPO- claimed settlement funds; and RATION SECURITIES (4) release of supplemental attorneys’ fees LITIGATION. to class counsel had to wait until com- David P. Oetting, Class Representative, pletion of distribution of unclaimed set- Plaintiff–Appellant tlement funds to classes. Vacated and remanded. v. Murphy, Circuit Judge, filed dissenting Green Jacobson, P.C., Appellee opinion. National Legal Aid and Defender Asso- ciation; Association of Pro Bono 1. Federal Civil Procedure 164 O Counsel; Missouri Lawyer Trust Ac- A class representative assumes a posi- count Foundation, Amici on Behalf of tion of a fiduciary character such that he is Appellee. not only entitled to represent the interests of the class, but has a duty to do so. No. 13–2620. Fed.Rules Civ.Proc.Rule 23, 28 U.S.C.A. United States Court of Appeals, 2. Federal Courts 3255 Eighth Circuit. Non-named classO members who have Submitted: Sept. 10, 2014. timely objected to a district court’s order of a cy pres distribution of settlement Filed: Jan. 8, 2015. funds may appeal. Fed.Rules Civ.Proc. Rehearing and Rehearing En Banc Rule 23, 28 U.S.C.A. Denied March 18, 2015.* 3. Deposits in Court 11 Background: Shareholders brought secu- District court couldO not order cy pres rities fraud class action against individual distribution, in shareholders securities bank officers and bank formed by merger. fraud class action against individual bank After settlement and initial distribution of officers and bank formed by merger, proceeds, the United States District Court where further distribution to classes was for the Eastern District of Missouri, Carol feasible. Fed.Rules Civ.Proc.Rule 23, 28 E. Jackson, J., 2013 WL 3212514, ordered U.S.C.A. cy pres distribution of unclaimed settle- 4. Deposits in Court 11 ment funds. Class representative and non- A cy pres distributionO to a third party named class members appealed. of unclaimed settlement funds is permissi- Holdings: The Court of Appeals, Loken, ble only when it is not feasible to make Circuit Judge, held that: further distributions to class members, ex- (1) district court could not order cy pres cept where an additional distribution distribution; would provide a windfall to class members
* Judge Murphy, Judge Smith, and Judge Kelly participate in the consideration or decision of would grant rehearing en banc. Judge Ben- this matter. ton, Judge Bye, and Judge Gruender did not
138 of 234 IN RE BANKAMERICA CORP. SECURITIES LITIGATION 1061 Cite as 775 F.3d 1060 (8th Cir. 2015) with liquidated damages claims that were 9. Deposits in Court 11 O 100 percent satisfied by the initial distribu- In a cy pres distribution, non-profit tion. Fed.Rules Civ.Proc.Rule 23, 28 legal services organization was not ‘‘next U.S.C.A. best’’ recipient of unclaimed settlement 5. Deposits in Court 11 funds in nationwide class action seeking O The possibility that distributing a pri- damages for violations of federal and state vate settlement to class members long af- securities laws; a district court must care- ter the events that gave rise to their fully weigh all considerations, including the claims may not inure to the benefit of geographic scope of the underlying litiga- those actually harmed does not give a tion and make a thorough investigation to court presiding over class action litigation determine whether a recipient can be power to confiscate the settlement pro- found that most closely approximates the ceeds. Fed.Rules Civ.Proc.Rule 23, 28 interests of the class, and the court must U.S.C.A. look for a recipient that relates directly to the injury alleged in this lawsuit and set- 6. Deposits in Court 11 tled by the parties. Fed.Rules Civ.Proc. O In shareholders securities fraud class Rule 23, 28 U.S.C.A. action against individual bank officers and bank formed by merger, agreement and 10. Deposits in Court 11 O order stating that cy pres distribution Release of supplemental attorneys’ would be made in district court’s ‘‘sole fees to class counsel had to wait until discretion’’ was void ab initio as contrary completion of distribution of unclaimed to controlling precedent. Fed.Rules Civ. settlement funds to classes, in sharehold- Proc.Rule 23, 28 U.S.C.A. ers securities fraud class action against individual bank officers and bank formed 7. Deposits in Court 11 O by merger. Fed.Rules Civ.Proc.Rule 23, Unless the amount of funds to be dis- 28 U.S.C.A. tributed cy pres is de minimis, a district court should make a cy pres proposal pub- 11. Federal Civil Procedure 2737.13 licly available and allow class members to O In general, post-settlement monitor- object or suggest alternative recipients be- ing is a compensable activity for which fore the court selects a cy pres recipient; class counsel is entitled to a reasonable this gives class members a voice in choos- fee. Fed.Rules Civ.Proc.Rule 23, 28 ing a ‘‘next best’’ third party and mini- U.S.C.A. mizes any appearance of judicial over- reaching. Fed.Rules Civ.Proc.Rule 23, 28 12. Deposits in Court 11 O U.S.C.A. Federal Civil Procedure 2737.13 O 8. Deposits in Court 11 Where a district court has reason to O When a district court concludes that a believe that class counsel has not met its cy pres distribution otherwise is appropri- responsibility to seek an award that ade- ate, a distribution must be for the next quately prioritizes direct benefit to the best use for indirect class benefit, and for class, the court may decrease the fee uses consistent with the nature of the un- award; evaluating whether attorneys’ fees derlying action and with the judicial func- should be reduced for this reason may tion. Fed.Rules Civ.Proc.Rule 23, 28 require the court to withhold all or a sub- U.S.C.A. stantial part of the fee until the distribu-
139 of 234 1062 775 FEDERAL REPORTER, 3d SERIES tion process is complete. Fed.Rules Civ. jection by NationsBank class representa- Proc.Rule 23, 28 U.S.C.A. tive David P. Oetting that allocating $333.2 million to those classes was inadequate because their claims had greater merit than the claims of the BankAmerica Theodore H. Frank, argued, Washing- Classes. In re BankAmerica Corp. Sec. ton, DC (Frank Hilton Tomlinson, Bir- Litig., 210 F.R.D. 694, 704–05, 714 mingham, AL, on the brief), for Appellant. (E.D.Mo.2002), and 227 F.Supp.2d 1103 (E.D.Mo.2002). Joe David Jacobson, argued, Saint Louis, MO (Martin M. Green, and Jona- After an initial December 2004 distribu- than F. Andres, Saint Louis, MO, on the tion, approximately $6.9 million remained brief), for Appellee. in the NationsBank settlement fund. The district court ordered a second distribution Timothy M. Kennedy, argued Chicago, of $4.75 million to NationsBank claimants IL (Eric John Magnuson, Minneapolis, in April 2009. After that distribution, MN, Wilber H. Boies, Timothy Michael $2,440,108.53 remained. In September Kennedy, and Latonia Haney Keith, Chica- 2012, class counsel for the NationsBank go, IL, on the brief), for amicus curiae Classes, appellee Green Jacobson, P.C., National Legal Aid and Defender Associa- filed a motion to terminate the case with tion and the Association of Pro Bono respect to the NationsBank Classes, to Counsel in support of appellee. award class counsel $98,114.34 in attor- William E. Quirk, Anthony W. Bonuchi neys’ fees for work done after the distribu- and Jon R. Dedon, Kansas City, MO, on tion in December 2004, and to distribute the brief, for amicus brief in support of cy pres the remainder of the ‘‘surplus set- appellee by Missouri Lawyer Trust Ac- tlement funds’’ to three St. Louis area count Foundation. charities suggested by class counsel. The district court granted the motion over Oet- Before WOLLMAN, LOKEN, and ting’s objections and ordered ‘‘that the bal- MURPHY, Circuit Judges. ance of the NationsBank Classes settle- LOKEN, Circuit Judge. ment fund shall be distributed cy pres to Following the 1998 merger of Nations- the Legal Services of Eastern Missouri, Bank and BankAmerica to form Bank of Inc.’’ (LSEM). In re Bank of America America Corporation, shareholders filed Corp. Sec. Litig., No. 4:99–MD–1264, 2013 multiple class actions around the country WL 3212514, at *5–6 (E.D.Mo. June 24, alleging violations of federal and state se- 2013) (‘‘Bank of America ’’). curities laws. The cases were transferred [1, 2] Oetting appeals the cy pres dis- by the Judicial Panel on Multidistrict Liti- tribution and the award of attorneys’ fees. gation to the Eastern District of Missouri. As to the former, he argues the district That court certified four plaintiff classes, court abused its discretion in ordering a cy two classes of NationsBank shareholders pres distribution because a further distri- and two classes of BankAmerica share- bution to the classes is feasible, and in any holders. The transferred cases were re- event LSEM is unrelated to the classes or solved when the court approved a $490 the litigation and is therefore an inappro- million global settlement, overruling an ob- priate ‘‘next best’’ cy pres recipient.1 We
1. Green Jacobson argues that Oetting lacks standing to contest the manner in which the
140 of 234 IN RE BANKAMERICA CORP. SECURITIES LITIGATION 1063 Cite as 775 F.3d 1060 (8th Cir. 2015) agree and therefore reverse. As our dis- Cir.2007); Wilson v. Sw. Airlines, Inc., position results in the case not being ter- 880 F.2d 807, 816 (5th Cir.1989). These minated, we vacate the award of additional contrary authorities were not even ac- attorneys’ fees as premature, leaving that knowledged by Green Jacobson in urging a issue to be resolved, consistent with this cy pres distribution in this case, nor by the opinion, when administration of the Nati- district court in ordering the requested onsBank Classes settlement fund can be distribution. Recently, echoing these terminated. views, Chief Justice Roberts noted ‘‘funda- mental concerns surrounding the use of I. such remedies in class action litigation’’ [3] In recent years, federal district while nonetheless agreeing with the denial courts have disposed of unclaimed class of certiorari in Marek v. Lane, ––– U.S. action settlement funds after distributions ––––, 134 S.Ct. 8, 9, 187 L.Ed.2d 392 to the class by making ‘‘cy pres distribu- (2013). 2 tions.’’ Such distributions ‘‘have been The American Law Institute addressed controversial in the courts of appeals.’’ the issue of Cy Pres Settlements in § 3.07 Powell v. Ga.–Pac. Corp., 119 F.3d 703, of its published Principles of the Law of 706 (8th Cir.1997). Indeed, many of our Aggregate Litigation (2010). The ALI sister circuits have criticized and severely recommended: restricted the practice. See, e.g., Ira A court may approve a settlement that Holtzman, C.P.A. v. Turza, 728 F.3d 682, proposes a cy pres remedyTTTT The 689–90 (7th Cir.2013); In re Baby Prods. court must apply the following criteria in Antitrust Litig., 708 F.3d 163, 172–73 (3d determining whether a cy pres award is Cir.2013); In re Lupron, 677 F.3d at 29– appropriate: 33; Nachshin, 663 F.3d at 1038–40; Klier v. Elf Atochem N. Am., Inc., 658 F.3d 468, (a) If individual class members can be 473–82 (5th Cir.2011); In re Katrina Ca- identified through reasonable effort, and nal Breaches Litig., 628 F.3d 185, 196 (5th the distributions are sufficiently large to Cir.2010); Masters v. Wilhelmina Model make individual distributions economi- Agency, Inc., 473 F.3d 423, 434–36 (2d cally viable, settlement proceeds should
remainder of the NationsBank settlement Mktg. & Sales Practices Litig., 677 F.3d 21, 29 fund is distributed because he did not cash his (1st Cir.2012); Nachshin v. AOL, LLC, 663 initial distribution check and therefore has no F.3d 1034, 1037–41 (9th Cir.2011) (objecting personal interest in the issues on appeal. This class members successfully challenged the contention is frivolous. As class representa- district court’s choice of cy pres recipient on tive, Oetting ‘‘assume[d] a position of a fidu- appeal). ciary character’’ such that he is not only enti- tled to represent the interests of the class, but 2. ‘‘The term ‘cy pres’ is derived from the has a duty to do so. Cohen v. Beneficial Norman French expression cy pres comme Indus. Loan Corp., 337 U.S. 541, 549, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949). Therefore, Oet- possible, which means ‘as near as possible.’ ting has standing to ensure that the remain- The cy pres doctrine originated as a rule of der of the fund—now some $2.7 million—is construction to save a testamentary charitable distributed in a manner that is most beneficial gift that would otherwise fail, allowing ‘the to the class. Indeed, not only representative next best use of the funds to satisfy the testa- class plaintiffs but also non-named class tor’s intent as near as possible.’ ’’ In re Airline members who have timely objected may ap- Ticket Comm’n Antitrust Litig., 268 F.3d 619, peal a district court’s order of a cy pres distri- 625 (8th Cir.2001) (‘‘Airline Tickets I ’’) (quo- bution of settlement funds. See In re Lupron tation omitted).
141 of 234 1064 775 FEDERAL REPORTER, 3d SERIES
be distributed directly to individual class tig., 588 F.3d 24, 35 (1st Cir.2009). By members. contrast, class counsel and the district (b) If the settlement involves individual court entirely ignored this now-published distributions to class members and ALI authority. funds remain after distributions (be- Given the substantial history of district cause some class members could not be courts ignoring and resisting circuit court identified or chose not to participate), cy pres concerns and rulings in class action the settlement should presumptively cases, we conclude it is time to clarify the provide for further distributions to par- legal principles that underlay our Powell ticipating class members unless the and Airline Tickets decisions: amounts involved are too small to make [4] First, we agree with the Fifth Cir- individual distributions economically via- cuit that, ‘‘Because the settlement funds ble or other specific reasons exist that are the property of the class, a cy pres would make such further distributions distribution to a third party of unclaimed impossible or unfair. settlement funds is permissible ‘only when (c) If the court finds that individual dis- it is not feasible to make further distribu- tributions are not viable based upon the tions to class members’ TTTT except where criteria set forth in subsections (a) and an additional distribution would provide a (b), the settlement may utilize a cy pres windfall to class members with liquidated- approach. The court, when feasible, damages claims that were 100 percent sat- should require the parties to identify a isfied by the initial distribution.’’ Klier, recipient whose interests reasonably ap- 658 F.3d at 475 (quoting ALI § 3.07; em- proximate those being pursued by the phasis added). Here, from the perspective class. If, and only if, no recipient whose of administrative cost, a further distribu- interest reasonably approximate those tion to the class was clearly feasible. being pursued by the class can be identi- Class counsel advised the district court, fied after thorough investigation and ‘‘Claims Administrator would distribute, analysis, a court may approve a recipient free of charge, the remaining Settlement that does not reasonably approximate Fund in the amount of $2,445,248.07, for the interests being pursued by the class. which the administration fee is estimated We have approved cy pres distribution of to be $27,000.’’ unused or unclaimed class action settle- Class counsel nonetheless contended, ment funds in two cases. In both, the and the district court agreed, that ‘‘further distributions met each of the criteria in identification of members for additional ALI § 3.07, even though our decisions distribution would be difficult and costly, antedated the ALI’s work. See Powell, considering the time that has passed since 119 F.3d at 706–07; Airline Tickets I, 268 the initial distribution.’’ Bank of America, F.3d at 626; In re Airline Ticket Comm’n 2013 WL 3212514, at *3. We disagree. As Antitrust Litig., 307 F.3d 679, 682–84 (8th the Claims Administrator’s cost estimate Cir.2002) (‘‘Airline Tickets II ’’). Similar- confirms, lists of NationsBank class mem- ly, the First Circuit approved a substantial bers who received and cashed prior distri- cy pres distribution, concluding it was ap- bution checks exist and would form the propriate in part because the district basis of a further distribution to the court’s actions were ‘‘entirely congruent’’ classes. The district court previously or- with the then-proposed ALI § 3.07. In re dered that no further search need be made Pharm. Indus. Avg. Wholesale Price Li- for class members whose checks were re-
142 of 234 IN RE BANKAMERICA CORP. SECURITIES LITIGATION 1065 Cite as 775 F.3d 1060 (8th Cir. 2015) turned undelivered, so that potentially bur- ownership of the [Bank of America] shares densome expense need not be incurred.3 has shifted over time.’’ Bank of America, The district court erred in finding that 2013 WL 3212514, at *3. This is simply further distributions would be so ‘‘costly irrelevant. Though the beneficial owner- and difficult’’ as to preclude a further dis- ship of outstanding Bank of America tribution; that inquiry must be based pri- shares changes often, no doubt daily, the marily on whether ‘‘the amounts involved identity of the NationsBank class members are too small to make individual distribu- entitled to receive the settlement funds tions economically viable.’’ ALI § 3.07(a). does not change. The possibility that dis- The court’s ultimate conclusion that it was tributing a private settlement to class appropriate to order a cy pres distribution members long after the events that gave to unrelated third party charities was rise to their claims may not ‘‘inure to the therefore an error of law.4 benefit of those actually harmed’’ does not give the court presiding over class action Class counsel also argues that a further litigation power to confiscate the settle- distribution to the class is inappropriate ment proceeds. because it would primarily benefit large institutional investors, who are less worthy Second, a cy pres distribution is not than charities such as LSEM. We flatly authorized by declaring, as class counsel reject this contention. It endorses judi- and the district court did in this case, that cially impermissible misappropriation of ‘‘all class members submitting claims have monies gathered to settle complex disputes been satisfied in full.’’ Id. at *3. It is not among private parties, one of the ‘‘oppor- true that class members with unliquidated damage claims in the underlying litigation tunities for abuse’’ that make it ‘‘inherently are ‘‘fully compensated’’ by payment of the dubious’’ to apply the cy press doctrine amounts allocated to their claims in the from trust law ‘‘to the entirely unrelated settlement. See Klier, 658 F.3d at 479 context of a class action settlement.’’ Kli- (‘‘the fact that the members of [one sub- er, 658 F.3d at 480 (Jones, C.J., concur- class] have received the payment author- ring). ized by the settlement agreement does not [5] The district court also relied on mean that they have been fully compensat- class counsel’s contention that ‘‘a third dis- ed’’); Masters, 473 F.3d at 434–35 (district tribution simply would not inure to the court in ordering cy pres distribution failed benefit of those actually harmed; institu- to consider that full restitution to antitrust tional investors would be the primary re- plaintiffs includes treble damages); ALI cipients of the distribution, and beneficial § 3.07, cmt. b (‘‘few settlements award 100
3. Class members who received but did not class members who cashed checks in the 2009 cash prior distributions might be included in distribution and would receive at least $100 a further distribution, because attitudes and in this final distribution. Class counsel also financial conditions may change over ten moved for an award of attorneys’ fees and years. Obviously, we leave the details of the requested that funds remaining after the final further distribution, and the question how to distribution be distributed cy pres in four dispose of any unclaimed funds after that equal parts to LSEM, the Federal Bar Foun- distribution, to the discretion of the district dation, MFY Legal Services, Inc. in New York court. charities, and the Kathryn A. McDonald Edu- 4. The separate BankAmerica settlement fund cation Advocacy Project of the New York Le- had $1,376,000 remaining after the second gal Aid Society. The district court has not distribution. Counsel for the BankAmerica ruled on this motion. Classes moved to distribute that money to
143 of 234 1066 775 FEDERAL REPORTER, 3d SERIES percent of a class member’s losses, and ab initio. See In re Lupron, 677 F.3d at thus it is unlikely in most cases that fur- 38 (‘‘Distribution of funds at the discretion ther distributions to class members would of the court is not a traditional Article III result in more than 100 percent recovery function.’’). More importantly, we agree for those class members’’). with the Ninth Circuit that ‘‘[a] proposed In this case, the shareholder lawsuits cy pres distribution must meet [our stan- were filed when, after the merger, Bank of dards governing cy pres awards] regard- America reported that it had written off less of whether the award was fashioned $372 million of old BankAmerica loans, and by the settling parties or the trial court.’’ its stock closed down $5.87 that day. 210 Nachshin, 663 F.3d at 1040. In arguing to F.R.D. at 696–97. The district court ap- the contrary, Green Jacobson misstates proved a global settlement in which plain- the holding of Klier, which overturned the tiffs would recover ‘‘only a percentage of district court’s cy pres award because ‘‘a the damages that they sought,’’ but which cy pres distribution to a third party of was ‘‘neither meager nor inadequate, par- unclaimed settlement funds is permissible ticularly in light of the many hurdles plain- only when it is not feasible to make further tiffs would face if they chose to proceed to distributions to class members.’’ 658 F.3d trial.’’ Id. at 701. The April 2002 settle- at 475. (Quite properly, the district court ment notice to the class stated: ‘‘the set- did not rely on the ‘‘sole discretion’’ lan- tling parties disagree as to both liability guage in its earlier distribution order.) and damages, and do not agree on the average amount of damages per share that [7] Fourth, Oetting argues that the would be recoverable by any of the award must be reversed because Green Classes.’’ Thus, the notion that class Jacobson did not notify the class of its members were fully compensated by the motion for a cy pres distribution. We settlement is speculative, at best. agree that, unless the amount of funds to [6] Third, we reject Green Jacobson’s be distributed cy pres is de minimis, the contention that the cy pres distribution district court should make a cy pres pro- must be affirmed because the district court posal publicly available and allow class and this court are bound by language in members to object or suggest alternative the settlement agreement stating that the recipients before the court selects a cy balance in the settlement fund ‘‘shall be pres recipient. This gives class members contributed’’ to non-profit organizations a voice in choosing a ‘‘next best’’ third ‘‘determined by the court in its sole discre- party and minimizes any appearance of tion.’’ 5 In the first place, the agreement judicial overreaching. See In re Baby and order stating that a cy pres distribu- Prods., 708 F.3d at 180; ALI § 3.07(c), tion would be made in the district court’s cmt b (encouraging courts to ‘‘solicit[ ] in- ‘‘sole discretion’’ was contrary to our con- put from the parties’’ regarding cy pres trolling decisions in Airline Tickets I and recipients). As we are vacating the cy Airline Tickets II; that provision was void pres award on other grounds, we need not
5. The contention is factually inaccurate, as or unpaid checks or otherwise’’ would be paid the settlement agreement only permitted dis- to ‘‘Authorized Claimants’’ in a second distri- tribution of remaining funds to charities at bution, and any remaining funds ‘‘shall be the court’s sole discretion. The district contributed to non-sectarian, not-for-profit, court’s June 2004 order authorizing an initial 501(c)(3) organization(s) as determined by the distribution improperly went further, stating court in its sole discretion.’’ that funds remaining ‘‘by reason of returned
144 of 234 IN RE BANKAMERICA CORP. SECURITIES LITIGATION 1067 Cite as 775 F.3d 1060 (8th Cir. 2015) address whether class members were de- *4–5. But it is not sufficient to find that nied this opportunity and if so, the ques- no ‘‘next-best’’ recipient is ‘‘immediately tion of an appropriate remedy.6 apparent.’’ Rather, a district court must [8] Fifth, when a district court con- carefully weigh all considerations, includ- cludes that a cy pres distribution is appro- ing the geographic scope of the underlying priate after applying the foregoing rigor- litigation, and make a ‘‘thorough investiga- ous standards, such a distribution must be tion’’ to determine whether a recipient can ‘‘for the next best use TTT for indirect class be found that most closely approximates benefit,’’ and ‘‘for uses consistent with the the interests of the class. ALI § 3.07, cmt nature of the underlying action and with b; see Airline Tickets I, 268 F.3d at 626. the judicial function.’’ In re Katrina, 628 The court must look for a recipient that F.3d at 196 (quotations omitted); accord ‘‘relate[s] directly to the [ ] injury alleged Klier, 658 F.3d at 474; Nachshin, 663 F.3d in this lawsuit and settled by the parties.’’ at 1040; Holtzman, 728 F.3d at 689–90; Airline Tickets II, 307 F.3d at 683. At ALI § 307(c) (‘‘a recipient whose interests oral argument, it became apparent there reasonably approximate those being pur- are non-profit organizations devoted to sued by the class’’). As we said in Airline preventing and aiding the victims of secu- Tickets II, 307 F.3d at 682, ‘‘the unclaimed rities fraud, such as the SEC Fair Funds. funds should be distributed for a purpose Those alternatives must be thoroughly ex- as near as possible to the legitimate objec- plored before concluding that a totally un- tives underlying the lawsuit, the interests related charity such as LSEM is an ac- of class members, and the interests of ceptable ‘‘next best’’ recipient. those similarly situated.’’ 7 On remand, if any settlement funds re- [9] Applying this standard, it is clear main after an additional distribution to the that LSEM, though unquestionably a wor- class, and if the district court concludes thy charity, is not the ‘‘next best’’ recipient after proper inquiry that a cy pres award of unclaimed settlement funds in this na- is appropriate, it must select next best cy tionwide class action seeking damages for pres recipient(s) more closely tailored to violations of federal and state securities the interests of the class and the purposes laws. In approving LSEM, the district of the underlying litigation. court found that ‘‘there is no immediately apparent organization that will indirectly II. benefit NationsBank and BankAmerica class members,’’ and that LSEM suffi- [10, 11] Oetting argues the award of ciently approximated the interests of the supplemental attorneys’ fees must be va- class because it serves victims of fraud. cated because Green Jacobson may not Bank of America, 2013 WL 3212514, at seek an additional award when it was al-
6. We also do not address the distinct question only satisfy the broad reasonableness stan- whether Rule 23(e) of the Federal Rules of dards imposed by due process’’). Civil Procedure requires a district court to identify proposed recipients of any cy pres 7. Because Oetting objected generally to the distribution of unclaimed funds in the original proposed cy pres distribution, we may review notice of a proposed class settlement. Com- whether the district court correctly interpret- pare In re Baby Prods., 708 F.3d at 180, with ed and applied our precedent in Airline Tick- In re Katrina, 628 F.3d at 198; see generally ets I and II. See Lebron v. Nat’l. R.R. Passenger Petrovic v. Amoco Oil Co., 200 F.3d 1140, Corp., 513 U.S. 374, 379, 115 S.Ct. 961, 130 1153 (8th Cir.1999) (notice at this stage ‘‘need L.Ed.2d 902 (1995).
145 of 234 1068 775 FEDERAL REPORTER, 3d SERIES ready awarded eighteen percent of the sion. See Consol. Beef Indus., Inc. v. N.Y. NationsBank fund. See In re BankAmeri- Life Ins. Co., 949 F.2d 960, 966 (8th Cir. ca Corp. Sec. Litig., 228 F.Supp.2d 1061, 1991) (standard of review). 1066 (E.D.Mo.2002). In general, post-set- The Memorandum and Order of the dis- tlement monitoring is a compensable activ- trict court dated June 24, 2013, is vacated ity for which counsel is entitled to a rea- and the case is remanded for further pro- sonable fee. Powell, 119 F.3d at 707. ceedings not inconsistent with this opinion. Here, the district court found that the We deny the pending F.R.A.P. 10(e) mo- complexities of the case were unforesee- tion. able at the time of the first award and that Green Jacobson was entitled to compensa- MURPHY, Circuit Judge, dissenting. tion for its additional work in this case. I respectfully dissent because the record Bank of America, 2013 WL 3212514, at *6. does not warrant the post hoc imposition The record on appeal gives us no reason to of a new rule to this case. The district disagree. court’s cy pres order grew out of its active [12] On the other hand, the fee award supervision of this consolidated litigation was made in an order that accepted class and was not inconsistent with our then counsel’s suggestion of a cy pres distribu- existing precedents. Section 3.07 of the tion, which was contrary to the interests of American Law Institute’s Principles of Ag- the NationsBank Classes, and terminated gregate Litigation, on which the majority the case with respect to those Classes. relies, had neither been argued in the dis- ‘‘Where a district court has reason to be- trict court nor yet adopted by our court. lieve that [class] counsel has not met its I. responsibility to seek an award that ade- quately prioritizes direct benefit to the In February 1999 the Judicial Panel on class, we therefore think it appropriate for Multidistrict Litigation consolidated some the court to decrease the fee award.’’ In 24 complaints that had been filed in four re Baby Prods., 708 F.3d at 178. Evaluat- different districts in the fall of 1998 and ing whether attorneys’ fees should be re- then transferred them for case manage- duced for this reason may require the ment to the United States District Court court ‘‘to withhold all or a substantial part for the Eastern District of Missouri. The of the fee until the distribution process is consolidated case was assigned to one of complete.’’ Id. at 179, quoting Manual for the district’s most experienced trial Complex Litigation § 21.71 (4th ed.2008). judges, the Honorable John F. Nangle, for The factual context here is far different his oversight and development. After sev- than in Baby Products, and we certainly eral years of management Judge Nangle do not mean to suggest that the final fee approved a $490 million global settlement award be reduced for this reason. But it agreement in September 2002 and lead may be a relevant factor, and we therefor counsel’s application for attorney fees in conclude that review of the award is pre- the next month. mature. Accordingly, we vacate the award NationsBank class representative David of supplemental attorneys’ fees, to be rede- Oetting had objected to the proposed set- termined in the exercise of the district tlement in May 2002, claiming problems court’s discretion upon completion of the with the mediation process, the amount of additional distribution(s) to the Nations- the settlement, and payment of the settle- Bank Classes that result from this deci- ment in cash rather than stock. He raised
146 of 234 IN RE BANKAMERICA CORP. SECURITIES LITIGATION 1069 Cite as 775 F.3d 1060 (8th Cir. 2015) these issues in an appeal from the district from the settlement had their claims been court order approving the settlement. At timely. As Judge Nangle observed, the that time Oetting did not raise any objec- claims distribution process had been ‘‘inun- tion to either the fee award or to the dated with inefficiency.’’ provision that settlement funds remaining The district court ordered a second dis- after one or two distributions ‘‘may be tribution on June 16, 2008 involving $4.75 contributed as a donation to one or more million remaining in the settlement fund. non-sectarian, not-for-profit 501(c)(3) or- During that same month, a substantial ganizations as determined by the Court in fraud on the settlement fund was discover- its sole discretion ’’ (emphasis added). We ed involving an accountant formerly em- affirmed the district court’s approval of the ployed by the claims administrator, settlement. In re BankAmerica Sec. Litig., amounting to a total loss of $5,879,073.36. 350 F.3d 747, 752 (8th Cir.2003). The district court stayed the second distri- On June 14, 2004 Judge Nangle author- bution on August 6, 2008 pending further ized the claims administrator to begin dis- investigation. Judge Nangle unfortunate- tributing the settlement funds. The distri- ly died on August 24, 2008. The consoli- bution process was not without difficulties. dated case was briefly transferred to two Many class members had missed the initial other judges; no recorded proceedings oc- deadline for filing complaints. The district curred during that period. Then on De- court ordered class counsel to use a locator cember 1, 2008 the case was reassigned to service to find some class members and United States District Judge Carol Jack- made exceptions to allow several thousand son. late claims to be filed. The court observed After the fraud investigation was com- that the NationsBank classes had had pleted, Judge Jackson lifted the stay on more problems with misidentified and late April 15, 2009. She then oversaw the sec- claims than the BankAmerica classes. Be- ond distribution, which included orders to cause many claimants failed to cash their reissue various settlement checks for good checks on time, the court ordered that cause. After restitution had been ordered checks amounting to a total of over $1 in the criminal fraud case, class counsel million be reissued for good cause. Most were notified in March 2011 that immedi- of the reissued checks were for class mem- ate recovery for the settlement fund would bers who had been customers of an invest- be less than $300,000. The fund eventual- ment management company which had ly received $295,290.27 in January 2013. failed to report their claims accurately. The administrative cost for the second dis- Even after these exceptions in the distri- tribution amounted to $336,611.41, leaving bution process, new problems surfaced. $2.4 million remaining in the settlement One year after the final claims filing dead- fund. line had passed, a brokerage firm discover- Class counsel then moved in September ed it had neglected to include in the claims 2012 for a cy pres distribution of the re- notification process five million Nations- maining funds and for additional attorney Bank shares held on behalf of its clients. fees; Oetting opposed these motions. On After the district court declined to provide June 24, 2013 the court ordered a cy pres another exception to the final distribution distribution of the remaining settlement deadline, class counsel negotiated an ar- funds to Legal Services of Eastern Mis- rangement for the brokerage firm to pay souri, a legal aid organization whose work its clients what they would have received includes representing victims of fraud. It
147 of 234 1070 775 FEDERAL REPORTER, 3d SERIES also awarded $98,114.34 in additional attor- or more non-sectarian, not-for-profit ney fees to class counsel. 501(c)(3) organizations as determined by the Court in its sole discretion.’’ There II. was no objection to this provision by any We have explained that cy pres awards party or counsel at the time of settlement. are appropriate ‘‘where class members ‘are Class members who had submitted difficult to identify or where they change claims had already received the full com- constantly,’ or where there are unclaimed pensation due under the settlement agree- funds.’’ In re Airline Ticket Comm’n An- ment, as in Powell, 119 F.3d at 705, where titrust Litig., 268 F.3d 619, 625 (8th Cir. 2001) (‘‘Airline Tickets I ’’) (quoting Powell ‘‘each class member had been fully com- v. Georgia–Pacific Corp., 119 F.3d 703, 706 pensated according to the terms of the (8th Cir.1997)). In Powell, we reviewed consent decree.’’ Many of those who were for clear error a district court’s factual harmed by the underlying fraud had been findings about such circumstances. 119 beneficial owners of stock held by mutual F.3d at 706. funds and other institutional investors. Given that the beneficial ownership of such The record in the case now before our shares changes constantly and some 15 court shows that the identification of class years had passed after the securities viola- members for the two earlier distributions tions, the district court reasonably con- had been difficult, and that a good part of cluded that another distribution would not any additional distribution would have to likely reach those who had been actually be made to institutional investors holding harmed. All these factors support the dis- stock on behalf of clients. Prior distribu- trict court’s determination that the re- tion efforts had encountered difficulties in quired circumstances for a cy pres distri- locating and correctly processing claims bution existed and that such a distribution for such class members. Meanwhile, years would not be unwise or unfair to any par- had passed since the settlement was ty. reached, and $2.4 million remained in the settlement fund because some class mem- Counsel were involved in the consider- bers had failed to cash their checks and ation of an appropriate recipient for a cy interest had accumulated on these un- pres distribution. Class counsel had sug- claimed funds. Oetting himself had of- gested a distribution among three organi- fered no evidence to show that a further zations: Legal Services of Eastern Mis- distribution to the class would have been souri (LSEM), the Mathews Dickey Boys’ feasible at that time. On this record, the and Girls’ Club of St. Louis, and The Back- district court did not clearly err in deter- stoppers. In his response in the district mining that the remaining funds had been court, Oetting opposed the suggested dis- unclaimed and that individual members of tributions to the Boys’ and Girls’ Club, a the class were difficult to identify. youth services organization, and The Back- The district court found that additional stoppers, a group supporting families of factors favored a cy pres distribution. The fallen police officers, firefighters, and parties’ settlement agreement, approved emergency medical technicians. Oetting by the district court more than ten years argued that the work of these charities earlier, provided that unclaimed funds re- was not related to the subject matter of maining after one or two distributions the case before the court. Nothing in the ‘‘may be contributed as a donation to one record at that stage, however, reflects any
148 of 234 IN RE BANKAMERICA CORP. SECURITIES LITIGATION 1071 Cite as 775 F.3d 1060 (8th Cir. 2015) objection by Oetting to LSEM which was plicable] considerations’’ and made find- the third suggested recipient.8 ings that supported its decision. 268 F.3d In its cy pres order the district court at 626. All parties were given an opportu- carefully considered Oetting’s objections nity for comment and the district court and the circuit precedent requiring it to provided adequate reasons for selecting ‘‘consider the full geographic scope of the LSEM as the cy pres recipient based on case’’ as well as to ‘‘tailor[ ] a cy pres the nature of its work as well as its situs in distribution to the nature of the underlying the area where many class members were lawsuit.’’ In re Airline Ticket Comm’n located when their losses occurred. The Antitrust Litig., 307 F.3d 679, 683 (8th district court appropriately ‘‘tailor[ed] Cir.2002) (‘‘Airline Tickets II ’’). Finding [the] cy pres distribution to the nature of that the ‘‘multi-district litigation was trans- the underlying lawsuit,’’ as our precedent ferred to this district because much of the requires. Airline Tickets II, 307 F.3d at harm suffered by the class was felt by 683. individuals in the St. Louis region,’’ the district court found that distribution to an III. organization serving that area would be Circuit courts which have adopted the proper. Counsel had also pointed out that American Law Institute’s preference for a St. Louis bank was a major predecessor pro rata distributions to class members in interest to NationsBank and that many also recognize that cy pres awards are of the individual stockholders of Nations- appropriate in certain cases. The First Bank resided in eastern Missouri. The Circuit, for example, endorsed the Insti- district court found that a final distribution tute’s recommendation in In re Lupron to LSEM would also be consistent with the Marketing and Sales Practices Litigation nature of this securities fraud lawsuit since while also affirming a cy pres distribution that organization serves victims of fraud. of surplus funds as provided in a settle- No party suggested any organization that ment agreement. 677 F.3d 21, 25–26, 31 would benefit class members more directly (1st Cir.2012). In reversing a cy pres in these circumstances where the majority distribution of surplus funds in Klier v. Elf of shares were held by large investment Atochem North America, Inc., the Fifth firms. The district court found that distri- Circuit acknowledged that such distribu- butions to the Boys’ and Girls’ Club or The tions are appropriate when contemplated Backstoppers would not be appropriate be- in the parties’ agreement or when the class cause their work did not focus on fraud. has already been adequately compensated. We review the district court’s selection 658 F.3d 468, 475–76 (5th Cir.2011). While of LSEM as the recipient of the cy pres the Third Circuit agrees with the Institute distribution for abuse of discretion. Pow- that ‘‘cy pres distributions are most appro- ell, 119 F.3d at 707. The district court’s priate where further individual distribu- careful application of existing precedent to tions are economically infeasible,’’ it has the facts of this case shows no abuse of its not so limited them and has recognized discretion. Unlike the decision we re- their potential role in settlements. In re versed in Airline Tickets I, the district Baby Prods. Antitrust Litig., 708 F.3d 163, court here ‘‘carefully weighed all the [ap- 172–73 (3d Cir.2013).
8. Oetting did offer belated suggestions of po- any issue before the district court about no- tential cy pres recipients in a surreply never tice to class members of the proposed cy pres accepted for filing. He also failed to raise distribution.
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Here, the district court’s decision to or- recipient.’’ See Airline Tickets II, 307 der a cy pres distribution was supported F.3d at 683. by the principles outlined in these cited On this record the district court did not circuit cases. Problems with the first two abuse its discretion by applying such crite- distributions made the feasibility of a third ria and selecting LSEM as a cy pres recip- distribution doubtful. Moreover, the court ient. found that class members who had submit- ted claims had been fully compensated ac- IV. cording to the settlement agreement. Un- like in Klier, 658 F.3d at 477–78, this For all these reasons, I respectfully dis- record does not show that a particular sent. The district court’s decision to dis- subclass was seriously undercompensated. tribute the remaining settlement funds cy Moreover, this settlement agreement had pres to LSEM should be affirmed, as well not only been approved by the district as the award of additional attorney fees to court, but also by our circuit court. In re the Green Jacobson law firm warranted by BankAmerica Sec. Litig., 350 F.3d at 752. unforeseeable complexities in the settle- The settlement agreement authorized a cy ment distribution. pres distribution of unclaimed settlement funds remaining after one or two distribu- tions to the class, and no objection was raised to that provision at the time of , settlement. The American Law Institute principles support the district court’s selection of LSEM as the remainder cy pres recipient. PHILADELPHIA CONSOLIDATED The Institute recommends that cy pres HOLDING CORPORATION, doing distributions be awarded to a recipient business as Philadelphia Insurance ‘‘whose interests reasonably approximate Companies, Plaintiff–Appellee, those being pursued by the class.’’ In applying the Institute’s recommendation, v. the First Circuit cited our precedent in LSI–LOWERY SYSTEMS, Airline Tickets I and Airline Tickets II in INC., Defendant. examining whether or not a cy pres recipi- ent reflected the geographic scope and Hodell–Natco Industries, Inc., subject matter of the litigation. In re Defendant–Appellant. Lupron, 677 F.3d at 33, 36. The Integrated Business Solutions In the case now before our court, the Group, Inc., Defendant. district court similarly selected a recipient whose geographic location related to the Philadelphia Consolidated Holding Cor- underlying securities fraud and whose mis- poration, doing business as Philadel- sion included combating fraud. LSEM re- phia Insurance Companies, Plaintiff– lated ‘‘as nearly as possible, to the original Appellee, purposes of the class action and its settle- ment,’’ taking into account ‘‘the amount of v. the remaining unclaimed funds and the LSI–Lowery Systems, Inc., costs of searching for another qualified Defendant–Appellant.
150 of 234 LANE v. FACEBOOK, INC. 811 Cite as 696 F.3d 811 (9th Cir. 2012)
‘‘could have tipped the jury in the govern- Hunker; Megan Lynn Hancock, a mi- ment’s favor’’ [sic] is further undercut by nor, by and through her parent Rebec- the fact that the Complaint and Owens’ ca Holey; Austin Muhs; Catherine testimony bore upon completely different Harris; Mario Herrera; Maryam Hos- elements of the crime. Specifically, Ow- seiny, individually and on behalf of ens’ testimony primarily concerned wheth- themselves and all others similarly er he provided bona fide services to Bailey, situated, Plaintiffs–Appellees, but the Complaint was narrowly offered v. for the purpose of proving that Bailey knew it was illegal to issue unregistered FACEBOOK, INC., a Delaware corpora- stock without receiving bona fide services tion; Blockbuster, Inc., a Delaware in return. corporation; Fandango, Inc., a Dela- The Government presented ample docu- ware corporation; Hotwire, Inc., a De- mentary, testimonial and demonstrative laware corporation; Sta Travel, Inc., a evidence, in addition to Owens’ testimony, Delaware corporation; Over- showing that Bailey issued the unregis- stock.com, Inc., a Delaware corpora- tered for the purpose of generating funds tion; Zappos.com, Inc., a Delaware for the Aspen Cove and Pepper Lane pur- corporation; Gamefly, Inc., a Dela- chases. The evidence proving that series ware corporation, Defendants–Appel- of events, as corroborated by Owens’ testi- lees, mony, was unaffected by the state of mind Ginger McCall, Class Member, issues raised by the Complaint. Thus, I Objector–Appellant. would hold that it is more probable than not that the jury would have reached the Sean Lane; Mohannaed Sheikha; Sean same verdict had the Complaint not been Martin, individually, and on behalf of introduced. themselves and all others similarly situated; Ali Sammour; Mohammaed CONCLUSION Zidan; Sara Karrow; Colby Henson; For the reasons indicated, I would af- Denton Hunker; Firas Sheikha; Has- firm the district court’s admission of the sen Sheikha; Linda Stewart; Tina Complaint, under Rule 404(b), and Bailey’s Tran; Matthew Smith; Erica Parnell; conviction. John Conway; Phillip Huerta; Alicia Hunker; Megan Lynn Hancock, a mi- nor, by and through her parent Rebec- ca Holey; Austin Muhs; Catherine , Harris; Mario Herrera; Maryam Hos- seiny, individually and on behalf of themselves and all others similarly situated, Plaintiffs–Appellees, Sean LANE; Mohannaed Sheikha; Sean v. Martin; Ali Sammour; Mohammaed Zidan; Sara Karrow; Colby Henson; Facebook, Inc., a Delaware corporation; Denton Hunker; Firas Sheikha; Has- Blockbuster, Inc., a Delaware corpora- sen Sheikha; Linda Stewart; Tina tion; Hotwire, Inc., a Delaware corpo- Tran; Matthew Smith; Erica Parnell; ration; Fandango, Inc., a Delaware John Conway; Phillip Huerta; Alicia corporation; Sta Travel, Inc., a Dela-
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ware corporation; Overstock.com, (3) that settlement agreement provided Inc., a Delaware corporation; Zap- for creation of new grant-making enti- pos.com, Inc., a Delaware corporation; ty, rather than providing for cy pres Gamefly, Inc., a Delaware corpora- funds to be given to already-existing tion, Defendants–Appellees, organization, did not preclude approval of settlement as fair, reasonable, and Megan Marek; Benjamin Trotter, adequate; Class Members, Objectors– (4) conclusion that settlement amount was Appellants. substantial was not abuse of discretion; Nos. 10–16380, 10–16398. and (5) notice of proposed settlement satisfied United States Court of Appeals, rule. Ninth Circuit. Affirmed. Argued and Submitted Oct. 12, 2011. Kleinfeld, Circuit Judge, filed a dissenting Filed Sept. 20, 2012. opinion. Background: Members of online social network brought putative class action 1. Federal Courts 813 O against network and operators of websites Appellate review of fairness determi- that had participated in network’s program nation made by district court in approving which had updated members’ personal pro- class-action settlement is extremely limit- files on network to reflect actions taken by ed, and Court of Appeals will set aside that members on participating operators’ web- determination only upon a strong showing sites, alleging violations of Electronic that district court’s decision was a clear Communications Privacy Act, Computer abuse of discretion. Fed.Rules Civ.Proc. Fraud and Abuse Act, Video Privacy Pro- Rule 23(e), 28 U.S.C.A. tection Act (VPPA), California’s Consumer 2. Compromise and Settlement 57 Legal Remedies Act, and California’s O Computer Crime Law. The United States Federal Courts 763.1 O District Court for the Northern District of Both district court and Court of Ap- California, Richard Seeborg, J., certified peals must evaluate the fairness of a class- settlement class and approved class settle- action settlement as a whole, rather than ment over objections. Objecting class assessing its individual components. Fed. members appealed. Rules Civ.Proc.Rule 23(e), 28 U.S.C.A. Holdings: The Court of Appeals, Hug, 3. Compromise and Settlement 57 O Circuit Judge, held that: Question of whether class-action set- (1) cy pres remedy included in settlement tlement is fundamentally fair within mean- provided for ‘‘next best distribution’’ to ing of governing rule is different from class; question of whether settlement is perfect in the estimation of reviewing court. Fed. (2) presence of network’s employee on Rules Civ.Proc.Rule 23(e), 28 U.S.C.A. board of directors of charity organiza- tion that was to be set up using cy pres 4. Compromise and Settlement 57, 59 O funds did not preclude approval of set- Although class action rule imposes tlement as fair, reasonable, and ade- strict procedural requirements on the ap- quate; proval of a class settlement, district court’s
152 of 234 LANE v. FACEBOOK, INC. 813 Cite as 696 F.3d 811 (9th Cir. 2012) only role in reviewing the substance of that benefit, usually through defendant dona- settlement is to ensure that it is fair, ade- tions to a third party, rather than a direct quate, and free from collusion. Fed.Rules monetary payment. Civ.Proc.Rule 23, 28 U.S.C.A. See publication Words and Phras- es for other judicial constructions 5. Compromise and Settlement 57 and definitions. O Number of factors guide district court 9. Deposits in Court 11 in determining whether class-action settle- O For purposes of the cy pres doctrine, ment is fair, adequate, and free from collu- a class-action settlement fund is ‘‘non-dis- sion, including (1) strength of plaintiffs’ tributable’’ when the proof of individual case, (2) risk, expense, complexity, and claims would be burdensome or distribu- likely duration of further litigation, (3) risk tion of damages costly. of maintaining class action status through- See publication Words and Phras- out trial, (4) amount offered in settlement, es for other judicial constructions (5) extent of discovery completed and and definitions. stage of proceedings, (6) experience and 10. Deposits in Court 11 views of counsel, (7) presence of govern- O mental participant, and (8) reaction of District court’s review of a class-ac- class members to proposed settlement. tion settlement that calls for a cy pres Fed.Rules Civ.Proc.Rule 23(e), 28 U.S.C.A. remedy is not substantively different from that of any other class-action settlement 6. Compromise and Settlement 57 except that the court should not find the O When class-action settlement takes settlement fair, adequate, and reasonable place before formal class certification, set- unless the cy pres remedy accounts for the tlement approval requires a higher stan- nature of the plaintiffs’ lawsuit, the objec- dard of fairness to ensure that class repre- tives of the underlying statutes, and the sentatives and their counsel do not secure interests of the silent class members. disproportionate benefit at the expense of Fed.Rules Civ.Proc.Rule 23(e), 28 U.S.C.A. unnamed plaintiffs whom class counsel had 11. Deposits in Court 11 duty to represent. Fed.Rules Civ.Proc. O Rule 23(e), 28 U.S.C.A. Cy pres doctrine does not require that settling parties select a cy pres recipient 7. Federal Courts 763.1 that the court or class members would find O When reviewing district court’s ap- ideal, and, instead, requirement that cy proval of class-action settlement reached pres remedy must be ‘‘next best distribu- before formal class certification, Court of tion’’ of settlement funds absent direct Appeals will not affirm if it appears that monetary payment to absent class mem- district court did not evaluate settlement bers means only that district court should sufficiently to account for possibility that not approve cy pres distribution unless it class representatives and their counsel bears substantial nexus to interests of have sacrificed interests of absent class class members. members for their own benefit. Fed.Rules 12. Deposits in Court 11 Civ.Proc.Rule 23(e), 28 U.S.C.A. O Cy pres remedy included in settle- 8. Deposits in Court 11 ment of members’ class action against on- O A ‘‘cy pres remedy,’’ sometimes called line social network and participants in net- fluid recovery, is a settlement structure work program that had updated members’ wherein class members receive an indirect network personal profiles to reflect their
153 of 234 814 696 FEDERAL REPORTER, 3d SERIES actions on participants’ websites, pursuant and related defendants could be approved to which approximately $6,500,000 would as fair, reasonable, and adequate, even be used for charity organization that would though it provided for creation of new fund and sponsor programs to educate grant-making entity that would fund and users and others regarding online privacy sponsor programs to educate users and issues, bore direct and substantial nexus to others regarding online privacy issues, in- interests of absent class members, and stead of providing for cy pres funds to be thus provided for ‘‘next best distribution’’ given to already-existing online privacy or- to class; members alleged violations of ganization; settlement agreement and or- state and federal privacy statutes, direct ganization’s articles of incorporation indi- monetary payments to class members cated exactly how cy pres funds were to be were infeasible, given de minimis recovery, used. Fed.Rules Civ.Proc.Rule 23(e), 28 and organization’s distributions would pro- U.S.C.A. mote causes of online privacy and security that would benefit absent class members 15. Compromise and Settlement 57 O and serve purposes of underlying privacy While a district court must of course statutes. 18 U.S.C.A. §§ 1030, 2510, 2710; assess plaintiffs’ claims in determining the West’s Ann.Cal.Civ.Code § 1750; West’s strength of their case relative to the risks Ann.Cal.Penal Code § 502. of continued litigation in deciding whether 13. Compromise and Settlement 61 to approve proposed class-action settle- Deposits in Court 11 O ment, it need not include in its approval Settlement agreementO in class action order a specific finding of fact as to the brought by members against online social potential recovery for each of plaintiffs’ network and participants in network pro- causes of action. Fed.Rules Civ.Proc.Rule gram that had updated members’ network 23(e), 28 U.S.C.A. personal profiles to reflect actions taken 16. Compromise and Settlement 57 by members on participants’ websites O In deciding whether to approve pro- could be approved as fair, reasonable, and posed class-action settlement, district adequate even though settlement provided court acted properly in evaluating strength for network employee to be on board of of plaintiffs’ case in its entirety, rather directors of charity organization that was than on claim-by-claim basis. Fed.Rules to be set up using settlement’s cy pres Civ.Proc.Rule 23(e), 28 U.S.C.A. funds and was to fund and sponsor pro- grams to educate users and others regard- 17. Compromise and Settlement 61 ing online privacy issues; that network re- O District court’s conclusion that tained and would use its say in how cy $9,500,000 offered in settlement of mem- pres funds would be distributed, so as to bers’ class action against online social net- ensure that funds were not used in way work and participants in network program that harmed network, was unremarkable that had updated members’ network per- result of parties’ give-and-take negotia- sonal profiles to reflect their actions on tions. Fed.Rules Civ.Proc.Rule 23(e), 28 participants’ websites was substantial, U.S.C.A. even though some portion of class mem- 14. Compromise and Settlement 61 bers possibly had claims under Video Pri- O Deposits in Court 11 vacy Protection Act (VPPA) for which stat- Settlement agreementO in members’ utory penalties could be available, was not class action against online social network abuse of discretion; district court meaning-
154 of 234 LANE v. FACEBOOK, INC. 815 Cite as 696 F.3d 811 (9th Cir. 2012) fully accounted for potential value of mem- of those claims. Fed.Rules Civ.Proc.Rule bers’ claims, including claims under VPPA, 23(e), 28 U.S.C.A. and noted risks of bringing such claims to trial, and evidence indicated that one of 21. Compromise and Settlement 68 O defendants that could be subject to liability Federal Civil Procedure 179 O under VPPA was on verge of bankruptcy. Notice of proposed class-action settle- 18 U.S.C.A. § 2710; Fed.Rules Civ.Proc. ment involving a cy pres remedy need not Rule 23(e), 28 U.S.C.A. name the individuals sitting on the cy pres 18. Compromise and Settlement 57 recipient’s board of directors, even if one Federal Civil Procedure 165O of those individuals has some association Although a settlement is Onot categori- with defendants in the case. Fed.Rules cally unfair for certain class members sim- Civ.Proc.Rule 23(e), 28 U.S.C.A. ply because they might recover higher 22. Compromise and Settlement 68 damages than other class members were O Federal Civil Procedure 179 they to prosecute their claims individually, O significant variation in claimed damages Notice of proposed settlement in among class members is relevant to the members’ class action against online social ‘‘predominance’’ analysis during class cer- network and participants in network pro- tification. Fed.Rules Civ.Proc.Rule gram that had updated members’ network 23(b)(3), 28 U.S.C.A. personal profiles to reflect their actions on participants’ websites adequately apprised 19. Compromise and Settlement 61 O class members of all material elements of Even if online social network’s pro- settlement agreement, and therefore com- gram underlying members’ class action plied with requirements of governing rule, against network and other participants in notwithstanding contentions that notice program was already effectively terminat- failed to describe value of plaintiffs’ statu- ed at the time settlement in class action tory claims and did not accurately describe was reached, provision of settlement man- what class members would receive in ex- dating program’s permanent termination change for release of those claims. Fed. offered meaningful relief to class mem- Rules Civ.Proc.Rule 23(e), 28 U.S.C.A. bers, given that, absent judicially enforce- able agreement, network was free to re- vive program whenever it wanted. Fed. Rules Civ.Proc.Rule 23(e), 28 U.S.C.A. Michael H. Page, Public Citizen Litiga- 20. Compromise and Settlement 68 tion Group, Washington, D.C.; Steven F. Federal Civil Procedure 179O Helfand, Helfand Law Offices, San Fran- Notice of proposed class-actionO settle- cisco, CA, for the objectors-appellants. ment provided pursuant to rule must gen- erally describe the terms of the settlement Scott A. Kamber, Kamber Law, LLC, in sufficient detail to alert those with ad- New York, NY, for the plaintiffs-appellees. verse viewpoints to investigate and to Michael G. Rhodes, Cooley LLP, San come forward and be heard, a standard Francisco, CA, for the defendants-appel- which does not require detailed analysis of lees. the statutes or causes of action forming the basis for plaintiff class’s claims, or Appeal from the United States District require an estimate of the potential value Court for the Northern District of Califor-
155 of 234 816 696 FEDERAL REPORTER, 3d SERIES nia, Richard Seeborg, District Judge, Pre- to share with friends information about siding. D.C. No. 5:08–cv–03845–RS. what they do elsewhere on the Internet. The program operated by updating a Before: PROCTER HUG, JR., member’s personal profile to reflect cer- ANDREW J. KLEINFELD, and tain actions the member had taken on WILLIAM A. FLETCHER, Circuit websites belonging to companies that had Judges. contracted with Facebook to participate in the Beacon program. Thus, for example, Opinion by Judge HUG; Dissent by if a member rented a movie through the Judge KLEINFELD. participating website Blockbuster.com, Blockbuster would transmit information OPINION about the rental to Facebook, and Face- HUG, Circuit Judge: book in turn would broadcast that informa- tion to everyone in the member’s online The question presented is whether the network by publishing to his or her per- district court abused its discretion in ap- sonal profile. proving the parties’ $9.5 million settlement Although Facebook initially designed agreement as ‘‘fair, reasonable, and ade- the Beacon program to give members op- quate,’’ either because a Facebook employ- portunities to prevent the broadcast of any ee sits on the board of the organization private information, it never required distributing cy pres funds or because the members’ affirmative consent. As a re- settlement amount was too low. We hold sult, many members complained that Bea- that it did not. con was causing publication of otherwise private information about their outside I web activities to their personal profiles Facebook is an online social network without their knowledge or approval. Fa- where members develop personalized web cebook responded to these complaints (and profiles to interact and share information accompanying negative media coverage) with other members. The type of informa- first by releasing a privacy control intend- tion members share varies considerably, ed to allow its members to opt out of the and it can include news headlines, photo- Beacon program fully, and then ultimately graphs, videos, personal stories, and activi- by discontinuing operation of the program ty updates. Members generally publish altogether. information they want to share to their Unsatisfied with these responses, a personal profile, and the information is group of nineteen plaintiffs filed a putative thereby broadcasted to the members’ on- class action in federal district court against line ‘‘friends’’ (i.e., other members in their Facebook and a number of other entities online network). that operated websites participating in the In November of 2007, Facebook Beacon program. The class-action com- launched a new program called ‘‘Beacon.’’ plaint alleged that the defendants had vio- Facebook described the purpose of the lated various state and federal privacy Beacon program as allowing its members statutes.1 Each of the plaintiffs’ claims
1. Specifically, the plaintiffs alleged violations (1986); the Video Privacy Protection Act, 18 of the Electronic Communications Privacy U.S.C. § 2710 (1988); California’s Consumer Act, 18 U.S.C. § 2510 (1986); the Computer Legal Remedies Act, Cal. Civ.Code § 1750; Fraud and Abuse Act, 18 U.S.C. § 1030
156 of 234 LANE v. FACEBOOK, INC. 817 Cite as 696 F.3d 811 (9th Cir. 2012) centered on the general allegation that decision to distribute settlement funds Beacon participants had violated Facebook through a new grant-making organization, members’ privacy rights by gathering and rather than simply give the funds to an publicly disseminating information about existing organization, at the suggestion of their online activities without permission. the private mediator overseeing their ne- The plaintiffs sought damages and a vari- gotiations. Neither Facebook’s nor the ety of equitable remedies for the alleged plaintiffs’ class counsel was comfortable privacy violations. with selecting in advance any particular Facebook denied liability and filed a non-profit or non-profits to receive the en- motion to dismiss the plaintiffs’ claims. tirety of the settlement fund, so they ac- Before the district court ruled on Face- ceded to the mediator’s suggestion that book’s motion, the parties elected to at- Facebook set up a new entity whose sole tempt settling their case through private purpose was to designate fund recipients mediation. The parties’ initial settlement consistent with DTF’s mission to promote talks reached an impasse over whether the interests of online privacy and securi- Facebook should terminate the Beacon ty. program permanently, but after two me- According to DTF’s Articles of Incorpo- diation sessions and several months of ration, DTF would be run by a three- negotiations, Facebook and the plaintiffs member board of directors. The initial arrived at a settlement agreement. In three directors were Larry Magrid, a September of 2009, plaintiff Sean Lane member of the federal government’s On- submitted the parties’ finalized settlement line Safety and Technology Working agreement to the district court for pre- Group and several other online safety or- liminary approval. ganizations; Chris Hoofnagle, director of The terms of the settlement agreement the Information Privacy Programs at the provided that Facebook would permanent- Berkeley Center for Law and Technology ly terminate the Beacon program and pay and former director for an office of the a total of $9.5 million in exchange for a Electronic Privacy Information Center; release of all the plaintiffs’ class claims. and most relevant here, Timothy Sparapa- Of the $9.5 million pay-out, approximately ni, Facebook’s Director of Public Policy $3 million would be used to pay attorneys’ and former counsel for the American Civil fees, administrative costs, and incentive Liberties Union. The Articles of Incorpo- payments to the class representatives. ration further provided that all of DTF’s Facebook would use the remaining $6.5 funding decisions had to be supported by million or so in settlement funds to set up at least two members of the three-member a new charity organization called the Digi- board of directors but that the plan for tal Trust Foundation (‘‘DTF’’). The stated succession of directors required unanimous purpose of DTF would be to ‘‘fund and approval. Finally, the Articles of Incorpo- sponsor programs designed to educate ration provided that DTF would be strictly users, regulators[,] and enterprises re- a grant-making organization and could not garding critical issues relating to protec- engage in lobbying or litigation. tion of identity and personal information online through user control, and the pro- The settlement agreement also provided tection of users from online threats.’’ The for the creation of a Board of Legal Advis- parties’ respective counsel arrived at the ors within DTF, which would consist of
and California’s Computer Crime Law, Cal. Pen.Code § 502.
157 of 234 818 696 FEDERAL REPORTER, 3d SERIES counsel for both the plaintiff class and Following a final settlement approval Facebook. The purpose of the Board of hearing in which the district court heard Legal Advisors would be to advise and from both the parties and Objectors, the monitor DTF to ensure that it acted con- district court entered an order certifying sistently with its mission as articulated in the settlement class and approving the the settlement agreement. class settlement. The district court dis- missed the plaintiffs’ class action consis- After a hearing, the district court certi- tent with the settlement agreement, and it fied the plaintiff class for settlement pur- maintained jurisdiction over implementa- poses and preliminarily approved the par- tion of the settlement. The district court ties’ proposed settlement. The settlement also awarded class counsel attorneys’ fees class consisted of all Facebook members in a separate order. The amount of the who had visited the website of a Beacon attorneys’ fees was calculated at $2,322,763 participant that transmitted information under the ‘‘lodestar’’ method, meaning that about the members’ activity to Facebook the court multiplied the number of hours during the relevant period. The district class counsel reasonably spent on the case court ordered Facebook to identify all by a reasonable hourly rate. That amount class members and to send the class notifi- was combined with costs for a total attor- cation of the settlement. Following that neys’ fees award of $2,364,973, which rep- order, Facebook identified 3,663,651 class resented less than one-third of the full $9.5 members, to whom it provided notice of million settlement amount. the settlement in several ways. The prin- Objectors now appeal, contending that cipal method was to send an e-mail to the the district court abused its discretion in class members. Facebook also posted a approving the parties’ settlement. We notice of the settlement in the ‘‘Updates’’ have jurisdiction pursuant to 28 U.S.C. section of members’ personal Facebook ac- § 1291, and we affirm. counts and published a separate notice in the national edition of the newspaper USA II Today. All forms of notice directed class [1] A district court’s approval of a members to a website and toll-free number class-action settlement must be accompa- that contained information about the set- nied by a finding that the settlement is tlement. ‘‘fair, reasonable, and adequate.’’ Fed. Also pursuant to the district court’s or- R.Civ.P. 23(e). Appellate review of the der, notice to class members informed district court’s fairness determination is them of their right to opt out of the lawsuit ‘‘extremely limited,’’ and we will set aside and settlement, and to file any written that determination only upon a ‘‘strong comments or objections with the district showing that the district court’s decision court before final approval. At the conclu- was a clear abuse of discretion.’’ See sion of the notice period, 108 class mem- Hanlon v. Chrysler Corp., 150 F.3d 1011, bers had opted out of the settlement, and 1026–27 (9th Cir.1998) (holding that dis- four had filed written objections. The four trict court should have broad discretion class members who decided to remain in because it ‘‘is exposed to the litigants, and the lawsuit but file objections to the settle- their strategies, positions and proof’’) (in- ternal quotations omitted). ment were Ginger McCall, Megan Marek, Benjamin Trotter, and Patricia Burleson [2–4] Both the district court and this (collectively ‘‘Objectors’’). court must evaluate the fairness of a set-
158 of 234 LANE v. FACEBOOK, INC. 819 Cite as 696 F.3d 811 (9th Cir. 2012) tlement as a whole, rather than assessing stage before formal class certification, the its individual components. See id. at 1026. court ‘‘cannot as effectively monitor for As our precedents have made clear, the collusion, individual settlements, buy-offs question whether a settlement is funda- (where some individuals use the class ac- mentally fair within the meaning of Rule tion device to benefit themselves at the 23(e) is different from the question wheth- expense of absentees), and other abuses’’). er the settlement is perfect in the estima- Accordingly, when reviewing a district tion of the reviewing court. See id. at court’s approval of a class settlement 1027. Although Rule 23 imposes strict reached before formal class certification, procedural requirements on the approval we will not affirm if it appears that the of a class settlement, a district court’s only district court did not evaluate the settle- role in reviewing the substance of that ment sufficiently to account for the possi- settlement is to ensure that it is ‘‘fair, bility that class representatives and their adequate, and free from collusion.’’ See counsel have sacrificed the interests of ab- id. sent class members for their own benefit.
[5–7] A number of factors guide the [8–10] The settlement in this case pro- district court in making that determina- vides for a cy pres remedy. A cy pres tion, including: remedy, sometimes called ‘‘fluid recovery,’’ the strength of the plaintiffs’ case; the Mirfasihi v. Fleet Mortg. Corp., 356 F.3d risk, expense, complexity, and likely du- 781, 784 (7th Cir.2004), is a settlement ration of further litigation; the risk of structure wherein class members receive maintaining class action status through- an indirect benefit (usually through defen- out the trial; the amount offered in set- dant donations to a third party) rather tlement; the extent of discovery com- than a direct monetary payment. As we pleted and the stage of the proceedings; recently recognized, the ‘‘cy pres doctrine the experience and views of counsel; the allows a court to distribute unclaimed or presence of a governmental participant; non-distributable portions of a class action and the reaction of the class members to settlement fund to the ‘next best’ class of the proposed settlement. beneficiaries.’’ Nachshin v. AOL, LLC, Id. at 1026 (hereinafter the ‘‘Hanlon fac- 663 F.3d 1034, 1036 (9th Cir.2011). For tors’’). Additionally, when (as here) the purposes of the cy pres doctrine, a class- settlement takes place before formal class action settlement fund is ‘‘non-distributa- certification, settlement approval requires ble’’ when ‘‘the proof of individual claims a ‘‘higher standard of fairness.’’ See id. would be burdensome or distribution of The reason for more exacting review of damages costly.’’ See id. at 1038 (quoting class settlements reached before formal Six Mexican Workers v. Ariz. Citrus class certification is to ensure that class Growers, 904 F.2d 1301, 1305 (9th Cir. representatives and their counsel do not 1990)). The district court’s review of a secure a disproportionate benefit ‘‘at the class-action settlement that calls for a cy expense of the unnamed plaintiffs who pres remedy is not substantively different class counsel had a duty to represent.’’ from that of any other class-action settle- See id. at 1027; see also In re Gen. Mo- ment except that the court should not find tors Corp. Pick–Up Truck Fuel Tank the settlement fair, adequate, and reason- Prods. Liab. Litig., 55 F.3d 768, 787 (3d able unless the cy pres remedy ‘‘account[s] Cir.1995) (explaining that ‘‘[w]ith less in- for the nature of the plaintiffs’ lawsuit, the formation about the class’’ at the early objectives of the underlying statutes, and
159 of 234 820 696 FEDERAL REPORTER, 3d SERIES the interests of the silent class mem- that class counsel had ‘‘reasonably conclud- bersTTTT’’ Nachshin, 663 F.3d at 1036. ed that the immediate benefits represent- ed by the Settlement outweighed the pos- III sibility—perhaps remote—of obtaining a Objectors challenge the district court’s better result at trial’’; (7) no government conclusion that the settlement in this case agencies voiced objections or otherwise an- was ‘‘fair, reasonable, and adequate’’ with- nounced actions arising out of Facebook’s in the meaning of Rule 23(e). The district Beacon program; and (8) only four class court arrived at that determination after members objected and ‘‘slightly more than considering Objectors’ written statements 100’’ from a class of over 3.6 million opted and holding a fairness hearing where it out of the settlement. provided Objectors an opportunity to be Objectors raise two issues in opposition heard. The district court accompanied its to the district court’s fairness findings. fairness conclusion with findings of fact, The first relates to the settlement agree- which included the court’s application of ment’s provision for a cy pres remedy. the eight Hanlon factors to the parties’ The second relates to the overall amount settlement agreement. of the settlement. Objectors also raise the ancillary argument that notice to class Weighing those factors, the district members concerning the settlement was court found that the settlement should be inadequate. We address each of these approved on the basis of the following: (1) issues in turn. reliance on novel legal theories and un- clear factual issues undermined the 1 strength of the plaintiffs’ case; (2) the Objectors’ first and strongest objection complex nature of the plaintiffs’ claims to the settlement goes to the structure of increased the risk and expense of further DTF, the organization that would distrib- litigation; (3) the class action could be ute cy pres funds under the settlement decertified at any time, which ‘‘generally agreement. Objectors contend that the weighs in favor of approving a settlement’’; presence of Tim Sparapani, Facebook’s Di- (4) ‘‘[i]n light of [the] litigation risks and in rector of Public Policy, on DTF’s board of the context of settlement claims involving directors creates an unacceptable conflict infringment of consumers’ privacy rights,’’ of interest that will prevent DTF from the class’s $9.5 million recovery was ‘‘sub- acting in the interests of the class. Citing stantial’’ and ‘‘directed toward a purpose Six Mexican Workers, Objectors claim closely related to Class Members’ interests that the settling parties’ decision to dis- in this litigation’’; (5) the parties had en- burse settlement funds through an organi- gaged in significant investigation and in- zation with such structural conflicts does formal discovery and research, which in not provide the ‘‘next best distribution’’ of addition to information about Beacon that those funds and thus is categorically an was already publicly known enabled the improper use of the cy pres remedy. plaintiff class to ‘‘make an informed deci- sion with respect to settlement, even [11] We disagree. Objectors’ argu- though formal discovery’’ had not yet been ment misunderstands the cy pres doctrine completed; (6) the settlement was ‘‘only and the principle from our case law that a achieved after intense and protracted cy pres remedy must provide the ‘‘next arm’s-length negotiations conducted in best distribution’’ absent a direct monetary good faith and free from collusion,’’ and payment to absent class members. We do
160 of 234 LANE v. FACEBOOK, INC. 821 Cite as 696 F.3d 811 (9th Cir. 2012) not require as part of that doctrine that are unrelated to the class’s interests or settling parties select a cy pres recipient because their geographic scope is too limit- that the court or class members would find ed. See Six Mexican Workers, 904 F.2d ideal. On the contrary, such an intrusion at 1308; Nachshin, 663 F.3d at 1040. The into the private parties’ negotiations would cy pres remedy the settling parties here be improper and disruptive to the settle- have devised bears a direct and substantial ment process. See Hanlon, 150 F.3d at nexus to the interests of absent class mem- 1027. The statement in Six Mexican bers and thus properly provides for the Workers and elsewhere in our case law ‘‘next best distribution’’ to the class. that a cy pres remedy must be the ‘‘next best distribution’’ of settlement funds [13] We find no substance in Objec- means only that a district court should not tors’ claim that the presence of a Facebook approve a cy pres distribution unless it employee on DTF’s board of directors cat- bears a substantial nexus to the interests egorically precludes DTF from serving as of the class members—that, as we stated the entity that will distribute cy pres in Nachshin, the cy pres remedy ‘‘must funds. As the ‘‘offspring of compromise,’’ account for the nature of the plaintiffs’ Hanlon, 150 F.3d at 1027, settlement lawsuit, the objectives of the underlying agreements will necessarily reflect the in- statutes, and the interests of the silent terests of both parties to the settlement, class membersTTTT’’ 663 F.3d at 1036.2 including those of the defendant. Defen- dants often insist on certain concessions in [12] The cy pres remedy in this case exchange for monetary payments or other properly accounts for the factors outlined demands plaintiffs make, and defendants in Nachshin. Objectors concede that di- can certainly be expected to structure a rect monetary payments to the class of settlement in a way that does the least remaining settlement funds would be in- harm to their interests. Here, in ex- feasible given that each class member’s change for its promise to pay the plaintiff direct recovery would be de minimis. Ob- class approximately $9.5 million, Facebook jectors also do not dispute that DTF’s insisted on preserving its role in the pro- distribution of settlement funds to entities cess of selecting the organizations that that promote the causes of online privacy would receive a share of that substantial and security will benefit absent class mem- settlement fund by providing that one of bers and further the purposes of the priva- its representatives would sit on DTF’s ini- cy statutes that form the basis for the tial board of directors, and the plaintiffs class-plaintiffs’ lawsuit. Unlike the cy pres readily agreed to this condition. That Fa- remedies we disapproved in Nachshin and cebook retained and will use its say in how Six Mexican Workers, there is no issue in cy pres funds will be distributed so as to this case about whether the connection ensure that the funds will not be used in a between the cy pres recipients and the way that harms Facebook is the unre- absent class members is too tenuous, ei- markable result of the parties’ give-and- ther because the cy pres entities’ missions take negotiations,3 and the district court
2. Our decision in Nachshin was not published 3. Objectors argue that Facebook’s desire to at the time of argument in this case, but the protect its interest in the cy pres distribution principles we announced there were well es- process is tantamount to Facebook preserving tablished. We discuss Nachshin here because its right to cause harm to the class. But it provides a helpful summary of existing case Objectors’ argument assumes a false dichoto- law on the cy pres doctrine. my. It is perfectly consistent to say that DTF
161 of 234 822 696 FEDERAL REPORTER, 3d SERIES properly declined to undermine those ne- provides the requisite nexus between the gotiations by second-guessing the parties’ cy pres remedy and the interests furthered decision as part of its fairness review over by the plaintiffs’ lawsuit consistent with the settlement agreement. the principles we announced in Nachshin. [14] We also reject Objectors’ claim Objectors’ contention that the settling that the settlement agreement’s cy pres parties were prohibited from creating DTF structure is impermissible because the to disburse cy pres funds is without merit, parties elected to create a new grant-mak- and the district court did not abuse its ing entity, DTF, rather than give cy pres funds to an already-existing online privacy discretion in so concluding. organization. Again citing Six Mexican Workers, Objectors argue that DTF has 2 ‘‘no substantial record of service’’ and is therefore inherently disfavored as a cy Objectors’ second argument on appeal is pres recipient. But we have never held that the district court did not sufficiently that cy pres funds must go to extant chari- evaluate the plaintiffs’ claims and compare ties in order to survive fairness review, the value of those claims with the class’s and a settlement agreement that provides $9.5 million recovery in the settlement for the formation of a new grant-making agreement. Objectors contend that the organization is not subject to a more strin- value of the plaintiffs’ claims was in fact gent fairness standard. The reason we greater than the $9.5 million the plaintiffs found it relevant in Six Mexican Workers settled for, in large part because some that the charity organization designated to unidentified number of the class members receive cy pres funds had no ‘‘substantial may have a claim under the Video Privacy record of service’’ was that there was no Protection Act (‘‘VPPA’’). The VPPA pro- way of knowing whether the organization hibits any ‘‘video tape service provider’’ would use the funds to the benefit of class from disclosing ‘‘personally identifiable in- members. See Six Mexican Workers, 904 formation’’ about one of its consumers, and F.2d at 1308. Here, there is no such it provides for liquidated damages in the worry, because the settlement agreement amount of $2,500 for violation of its provi- and DTF’s Articles of Incorporation tell us sions. 18 U.S.C. §§ 2710(b) and exactly how funds will be used—to ‘‘fund and sponsor programs designed to educate 2710(c)(2). Objectors contend that the dis- users, regulators[,] and enterprises re- trict court was not sufficiently mindful of garding critical issues relating to protec- the possibility that the class’s VPPA claims tion of identity and personal information would yield a high recovery at trial, and online through user control, and the pro- that the court would not have approved a tection of users from online threats.’’ 4 As settlement of $9.5 million if it had paid the we have explained, that mission statement proper attention to that possibility.
can be structured both to ensure Facebook’s son to suppose that both the Board of Legal interests are not harmed and to promote the Advisors (consisting of both the settling par- plaintiffs’ general interests in the causes of ties’ counsel) and the district court (which online privacy and security. retained jurisdiction over implementation of the settlement) would abdicate their responsi- 4. Objectors suggest that there is no assurance bility to ensure that DTF performs according that DTF would perform in accordance with to the settlement agreement. the strictures of its charter document, but that is unsupported speculation. There is no rea-
162 of 234 LANE v. FACEBOOK, INC. 823 Cite as 696 F.3d 811 (9th Cir. 2012)
[15] As an initial matter, we reject Ob- Both before and after the final settlement jectors’ argument insofar as it stands for approval hearing, the district court specifi- the proposition that the district court was cally addressed the possibility that the required to find a specific monetary value presence of VPPA claims among some corresponding to each of the plaintiff class members might affect the class set- class’s statutory claims and compare the tlement. In its order preliminarily ap- value of those claims to the proffered set- proving the settlement, the district court tlement award. While a district court notified the parties that ‘‘final approval will must of course assess the plaintiffs’ claims require a sufficient showing that terms of in determining the strength of their case the settlement are reasonable, specifically relative to the risks of continued litigation, in light of the claims under the VPPA, see Hanlon, 150 F.3d at 1026, it need not and the apparent availability of statutory include in its approval order a specific penalties thereunder ’’ (emphasis added). finding of fact as to the potential recovery Following the district court’s instructions, for each of the plaintiffs’ causes of action. the parties did address the VPPA issue in Not only would such a requirement be their briefing and arguments at the final onerous, it would often be impossible— approval hearing. The district court also statutory or liquidated damages aside, the heard from Objectors at that hearing, who amount of damages a given plaintiff (or again argued that the settlement was too class of plaintiffs) has suffered is a ques- low in light of the possibility of recovery tion of fact that must be proved at trial. under the VPPA. Even as to statutory damages, questions of fact pertaining to which class members The district court rejected that argu- have claims under the various causes of ment. It first observed that Objectors had action would affect the amount of recovery not ‘‘brought to the Court’s attention any at trial, thus making any prediction about cases in which plaintiffs have been award- that recovery speculative and contingent. ed multiple liquidated damages,’’ which if available would likely increase the class’s [16] Relatedly, the district court was potential recovery under the VPPA sub- not required to include among its findings stantially (even if only a small number of specific commentary on each of the plain- class members had VPPA claims). The tiffs’ five statutory claims. All of the district court further noted that bringing plaintiffs’ claims arise under similar priva- the VPPA claims to trial would involve cy statutes, and as Facebook correctly significant risk for the class given that the points out, the plaintiffs’ likelihood of suc- plaintiffs’ claims relied on ‘‘novel legal the- cess with regard to each of those claims ories’’ and ‘‘vigorously disputed’’ factual depends on the same basic legal theories issues concerning the Beacon program. and factual issues. The district court act- And although the district court did not ed properly in evaluating the strength of mention it in its approval order, the par- the plaintiffs’ case in its entirety rather ties had presented evidence to the court than on a claim-by-claim basis. See Han- that Blockbuster, one of the only defen- lon, 150 F.3d at 1026. dants that might qualify as a ‘‘video tape [17] Moreover, the record contradicts service provider’’ and therefore be subject Objectors’ general argument that the dis- to liability under the VPPA, was on the trict court did not meaningfully account for verge of bankruptcy, likely making any the potential value of the plaintiffs’ claims, substantial damages against it annihilative. including any claims under the VPPA. Based on its consideration of these factors,
163 of 234 824 696 FEDERAL REPORTER, 3d SERIES the district court concluded that the ‘‘$9.5 or the $9.5 million recovery among all class million offered in settlement is substan- members too low.5 tial.’’ Objectors rely significantly on Molski v. Gleich, 318 F.3d 937, 949 (9th Cir.2003) [18] That conclusion was not an abuse overruled on other grounds by Dukes v. of the district court’s broad discretion. A Wal–Mart Stores, Inc., 603 F.3d 571 (9th $9.5 million class recovery would be sub- Cir.2010), in claiming that the cy pres rem- stantial under most circumstances, and we edy here ‘‘did not adequately protect the see nothing about this particular settle- interests of the class,’’ but that case does ment that undermines the district court’s not support Objectors’ argument. Molski conclusion that it was substantial in this involved a settlement that required the case. Objectors are no doubt correct that defendant to pay $195,000 in cy pres funds the VPPA claims of some class members in exchange for a release of all the disabili- might prove valuable if successful at trial, ty-related claims of a large class. 318 but that does not cast doubt on the district F.3d at 943–44. The district court in Mol- court’s conclusion as to the fairness and ski had certified a mandatory settlement adequacy of the overall settlement amount class under Rule 23(b)(2) without providing to the class as a whole. It is an inherent class members an opportunity to opt out of feature of the class-action device that indi- the settlement. Id. at 947. In addition to vidual class members will often claim dif- holding that the inability to opt out of the fering amounts of damages—that is why settlement violated class members’ due due process requires that individual mem- process rights, we held that ‘‘use of the cy bers of a class certified under Rule pres award was inappropriate’’ under the 23(b)(3) be given an opportunity to opt out circumstances because the parties had not of the settlement class to pursue their made any showing that direct distribution claims separately, as were the class mem- of settlement funds to the class would be bers in this case. See Hanlon, 150 F.3d at burdensome or costly. Id. at 954–55. We 1024. But a class-action settlement neces- also found ‘‘troubling’’ that the class’s re- sarily reflects the parties’ pre-trial assess- covery under the settlement was so low ment as to the potential recovery of the relative to the high number of potential entire class, with all of its class members’ class members. See id. varying claims. So even if some of the Unlike the $195,000 cy pres fund in Mol- class members in this case would have ski, the settlement in this case provides for successful claims for $2,500 in statutory a substantial $9.5 million pay-out by Face- damages under the VPPA, those individu- book for the benefit of the class and thus als represent, to use the candid phrasing does not present a situation in which class of Objectors, ‘‘only a fraction of the 3.6 representatives and counsel accepted their million-person class.’’ Their presence does respective fees as a quid pro quo for quiet- not in itself render the settlement unfair ly going away while the class receives vir-
5. Although a settlement is not categorically cation. See Amchem Prods., Inc. v. Windsor, unfair for certain class members simply be- 521 U.S. 591, 624–25, 117 S.Ct. 2231, 138 cause they might recover higher damages L.Ed.2d 689 (1997). However, Objectors do than other class members were they to pros- not challenge the district court’s class certifi- ecute their claims individually, significant cation or its decision to include individuals variation in claimed damages among class with VPPA claims in the settlement class, so members is relevant to the Rule 23(b)(3) we express no opinion on that issue here. ‘‘predominance’’ analysis during class certifi-
164 of 234 LANE v. FACEBOOK, INC. 825 Cite as 696 F.3d 811 (9th Cir. 2012) tually nothing. See id. at 953–54. Also [19] Finally, the litigants devote sever- fundamentally different is that class mem- al pages of briefing to a dispute over bers here received notice and were given whether the settlement agreement’s provi- the opportunity to opt out of the settle- sion mandating the permanent termination ment. And, most essentially, there is no of the Beacon program provided any dispute that it would be ‘‘burdensome’’ and meaningful relief to the plaintiff class. inefficient to pay the $6.5 million in cy pres Specifically, Objectors argue that Face- funds that remain after costs directly to book’s promise to terminate Beacon is ‘‘il- the class because each class member’s re- lusory’’ because the original program was covery under a direct distribution would be non-operational at the time of the settle- de minimis. See id. at 955. These fea- ment agreement and thus already ‘‘effec- tures distinguish the present case from tively terminated.’’ In light of our holding Molski and help to account for why the affirming the district court’s conclusion latter was one of the ‘‘rare’’ cases where that the $9.5 settlement award substantial- we have intruded into the discretion of the ly furthers the interests of the class, Ob- district court by setting aside its determi- jectors’ argument that Facebook’s promise nation that a settlement agreement is fun- to terminate Beacon provides no meaning- damentally fair. See Staton v. Boeing Co., ful relief is of little moment, and in any 327 F.3d 938, 960–61 (9th Cir.2003). event we find that it is without merit. The record here convincingly establishes Even assuming Objectors’ premise that that the district court accounted for the Beacon was already effectively terminated, potential value of the VPPA claims of some absent a judicially-enforceable agreement, class members, and the district court’s re- Facebook would be free to revive the pro- view of the circumstances surrounding the gram whenever it wanted. It is thus false settlement was sufficiently comprehensive to ensure that class representatives and to say that Facebook’s promise never to do their counsel did not throw absent class so was illusory. members under the proverbial bus to se- We affirm the district court’s holding cure a disproportionate benefit for them- that the settlement was fundamentally fair. selves. See Hanlon, 150 F.3d at 1027. That review was accordingly compliant with this circuit’s requirement that the IV district court apply heightened review to a class-action settlement reached before for- Objectors argue additionally that the no- mal certification. See id. at 1026. This is tice provided to class members during the particularly manifest in that the district opt-out period was insufficient because it court’s detailed approval order included did not describe the value of the plaintiffs’ the specific factual finding that the settle- statutory claims and ‘‘did not accurately ment agreement ‘‘was only achieved after describe what the class members would intense and protracted arm’s-length nego- receive in exchange for the release’’ of tiations conducted in good faith and free those claims. Objectors argue in particu- from collusion.’’ Objectors have not made lar that the notice should have included a any showing, let alone a ‘‘strong’’ one, that description of the VPPA statute, that it this or any of the district court’s other should have alerted class members that a findings was erroneous or amounted to a Facebook employee would be on the board ‘‘clear abuse of discretion.’’ See id. at of the organization distributing cy pres 1027. funds, and that its reference to Facebook’s
165 of 234 826 696 FEDERAL REPORTER, 3d SERIES promise to terminate Beacon was mislead- to hold out for more than $9.5 million or ing because Beacon was already dormant. insist on a particular recipient of cy pres funds, that disagreement does not require [20, 21] We disagree. Notice provided a reviewing court to undo the settling par- pursuant to Rule 23(e) must ‘‘generally ties’ private agreement. The district court describe[ ] the terms of the settlement in properly limited its substantive review of sufficient detail to alert those with adverse that agreement as necessary to determine viewpoints to investigate and to come for- that it was ‘‘fair, adequate, and free from ward and be heard.’’ Rodriguez v. West collusion.’’ See id. Publ’g Corp., 563 F.3d 948, 962 (9th Cir. 2009) (internal quotations omitted). That AFFIRMED. standard does not require detailed analysis of the statutes or causes of action forming KLEINFELD, Senior Circuit Judge, the basis for the plaintiff class’s claims, dissenting: and it does not require an estimate of the I respectfully dissent. This settlement potential value of those claims. See id. perverts the class action into a device for (notice need not include ‘‘expected value of depriving victims of remedies for wrongs, fully litigating the case’’). Nor is there while enriching both the wrongdoers and any particular requirement that notice in a the lawyers purporting to represent the class-action settlement involving a cy pres class. remedy name the individuals sitting on the cy pres recipient’s board of directors, even A. The Facts. if one of those individuals has some associ- 1. ‘‘Beacon.’’ ation with the defendants in the case. Fi- nally, for the same reasons we reject Ob- Millions of people connect themselves to jectors’ argument that Facebook’s promise their ‘‘friends’’ on Facebook. Some Face- to terminate Beacon was illusory, there book ‘‘friends’’ are friends in the tradition- was nothing misleading about referencing al sense, people we know and like. Some that promise in the class notice. are more in the nature of contacts, or acquaintances, or people we think may [22] We agree with the district court want to see what we post. For people who that the notice in this case adequately regularly use Facebook to communicate, apprised class members of all material ele- ‘‘friends’’ may merely be their address ments of the settlement agreement and book. The lead plaintiff in this case, Sean therefore complied with the requirements Lane, had over 700 Facebook ‘‘friends.’’ of Rule 23(e). Facebook operates like a bulletin board, so that ‘‘friends’’ can see whatever a user V chooses to post and not make private. Ultimately, we find little in Objectors’ Facebook is ‘‘free,’’ furnished without a opposition to the settlement agreement be- subscription price. The company makes yond general dissatisfaction with the out- money by selling advertising. To make come. That dissatisfaction may very well such sales more lucrative, Facebook start- be legitimate insofar as Objectors would ed a program called ‘‘Beacon’’ in Novem- have acted differently had they assumed ber 2007. Like an actual beacon, the pro- the role of class representatives. But gram shone light to make something easier while Objectors may vigorously disagree to see: in this case, a user’s ‘‘friends’’ with the class representatives’ decision not could see whatever he had bought from
166 of 234 LANE v. FACEBOOK, INC. 827 Cite as 696 F.3d 811 (9th Cir. 2012) companies that paid Facebook to partici- stock.com as a surprise for his wife, but pate in Beacon. Over forty companies before he gave it to her, Facebook ruined signed up for Beacon, including Blockbus- the surprise by spreading the news to his ter, a movie retailer, Zappos, a shoe and over 700 ‘‘friends,’’ including many alumni clothing retailer, and Overstock.com, a dis- in his college class. Ginger McCall states counter. If a Facebook user rented a that her video rentals at Blockbuster were movie from Blockbuster, for example, Fa- disclosed to all her ‘‘friends.’’ Of the vast cebook told all his friends what movie he number of people whose purchases were had rented. Facebook told retailers, ‘‘Fa- broadcast, no doubt some suffered embar- cebook Beacon enables your brand or busi- rassment, and some suffered damage to ness to gain access to viral distribution employment, business, or personal rela- within Facebook. Stories of a user’s en- tionships. Some Blockbuster rentals gagement with your siteTTTT will act as doubtless included erotica, some Over- word-of-mouth promotion for your busi- stock.com purchases probably included ness and may be seen by friends who are gifts meant to look more expensive than also likely to be interested in your prod- they were, and some Zappos purchases uct.’’ were probably more extravagant than pur- Many Facebook users strongly objected chasers’ spouses were aware. Someone to losing the privacy of their purchases. who had told her college classmate that After all, people ordinarily post on their she could not attend her wedding because Facebook page only what they want to she could not afford the plane fare could post, and they had not elected to tell all lose a friend when Facebook told her their ‘‘friends’’ what they had just bought. classmate that she’d bought $400 shoes. Some people buy things on the internet Mr. Lane complains that his wife asked precisely because they want more privacy him about his ring purchase before he than they would have at a local store. gave it to her, ruining his Christmas gift to Beacon took away their privacy, and her. His wife might also have been less broadcast their purchases to people who impressed by the ring than he had hoped, users wanted to remain in the dark. since she and all his other friends could Worse, Facebook made it very hard for click a link and see that he had bought it users to avoid these broadcasts. The user cheaply—good for advertising Over- had to actively opt out. And opting out stock.com, bad for advertising Mr. Lane’s required video game skills. The user generosity. would get a pop-up on his screen asking Many users’ private purchases were ex- whether he wanted to opt out, but the pop- posed, and over 50,000 complained. With- up would disappear in about ten seconds. in a few weeks (long before this lawsuit Too slow reading the pop-up or clicking was filed), Facebook eliminated the opt-out the mouse, and all a user’s ‘‘friends’’ would Beacon program. Facebook changed it to know exactly what he had bought. Since an opt-in program, so that users did not the pop-up disappeared so quickly, some- need to maintain video game alertness to one looking at another window, or answer- avoid disclosure to all their friends. In the ing the phone, or just not paying attention, opt-in version of Beacon, purchases made would likely not even be aware of the opt- in private stayed private unless the user out option before it disappeared. expressly allowed Facebook to publicize Plaintiff Sean Lane alleges in the com- them. One of the objectors to the settle- plaint that he bought a ring from Over- ment, Ginger McCall, says her movie rent-
167 of 234 828 696 FEDERAL REPORTER, 3d SERIES als were disclosed even after Beacon had The majority states that Facebook supposedly changed to an opt-in, and no promised never to revive the Beacon pro- findings have been made on whether the gram, but this is not quite right. Face- opt-in worked or was tricky to operate. book remained free to revive the program, even the cancelled version under which the subscriber had only a few seconds to opt 2. The Settlement. out. The only limitation the settlement This lawsuit was filed in August 2008, imposed was that Facebook had to call the about eight months after the opt-out ver- Beacon program by some other name. sion of Beacon had ended. The complaint The agreement said that Facebook would challenged only the opt-out program that terminate ‘‘the Beacon Program,’’ and de- had lasted for a few weeks, not the opt-in fined ‘‘Beacon’’ to mean ‘‘the program version that had been in place since then. launched by Facebook on November 6, The parties mediated and settled, all be- 2007 and all iterations thereof bearing the fore any class was certified. They agreed ‘Beacon’ name ’’ (emphasis added). The to end Beacon, both opt-in as it then was, district judge asked about this term, and and opt-out as it had been originally. plaintiffs’ attorney expressly conceded that Facebook was free to reinstitute the same The settlement agreement approved by program under a different name. ‘‘[T]he the district court (mistakenly, in my view) problem was when you tried to describe greatly changed the class aspect of the the functionality and you preclude Face- case. First, the parties agreed to certify book from using that functionality going the class for purposes of settlement. Sec- forward, it becomes truly problematic and ond, they agreed to expand it far beyond becomes impossible to reach an agreement what the complaint had sought. The com- because you’re limiting their ability to run plaint sought damages only for users af- their businessTTTT At the end of the day, fected during the few weeks when they we could not reach agreement with defen- had to opt out, but the settlement expand- dants regarding limiting their future ac- ed the class to include everyone affected tions as a corporation.’’ That was an on during the much longer opt-in period. the record concession that the injunction Since the members of the class got no meant as little as it said, and Facebook money from the settlement, the effect of remained free to do what it had done certification and expansion was to bar any before, under a different name. The in- claims the expanded class might have, not junctive relief the class received was no to provide more people with recompense. relief at all, not even a restriction on fu- In exchange for nothing, class members ture identical conduct. were barred from suing Facebook, Block- Facebook users who had suffered dam- buster, Overstock.com, or any of the other ages from past exposure of their purchases defendants for any claims arising from or got no money, not a nickel, from the defen- relating to Beacon, ‘‘including, without lim- dants. Even those who had rented videos, itation, arising from or related to data and were arguably entitled to statutory gathered from Beacon.’’ damages of $2,500 for each disclosure,1 got
1. 18 U.S.C. § 2710(b)(1), (c)(1)–(2) (‘‘A video aggrieved by any act of a person in viola- tape service provider who knowingly dis- tion of this section may bring a civil action closes, to any person, personally identifiable in a United States district court. The court information concerning any consumer of may award—(A) actual damages but not less such provider shall be liableTTTT Any person than liquidated damage in an amount of
168 of 234 LANE v. FACEBOOK, INC. 829 Cite as 696 F.3d 811 (9th Cir. 2012) nothing. Class counsel, on the other had, The agreement provided that the ‘‘privacy got millions. Plaintiffs’ lawyers and Face- foundation’’ was to use its millions to ‘‘fund book agreed that Facebook would not ob- projects and initiatives that promote the ject to attorneys’ fees up to one third of cause of online privacy, safety, and securi- what they called the ‘‘settlement fund.’’ ty’’ however its Facebook-friendly board One third would be a fee of $3,166,667. chose. The fee would come out of the ‘‘settlement fund’’ and would not be in addition to it, so B. Analysis. Facebook had no economic interest in re- The class action rule 2 was designed to ducing the amount. The fee actually ap- facilitate lawsuits where individuals’ or proved by the district court was $2,322,763 small groups’ judgments would not add up plus costs of $42,210.58, 25% of the ‘‘settle- to enough money to justify hiring lawyers, ment fund.’’ That $2.3 million payment but judgments for large numbers of simi- was for getting their clients nothing and larly situated victims of misconduct would. barring all the claims of a vastly broad- ‘‘The policy at the very core of the class ened class. action mechanism is to overcome the prob- Not a cent of the remaining ‘‘settlement lem that small recoveries do not provide fund’’ money would go to the Facebook the incentive for any individual to bring a users on whose behalf class counsel pur- solo action prosecuting his or her rights. portedly settled. The only exceptions were A class action solves this problem by ag- $10,000 to Mr. Lane, $5,000 each to two gregating the relatively paltry potential others, and $1,000 each to the other 19 recoveries into something worth someone’s named plaintiffs, amounting to $39,000 for (usually an attorney’s) labor.’’ 3 the few people in the class who presum- This procedural device has obvious at- ably had personally agreed to have class tendant risks, because class counsel’s counsel represent them. ‘‘clients’’ are not clients at all in the tradi- The remaining millions were to go to a tional sense; they do not hire the lawyer, new ‘‘privacy foundation’’ that did not yet they do not agree on a fee with him, and exist. The board of the new foundation they do not control whether he settles would be three directors to be agreed upon their case. They are in no position to by Facebook and class counsel, or if they prevent class counsel from pursuing his disagreed one chosen by each and the own interests at their expense.4 The third chosen by those two. Under the named plaintiffs, those who actually have agreement, all three directors could come some chance of directing their lawyers, from the Facebook advertising and sales typically get amounts of cash without staff if class counsel and Facebook so much relation to their individual damages, chose. The board of directors of this ‘‘pri- so their incentives align more with class vacy foundation’’ was to be advised by counsel than with their fellow class mem- Facebook’s own lawyer and class counsel. bers.
$2500; (B) punitive damages; (C) reason- 3. Amchem Products, Inc. v. Windsor, 521 U.S. able attorneys’ fees and other litigation costs 591, 617, 117 S.Ct. 2231, 138 L.Ed.2d 689 reasonably incurred; and (D) such other (1997) (quoting Mace v. Van Ru Credit Corp., preliminary and equitable relief as the court 109 F.3d 338, 344 (7th Cir.1997)). determines to be appropriate.’’). 4. See, e.g., Staton v. Boeing Co., 327 F.3d 938, 2. Fed.R.Civ.P. 23. 959–60 (9th Cir.2003).
169 of 234 830 696 FEDERAL REPORTER, 3d SERIES
Defendant and class counsel, in any substitute for real clients, because judges class action, have incentives to collude in know little about the case beyond what the an agreement to bar victims’ claims for lawyers tell them. That works much bet- little or no compensation to the victims, in ter when the lawyers are on different sides exchange for a big enough attorneys’ fee to than when they are on the same side. induce betrayal of the interests of the pur- Judges also may face an incentive prob- ported ‘‘clients.’’ The defendant’s agree- lem, where a heavy docket cannot easily ment not to oppose some amount for the withstand the additional weight of a huge fee creates the same incentive as a pay- lawsuit that does not settle. Objectors ment to a prizefighter to throw a fight. A provide a critically valuable service of pro- real client may refuse a settlement that is viding knowledge from a different point of bad for him but benefits his lawyer, but a view, but one that is too often not used large class of unknown individuals lacks effectively. Our review process is sup- the knowledge or authority to say no. It posed to assure that settlement of a class is hard to imagine a real client saying to action, despite the risk of perverse incen- his lawyer, ‘‘I have no objection to the tives, is ‘‘fair, reasonable, and adequate’’ 6 defendant paying you a lot of money in and that notice is given ‘‘in a reasonable exchange for agreement to seek nothing manner’’ 7 so that those bound by the set- for me.’’ ‘‘The absence of individual tlement have an opportunity to be heard. clients controlling the litigation for their In this case, the process has failed. The own benefit creates opportunities for collu- attorneys for the class have obtained a sive arrangements in which defendants can judgment for millions of dollars in fees. pay the attorneys for the plaintiff class The defendant, Facebook, has obtained a enough money to induce them to settle the judgment that bars claims by millions of class action for too little benefit to the people victimized by its conduct. So have class (or too much benefit to the attorneys, the other companies involved in Beacon. if the claim is weak but the risks to the The victims, on the other hand, have ob- 5 defendants high).’’ tained nothing. Under the settlement, Fa- Rule 23 protects against these risks cebook even preserved the right to do the much as the courts have traditionally pro- same thing to them again. tected against similar risks when attorneys represent children, estates of deceased 1. The Settlement is Unfair, Unrea- persons, and unknown persons, by requir- sonable, and Inadequate. ing judicial approval of settlements. Ap- The factors for evaluating class action proval and review, though, are a weak settlements 8 are multifarious and indeter-
5. Zucker v. Occidental Petroleum Corp., 192 tus throughout the trial; the amount offered F.3d 1323, 1327 (9th Cir.1999). in settlement; the extent of discovery com- pleted and the stage of the proceedings; the 6. Fed.R.Civ.P. 23(e)(2). experience and views of counsel; the pres- 7. Fed.R.Civ.P. 23(e)(1). ence of a governmental participant; and the reaction of the class members to the proposed 8. See, e.g., Hanlon v. Chrysler Corp., 150 F.3d settlement.’’) (citation omitted); Officers for 1011, 1026 (9th Cir.1998) (‘‘Assessing a settle- Justice v. Civil Serv. Comm’n of San Francis- ment proposal requires the district court to co, 688 F.2d 615, 625 (9th Cir.1982) (noting balance a number of factors: the strength of that such factors are ‘‘by no means an exhaus- the plaintiffs’ case; the risk, expense, com- tive list of relevant considerationsTTTT The plexity, and likely duration of further litiga- relative degree of importance to be attached tion; the risk of maintaining class action sta- to any particular factor will depend upon and
170 of 234 LANE v. FACEBOOK, INC. 831 Cite as 696 F.3d 811 (9th Cir. 2012) minate, but the cases have become less settlement, and courts therefore must be tolerant of settlements not beneficial to particularly vigilant not only for explicit class members. We used to be extremely collusion, but also for more subtle signs deferential when district courts approved that class counsel have allowed pursuit of settlements, as in Hanlon v. Chrysler their own self-interests and that of certain Corp.,9 the 1998 case on which the majority class members to infect the negotia- relies. We have in the last few years tions.’’ 17 become much less so, as in our recent decisions In re Bluetooth,10 Nachshin v. Collusion is far more likely before certi- AOL, LLC,11 and Dennis v. Kellogg Co.12 fication, and exponentially higher if the We still exercise deferential review for class is expanded as part of the settlement. abuse of discretion, but do so in light of Here is why. If a lawsuit is only on behalf what we rejected in Bluetooth, Nachshin, of named plaintiffs, damages are limited to and Dennis. Review for abuse of discre- what they may properly receive, so if a tion has never meant that we will affirm case is reasonably defensible, a defendant whatever a district court does.13 may make a sound financial decision to An extremely important qualification defend. But if a vast class is certified, even in Hanlon was a ‘‘higher standard of then even a meritless case may require a fairness’’ 14 when settlement is reached be- defendant to settle or bet all the money it fore a class is certified. In this case, not has or can borrow for attorneys’ fees, be- only was settlement reached before class cause even a very small chance of a very certification, but the class certified for set- large verdict is too much to risk. Plain- tlement purposes was far broader than the tiffs’ counsel want certification, to make one sought when the case was filed. The the damages enough to be worth the time Hanlon ‘‘higher standard of fairness’’ mat- and expense of the litigation. Defense ters because of ‘‘the dangers of collusion counsel oppose it, to keep the risk down to between class counsel and the defen- a level where they can afford the risk of dant.’’ 15 Bluetooth emphasizes the need litigation. Because certification of a class for greater scrutiny of precertification set- may turn even a meritless plaintiff’s case tlement on behalf of a class.16 ‘‘Collusion into a bet-the-company defendant’s case, may not always be evident on the face of a defendants usually vigorously oppose class
be dictated by the nature of the claim(s) ad- 1990) (finding that a district court’s use of cy vanced, the type(s) of relief sought, and the pres to distribute unclaimed settlement funds unique facts and circumstances presented by was an abuse of discretion because it did not each individual case.’’). ‘‘adequately target the plaintiff class and fail[ed] to provide adequate supervision over 9. Hanlon, 150 F.3d 1011. distribution’’).
10. In re Bluetooth Headset Products Liab. Li- 14. Hanlon, 150 F.3d at 1026; see also Molski tig., 654 F.3d 935, 946 (9th Cir.2011). v. Gleich, 318 F.3d 937, 953 (9th Cir.2003), overruled on other grounds by Dukes v. Wal– 11. Nachshin v. AOL, LLC, 663 F.3d 1034, Mart Stores, Inc., 603 F.3d 571 (9th Cir.2010). 1040 (9th Cir.2011). 15. Hanlon, 150 F.3d at 1026. 12. Dennis v. Kellogg Co., No. 11–55674, 2012 WL 2870128 (9th Cir. July 13, 2012). 16. In re Bluetooth, 654 F.3d 935, 946–47 (9th Cir.2011). 13. Cf. Six Mexican Workers v. Arizona Citrus Growers, 904 F.2d 1301, 1307–09 (9th Cir. 17. Id. at 947.
171 of 234 832 696 FEDERAL REPORTER, 3d SERIES certification, giving courts the benefit of claims of any kind from the beginning of adversarial presentations. time to the present day. They came about Once the parties agree to settle, and as close to that as they plausibly could. agree to certify a class, defendant’s inter- Bluetooth emphasizes that ‘‘clear sail- ests are reversed. Plaintiffs’ counsel still ing’’ agreements on attorneys’ fees are have an interest in keeping a large class important warning signs of collusion.18 certified, because the larger the class, the We have a version of a clear sailing agree- higher the attorneys’ fees are likely to be. ment here: Facebook’s agreement not to But if the defendant will get a bar against oppose an attorneys’ fees claim of up to claims, almost always a term of any settle- $3,166,667. If, as here, the defendant ment, the more people whose claims are agrees not to oppose an attorneys’ fees barred the better. The risk of having to claim, and defendants payout will be the pay out a huge amount of money gets same no matter how high the fee is, then converted, by class certification, into a cer- both sides have an incentive to make the tainty that vast numbers of people will be fee large enough to induce plaintiffs’ coun- unable to sue the defendant. So when sel to sacrifice class interests to plaintiffs’ settling before class certification, and attorneys’ interests. Bluetooth holds that agreeing upon class certification as part of caution is especially necessary when, as the settlement, both sides have the same here, members of the class receive no incentive, to certify the class and make it money, but class counsel receive a great as vast and all-encompassing as possible. deal of it.19 As the amount of the fee to It is a bonanza for the defendant if it can which no objection will be made grows, bar the claims not only of everyone in the especially if the fee will not affect the cost class described in the complaint, but also to the defendant, it makes economic sense of a much larger class on whose behalf (though not ethical sense) for plaintiffs’ more and different claims might have been counsel to throw the fight for the money. asserted. Strikingly, the settlement here goes And that is just what happened here. even further than coupon settlements, The complaint claims wrongdoing against where class members get only discounts if and damages to Facebook users during the they buy again from the defendant claimed few weeks of the opt-out period of ‘‘Bea- to have wronged them before, while their con.’’ The settlement bars claims of all purported lawyers get huge amounts of the users during that period and during money. Here the Facebook users get the much longer opt-in period. When they nothing at all, not even coupons. Every settled, Facebook and class counsel shared nickel of the remainder of the $9,500,000 the same interest, as broad a class certifi- after class counsel’s cut, administrative cation as possible. Ideally, from both the costs, and incentive payments to the point of view of both sides’ interests (attor- named plaintiffs, goes not to the victims, neys’ fees for one side, protection from but to an entity partially controlled by claims for the other) the class would in- Facebook and class counsel. The new en- clude everyone in the world, and bar all tity, dressed to look good in old law
18. In re Bluetooth, 654 F.3d at 947 (‘‘[A] excessive fees and costs in exchange for coun- ‘clear sailing’ arrangement providing for the sel accepting an unfair settlement on behalf of payment of attorneys’ fees separate and apart the class.’’) (citation and quotation omitted). from class funds TTT carries the potential of enabling a defendant to pay class counsel 19. Id. at 947.
172 of 234 LANE v. FACEBOOK, INC. 833 Cite as 696 F.3d 811 (9th Cir. 2012)
French with its ‘‘cy pres’’ award and ‘‘non- privacy of people’s purchases on the inter- profit’’ status, can spend the money to net and the use of customer information by ‘‘educate’’ people about privacy on the in- Facebook. ternet, perhaps via some instructional vid- Tort law tends to evolve to make action- eos on how to use all the privacy features able conduct widely seen as harmful, espe- available in Facebook. cially when the conduct is willful, as it was Arguably, no harm would be done if all here. The plaintiffs’ claims and the risk of claims of wrongdoing to Facebook users that evolution of tort law were worth mon- from the Beacon program were frivolous. ey to avoid, for Facebook. We cannot If their claims were worthless, then no reasonably say that a risk worth $9.5 mil- wrong is done to them when those claims lion to Facebook to avoid nevertheless had are barred and $9.5 million gets trans- no value whatsoever to the potential claim- ferred to some lawyers they never met and ants whose claims presented that risk. If a new entity not likely to benefit them. Facebook users had no colorable claims, But that would denigrate the claims too why would Facebook have paid $9.5 million far. There is reason to believe that Face- to bar them? book needed the shield its $9.5 million bought. Facebook got customer com- 2. The Settlement does not Meet our plaints and bad publicity from the opt-out Standards for Cy Pres Awards. Beacon program. The class had colorable Even if the $9.5 million number, the claims. Facebook had a good argument attorneys’ fees, and the absence of any that it was not itself a ‘‘video tape service relief whatsoever to class members all provider’’ under the federal statute enti- were ‘‘fair, reasonable and adequate,’’ the tling a customer to liquidated damages of new foundation would still not satisfy the $2,500 for disclosure of what videotape standards for cy pres awards. We held in someone had rented from Blockbuster,20 Dennis v. Kellogg Co.24 quoting Staton v. but still had a risk of some sort of vicari- Boeing Co.,25 that cy pres distributions ous, joint, or ‘‘civil conspiracy’’ liability.21 present ‘‘a particular danger’’ that ‘‘incen- If found liable, it was a deep pocket target tives favoring pursuit of self-interest rath- for the punitive damages for which the er than the class’s interests in fact influ- 26 statute expressly provides.22 And at least enced the outcome of negotiations.’’ one federal district court has taken an Cy pres traditionally was a means by expansive view of who is a ‘‘video tape which, say, a bequest to a charity no long- service provider’’ prohibited from making er existing when a testator died might be disclosures.23 The facts alleged in the given instead to a similar charity doing complaint stimulate a concern about the similar work. Thus a bequest to the Boys’
20. 18 U.S.C. § 2710(a)(4), (c)(2). 23. Amazon.com LLC v. Lay, 758 F.Supp.2d 1154, 1167 (W.D.Wash.2010). 21. In their complaint, Plaintiffs claimed that Facebook was engaged in a civil conspiracy to 24. Dennis v. Kellogg Co., No. 11–55674, 2012 violate the Video Privacy Protection Act. See WL 2870128 (9th Cir. July 13, 2012). Applied Equip. Corp. v. Litton Saudi Arabia Ltd., 7 Cal.4th 503, 28 Cal.Rptr.2d 475, 869 25. Staton v. Boeing Co., 327 F.3d 938 (9th P.2d 454, 457 (1994) (giving an overview of Cir.2003). the California law of civil conspiracy). 26. Dennis v. Kellogg Co., 2012 WL 2870128, 22. 18 U.S.C. § 2710(c)(2)(B). at *6.
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Club might go to its replacement, the Nachshin holds that the district court Boys’ and Girls’ Club. The doctrine has must ensure that a cy pres award targets never meant simply that money for harm the plaintiff class.29 Here it does not. Six to someone would be given to someone else Mexican Workers v. Arizona Citrus Grow- preferred by the defendant and plaintiff’s ers30 holds that a district court must reject attorney and perhaps by the court. We awards that provide ‘‘no reasonable cer- cautioned in Nachshin v. AOL that ‘‘When tainty that any member will be benefit- selection of cy pres beneficiaries is not ted.’’ 31 This one does not. We require an tethered to the nature of the lawsuit and established record of performance by the the interests of the silent class members, charity of acts beneficial to people in the the selection process may answer to the wronged class.32 The cy pres award in whims and self interests of the parties, this case goes to a new entity with no past their counsel, or the court.’’ 27 performance at all. For all we know it will The rules of judicial ethics have in many fund nothing but an ‘‘educational program’’ forms for over a hundred years prohibited amounting to an advertising campaign for judges from endorsing charities, because Facebook. That would appear to satisfy of the risk that lawyers and litigants will the articles and bylaws, and Facebook, feel compelled to contribute to them.28 after all, together with class counsel and Too liberal an approach to cy pres means their nominees, will run it. that a court may simply order, and not merely encourage, someone subject to its 3. Notice. jurisdiction to give to a preferred charity. We review adequacy of notice de novo, A defendant may prefer a cy pres award to not deferentially.33 This is because notice a damages award, for the public relations is a matter of due process of law.34 If a benefit. And the larger the cy pres award, person owns a claim, it is property, and the easier it is to justify a larger attorneys’ the owner of the claim is constitutionally fees award. The incentive for collusion entitled not to have it taken from him may be even greater where, as here, there except with reasonable notice and an op- is nothing to stop Facebook and class portunity to be heard. Notice in this case counsel from managing the charity to was inadequate, most obviously because serve their interests and pay salaries and the class was not sufficiently informed that consulting fees to persons they choose. Facebook itself might be in control of the
27. Nachshin v. AOL, LLC, 663 F.3d 1034, receive a donation as part of the settlement. 1039 (9th Cir.2011). Nachshin, 663 F.3d at 1041.
28. Canon 25 of the Canons of Judicial Ethics, 29. Nachshin, 663 F.3d at 1039–40. first adopted by the ABA in 1924, states that a judge ‘‘should not solicit for charities, nor 30. Six Mexican Workers v. Arizona Citrus should he enter into any business relation Growers, 904 F.2d 1301 (9th Cir.1990). which TTT might bring his personal interest 31. Id. at 1308. into conflict with the impartial performance of his official duties.’’ Henry S. Drinker, 32. Id. Legal Ethics 274, 333 (1965). The current ABA Model Rules have similar language. 33. Silber v. Mabon, 18 F.3d 1449, 1453 (9th Model Code of Judicial Conduct R. 3.7 (2007). Cir.1994). Something akin to this was an issue in Na- chshin, where the judge’s husband sat on the 34. Hanlon v. Chrysler Corp., 150 F.3d 1011, board of a legal aid foundation that was to 1024 (9th Cir.1998).
174 of 234 KELLER FOUNDATION/CASE FOUNDATION v. TRACY 835 Cite as 696 F.3d 835 (9th Cir. 2012) money purportedly awarded on account of Facebook deprived its users of their pri- wrongs it committed against class mem- vacy. And now they are deprived of a bers. The articles of incorporation and remedy. bylaws of the purportedly charitable foun- dation were posted online for the class to see only a week before the deadline to opt , out of the settlement. Those documents said that ‘‘Tim Sparapani’’ would be on the three-person board, but failed to mention who he was, Facebook’s own Director of Public Policy. Nor did the notice say that KELLER FOUNDATION/CASE Facebook’s counsel, Michael Rhodes, FOUNDATION; ACE USA/ would sit on the foundation’s legal advisory ESIS, Petitioners, board. Class members would have had to look carefully at the settlement agreement v. and figure out that Mr. Rhodes, the man Joseph TRACY; Global International designated as a legal advisor on page Offshore Ltd.; Liberty Mutual Insur- twelve of the settlement agreement, was ance Company; Director, Office of the same man listed as Facebook’s attor- Workers’ Compensation Programs; ney on page five. Class members depen- U.S. Department of Labor, Respon- dant on the notice would have no idea that dents. the money supposedly paid for wrongs to them was to be spent by agents of the Joseph Tracy, Jr., Petitioner, purported wrongdoer. v. Director, Office of Workers’ Compensa- Conclusion tion Programs; U.S. Department of The majority approves ratification of a Labor; Global International Offshore class action settlement in which class Ltd.; Liberty Mutual Insurance Co.; members get no compensation at all. Keller Foundation, Inc./Case Founda- They do not get one cent. They do not get tion Co.; ACE USA/ESIS, Respon- even an injunction against Facebook doing dents. exactly the same thing to them again. Nos. 11–71703, 11–71800. Their purported lawyers get millions of dollars. Facebook gets a bar against any United States Court of Appeals, claims any of them might make for breach Ninth Circuit. of their privacy rights. The most we could Argued and Submitted May 9, 2012. say for the cy pres award is that in ex- Filed Sept. 20, 2012. change for giving up any claims they may have, the exposed Facebook users get the Background: Barge foreman petitioned satisfaction of contributing to a charity to for review of an order of the Benefits be funded by Facebook, partially con- Review Board denying compensation un- trolled by Facebook, and advised by a der the Longshore and Harbor Workers’ legal team consisting of Facebook’s coun- Compensation Act (LHWCA). sel and their own purported counsel whom Holdings: The Court of Appeals, Ikuta, they did not hire and have never met. Circuit Judge, held that:
175 of 234 Marcus, David 6/13/2015 For Educational Use Only
Marek v. Lane, 134 S.Ct. 8 (Mem) (2013) 187 L.Ed.2d 392, 82 USLW 3083, 82 USLW 3255, 82 USLW 3258...
Opinion The petition for a writ of certiorari is denied.
Statement of Chief Justice ROBERTS respecting the denial of certiorari. In November 2007, respondent Facebook, Inc., released a program called “Beacon.” It worked like this: Whenever someone visited the Web site of a participating company and performed a “trigger” activity, such as posting a comment or buying a product, the program would automatically report the activity and the user's personally identifiable information to Facebook —regardless of whether the user was a Facebook member. If the user was a Facebook member, Facebook would publish the activity on his member profile and broadcast it to everyone in his “friends” network. So rent a movie from Blockbuster.com, and all your friends would know the title. Or plan a vacation on Hotwire.com, and all your friends would know the destination. To prevent Facebook from posting a particular trigger activity, a member had to affirmatively opt out by clicking an icon in a pop-up window that appeared for about ten seconds after he performed the activity.
Beacon resulted in the dissemination of large amounts of information Facebook members allegedly did not intend to share, provoking a public outcry against Beacon and Facebook. Facebook responded about a month after Beacon's launch by changing the program's default setting from opt out to opt in, so that any given trigger activity would not appear on a member's profile unless the member explicitly consented. Facebook also allowed its members to disable Beacon altogether.
In August 2008, 19 individuals brought a putative class action lawsuit in the U.S. District Court for the Northern District of California against Facebook and the companies that had participated in Beacon, alleging violations of various federal and state privacy laws. The putative class comprised only those individuals whose personal information had been obtained and disclosed by Beacon during the approximately one-month period in which the program's default setting was opt out rather than opt in. The complaint sought damages and various forms of equitable relief, including an injunction barring the defendants from continuing the program.
In the end, the vast majority of Beacon's victims got neither remedy. The named plaintiffs reached a settlement agreement with the defendants before class certification. Although Facebook promised to discontinue the “Beacon” program itself, plaintiffs' counsel conceded at the fairness hearing in the District Court that nothing in the settlement would preclude Facebook from reinstituting the same program with a new name. See Tr. 18 (Feb. 26, 2010) (counsel for named plaintiffs) (“At the end of the day, we could not reach agreement with defendants regarding limiting their future actions as a corporation”).
And while Facebook also agreed to pay $9.5 million, the parties allocated that fund in an unusual way. Plaintiffs' counsel were awarded nearly a quarter of the fund in fees and costs, while the named plaintiffs received modest incentive payments. The unnamed class members, by contrast, received no damages from the remaining $6.5 million. Instead, the parties earmarked that sum for a “cy pres ” remedy *9 —an “as near as” form of relief—because distributing the $6.5 million among the large
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 1 176 of 234 Marcus, David 6/13/2015 For Educational Use Only
Marek v. Lane, 134 S.Ct. 8 (Mem) (2013) 187 L.Ed.2d 392, 82 USLW 3083, 82 USLW 3255, 82 USLW 3258... number of class members would result in too small an award per person to bother. The cy pres remedy agreed to by the parties entailed the establishment of a new charitable foundation that would help fund organizations dedicated to educating the public about online privacy. A Facebook representative would be one of the three members of the new foundation's board.
To top it off, the parties agreed to expand the settlement class barred from future litigation to include not just those individuals injured by Beacon during the brief period in which it was an opt-out program—the class proposed in the original complaint— but also those injured after Facebook had changed the program's default setting to opt in. Facebook thus insulated itself from all class claims arising from the Beacon episode by paying plaintiffs' counsel and the named plaintiffs some $3 million and spending $6.5 million to set up a foundation in which it would play a major role. The District Court approved the settlement as “fair, reasonable, and adequate.” Fed. Rule Civ. Proc. 23(e)(2); see Lane v. Facebook, Inc., Civ. No. C 08–3845, 2010 WL 9013059 (N.D.Cal., Mar. 17, 2010).
Petitioner Megan Marek was one of four unnamed class members who objected to the settlement. Her challenge focused on a number of disconcerting features of the new Foundation: the facts that a senior Facebook employee would serve on its board, that the board would enjoy nearly unfettered discretion in selecting fund recipients, and that the Foundation—as a new entity— necessarily lacked a proven track record of promoting the objectives behind the lawsuit. She also criticized the overall settlement amount as too low. The District Court rebuffed these objections, as did a divided panel of the Ninth Circuit on appeal. Lane v. Facebook, Inc., 696 F.3d 811 (2012). A petition for rehearing en banc was denied, over the dissent of six judges. Lane v. Facebook, Inc., 709 F.3d 791 (2013).
I agree with this Court's decision to deny the petition for certiorari. Marek's challenge is focused on the particular features of the specific cy pres settlement at issue. Granting review of this case might not have afforded the Court an opportunity to address more fundamental concerns surrounding the use of such remedies in class action litigation, including when, if ever, such relief should be considered; how to assess its fairness as a general matter; whether new entities may be established as part of such relief; if not, how existing entities should be selected; what the respective roles of the judge and parties are in shaping a cy pres remedy; how closely the goals of any enlisted organization must correspond to the interests of the class; and so on. This Court has not previously addressed any of these issues. Cy pres remedies, however, are a growing feature of class action settlements. See Redish, Julian, & Zyontz, Cy Pres Relief and the Pathologies of the Modern Class Action: A Normative and Empirical Analysis, 62 Fla. L.Rev. 617, 653–656 (2010). In a suitable case, this Court may need to clarify the limits on the use of such remedies.
Parallel Citations
187 L.Ed.2d 392, 82 USLW 3083, 82 USLW 3255, 82 USLW 3258, 13 Cal. Daily Op. Serv. 12,167, 2013 Daily Journal D.A.R. 14,712
End of Document © 2015 Thomson Reuters. No claim to original U.S. Government Works.
© 2015 Thomson Reuters. No claim to original U.S. Government Works. 2 177 of 234
Offers of Judgment
(1) Damasco v. Clearwire Corp., 662 F.3d 891 (7th Cir. 2011) (2) Stein v. Buccaneers Ltd. P’ship, 772 F.3d 698 (11th Cir. 2014) (3) Gomez v. Campbell-Ewald Co., 768 F.3d 871 (9th Cir. 2014) (4) Notice of Grant of Certiorari and Questions Presented, Campbell-Ewald Co. v. Gomez, No. 14-857 (May 18, 2015)
178 of 234 DAMASCO v. CLEARWIRE CORP. 891 Cite as 662 F.3d 891 (7th Cir. 2011) methods of managing appeals offers ‘‘an litigation was similar to this case, the interesting intersection between Rule 54(b) claims there arose under federal law, so and Section 1407’’ and that there are that one uniform law applied to claims in strong arguments for each method. all the related cases and thus all the ap- The choice between these two methods peals. In the FedEx cases, by contrast, of case management is best left to the plaintiffs assert rights under the laws of transferee court and JPML, without trying many different states. What may have to impose a rigid rule for all cases and been the better way to manage the Food circumstances. The transferee district Lion litigation, which involved claims un- court knows well the issues and dynamics der federal law, is not necessarily the bet- of the particular case. The JPML brings ter way to manage these cases, in which to bear decades of experience with more the claims arise under similar but not iden- than a thousand MDL proceedings, which tical state laws. have included some of the most complex The JPML did not abuse its discretion and challenging cases in the history of the and no exceptional circumstances warrant federal courts. The choice between these mandamus relief. FedEx has not shown two methods of case management is an that it has a clear and indisputable right to archetype for a discretionary judgment, the writ, so its petition for a writ of man- and the transferee court and the JPML damus is DENIED. are in the best position to make that judg- ment. In terms of the standards for issu- ing writs of mandamus, it would be rare for one party to have a ‘‘clear and indisput- , able right’’ to one method over the other. FedEx relies heavily on the Fourth Cir- cuit’s decision in a similar MDL proceed- ing, In re Food Lion, Inc., Fair Labor Jerome DAMASCO, Plaintiff–Appellant, Standards Act ‘‘Effective Scheduling’’ Li- tig., 73 F.3d 528 (4th Cir.1996), in which a v. divided panel of the Fourth Circuit issued CLEARWIRE CORPORATION, a writ of mandamus to the JPML to undo Defendant–Appellee. its orders transferring cases back to their No. 10–3934. original transferor courts to ensure that all related appeals would go to the Fourth United States Court of Appeals, Circuit itself. Judge Butzner dissented, Seventh Circuit. arguing that the fact-specific nature of MDL litigation called for leaving such Argued Sept. 8, 2011. case-management decisions to the sound Decided Nov. 18, 2011. discretion of the transferee court and the Background: Recipient of unsolicited text JPML. Id. at 533–35. messages filed putative class action in We do not understand the Food Lion state court against sender alleging viola- majority to have adopted a sweeping hold- tion of Telephone Consumer Protection ing that all MDL cases must be managed Act (TCPA) by sending unsolicited text to ensure that all related appeals go to messages to cellular telephone users. De- only the circuit with jurisdiction over the fendant offered plaintiff his full request for transferee court. Although the Food Lion relief and removed action. The United
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States District Court for the Northern 4. Federal Civil Procedure 175 District of Illinois, James B. Zagel, J., 2010 O Class-action plaintiffs can move to cer- WL 3522950, dismissed action. Plaintiff ap- tify the class at the same time that they pealed. file their complaint; the pendency of that Holdings: The Court of Appeals, Rovner, motion protects a putative class from at- Circuit Judge, held that: tempts to buy off the named plaintiffs. (1) action was mooted by sender’s offer of Fed.Rules Civ.Proc.Rule 23, 28 U.S.C.A. recipient’s full request for relief that preceded any motion for class certifica- 5. Federal Civil Procedure 171, 172 O tion and District courts must engage in a ‘‘rig- (2) exception to mootness doctrine for in- orous analysis,’’ sometimes probing behind herently transitory claims did not ap- the pleadings, before ruling on class certi- ply. fication. Fed.Rules Civ.Proc.Rule 23, 28 U.S.C.A. Affirmed. 6. Federal Civil Procedure 175 O 1. Federal Courts 12.1 Although discovery may in some cases O The doctrine of mootness stems from be unnecessary to resolve class issues, in Article III of the Constitution, which limits other cases a court may abuse its discre- the jurisdiction of federal courts to live tion by not allowing for appropriate discov- cases or controversies. U.S.C.A. Const. ery before deciding whether to certify a Art. 3, § 1 et seq. class. Fed.Rules Civ.Proc.Rule 23, 28 U.S.C.A. 2. Federal Courts 12.1 O The mootness doctrine demands that 7. Federal Courts 13 the parties to a federal case maintain a O Exception to mootness doctrine for personal stake in the outcome at all stages inherently transitory claims did not apply of the litigation; therefore, once the defen- to putative class action under TCPA that dant offers to satisfy the plaintiff’s entire had been brought by recipient of unsolicit- demand, there is no dispute over which to ed text messages against sender who had litigate, and a plaintiff who refuses to ac- offered recipient’s full request for relief knowledge this loses outright, because he prior to any motion for class certification. has no remaining stake. U.S.C.A. Const. U.S.C.A. Const. Art. 3, § 1 et seq.; Tele- Art. 3, § 1 et seq.; Fed.Rules Civ.Proc. phone Consumer Protection Act of 1991, Rule 12(b)(1), 28 U.S.C.A. § 3(a), 47 U.S.C.A. § 227; Fed.Rules Civ. 3. Federal Courts 13 Proc.Rules 12(b)(1), 23, 28 U.S.C.A. O Putative class action under TCPA that 8. Federal Courts 12.1 had been brought by recipient of unsolicit- O ed text messages was mooted by sender’s For a claim to be inherently transito- offer of recipient’s full request for relief ry claim, as an exception to the mootness that preceded any motion for class certifi- doctrine, uncertainty must exist over cation. U.S.C.A. Const. Art. 3, § 1 et seq.; whether any member of the class would Telephone Consumer Protection Act of maintain a live controversy long enough 1991, § 3(a), 47 U.S.C.A. § 227; Fed.Rules for a judge to certify a class. U.S.C.A. Civ.Proc.Rules 12(b)(1), 23, 28 U.S.C.A. Const. Art. 3, § 1 et seq.
180 of 234 DAMASCO v. CLEARWIRE CORP. 893 Cite as 662 F.3d 891 (7th Cir. 2011)
9. Federal Courts 829 messages and requested damages fixed by O A denial of a motion to reconsider is the Act, $500 for each violation. See id. reviewed for an abuse of discretion. § 227(b)(3)(B). Damasco added that the court could award three times that amount, up to $1,500 for each violation, if it determined that Clearwire had acted ‘‘will- fully and knowingly.’’ See id. Michael J. McMorrow (argued), Attor- § 227(b)(3)(C). ney, Edelson McGuire, LLC, Chicago, IL, Within a month, Clearwire sent a letter for Plaintiff–Appellant. to Damasco’s attorneys offering to settle Mark B. Blocker (argued), Attorney, the case by giving Damasco and up to ten Sidley Austin LLP, Chicago, IL, for De- other affected people $1,500 for each text fendant–Appellee. message received from Clearwire, plus court costs. In addition, Clearwire offered Before MANION, ROVNER, and to stop sending unsolicited text messages TINDER, Circuit Judges. to ‘‘mobile subscribers.’’ Clearwire warned that, in its view, this offer ren- ROVNER, Circuit Judge. dered the case moot. Damasco never re- Jerome Damasco filed this putative sponded to Clearwire’s letter. class-action lawsuit against Clearwire Cor- Four days after sending the letter, Cle- poration in an Illinois state court, alleging arwire removed the suit to federal court. that Clearwire violated the Telephone Damasco moved for class certification Consumer Protection Act, 47 U.S.C. § 227, within a few hours of the removal. The by sending unsolicited text messages to following day, Clearwire moved to dismiss cellphone users. Before Damasco moved the case, arguing that its settlement offer for class certification, Clearwire offered stripped Damasco of his personal stake in him his full request for relief. Clearwire the case’s outcome and rendered his claim then removed the case to federal court and moot. moved to dismiss, arguing that the offer Damasco opposed Clearwire’s motion. mooted Damasco’s claim. The district He contended that Clearwire’s letter did court agreed, dismissed Damasco’s com- not constitute an offer under Illinois law plaint, and later denied his motion to re- because its terms were not ‘‘definite and consider. Damasco appeals both rulings. certain.’’ But even if the offer was valid, Under Holstein v. City of Chicago, 29 F.3d he urged that the controversy remained 1145, 1147 (7th Cir.1994), Clearwire’s offer live, primarily for three reasons. First, he mooted Damasco’s claim. We thus affirm insisted that defendants should be prohib- the court’s judgment and its decision to ited from mooting a potential class action deny reconsideration. by buying off named plaintiffs through ‘‘in- voluntary’’ settlements. Second, he ar- I. gued that this type of claim is ‘‘inherently Damasco asked the state court to enjoin transitory’’—that is, bound to become Clearwire from sending unsolicited text moot before the class is certified—so his messages and to grant damages to all motion for certification should ‘‘relate those injured by this practice. See 47 back’’ to the filing of his complaint, as U.S.C. § 227(b)(3). He estimated that permitted in Sosna v. Iowa, 419 U.S. 393, more than 1,000 people had received these 402 n. 11, 95 S.Ct. 553, 42 L.Ed.2d 532
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(1975). Finally, he maintained that if Cle- offer, but that the defendant was proceed- arwire had made an offer under Federal ing as if no agreement had been reached. Rule of Civil Procedure 68, then he would Before ruling on the motion for recon- have had 10 days (now 14 days under a sideration, the district court held a hearing revised version of the rule) to ask the in Fahey to determine whether a settle- court to certify the class and avoid moot- ment had been reached. After the court ness. He argued that Clearwire should concluded that no agreement had been not be allowed to circumvent Rule 68 by reached, the plaintiff’s attorney immediate- casting its offer in the form of a settle- ly asked the court whether the offer moot- ment. ed the case. The court replied that it did The district court agreed with Clearwire not. But when pressed for clarification by and dismissed the case. Finding the set- defendant’s counsel, the court revised its tlement offer to be sufficiently definite un- comments, explaining that the hearing had der Illinois law, the court ruled the case not dealt with mootness, only whether the moot. The court observed, citing Hol- case was settled. Shortly after this hear- stein, that ‘‘[t]he rule in the Seventh Cir- ing, Damasco supplemented his motion for cuit is clear—a complete offer of settle- reconsideration, arguing that ‘‘[i]f the same ment made prior to the filing for class letter did not moot Fahey’s claim, then it certification moots the plaintiff’s claim.’’ cannot have mooted Damasco’s claim.’’ The court acknowledged Damasco’s con- The district court then denied Damas- cerns about defendants buying off class co’s motion for reconsideration. The court representatives, but emphasized that ‘‘Hol- remarked that ‘‘even if all the alleged con- stein has not been overturned and it is duct from Fahey happened in this case, directly on point.’’ Some district courts, the conduct amounts to dishonor of an the court noted, have allowed plaintiffs to agreement,’’ not ‘‘newly discovered evi- avoid mootness by seeking class certifica- dence’’ under Federal Rule of Civil Proce- tion after being offered complete relief dure 59(e). The court explained that its under Rule 68. But when, as here, an comments about mootness in Fahey were offer is ‘‘not made pursuant to Rule 68,’’ ‘‘merely dicta’’ since ‘‘no party in that case the court reasoned, applying that rule’s had moved for dismissal on the basis of timeframe for accepting an offer would be mootness.’’ The court noted that the Fa- ‘‘arbitrary.’’ The court also rejected Da- hey defendants had since moved to dismiss masco’s argument that his claim was inher- and that ‘‘a full discussion of the issue of ently transitory. mootness in that case is better left to that Damasco moved for reconsideration, ar- context.’’ Fahey is currently being held in guing that ‘‘new evidence’’ showed that abeyance pending the resolution of this Clearwire’s offer was not valid. He point- appeal. ed to Fahey v. Career Education Corp., No. 1:10–cv–05635 (N.D.Ill.)—a similar II. lawsuit pending before the same district [1, 2] The doctrine of mootness stems judge with the same attorneys but differ- from Article III of the Constitution, which ent parties—where defense counsel sent limits the jurisdiction of federal courts to an offer to plaintiff’s attorney that was live cases or controversies. Spencer v. nearly identical to the offer here. Damas- Kemna, 523 U.S. 1, 7, 118 S.Ct. 978, 140 co claimed that the named plaintiff in Fa- L.Ed.2d 43 (1998); A.M. v. Butler, 360 hey believed that she had accepted the F.3d 787, 790 (7th Cir.2004). The doctrine
182 of 234 DAMASCO v. CLEARWIRE CORP. 895 Cite as 662 F.3d 891 (7th Cir. 2011) demands that the parties to a federal case brought by others claiming aggrievement.’’ maintain a personal stake in the outcome Id. Along the same lines, we have long at all stages of the litigation. United held that a defendant cannot moot a case States v. Juvenile Male, ––– U.S. ––––, 131 by making an offer after a plaintiff moves S.Ct. 2860, 2864, 180 L.Ed.2d 811 (2011); to certify a class, observing that ‘‘[o]ther- Spencer, 523 U.S. at 7, 118 S.Ct. 978. wise the defendant could delay the action Therefore, ‘‘[o]nce the defendant offers to indefinitely by paying off each class repre- satisfy the plaintiff’s entire demand, there sentative in succession.’’ Primax Recover- is no dispute over which to litigate, and a ies, Inc. v. Sevilla, 324 F.3d 544, 546–47 plaintiff who refuses to acknowledge this (7th Cir.2003); see Greisz v. Household loses outright, under Fed.R.Civ.P. 12(b)(1), Bank (Ill.), N.A., 176 F.3d 1012, 1015 (7th because he has no remaining stake.’’ Cir.1999); Susman v. Lincoln Am. Corp., Rand v. Monsanto Co., 926 F.2d 596, 598 587 F.2d 866, 869 (7th Cir.1978). (7th Cir.1991) (citation omitted); accord In light of these concerns, Damasco ar- Breneisen v. Motorola, Inc., 656 F.3d 701, gues that Holstein should be overruled or 706 (7th Cir.2011). distinguished so as not to control the out- [3] Damasco asks us to create an ex- come in this case. In Holstein, the plain- ception to mootness in potential class ac- tiff filed a putative class action after the tions where defendants offer relief to City of Chicago towed his car, arguing that named plaintiffs before they have ‘‘a rea- the city’s towing procedures were uncon- sonable opportunity to seek certification.’’ stitutional. 29 F.3d at 1147. Before he He points out that mootness is a ‘‘flexible’’ moved to certify, the city offered him full doctrine, see U.S. Parole Comm’n v. Ger- reimbursement. Id. We refused to let him aghty, 445 U.S. 388, 400, 100 S.Ct. 1202, 63 ‘‘spurn this offer’’ and avoid mootness L.Ed.2d 479 (1980), and argues that Hol- when he ‘‘did not even move for class stein, which conflicts with his proposed certification prior to the evaporation of his exception, should be restricted to its facts personal stake.’’ Id. The plaintiff’s lack of or overturned. a personal stake, we held, stripped us of Damasco starts by highlighting that the jurisdiction over his claim. Id. We re- Supreme Court and this court have em- peated this holding in Greisz, remarking phasized the importance of preventing in- that an offer to a named plaintiff does not dividual buy-offs from mooting class ac- moot a class action unless it ‘‘comes before tions. For example, the Supreme Court class certification is sought.’’ 176 F.3d at has held that defendants cannot prevent 1015. We later confirmed that a plaintiff an appeal from a denial of certification cannot avoid mootness by moving for class simply by offering relief to a named plain- certification after receiving an offer of full tiff. Deposit Guar. Nat’l Bank, Jackson, relief. Gates v. City of Chicago, 623 F.3d Miss. v. Roper, 445 U.S. 326, 339, 100 S.Ct. 389, 413 (7th Cir.2010). 1166, 63 L.Ed.2d 427 (1980). The Court Four circuits disagree with this ap- reasoned that the alternative—requiring proach, but we have not been moved to numerous plaintiffs to file separate actions reverse course. Those circuits, citing the in order to prevent them from being flexible nature of the mootness doctrine picked off before appellate review of certi- and concerns about buy-offs, have fash- fication—‘‘would frustrate the objectives of ioned a new rule that, absent undue delay, class actions’’ and ‘‘invite waste of judicial a plaintiff may move to certify a class and resources by stimulating successive suits avoid mootness even after being offered
183 of 234 896 662 FEDERAL REPORTER, 3d SERIES complete relief. See Pitts v. Terrible its approach is the same as ours. See Herbst, Inc., 653 F.3d 1081, 1091–92 (9th Barber v. Am. Airlines, Inc., 241 Ill.2d Cir.2011); Lucero v. Bureau of Collection 450, 457–58, 350 Ill.Dec. 535, 948 N.E.2d Recovery, Inc., 639 F.3d 1239, 1249–50 1042 (2011).) (10th Cir.2011); Sandoz v. Cingular Wire- [4–6] A simple solution to the buy-off less LLC, 553 F.3d 913, 920–21 (5th Cir. problem that Damasco identifies is avail- 2008); Weiss v. Regal Collections, 385 able, and it does not require us to forge a F.3d 337, 348 (3d Cir.2004). Although new rule that runs afoul of Article III: these decisions address offers that, unlike Class-action plaintiffs can move to certify Clearwire’s, were made under Rule 68, the class at the same time that they file their same analysis seems to apply to any their complaint. The pendency of that offer of complete relief. We have acknowl- motion protects a putative class from at- edged that this alternative approach cre- tempts to buy off the named plaintiffs. ates a potential exception to mootness in See Primax, 324 F.3d at 546–47. Damasco class actions, Wrightsell v. Cook Cnty., Ill., argues that this solution would provoke 599 F.3d 781, 783 (7th Cir.2010), but we plaintiffs to move for certification prema- have yet to adopt it and decline to do so turely, before they have fully developed or here. discovered the facts necessary to obtain We believe that the exception created by certification. See 5 MOORE’S FEDERAL these circuits is unnecessary. To allow a PRACTICE § 23.64[1][b], at 350 (3d ed.2011). case, not certified as a class action and But this objection is unpersuasive. If the with no motion for class certification even parties have yet to fully develop the facts pending, to continue in federal court when needed for certification, then they can also the sole plaintiff no longer maintains a ask the district court to delay its ruling to personal stake defies the limits on federal provide time for additional discovery or jurisdiction expressed in Article III. See investigation. In a variety of other con- Juvenile Male, 131 S.Ct. at 2864; Lewis v. texts, we have allowed plaintiffs to request Cont’l Bank Corp., 494 U.S. 472, 477–78, stays after filing suit in order to allow 110 S.Ct. 1249, 108 L.Ed.2d 400 (1990); them to complete essential activities. See Holstein, 29 F.3d at 1147. That the com- FED.R.CIV.P. 56(d) (allowing stays to com- plaint identifies the suit as a class action is plete discovery before summary judg- not enough by itself to keep the case in ment); Newell v. Hanks, 283 F.3d 827, 834 federal court. Even when a ‘‘complaint (7th Cir.2002) (allowing stays in habeas clearly and in great detail describes the petitions to permit exhaustion without risk suit as a class action suit,’’ if the plaintiff of time bar); Johnson v. Rivera, 272 F.3d does not seek class certification, then ‘‘dis- 519, 522 (7th Cir.2001) (allowing stays in missal of the plaintiff’s claim terminates prisoner-rights suits to permit exhaustion the suit.’’ Turek v. General Mills, Inc., without risk of statute-of-limitation bar). 662 F.3d 423, 424 (7th Cir.2011); see Bd. of Moreover, this procedure comports with Sch. Comm’rs of City of Indianapolis v. Federal Rule of Civil Procedure Jacobs, 420 U.S. 128, 129–30, 95 S.Ct. 848, 23(c)(1)(A), which permits district courts to 43 L.Ed.2d 74 (1975). After Clearwire wait until ‘‘an early practicable time’’ be- made its offer, Damasco’s federal case was fore ruling on a motion to certify a class. over. See Greisz, 176 F.3d at 1015. (Inci- We remind district courts that they must dentally, the case would be over even if it engage in a ‘‘rigorous analysis’’—some- had remained in state court; the Illinois times probing behind the pleadings—be- Supreme Court recently reaffirmed that fore ruling on certification. Wal–Mart
184 of 234 ALEMAN v. VILLAGE OF HANOVER PARK 897 Cite as 662 F.3d 897 (7th Cir. 2011)
Stores, Inc. v. Dukes, ––– U.S. ––––, 131 suit. We discern no other obstacle that S.Ct. 2541, 2551, 180 L.Ed.2d 374 (2011). would moot a case like Damasco’s before a Although discovery may in some cases be judge could rule on certification. unnecessary to resolve class issues, see 3 [9] Finally, Damasco argues that the ALBA CONTE & HERBERT B. NEWBERG, NEW- district court’s denial of his Rule 59(e) BERG ON CLASS ACTIONS § 7.8, at 25 (4th motion is ‘‘irreconcilable’’ with its com- ed.2002), in other cases a court may abuse ments during the Fahey hearing. We re- its discretion by not allowing for appropri- view a denial of a motion to reconsider for ate discovery before deciding whether to abuse of discretion. Heyde v. Pittenger, certify a class, see Pitts, 653 F.3d at 1093 633 F.3d 512, 521 (7th Cir.2011). Because n. 5; Mills v. Foremost Ins. Co., 511 F.3d the court initially remarked that the offer 1300, 1311 (11th Cir.2008); Duke v. Univ. in Fahey did not moot that case, Damasco of Tex. at El Paso, 729 F.2d 994, 996–97 contends that Clearwire’s offer should not (5th Cir.1984). have mooted his case. But as the district Damasco also contends that the result court later observed, the focus of the hear- here would differ if Clearwire had made its ing in Fahey was to determine whether a offer under Rule 68. He notes that some settlement agreement had been reached, district courts in this circuit have allowed not to decide whether the case was moot. plaintiffs to avoid mootness by seeking The court’s initial, off-the-cuff comments class certification within that rule’s time- about the existence of mootness are sub- frame for accepting or rejecting an offer. ject to de novo review in this court, see See, e.g., Wilder Chiropractic, Inc. v. Pizza Breneisen v. Motorola, Inc., 656 F.3d 701, Hut of S. Wis., Inc., 754 F.Supp.2d 1009, 706 (7th Cir.2011), and we have already 1019 (W.D.Wis.2010). But we need not explained why Clearwire’s offer, which address the propriety of that approach preceded any motion for class certification, here. Clearwire made its offer while this mooted this case. The court thus did not suit was in state court, and Illinois proce- abuse its discretion in denying reconsider- dure has no analog to Rule 68. ation. [7, 8] Damasco next argues that, even AFFIRMED. if we refuse to create a new exception to mootness, his situation falls under the es- tablished exception for inherently transito- , ry claims. But not even the circuits that disagree with us about Damasco’s first ar- gument go so far as to say this type of Rick ALEMAN, Plaintiff–Appellant, situation gives rise to an inherently transi- v. tory claim. See Pitts, 653 F.3d at 1091; Weiss, 385 F.3d at 347. For a claim to be VILLAGE OF HANOVER PARK, inherently transitory, uncertainty must ex- et al., Defendants–Appellees. ist over whether ‘‘any member of the class No. 10–3523. would maintain a live controversy long United States Court of Appeals, enough for a judge to certify a class.’’ Seventh Circuit. Olson v. Brown, 594 F.3d 577, 580 (7th Cir.2010). As we have discussed, any class Argued Sept. 26, 2011. member following in Damasco’s footsteps Decided Nov. 21, 2011. can avoid the barrier he now faces simply Background: Arrestee brought civil by moving to certify a class when filing rights action under federal and state law
185 of 234 698 772 FEDERAL REPORTER, 3d SERIES still hold that he was ‘‘committed to a right recognized in Heller a qualified mental institution’’ under the meaning of right—not intended to ‘‘cast doubt on long- § 922(g)(4). Though we have not previ- standing prohibitions on the possession of ously reached this issue with regard to firearms by felons and the mentally ill,’’ id. § 922(g)(4), we are strongly guided by our at 626–27, 128 S.Ct. at 2816–17—but McIl- precedents concerning § 922(g)(1) and wain does not contend that it was his § 922(g)(8), which do not allow collateral § 922(g)(4) indictment that lacked due pro- attacks on underlying state court convic- cess. Rather, he argues that his state tions or protective orders to challenge in- commitment proceeding was constitution- dictments under § 922(g). ally deficient. But long before Heller, the In Lewis v. United States, 445 U.S. 55, Lynch I decision had held that the Ala- 65, 100 S.Ct. 915, 921, 63 L.Ed.2d 198 bama involuntary commitment system was (1980), the Supreme Court held that subject to due process requirements. See ‘‘ § 1202(a)(1) [the predecessor to Lynch I, 386 F.Supp. at 387. Nothing in § 922(g)(1) ] prohibits a felon from pos- the Supreme Court’s decision in Heller sessing a firearm despite the fact that the entitles McIlwain to a collateral attack in predicate felony may be subject to collat- federal court on a commitment he did eral attack on constitutional grounds.’’ not—and has not in any way—challenged We have faithfully applied this controlling in the state court. precedent. See United States v. Stand- ridge, 810 F.2d 1034, 1038 (11th Cir.1987) CONCLUSION (‘‘In light of Lewis TTT, it is unnecesary For the foregoing reasons, we hold the [sic] that the [ ] predicate convictions be district court did not abuse its discretion in truly valid in order to satisfy section denying McIlwain’s motion to dismiss the 1202(a).’’). And we have expanded its ap- indictment. McIlwain’s conviction is plication beyond § 922(g)(1) (prior felony AFFIRMED. conviction) to § 922(g)(8) (person subject to court protective order). See United States v. DuBose, 598 F.3d 726, 733 (11th Cir.2010) (‘‘We TTT hold that protective , orders satisfying the Section 922(g)(8) re- quirements are analogous to felony convic- tions for the purposes of the statute’s re- straint on the possession of firearms. Jeffrey STEIN, D.D.S., M.S.D., P.A. Reasoning from Lewis, the validity of an et al., Plaintiff–Appellant, underlying protective order is therefore v. irrelevant to a defendant’s conviction un- BUCCANEERS LIMITED der Section 922(g)(8).’’). We see no reason PARTNERSHIP, Defendant–Appellee. that § 922(g)(4) should be subject to a validity requirement that other subsections No. 13–15417. of § 922(g) are not. United States Court of Appeals, Nor do we accept McIlwain’s argument Eleventh Circuit. that the Supreme Court’s decision in Dis- trict of Columbia v. Heller, 554 U.S. 570, Dec. 1, 2014. 128 S.Ct. 2783, 171 L.Ed.2d 637 (2008), Background: Recipients of unsolicited altered this landscape. Not only is the faxes commenced putative class action
186 of 234 STEIN v. BUCCANEERS LTD. PARTNERSHIP 699 Cite as 772 F.3d 698 (11th Cir. 2014) against sender, alleging violation of Tele- end, not just when the case is filed. phone Consumer Protection Act. The Unit- U.S.C.A. Const.Art. 3. ed States District Court for the Middle 5. Federal Courts 2133 District of Florida, Steven D. Merryday, Individual plaintiffs’O claim did not be- J., 2013 WL 7045328, dismissed the action come moot when plaintiffs did not accept after sender made a offer of complete re- offer of judgment that, if accepted, would lief to the named plaintiffs, but not to class have provided all relief that plaintiffs members, before the named plaintiffs sought. U.S.C.A. Const.Art. 3; Fed.Rules moved to certify the class. Recipients ap- Civ.Proc.Rule 68, 28 U.S.C.A. pealed. 6. Federal Civil Procedure 2725 Holdings: The Court of Appeals, Robert O L. Hinkle, United States District Judge for A party who rejects an offer of com- the Northern District of Florida, sitting by plete relief, litigates, and does not get a designation, held that: better result must pay the other side’s costs. Fed.Rules Civ.Proc.Rule 68, 28 (1) on issue of first impression, individual U.S.C.A. plaintiffs’ claim did not become moot when plaintiffs did not accept offer of 7. Federal Civil Procedure 164.5, O judgment that, if accepted, would have 2396.5 provided all relief that plaintiffs Federal Courts 2134 sought, and Offer of full reliefO to named plaintiffs (2) on issue of first impression, offer of full did not moot putative class action, al- relief to named plaintiffs did not moot though offer preceded class-certification putative class action. motion, so long as named plaintiffs dili- gently pursued class certification. Reversed. U.S.C.A. Const.Art. 3; Fed.Rules Civ.Proc. Rule 68, 28 U.S.C.A. 1. Federal Courts 3581(1) 8. Federal Civil Procedure 164.5, O Factual findings underlying a moot- 2396.5 O ness decision are reviewed for clear error. Federal Courts 2134 U.S.C.A. Const.Art. 3. To act diligently,O a named plaintiff need not file a class-certification motion 2. Federal Courts 3581(1) O with the complaint or prematurely to pre- The legal issue of whether, based on vent an action from being mooted by an the facts, a case is moot is reviewed de offer of complete relief; it is enough that novo. U.S.C.A. Const.Art. 3. the named plaintiff diligently takes any 3. Federal Courts 2111, 2113 necessary discovery, complies with any ap- O plicable local rules and scheduling orders, A case is moot when it no longer and acts without undue delay. U.S.C.A. presents a live controversy with respect to Const.Art. 3; Fed.Rules Civ.Proc.Rule 68, which the court can give meaningful relief. 28 U.S.C.A. U.S.C.A. Const.Art. 3.
4. Federal Courts 2110, 2113 O A plaintiff must have a legally cogni- zable interest in the outcome, or a case is Joseph J. Siprut, Gregg M. Barbakoff, moot; this must be true from beginning to Siprut, PC, Chicago, IL, James M. Thom-
187 of 234 700 772 FEDERAL REPORTER, 3d SERIES as, Law Office of James M. Thomas, Esq. phone Consumer Protection Act, see 47 PA, Dunedin, FL, for Plaintiff–Appellant. U.S.C. § 227(b)(1)(C), and its implement- Thomas Emerson Scott, Jr., Scott Allan ing regulations, see 47 C.F.R. § 64.1200 & Cole, Cole Scott & Kissane, PA, Miami, 68.318(d) (2013). FL, Barry Adam Postman, Justin C. Sorel, The named plaintiffs sought to represent Cole Scott & Kissane, PA, West Palm a nationwide class of recipients of the un- Beach, FL, David Simon Cohen, Bucca- solicited faxes. The complaint demanded neers Limited Partnership, Tampa, FL, statutory damages of $500 per violation, for Defendant–Appellee. trebled to $1,500 based on BLP’s willful- ness, and an injunction against further vio- Appeal from the United States District lations. Court for the Middle District of Florida. D.C. Docket No. 8:13–cv–02136–SDM– The plaintiffs served process on BLP on AEP. August 1, 2013. BLP removed the action to federal court on August 16. Three days Before MARTIN, Circuit Judge, and later, on August 19, BLP served on each EATON,* Judge, and HINKLE,** named plaintiff an offer of judgment under District Judge. Federal Rule of Civil Procedure 68. The offer to the first named plaintiff, who al- HINKLE, District Judge: leged in the complaint that he had received This case presents the question whether three faxes, provided in full: a defendant may moot a class action Pursuant to Rule 68 of the Federal through an unaccepted Federal Rule of Rules of Civil Procedure, Defendant, Civil Procedure 68 offer of complete relief BUCCANEERS LIMITED PART- to the named plaintiffs—but not to class NERSHIP, hereby offers to allow Judg- members—before the named plaintiffs ment to be entered against it in this move to certify the class. In the circum- action in the amount of $4,500.00 as well stances of this case, the answer is no. We as all reasonable costs incurred to date join the majority of circuits that have ad- by JEFFREY M. STEIN, D.D.S., dressed the issue. M.S.D., P.A. to be decided by the Court, and an entry of a stipulated injunction I. The Proceedings in the District enjoining the Defendant from any future Court violations of 47 U.S.C. § 227, 47 C.F.R. Six named plaintiffs filed this proposed 64.1200, and 47 C.F.R. 68.318(d). The class action in Florida state court against offer extended herein is intended to fully the defendant Buccaneers Limited Part- satisfy the individual claims of JEF- nership (‘‘BLP’’). The complaint alleged FREY M. STEIN, D.D.S., M.S.D., P.A. that BLP sent unsolicited faxes to the made in this action or which could have named plaintiffs and more than 100,000 been made in this action, and to the others, that the faxes advertised tickets to extent the offer extended does not do so, National Football League games involving BUCCANEERS LIMITED PART- the Tampa Bay Buccaneers, and that send- NERSHIP hereby offers to provide ing the unsolicited faxes violated the Tele- JEFFREY M. STEIN, D.D.S., M.S.D.,
* Honorable Richard K. Eaton, United States ** Honorable Robert L. Hinkle, United States Court of International Trade Judge, sitting by District Judge for the Northern District of designation. Florida, sitting by designation
188 of 234 STEIN v. BUCCANEERS LTD. PARTNERSHIP 701 Cite as 772 F.3d 698 (11th Cir. 2014)
P.A. with any other relief which is deter- The plaintiffs did not accept the offers, and mined by the Court to be necessary to the deadline passed. fully satisfy all of the individual claims of On October 24, the district court entered JEFFREY M. STEIN, D.D.S., M.S.D., an order concluding the action was indeed P.A. in the action. This offer of judg- moot, granting the motion to dismiss, and ment is made for the purposes specified directing the clerk to close the case. The in Federal Rule of Civil Procedure 68, named plaintiffs received no money, no and is not to be construed as either an injunction, and no judgment. They admission that Defendant, BUCCA- NEERS LIMITED PARTNERSHIP is brought this appeal. liable in this action, or that the Plaintiff, JEFFREY M. STEIN, D.D.S., M.S.D., II. The Statutory Claim P.A., has suffered any damage. This The Telephone Consumer Protection Act Offer of Judgment shall not be filed with makes it illegal to send unsolicited faxes the Court unless (a) accepted or (b) in a like those the plaintiffs allege BLP sent. proceeding to determine costs. The See 47 U.S.C. § 227(b)(1)(C). The Act Plaintiff must serve written acceptance creates a private right of action in favor of of this offer within fourteen (14) days, or anyone who receives such a fax. Id. this offer will be deemed rejected. § 227(c)(5). The Act provides statutory The offers to the other named plaintiffs damages of $500 for each violation, trebled were identical except for the names of the to $1,500 for a violation that is willful. Id. offerees and amounts of the offers; one was for $7,500, one was for $3,000, and Federal Rule of Civil Procedure 23 au- three were for $1,500 each, based on the thorizes class actions when specific condi- number of faxes the complaint alleged the tions are met. The Telephone Consumer offeree had received. Protection Act does not explicitly address Two days later, on August 21, BLP the application of Rule 23 to actions for moved to dismiss for lack of jurisdiction, statutory damages. The plaintiffs assert, asserting that the unaccepted Rule 68 of- and we assume without deciding, that class fers rendered the case moot. members may recover statutory damages in a class action when the conditions of The motion stirred the plaintiffs to ac- Rule 23 are met, so long, of course, as the tion. On August 22, the plaintiffs moved case is not moot. The only question pre- to certify a class. This was long before sented on this appeal is whether BLP’s the deadline under the Local Rules for Rule 68 offers rendered the case moot. filing such a motion. On August 28, the district court denied the motion to certify, saying it was ‘‘terse’’ and ‘‘admittedly (in III. The Standard of Review fact, purposefully) premature.’’ [1, 2] We review factual findings un- The Rule 68 offers set the deadline for derlying a mootness decision for clear er- acceptance as 14 days after service of the ror. We review de novo the legal issue of offers. The applicable counting rules, see whether, based on the facts, a case is moot. Fed.R.Civ.P. 6, extended the deadline 3 Here the facts are undisputed, so our re- days because the offers were served elec- view of the only matter at issue—the legal tronically, and further extended the dead- effect of the undisputed facts—is de novo. line to the next business day. So the See, e.g., Zinni v. ER Solutions, Inc., 692 deadline for acceptance was September 9. F.3d 1162, 1166 (11th Cir.2012).
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IV. Mootness offer, litigates, and does not get a better [3, 4] A case is moot ‘‘when it no long- result must pay the other side’s costs. A er presents a live controversy with respect defendant who wishes to offer complete to which the court can give meaningful relief need not invoke Rule 68; the defen- relief.’’ Cameron–Grant v. Maxim dant can simply offer complete relief, in- Healthcare Servs., Inc., 347 F.3d 1240, cluding the entry of judgment. See, e.g., 1245 (11th Cir.2003) (quoting 31 Foster Doyle v. Midland Credit Mgmt., Inc., 722 Children v. Bush, 329 F.3d 1255, 1263 F.3d 78, 80–81 (2d Cir.2013). BLP did not (11th Cir.2003)). A plaintiff must have ‘‘a do that. legally cognizable interest in the outcome.’’ Giving controlling effect to an unaccept- Id. (quoting Powell v. McCormack, 395 ed Rule 68 offer—dismissing a case based U.S. 486, 496, 89 S.Ct. 1944, 23 L.Ed.2d on an unaccepted offer as was done here— 491 (1969); 31 Foster Children, 329 F.3d is flatly inconsistent with the rule. When at 1263). And this must be true from the deadline for accepting these offers beginning to end, not just when the case is passed, they were ‘‘considered withdrawn’’ filed. and were ‘‘not admissible.’’ See Fed. Here mootness turns on two issues of R.Civ.P. 68(b). The plaintiffs could no first impression in this circuit. The first is longer accept the offers or require the whether an individual plaintiff’s claim be- court to enter judgment. In short, the comes moot when the plaintiff does not plaintiffs still had their claims, and BLP accept a Rule 68 offer of judgment that, if still had its defenses. BLP had not paid accepted, would provide all the relief the the plaintiffs, was not obligated to pay the plaintiff seeks. The second is whether, if plaintiffs, and had not been enjoined from the answer is yes and such offers are made sending out more faxes. The named plain- to all the named plaintiffs in a proposed tiffs’ individual claims were not moot. class action before they move to certify a Four justices of the United States Su- class, the named plaintiffs may nonetheless preme Court—the only four who have go forward as class representatives. weighed in on this issue—have adopted precisely this analysis. In Genesis A. The Rule 68 Offers’ Effect on the Healthcare Corp. v. Symczyk, ––– U.S. Named Plaintiffs’ Claims ––––, 133 S.Ct. 1523, 185 L.Ed.2d 636 [5, 6] We begin with the effect of an (2013), a collective action under the Fair unaccepted Rule 68 offer on an individual Labor Standards Act, the parties stipu- plaintiff’s claim. Rule 68 provides: ‘‘An lated that an unaccepted Rule 68 offer unaccepted offer is considered withdrawn, mooted the individual plaintiff’s claim. but it does not preclude a later offer. The majority accepted the stipulation with- Evidence of an unaccepted offer is not out addressing the issue. Id. at 1528–29. admissible except in a proceeding to deter- But Justice Kagan, writing for four dissen- mine costs.’’ An unaccepted offer is ad- ters, said this: missible in a proceeding to determine costs That thrice-asserted view [that the de- because of Rule 68(d): ‘‘If the judgment fendant’s offer mooted the plaintiff’s in- that the offeree finally obtains is not more dividual claims] is wrong, wrong, and favorable than the unaccepted offer, the wrong again. We made clear earlier offeree must pay the costs incurred after this Term that ‘‘[a]s long as the parties the offer was made.’’ That is the whole have a concrete interest, however small, point of Rule 68: a party who rejects an in the outcome of the litigation, the case
190 of 234 STEIN v. BUCCANEERS LTD. PARTNERSHIP 703 Cite as 772 F.3d 698 (11th Cir. 2014) is not moot.’’ Chafin v. Chafin, 568 U.S. claim was not moot, and the District ––––, ––––, 133 S.Ct. 1017, 1023, 185 Court could not send her away empty- L.Ed.2d 1 (2012) (internal quotation handed. So a friendly suggestion to the marks omitted). ‘‘[A] case becomes Third Circuit: Rethink your mootness- moot only when it is impossible for a by-unaccepted-offer theory. And a note court to grant any effectual relief what- to all other courts of appeals: Don’t try ever to the prevailing party.’’ Ibid. (in- this at home. ternal quotation marks omitted). By Symczyk, 133 S.Ct. at 1533–34 (Kagan, J., those measures, an unaccepted offer of dissenting). BLP invites us to try this at judgment cannot moot a case. When a home. We decline. plaintiff rejects such an offer—however good the terms—her interest in the law- At least one circuit has explicitly suit remains just what it was before. adopted the position set out in the Symc- And so too does the court’s ability to zyk dissent. See Diaz v. First Am. Home grant her relief. An unaccepted settle- Buyers Prot. Corp., 732 F.3d 948, 954–55 ment offer—like any unaccepted con- (9th Cir.2013). Before Symczyk, at least tract offer—is a legal nullity, with no two other circuits took a different ap- operative effect. As every first-year law proach, holding that an unaccepted Rule student learns, the recipient’s rejection 68 offer for full relief moots an individual of an offer ‘‘leaves the matter as if no claim. See O’Brien v. Ed Donnelly En- offer had ever been made.’’ Minne- ters., Inc., 575 F.3d 567, 575 (6th Cir.2009); apolis & St. Louis R. Co. v. Columbus McCauley v. Trans Union, L.L.C., 402 Rolling Mill, 119 U.S. 149, 151, 7 S.Ct. F.3d 340 (2d Cir.2005). But even those 168, 30 L.Ed. 376 (1886). Nothing in decisions said a plaintiff’s claims could not Rule 68 alters that basic principle; to just be dismissed as was done here; the the contrary, that rule specifies that proper approach, the courts said, was to ‘‘[a]n unaccepted offer is considered enter judgment for the plaintiff in the withdrawn.’’ Fed. Rule Civ. Proc. 68(b). amount of the unaccepted offer. So assuming the case was live before— We agree with the Symczyk dissent. because the plaintiff had a stake and the But even if we did not, we would be unable court could grant relief—the litigation to affirm the dismissal of the plaintiffs’ carries on, unmooted. claims without the entry of judgment for For this reason, Symczyk’s individual the amount of the Rule 68 offers. claim was alive and well when the Dis- trict Court dismissed her suit. Recall: Our result draws further support from Genesis made a settlement offer under the terms BLP itself included in the offers Rule 68; Symczyk decided not to accept of judgment. Each offer said: it; after 10 days [the rule now says 14], This offer of judgment is made for the it expired and the suit went forward. purposes specified in Federal Rule of Symczyk’s individual stake in the lawsuit Civil Procedure 68, and is not to be thus remained what it had always been, construed as either an admission that and ditto the court’s capacity to grant [BLP] is liable in this action, or that the her relief. After the offer lapsed, just [plaintiff to whom the offer is directed] as before, Symczyk possessed an unsat- has suffered any damage. This Offer of isfied claim, which the court could re- Judgment shall not be filed with the dress by awarding her damages. As Court unless (a) accepted or (b) in a long as that remained true, Symczyk’s proceeding to determine costs. The
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Plaintiff must serve written acceptance The law of the circuit begins with Zeid- of this offer within fourteen (14) days, or man v. J. Ray McDermott & Co., 651 F.2d this offer will be deemed rejected. 1030 (5th Cir.1981). As a Fifth Circuit So the offers made clear they would have decision issued before October 1, 1981, the no effect—would not even be filed—unless decision is binding precedent in the Elev- accepted or in a proceeding to determine enth Circuit. See Bonner v. City of Prich- costs. ard, Ala., 661 F.2d 1206, 1207 (11th Cir. 1981). Just two days after saying its offers ‘‘shall not be filed,’’ BLP filed the offers. In Zeidman, a proposed class action, the And despite having said that if not accept- named plaintiffs asserted securities claims ed the offers would be ‘‘deemed rejected,’’ for damages. After the plaintiffs moved to BLP now says, in effect, that the offers certify a class, the defendant tendered the must be treated as having been accepted— full amount of the named plaintiffs’ claims. as having obligated BLP to pay the offered The district court dismissed the case as amounts and to comply with an injunction moot without ruling on the class-certifica- that was never issued. The terms of the tion motion. The court of appeals re- offers will not bear that construction. versed. The court assumed without dis- cussion that the defendant’s tender mooted Nor will the district court’s order. The the named plaintiffs’ individual claims. court did not enter a judgment for the 651 F.2d at 1042. The case did not involve named plaintiffs. The court did not issue a rejected Rule 68 offer of judgment and an injunction. After the offers lapsed, and thus does not impact our holding on that indeed after the district court entered its issue as set out in section IV.A. above. order dismissing the case, the legal rela- The court said the issue was this: tionship between BLP and the named ‘‘should a purported but uncertified class plaintiffs was precisely the same as before action be dismissed for mootness upon ten- the offers were made: the named plaintiffs der to the named plaintiffs of their person- had claims against BLP under the Tele- al claims, despite the existence of a timely phone Consumer Protection Act; BLP re- filed and diligently pursued pending mo- tained all its defenses; no ruling had been tion for class certification?’’ Zeidman, 651 made on the validity of the claims or de- F.2d at 1041. The court held that the fenses; and no judgment had been en- answer was no—that the case was not tered. BLP had not paid the plaintiffs, moot. was not obligated to pay the plaintiffs, and had not been enjoined from sending out On the issue of the mootness of the class more faxes. The individual claims were claims, Zeidman is different from our case not moot. The order dismissing this ac- in only one significant respect: in Zeid- tion must be reversed. man, the plaintiffs moved to certify a class before the individual claims became moot, B. The Rule 68 Offers’ Effect on the while here, the plaintiffs moved to certify Class Claims the class only after BLP served its Rule 68 offers. BLP says this changes the result. [7] There is also an alternative basis for this holding. Even if the individual We disagree. claims are somehow deemed moot, the First, it is plain that this case still pres- class claims remain live, and the named ents a live controversy. The plaintiffs say plaintiffs retain the ability to pursue them. BLP violated the Telephone Consumer
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Protection Act and that all class members There may be cases in which the contro- are entitled to money damages; BLP de- versy involving the named plaintiffs is nies it. In indistinguishable circum- such that it becomes moot as to them stances, Zeidman held the dispute was before the district court can reasonably still live and said: ‘‘The case before us, be expected to rule on a certification therefore, rests not on whether there ex- motion. In such instances, whether the ists a live controversy, but on whether the certification can be said to ‘‘relate back’’ district court has before it some plaintiff to the filing of the complaint may de- with a personal stake in that controversy.’’ pend upon the circumstances of the par- Id. at 1042. The same is true here. ticular case and especially the reality of Second, the Supreme Court has made the claim that otherwise the issue would clear, more than once, that the necessary evade review. personal stake in a live class-action contro- Id. at 402 n. 11, 95 S.Ct. 553 (emphasis versy sometimes is present even when the added). named plaintiff’s own individual claim has become moot. As this language makes clear, the An example is Sosna v. Iowa, 419 U.S. Court’s chronological focus was on two 393, 95 S.Ct. 553, 42 L.Ed.2d 532 (1975). things: first, the time ‘‘before the district There the named plaintiff challenged court can reasonably be expected to rule Iowa’s durational residence requirement on a certification motion,’’ and second, ‘‘the for divorces. After a three-judge district filing of the complaint.’’ A court cannot court upheld the Iowa provision on the reasonably be expected ‘‘to rule on a certi- merits, and while the case was pending on fication motion’’ before the plaintiff can appeal to the Supreme Court, the named marshal the necessary facts and file a plaintiff’s individual claim became moot on properly supported motion. (Note that two grounds: she got a divorce in another the Court said ‘‘a’’ certification motion, not state, and she had lived in Iowa long ‘‘the’’ certification motion, as one might enough to satisfy the durational residence have expected had the Court meant only a requirement. motion that already had been filed.) And if relation back is proper—that is, if the The Supreme Court said the case could individual claims become moot before the nonetheless go forward. The Court said court can reasonably be expected to rule that upon certification, class members ‘‘ac- on a certification motion—then relation quired a legal status separate from the back is to the ‘‘filing of the complaint,’’ not interest of [the named plaintiff].’’ Id. at to the filing of the certification motion. 399, 95 S.Ct. 553. And the Court cited its See id. The Sosna discussion is inconsis- prior decisions holding that disputes were tent with BLP’s assertion that controlling not moot when they were ‘‘capable of repe- weight should be given to the time of filing tition, yet evading review.’’ Id. at 399, 402, 95 S.Ct. 553. Sosna squarely refutes the motion to certify. any assertion that a class action is always The recognition that a class-action may moot just because the named plaintiff’s not be moot when individual claims become claim is moot. moot before certification was dictum in In Sosna the class was certified before Sosna, but the Supreme Court soon made the named plaintiff’s claim became moot. it a holding. In Gerstein v. Pugh, 420 U.S. But the Court recognized that would not 103, 95 S.Ct. 854, 43 L.Ed.2d 54 (1975), the always be the case: named plaintiffs challenged a Florida pro-
193 of 234 706 772 FEDERAL REPORTER, 3d SERIES cedure that allowed individuals charged U.S. 44, 111 S.Ct. 1661, 114 L.Ed.2d 49 with a crime to be detained for 30 days (1991). Like Gerstein, McLaughlin was a without a judicial determination of proba- challenge to pretrial detention procedures. ble cause. The district court certified a The Court noted that the named plaintiffs’ class. claims had become moot, but it rejected By the time the case reached the Su- the assertion that they lacked standing or preme Court, the named plaintiffs were no could not represent the class. The Court longer in pretrial detention. But the Su- explicitly addressed the temporal relation- preme Court said the case was not moot; ship of two events: the mooting of the the case was capable of repetition, yet individual claims and the certification or- evading review. The Court added: ‘‘It is der. The Court paid no attention to the by no means certain that any given indi- time of filing the motion to certify. The vidual, named as plaintiff, would be in Court said, ‘‘That the class was not certi- pretrial custody long enough for a district fied until after the named plaintiffs’ claims judge to certify the class.’’ Id. at 111 n. had become moot does not deprive us of 11, 95 S.Ct. 854. jurisdiction.’’ Id. at 52, 111 S.Ct. 1661. The record did not indicate whether the The claims in Sosna, Gerstein, Swisher, named plaintiffs were in detention when and McLaughlin were capable of repeti- the district court certified the class. The tion, yet evading review, because the pas- Court said it did not matter. Of special sage of time inevitably mooted claims of note here, the Court did not address at all that kind. The same is not true of the the question whether the individual claims claims at issue before us; these claims became moot before or after the plaintiffs would have persisted until judgment but moved to certify the class; the status of for any mooting effect of the Rule 68 of- the case at that point plainly was not fers of judgment. Zeidman squarely critical. Gerstein, like Sosna, is inconsis- holds, though, that this does not matter. tent with BLP’s assertion that controlling After noting this same distinction, Zeid- weight should be given to the status of the man said: ‘‘we believe that the result individual claims at the time of filing the should be no different when the defen- motion to certify. dants have the ability by tender to each The Court addressed this issue again in named plaintiff effectively to prevent any Swisher v. Brady, 438 U.S. 204, 98 S.Ct. plaintiff in the class from procuring a deci- 2699, 57 L.Ed.2d 705 (1978), a class action sion on class certification.’’ Zeidman, 651 challenging Maryland’s juvenile-court pro- F.2d at 1050. The court added: cedures. The named plaintiffs’ claims be- [I]n those cases in which it is financially came moot before the district court certi- feasible to pay off successive named fied a class. But the Supreme Court held plaintiffs, the defendants would have the the case could go forward under Sosna’s option to preclude a viable class action relation-back doctrine. Under that doc- from ever reaching the certification trine, the class certification related back to stage. This result is precisely what the the filing of the complaint. Id. at 213–14 relation back doctrine of Sosna, Gerstein n. 11, 98 S.Ct. 2699. Once again, the rela- and Swisher condemns, and we see no tion back was not to the date when the difference when it is caused by the de- plaintiffs moved to certify a class. fendant’s purposive acts rather than by The Court reached the same result in the naturally transitory nature of the County of Riverside v. McLaughlin, 500 controversy.
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Id. Zeidman is the law of the circuit on named plaintiff has ‘‘such a personal stake this issue. in the outcome of the controversy as to There is nothing in the language of assure that concrete adverseness which these decisions or in the analysis that pro- sharpens the presentation of issues upon duced them that suggests the relation-back which the court so largely dependsTTTT’’ doctrine turns on whether the named Sosna, 419 U.S. at 411, 95 S.Ct. 553 (quot- plaintiffs’ individual claims become moot ing Baker v. Carr, 369 U.S. 186, 204, 82 before or after the plaintiffs move to certi- S.Ct. 691, 7 L.Ed.2d 663 (1962)). A named fy a class. Quite the contrary. As Sosna plaintiff who does not act diligently may recognized, the legal status of class mem- not have what it takes to adequately pres- bers changes not when a motion to certify ent the issues. But to act diligently, a is filed but when a certification order is named plaintiff need not file a class-certifi- entered. Sosna, 419 U.S. at 399, 95 S.Ct. cation motion with the complaint or pre- 553. The relation-back doctrine allows a maturely; it is enough that the named named plaintiff whose individual claims are plaintiff diligently takes any necessary dis- moot to represent class members not be- covery, complies with any applicable local cause the named plaintiff has moved to rules and scheduling orders, and acts with- certify a class but because the named out undue delay. plaintiff will adequately present the class Here the named plaintiffs did not fail to claims and unless the named plaintiff is act diligently. They had not yet moved to allowed to do so the class claims will be certify a class when BLP served its offers capable of repetition, yet evading review. of judgment, but filing a motion to certify And when, as here, the relation-back doc- at that time would have been premature, trine applies, certification relates back not as the district court explicitly recognized in to the filing of the motion to certify but ‘‘to denying the certification motion filed just the filing of the complaint.’’ See Sosna, three days after service of the Rule 68 419 U.S. at 402 n. 11, 95 S.Ct. 553; Swish- offers. The named plaintiffs did not miss er, 438 U.S. at 213–14 n. 11, 98 S.Ct. 2699. any deadlines. In sum, their receipt of Indeed, a motion to certify, without offers of judgment does not, without more, more, does nothing that is significant on disqualify them from going forward. this issue. The motion indicates that the Most of the other circuits that have ad- named plaintiff intends to represent a dressed this issue have reached this same class if allowed to do so, but the complaint result. In the Third, Fifth, Ninth, and itself announces that same intent; the mo- Tenth Circuits, as now in the Eleventh, a tion is not needed for that purpose. A Rule 68 offer of full relief to the named certification order confirms that the case plaintiff does not moot a class action, even will so proceed; a motion does not. The if the offer precedes a class-certification assertion that a motion fundamentally motion, so long as the named plaintiff has changes the legal landscape—indeed, that not failed to diligently pursue class certifi- it impacts the constitutional prerequisites cation. See Weiss v. Regal Collections, to jurisdiction under Article III—makes no 385 F.3d 337 (3d Cir.2004); Sandoz v. sense. Cingular Wireless LLC, 553 F.3d 913 (5th [8] What matters is that the named Cir.2008); Pitts v. Terrible Herbst, Inc., plaintiff acts diligently to pursue the class 653 F.3d 1081 (9th Cir.2011); Lucero v. claims. This matters because it shows, or Bureau of Collection Recovery, Inc., 639 at least supports the assertion that, the F.3d 1239 (10th Cir.2011).
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The view is not, however, unanimous. the Supreme Court’s decision in Genesis BLP relies on Damasco v. Clearwire Healthcare Corp. v. Symczyk, ––– U.S. Corp., 662 F.3d 891 (7th Cir.2011), the only ––––, 133 S.Ct. 1523, 185 L.Ed.2d 636 circuit decision that would support affir- (2013). Symczyk was a collective action mance in our case. Damasco recognized under the Fair Labor Standards Act. In an that an offer of full relief to a named FLSA action, unlike in a Rule 23 class plaintiff before a class is certified does not action, a named plaintiff can represent oth- always moot the case. The court could ers only when they affirmatively opt-in to hardly have held otherwise; the Supreme the case. The parties stipulated, and the Court decisions cited above make this Court assumed without deciding, that an clear. But Damasco said the critical issue offer of complete relief to the named plain- is the timing of the class-certification mo- tiff mooted her individual claim. No other tion. Damasco said that if the offer to the employee opted in. The Court held the named plaintiff is made before the plaintiff entire action moot. moves to certify a class, the named plain- Symczyk creates no tension with our tiff cannot go forward. At oral argument, analysis of whether a Rule 68 offer moots BLP was unable to point to any other an individual claim (as set out above in respect in which the filing of a certification section IV.A.), because the Court assumed motion, rather than the entry of a certifi- without deciding that the individual claim cation order, affects legal rights. at issue in Symczyk was moot. Symczyk As set out above, giving controlling ef- also creates no tension with our analysis of fect to the timing of the certification mo- a named plaintiff’s ability to represent a tion accords with neither the language nor class when the plaintiff’s individual claim the analysis of the Supreme Court’s deci- becomes moot but claims of class members sions. It also would produce unacceptable are capable of repetition, yet evading re- results. In a case of this kind, any view. The Court recognized—it did not knowledgeable named plaintiff would file question in the slightest—its decisions ad- a premature certification motion with the dressing that issue, including Sosna, Ger- complaint, a practice we are told is now stein, and McLaughlin. Symczyk, 133 common in the Seventh Circuit. See S.Ct. at 1531. The Court said those deci- Falls v. Silver Cross Hosp. and Med. sions did not apply in Symczyk because Ctrs., No. 13 C 695, 2013 WL 2338154 they apply only to class actions, not to (N.D.Ill. May 24, 2013). And even if a FLSA collective actions. Id. at 1530 (hold- less knowledgeable plaintiff failed to do ing, after noting that another line of class- so, the likelihood is high that another action cases did not apply to FLSA ac- named plaintiff would be found who would tions, that the ‘‘line of cases [that] began file the same action again, this time ac- with Sosna is similarly inapplicable here.’’). companied by a premature class-certifica- Indeed, throughout its opinion, the Court tion motion. In all events, the Damasco emphasized the difference between FLSA approach would produce unnecessary and collective actions and class actions. premature certification motions in some So far so good. But after noting that cases and unnecessary gamesmanship in the Sosna line of cases did not apply to the others. We join the majority of circuits FLSA collective action at all, the Court and decline to follow Damasco. added a dictum that creates tension with Finally, we note that there is some ten- one part of our analysis. The Court dis- sion between our analysis to this point and tinguished the Sosna line of cases, includ-
196 of 234 ULTRAMERCIAL, INC. v. HULU, LLC 709 Cite as 772 F.3d 709 (Fed. Cir. 2014) ing Gerstein and McLaughlin, on another class was certified, not just before the ground as well: the claims presented in plaintiff filed a motion to certify. Even those cases were ‘‘inherently transitory’’ BLP does not ask us to go that far. Nei- because the passage of time inevitably ther the district court in this case nor the mooted claims of that kind. Id. at 1530– Seventh Circuit in Damasco has suggested 31. The Court said that was not true of a case would be moot in that situation. damages claims mooted only by settlement With the score on this issue in the circuits offers. running 6–0 in favor of applying Sosna, This creates tension with Zeidman, and with a clear circuit precedent placing which explicitly addressed this very issue us in the 6, we decline to change course in a Rule 23 class action and held that a based on the Symczyk dictum. sufficient proffer of full relief, when it is In sum, we hold that a defendant’s unac- feasible for a defendant to make successive cepted offer of full relief to the named proffers to all named plaintiffs who enter plaintiffs, in circumstances like these, does the fray, renders a case transitory within not, without more, render the case moot. the meaning of the Sosna line of cases. V. Conclusion This tension is insufficient to change the clear law of the circuit. We resolve this case based on alterna- tive holdings. First, a plaintiff’s individual First, as the Supreme Court repeatedly claim is not mooted by an unaccepted Rule emphasized in Symczyk itself, FLSA ac- 68 offer of judgment. Second, a proffer tions and class actions are different. Rule that moots a named plaintiff’s individual 23 gives a class representative a markedly claim does not moot a class action in cir- different stature from an FLSA plaintiff; cumstances like those presented here, even the Supreme Court might or might not if the proffer comes before the plaintiff has follow Symczyk in a class action. A Su- moved to certify a class. The district preme Court dictum in a different setting court’s order dismissing the action is re- rarely suffices to overturn a clear circuit versed. holding on the precise question at issue. See, e.g., Garrett v. Univ. of Ala. at Bir- mingham Bd. of Trs., 344 F.3d 1288, 1292 , (11th Cir.2003) (‘‘While an intervening de- cision of the Supreme Court can overrule the decision of a prior panel of our court, ULTRAMERCIAL, INC., and Ultramer- the Supreme Court decision must be clear- cial, LLC, Plaintiffs–Appellants, ly on point.’’); Florida League of Prof’l v. Lobbyists, Inc. v. Meggs, 87 F.3d 457, 462 HULU, LLC, Defendant, (11th Cir.1996) (‘‘[W]e are not at liberty to disregard binding case law that is so close- and ly on point and has been only weakened, Wildtangent, Inc., Defendant–Appellee. rather than directly overruled, by the Su- No. 2010–1544. preme Court.’’). United States Court of Appeals, Second, applying the Symczyk dictum Federal Circuit. here would prove too much. It would mean that a named plaintiff could not represent Nov. 14, 2014. a class if the defendant sufficiently prof- Background: Patentees brought action al- fered full relief at any time before the leging infringement of their patent for
197 of 234 GOMEZ v. CAMPBELL–EWALD CO. 871 Cite as 768 F.3d 871 (9th Cir. 2014) discretion for the district court to grant fornia, Dolly M. Gee, J., 2013 WL 655237, permanent injunctive relief to Plaintiffs on granted summary judgment in favor of their Title IX retaliation claim. We affirm advertiser. Consumer appealed. the grant of injunctive relief to Plaintiffs Holdings: The Court of Appeals, Bena- 16 on that issue. vides, Circuit Judge, held that: (1) consumer’s failure to accept advertis- VI er’s offer of judgment did not render We reject Sweetwater’s attempt to relit- action moot; igate the merits of its case. Title IX levels (2) the TCPA restriction on unsolicited au- the playing fields for female athletes. In tomated calls did not violate the First implementing this important principle, the Amendment as applied to unsolicited district court committed no error. text messages sent to cellular phones; AFFIRMED. and (3) advertiser was not entitled to any im- munity. , Vacated and remanded.
1. Telecommunications 1053 O It is undisputed that a text message Jose GOMEZ, individually and on be- constitutes a call for the purposes of the half of a class of similarly situated Telephone Consumer Protection Act individuals, Plaintiff–Appellant, (TCPA). Telephone Consumer Protection v. Act of 1991, § 3(a), 47 U.S.C.A. § 227(b)(1)(A)(iii). CAMPBELL–EWALD COMPANY, Defendant–Appellee. 2. Federal Courts 2172 O No. 13–55486. Consumer’s failure to accept advertis- er’s offer of judgment did not render moot United States Court of Appeals, either his individual claim under the Tele- Ninth Circuit. phone Consumer Protection Act (TCPA) Argued and Submitted July 11, 2014. or his putative class action, arising from alleged transmission of unsolicited auto- Filed Sept. 19, 2014. mated text messages, notwithstanding that Background: Consumer brought putative offer was for full amount of claim, plus class action against advertiser, alleging costs. Telephone Consumer Protection that advertiser violated the Telephone Act of 1991, § 3(a), 47 U.S.C.A. Consumer Protection Act (TCPA) by in- § 227(b)(1)(A)(iii). structing or allowing third-party vendor to send unsolicited text messages to consum- 3. Federal Courts 2111 O er’s cellular phone. The United States Dis- An unaccepted offer of judgment that trict Court for the Central District of Cali- would fully satisfy a plaintiff’s claim is
16. We also affirm the grant of injunctive relief which Sweetwater waived on appeal by not to Plaintiffs on their Title IX unequal treat- arguing it. See Hall, 697 F.3d at 1071. ment and benefits claim, any objection to
198 of 234 872 768 FEDERAL REPORTER, 3d SERIES insufficient to render the claim moot. ence to the content of the restricted Fed.Rules Civ.Proc.Rule 68, 28 U.S.C.A. speech, that they are narrowly tailored to serve a significant governmental interest, 4. Federal Civil Procedure 164.5, and that they leave open ample alternative 2396.5 O channels for communication of the infor- Federal Courts 2134 O mation. U.S.C.A. Const.Amend. 1. An unaccepted offer of judgment for the full amount of the named plaintiff’s 9. Constitutional Law 1563 O individual claim, made before the named The government speech doctrine is a plaintiff files a motion for class certifica- jurisprudential theory by which the federal tion, does not moot the class action. Fed. government can regulate its own communi- Rules Civ.Proc.Rule 68, 28 U.S.C.A. cation without the First Amendment con- straint of viewpoint neutrality. U.S.C.A. 5. Courts 90(1) Const.Amend. 1. O It is well settled that the court of appeals is bound by its prior decisions. 10. Telecommunications 888 O Absent a clear expression of Congres- 6. Courts 90(6) sional intent to apply another standard, a O Although there is exception to the court must presume that Congress intend- general rule that a court of appeals is ed to apply the traditional standards of bound by its prior decision for precedents vicarious liability to unsolicited automated that have been overruled, that exception telephone calls made by a third party mar- applies only where the relevant court of keting consultant hired by merchant in last resort has undercut the theory or violation of the Telephone Consumer Pro- reasoning underlying the prior circuit tection Act’s (TCPA). Telephone Consum- precedent in such a way that the cases are er Protection Act of 1991, § 3(a), 47 clearly irreconcilable. U.S.C.A. § 227(b)(1)(A)(iii), (b)(2). 7. Constitutional Law 2145 11. Telecommunications 888 O O Telecommunications 1030 A defendant may be held vicariously O The Telephone Consumer Protection liable for Telephone Consumer Protection Act’s (TCPA) restriction on unsolicited au- Act (TCPA) violations where the plaintiff tomated telephone calls did not violate the establishes an agency relationship, as de- First Amendment as applied to unsolicited fined by federal common law, between the text messages sent to cellular phones; the defendant and a third-party caller. Tele- restriction was narrowly tailored to further phone Consumer Protection Act of 1991, the government’s significant interest in § 3(a), 47 U.S.C.A. § 227(b)(2). protecting privacy. U.S.C.A. Const. 12. Telecommunications 1053 Amend. 1; Telephone Consumer Protection O Act of 1991, § 3(a), 47 U.S.C.A. Advertiser was not entitled to any im- § 227(b)(1)(A)(iii). munity from liability in consumer’s action, alleging that advertiser violated the Tele- 8. Constitutional Law 1514, 1515 phone Consumer Protection Act (TCPA) O The government may impose reason- by instructing or allowing third-party ven- able restrictions on the time, place, or dor to send unsolicited text messages to manner of protected speech, without vio- consumer’s cellular phone. Telephone lating the First Amendment, provided that Consumer Protection Act of 1991, § 3(a), the restrictions are justified without refer- 47 U.S.C.A. § 227(b)(1)(A)(iii), (b)(2).
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13. Federal Courts 3639(2) tive class claims brought pursuant to the O The availability of an immunity or Telephone Consumer Protection Act preemption defense to liability under the (‘‘TCPA’’), 47 U.S.C. § 227(b)(1)(A)(iii) Telephone Consumer Protection Act (2012). Gomez alleges that the Campbell– (TCPA) is a question of law that is re- Ewald Company instructed or allowed a viewed de novo. Telephone Consumer third-party vendor to send unsolicited text Protection Act of 1991, § 3(a), 47 U.S.C.A. messages on behalf of the United States § 227(b)(1)(A)(iii). Navy, with whom Campbell–Ewald had a marketing contract. Because we conclude 14. States 18.5 O that Campbell–Ewald is not entitled to The federal preemption doctrine pre- immunity, and because we find no alter- cludes state claims where the imposition of nate basis upon which to grant its motion liability would undermine or frustrate fed- for summary judgment, we vacate the eral interests. judgment and remand to the district court.
I.
Evan M. Meyers (argued), McGuire The facts with respect to Gomez’s per- Law, P.C., Chicago, IL; Michael J. sonal claim are largely undisputed. On McMorrow, McMorrow Law, P.C., Chica- May 11, 2006, Gomez received an unsolicit- go, IL; and David C. Parisi, Parisi & ed text message stating: Havens LLP, Sherman Oaks, CA, for Destined for something big? Do it in Plaintiff–Appellant. the Navy. Get a career. An education. Laura A. Wytsma (argued), Michael L. And a chance to serve a greater cause. Mallow, Christine M. Reilly, and Meredith For a FREE Navy video call [number]. J. Siller, Loeb & Loeb LLP, Los Angeles, CA, for Defendant–Appellee. The message was the result of collabora- tion between the Navy and the Campbell– Appeal from the United States District Ewald Company,1 a marketing consultant Court for the Central District of Califor- hired by the Navy to develop and execute nia, Dolly M. Gee, District Judge, Presid- a multimedia recruiting campaign. The ing. D.C. No. 2:10–cv–02007–DMG–CW. Navy and Campbell–Ewald agreed to ‘‘tar- get’’ young adults aged 18 to 24, and to Before: FORTUNATO P. send messages only to cellular users that BENAVIDES,* KIM McLANE had consented to solicitation. The mes- WARDLAW, and RICHARD R. sage itself was sent by Mindmatics, to CLIFTON, Circuit Judges. whom the dialing had been outsourced. Mindmatics was responsible for generating OPINION a list of phone numbers that fit the stated BENAVIDES, Circuit Judge: conditions, and for physically transmitting Plaintiff Jose Gomez appeals adverse the messages. Neither the Navy nor summary judgment on personal and puta- Mindmatics is party to this suit.
* The Honorable Fortunato P. Benavides, Sen- 1. The company is now known as Lowe Camp- ior Circuit Judge for the U.S. Court of Ap- bell Ewald. peals for the Fifth Circuit, sitting by designa- tion.
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[1] In 2010, Gomez filed the present seeking derivative immunity under Years- action against Campbell–Ewald, alleging a ley v. W.A. Ross Construction Co., 309 single violation of 47 U.S.C. U.S. 18, 60 S.Ct. 413, 84 L.Ed. 554 (1940). § 227(b)(1)(A)(iii), which states: In opposition to the summary judgment It shall be unlawful for any person with- motion, Gomez presented evidence that the in the United States, or any person out- Navy intended the messages to be sent side the United States if the recipient is only to individuals who had consented or within the United States— ‘‘opted in’’ to receive messages like the (A) to make any call (other than a call recruiting text. A Navy representative made for emergency purposes or testified that Campbell–Ewald was not au- made with the prior express consent thorized to send texts to individuals who of the called party) using any auto- had not opted in. The district court ulti- matic telephone dialing system or an mately granted the motion, holding that artificial or prerecorded voice—TTT Campbell–Ewald is ‘‘immune from liability (iii) to any telephone number as- under the doctrine of derivative sovereign signed to a paging service [or] cellu- immunity.’’ Gomez v. Campbell–Ewald lar telephone serviceTTTT Co., No. CV 10–2007 DMG CWX, 2013 WL Gomez contends that he did not consent to 655237, at *6 (C.D.Cal. Feb. 22, 2013). receipt of the text message. He also notes Gomez filed a timely appeal, arguing that that he was 40 years old at the time he the Yearsley doctrine is inapplicable. received the message, well outside of the This Court reviews summary judgment Navy’s target market. It is undisputed de novo, affirming only where there exists that a text message constitutes a call for no genuine dispute of material fact. Sat- the purposes of this section. See Satter- terfield, 569 F.3d at 950; see also FED. field v. Simon & Schuster, Inc., 569 F.3d R.CIV.P. 56(a). We are free to affirm ‘‘on 946, 952 (9th Cir.2009) (‘‘[W]e hold that a any basis supported by the record.’’ Gor- text message is a ‘call’ within the meaning don v. Virtumundo, Inc., 575 F.3d 1040, of the TCPA.’’). In addition to seeking 1047 (9th Cir.2009). compensation for the alleged violation of the TCPA, Gomez also sought to represent II. a putative class of other unconsenting re- cipients of the Navy’s recruiting text mes- [2] We begin with jurisdiction. Upon sages. Gomez’s timely appeal, Campbell–Ewald filed a motion to dismiss for lack of ju- After a 12(b)(6) motion to dismiss was risdiction, arguing that the personal and denied, Campbell–Ewald tried to settle the putative class claims were mooted by Go- case. Campbell–Ewald offered Gomez mez’s refusal to accept the settlement of- $1503.00 per violation, plus reasonable fer. We denied that motion without costs, but Gomez rejected the offer by allowing it to lapse in accordance with its prejudice, and now reject Campbell– own terms. Ewald’s argument on the merits. Campbell–Ewald then moved to dismiss [3] Gomez’s individual claim is not the case under Rule 12(b)(1), arguing that moot. Campbell–Ewald argues that Gomez’s rejection of the offer mooted the ‘‘whether or not the class action here is personal and putative class claims. After moot,’’ the individual claim was mooted by the court denied the motion, Campbell– Gomez’s rejection of the offer. The com- Ewald moved for summary judgment, pany is mistaken. Although this issue was
201 of 234 GOMEZ v. CAMPBELL–EWALD CO. 875 Cite as 768 F.3d 871 (9th Cir. 2014) unsettled until recently, we have now ex- that Pitts and Diaz are clearly irreconcil- pressly resolved the question. ‘‘[A]n able with the Supreme Court’s recent deci- unaccepted Rule 68 offer that would fully sion in Genesis Healthcare Corp. v. Symc- satisfy a plaintiff’s claim is insufficient to zyk, ––– U.S. ––––, 133 S.Ct. 1523, 185 render the claim moot.’’ Diaz v. First L.Ed.2d 636 (2013). Campbell–Ewald Am. Home Buyers Prot. Corp., 732 F.3d overstates the relevance of that case, 948, 950 (9th Cir.2013). Because the which involved a collective action brought unaccepted offer alone is ‘‘insufficient’’ to pursuant to § 16(b) of the Fair Labor moot Gomez’s claim, and as Campbell– Standards Act. Id. at 1526–27. The defen- Ewald identifies no alternate or additional dant argued that the case was mooted by basis for mootness, the claim is still a live the plaintiff’s rejection of a settlement of- controversy. fer of complete relief. Id. at 1528. The Supreme Court ultimately agreed, first ac- [4] Similarly, the putative class claims cepting the lower court’s conclusion that are not moot. We have already explained the personal claim was moot, and then that ‘‘an unaccepted Rule 68 offer of judg- holding that the named plaintiff had ‘‘no ment—for the full amount of the named personal interest in representing putative, plaintiff’s individual claim and made before unnamed claimants, nor any other continu- the named plaintiff files a motion for class ing interest that would preserve her suit certification—does not moot a class ac- from mootness.’’ Id. at 1532. tion.’’ Pitts v. Terrible Herbst, Inc., 653 Campbell–Ewald correctly observes that F.3d 1081, 1091–92 (9th Cir.2011). Like Genesis undermined some of the reasoning the Pitts plaintiff, Gomez rejected the of- employed in Pitts and Diaz. For example, fer before he moved for class certification. the Pitts opinion referred to the risk that a Gomez’s rejection therefore does not affect defendant might ‘‘pick off’’ named plain- any class claims. tiffs in order to evade class litigation. 653 [5, 6] Campbell–Ewald recognizes that F.3d at 1091 (quoting Weiss v. Regal Col- it is asking this panel to depart from these lections, 385 F.3d 337, 344 (3d Cir.2004)). precedents. Yet it is well settled that we The Genesis Court distanced itself from are bound by our prior decisions. Miller such reasoning, pointing out that the argu- v. Gammie, 335 F.3d 889, 900 (9th Cir. ment had only been used once by the high 2003) (en banc). Although there is an Court, and only ‘‘in dicta.’’ 133 S.Ct. at exception for precedents that have been 1532 (referring to Deposit Guar. Nat’l overruled, that exception applies only Bank, Jackson, Miss. v. Roper, 445 U.S. where ‘‘the relevant court of last resort 326, 339, 100 S.Ct. 1166, 63 L.Ed.2d 427 [has] undercut the theory or reasoning (1980)). Nevertheless, courts have univer- underlying the prior circuit precedent in sally concluded that the Genesis discussion such a way that the cases are clearly irrec- does not apply to class actions.2 In fact, oncilable.’’ Ibid. Campbell–Ewald argues Genesis itself emphasizes that ‘‘Rule 23
2. At least ten courts had expressly stated that Court’s recent decision in GenesisTTTT’’); the Genesis analysis does not bind courts with Knutson v. Schwan’s Home Serv., Inc., No. respect to class action claims. E.g., Epstein v. 3:12–cv–0964–GPC–DHB, 2013 WL 4774763, JPMorgan Chase & Co., No. 13 Civ. at *11 (S.D.Cal. Sept.5, 2013) (concluding 4744(KPF), 2014 WL 1133567, at *9 that Pitts was not affected by Genesis ). We (S.D.N.Y. Mar. 21, 2014) (‘‘The court agrees are not aware of any court that has held with Plaintiff that these [prior class action] otherwise. cases were not affected by the Supreme
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[class] actions are fundamentally different the content-neutral statutory language. from collective actions under the FLSA’’ ‘‘Because nothing in the statute requires and, therefore, the precedents established the [Federal Communications Commission] for one set of cases are ‘‘inapplicable’’ to to distinguish between commercial and the other. 133 S.Ct. at 1529. According- noncommercial speech, we conclude that ly, because Genesis is not ‘‘clearly irrecon- the statute should be analyzed as a con- cilable’’ with Pitts or Diaz, this panel re- tent-neutral time, place, and manner re- mains bound by circuit precedent, and striction.’’ 3 We then upheld the statute Campbell–Ewald’s mootness arguments after finding that the protection of privacy must be rejected. Miller, 335 F.3d at 900. is a significant interest, the restriction of automated calling is narrowly tailored to III. further that interest, and the law allows for ‘‘many alternative channels of commu- [7] Campbell–Ewald’s constitutional nication.’’ Id. at 974–75. challenge is equally unavailing. The com- pany argues that the statute is unconstitu- Campbell–Ewald does not contest our tional either facially or as applied, but its reasoning in Moser. Instead, Campbell– argument relies upon a flawed application Ewald argues that the government’s inter- of First Amendment principles. Although est only extends to the protection of resi- the district court did not ultimately reach dential privacy, and that therefore the this issue, the record confirms that the statute is not narrowly tailored to the ex- challenge was properly raised below. tent that it applies to cellular text mes- sages. The argument fails. First, this [8] We have already affirmed the con- Court already applies the TCPA to text stitutionality of this section of the TCPA. messages. Satterfield, 569 F.3d at 951–52. Moser v. FCC, 46 F.3d 970, 973–74 (9th Second, there is no evidence that the gov- Cir.1995). The government may impose ernment’s interest in privacy ends at reasonable restrictions on the time, place, home—the fact that the statute reaches or manner of protected speech, provided fax machines suggests otherwise. See 47 that the restrictions ‘‘are justified without U.S.C. § 227(b)(1)(C). Third, to whatever reference to the content of the restricted extent the government’s significant inter- speech, that they are narrowly tailored to est lies exclusively in residential privacy, serve a significant governmental interest, the nature of cell phones renders the re- and that they leave open ample alternative striction of unsolicited text messaging all channels for communication of the infor- the more necessary to ensure that privacy. mation.’’ Ward v. Rock Against Racism, After all, it seems safe to assume that 491 U.S. 781, 791, 109 S.Ct. 2746, 105 most cellular users have their phones with L.Ed.2d 661 (1989) (quoting Clark v. Cmty. them when they are at home. Campbell– for Creative Non–Violence, 468 U.S. 288, Ewald itself notes that in many households 293, 104 S.Ct. 3065, 82 L.Ed.2d 221 (1984) a cell phone is the home phone. In fact, (other citations omitted)). In analyzing recent statistics suggest that over 40% of the section, the Moser Court focused on American households now rely exclusively
3. 46 F.3d at 973. Campbell–Ewald does not tures, Ltd. v. FCC, 46 F.3d 54, 56 (9th Cir. argue that the statute is no longer content 1995) (holding that the TCPA’s treatment of neutral insofar as some implementing regula- commercial facsimile transmissions, 42 tions distinguish between commercial and U.S.C. § 227(b)(1)(C), is a constitutionally noncommercial calls. See 47 C.F.R. permitted content-based restriction). § 64.1200(a)(2) (2014); cf. Destination Ven-
203 of 234 GOMEZ v. CAMPBELL–EWALD CO. 877 Cite as 768 F.3d 871 (9th Cir. 2014) on wireless telephone service.4 As a con- IV. sequence, prohibiting automated calls to land lines alone would not adequately safe- Campbell–Ewald nevertheless argues guard the stipulated interest in residential that it cannot be held liable for TCPA privacy. For all these reasons, Campbell– violations because it outsourced the dialing Ewald’s argument is without merit. and did not actually make any calls on behalf of its client. See 47 U.S.C. [9] Nor does the government speech doctrine provide Campbell–Ewald with a § 227(b)(1)(A)(iii) (rendering it unlawful meritorious constitutional challenge. ‘‘to make any call’’ using an automated Campbell–Ewald argues that military re- dialing system). Gomez, in fact, concedes cruiting messages are a form of govern- that a third party transmitted the disputed ment speech afforded greater protection messages. Even so, Campbell–Ewald’s ar- by the First Amendment. Campbell– gument is not persuasive. Ewald mischaracterizes the doctrine. The government speech doctrine is a jurispru- [10] Although Campbell–Ewald did not dential theory by which the federal gov- send any text messages, it might be vicari- ernment can regulate its own communica- ously liable for the messages sent by tion ‘‘without the constraint of viewpoint Mindmatics. The statute itself is silent as neutrality.’’ Downs v. L.A. Unified Sch. to vicarious liability. We therefore as- Dist., 228 F.3d 1003, 1017 (9th Cir.2000), sume that Congress intended to incorpo- cert. denied, 532 U.S. 994, 121 S.Ct. 1653, rate ‘‘ordinary tort-related vicarious liabili- 149 L.Ed.2d 636 (2001). For example, the ty rules.’’ Meyer v. Holley, 537 U.S. 280, First Amendment does not require the 285, 123 S.Ct. 824, 154 L.Ed.2d 753 (2003). federal government to fund messages both Accordingly, ‘‘[a]bsent a clear expression for and against abortion. Cf. Rust v. Sul- of Congressional intent to apply another livan, 500 U.S. 173, 203, 111 S.Ct. 1759, standard, the Court must presume that 114 L.Ed.2d 233 (1991) (upholding, under Congress intended to apply the traditional the government speech doctrine, regula- standards of vicarious liabilityTTTT’’ Thom- tions forbidding certain publicly funded as v. Taco Bell Corp., 879 F.Supp.2d 1079, doctors from endorsing abortion). Simi- larly, in this context, the doctrine would 1084 (C.D.Cal.2012), aff’d, 582 Fed.Appx. preclude Campbell–Ewald from demand- 678, 2014 WL 2959160 (9th Cir. July 2, ing that the Navy create an advertising 2014) (per curiam). Although we have campaign that discourages military partic- never expressly reached this question, sev- ipation. The government speech doctrine eral of our district courts have already is simply immaterial to the present dis- concluded that the TCPA imposes vicari- pute, in which the plaintiff is not advocat- ous liability where an agency relationship, ing for viewpoint neutrality, but is instead as defined by federal common law, is es- challenging the regulation of a particular tablished between the defendant and a means of communication. third-party caller.5
4. See Karen Kaplan, Still have a land line? F.Supp.3d 1292, 2014 WL 1256035 (D.Nev. 128 million don’t., L.A. TIMES, July 8, 2014, Mar. 26, 2014); In re Jiffy Lube Int’l Inc., 847 http://www.latimes.com/science/sciencenow/ F.Supp.2d 1253 (S.D.Cal.2012); Kramer v. la–sci–sn–wireless–only–householdsin– Autobytel, Inc., 759 F.Supp.2d 1165 (N.D.Cal. america–20140708–story.html. 2010). 5. Ibid. See also Kristensen v. Credit Payment Servs., No. 2:12–CV–00528–APG, 12
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This interpretation is consistent with simply impose its own construction on the that of the statute’s implementing agency, statute, as would be necessary in the ab- which has repeatedly acknowledged the sence of an administrative interpretation.’’ existence of vicarious liability under the (footnote omitted)). TCPA. The Federal Communications Com- mission is expressly imbued with authority Campbell–Ewald concedes that the FCC to ‘‘prescribe regulations to implement the already recognizes vicarious liability in this requirements’’ of the TCPA. 47 U.S.C. context, but argues that vicarious liability § 227(b)(2). As early as 1995, the FCC only extends to the merchant whose goods stated that ‘‘[c]alls placed by an agent of or services are being promoted by the the telemarketer are treated as if the tele- telemarketing campaign. Yet the statuto- marketer itself placed the call.’’ In re ry language suggests otherwise, as Rules and Regulations Implementing the § 227(b) simply imposes liability upon TCPA of 1991, 10 FCC Rcd. 12391, 12397 ‘‘any person’’—not ‘‘any merchant.’’ See (1995). More recently, the FCC has clari- Ali v. Fed. Bureau of Prisons, 552 U.S. fied that vicarious liability is imposed ‘‘un- 214, 221, 128 S.Ct. 831, 169 L.Ed.2d 680 der federal common law principles of agen- (2008) (interpreting the use of ‘‘any’’ as cy for violations of either section 227(b) or ‘‘all-encompassing’’); 47 C.F.R. § 64.1200 section 227(c) that are committed by third- (interpreting the phrase ‘‘any person’’ to party telemarketers.’’ In re Joint Peti- reach individuals and entities). And al- tion Filed by Dish Network, LLC, 28 FCC though the FCC’s 2013 ruling may empha- Rcd. 6574, 6574 (2013). Because Congress size vicarious liability on the part of mer- has not spoken directly to this issue and chants, the FCC has never stated that because the FCC’s interpretation was in- vicarious liability is only applicable to cluded in a fully adjudicated declaratory these entities.6 Indeed, such a construc- ruling, the interpretation must be afforded tion would contradict ‘‘ordinary’’ rules of Chevron deference. Metrophones Tele- vicarious liability, Meyer, 537 U.S. at 285, comms., Inc. v. Global Crossing Tele- 123 S.Ct. 824, which require courts to con- comms., Inc., 423 F.3d 1056, 1065 (9th sider the interaction between the parties Cir.2005) (citing Nat’l Cable & Telecomms. rather than their respective identities. Ass’n v. Brand X Internet Servs., 545 U.S. See RESTATEMENT (THIRD) OF AGENCY (2006) 967, 980–85, 125 S.Ct. 2688, 162 L.Ed.2d §§ 2.01, 2.03, 4.01 (explaining that agency 820 (2005)) (other citations omitted), aff’d, may be established by express authoriza- 550 U.S. 45, 127 S.Ct. 1513, 167 L.Ed.2d tion, implicit authorization, or ratification). 422 (2007); see also Chevron, U.S.A., Inc. v. Natural Res. Def. Council, 467 U.S. 837, Given Campbell–Ewald’s concession that 843, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984) a merchant can be held liable for out- (‘‘If, however, the court determines Con- sourced telemarketing, it is unclear why a gress has not directly addressed the pre- third-party marketing consultant shouldn’t cise question at issue, the court does not be subject to that same liability. As a
6. Dish Network, 28 FCC Rcd. at 6574. The al of, or investment in, property, goods, or FCC uses the word ‘‘seller,’’ which Campbell– services.’’ See 47 C.F.R. § 64.1200(f)(9). We Ewald construes as the merchant whose need not determine whether Campbell–Ewald goods or services are featured in the tele- constitutes a seller under this definition, as marketing campaign. The FCC actually de- we conclude that vicarious liability turns on fines seller as an ‘‘entity on whose behalf a the satisfaction of relevant standards of agen- telephone call or message is initiated for the cy, irrespective of a defendant’s nominal des- purpose of encouraging the purchase or rent- ignation.
205 of 234 GOMEZ v. CAMPBELL–EWALD CO. 879 Cite as 768 F.3d 871 (9th Cir. 2014) matter of policy it seems more important for TCPA violations where the plaintiff to subject the consultant to the conse- establishes an agency relationship, as de- quences of TCPA infraction. After all, a fined by federal common law, between the merchant presumably hires a consultant in defendant and a third-party caller. part due to its expertise in marketing Before moving on, we should note that norms. It makes little sense to hold the Gomez asks us to endorse another poten- merchant vicariously liable for a campaign tial source of liability by holding that di- he entrusts to an advertising professional, rect liability applies where a third party is unless that professional is equally account- ‘‘closely involved’’ in the placing of the able for any resulting TCPA violation. In calls. Because the facts are not yet devel- fact, Campbell–Ewald identifies no case in oped, the present case does not require which a defendant was exempt from liabili- such a determination. We therefore leave ty due to the outsourced transmission of that question for another day. See United the prohibited calls. States v. Manning, 527 F.3d 828, 837 n. 8 [11] Moreover, our own precedent be- (9th Cir.2008) (‘‘[W]e simply express no lies any argument that liability is not pos- view on issues unnecessary to this [deci- sible. In our seminal case regarding text sion].’’ (citation omitted)). messages and the TCPA, we allowed a V. case to proceed against an analogous mar- keting consultant who was not ‘‘responsible [12, 13] Finally, we turn to the legal for the actual transmission of the text mes- theory underlying the district court’s deci- sages.’’ See Satterfield, 569 F.3d at 951. sion. The court entered summary judg- In Satterfield, a publisher had instructed a ment after concluding that Campbell– marketing consultant to create a text mes- Ewald is exempt from liability under sage campaign advertising a new Stephen Yearsley, 309 U.S. 18, 60 S.Ct. 413. Go- King novel. Id. at 949. The consultant in mez contends that Yearsley is outdated turn outsourced the recipient selection and and inapposite, and that the district court message transmission to two other subcon- should have applied the standard articulat- tractors. Id. A recipient sued both the ed in Boyle v. United Technologies Corp., publisher and the marketing consultant for 487 U.S. 500, 108 S.Ct. 2510, 101 L.Ed.2d alleged violations of the TCPA. Id. at 950. 442 (1988). The availability of these de- The district court entered summary judg- fenses is a question of law that we review ment in favor of both defendants, holding de novo. In re Hanford Nuclear Reserva- that the cellular user had consented to tion Litig., 534 F.3d 986, 1000 (9th Cir. receive advertisements when it signed its 2008). cellular service contract. Id. We ultimate- After reviewing the relevant law, we ly reversed and remanded the case, hold- agree with Gomez that Yearsley is not ing (inter alia ) that the cellular service applicable. Yearsley established a narrow agreement did not constitute ‘‘express con- rule regarding claims arising out of prop- sent’’ to receive the advertisement in dis- erty damage caused by public works pro- pute. Id. at 955. So although we did not jects. The dispute involved erosion caused explain the basis of the defendants’ poten- by efforts to render the Missouri River tial liability, we implicitly acknowledged more navigable. Yearsley, 309 U.S. at 19, the existence of that basis. The present 60 S.Ct. 413. The Court reasoned that case affords an opportunity to clarify that if—as alleged—the contractor’s work was a defendant may be held vicariously liable in accordance with express Congressional
206 of 234 880 768 FEDERAL REPORTER, 3d SERIES directive and resulted in an unconstitution- a recent Fifth Circuit decision dismissing a al taking of property, ‘‘the Government has class action under Yearsley. See Acker- impliedly promised to compensate the son, 589 F.3d 196. Yet that case—like plaintiffs and has afforded a remedy for its Yearsley itself—involved allegations of recovery by a suit in the Court of Claims.’’ property damage resulting from dredging Id. at 21–22, 60 S.Ct. 413 (citing 28 U.S.C. work undertaken to improve the nation’s § 250 (1940)) (other citations omitted). As waterways. Id. at 202–03 (listing allega- a consequence, there was an adequate tions that the United States and its con- remedy available and no need for action tractors had irreparably damaged Louisi- against the private contractor. Id. at 22, ana’s coastline and wetlands in the 1960s, 60 S.Ct. 413. ultimately contributing to the widespread It seems clear that the reasoning em- loss of property during Hurricane Katri- ployed by the Yearsley Court is not na). So while the Fifth Circuit’s decision relevant here. Gomez’s claims do not may rebut Gomez’s argument that Years- implicate a constitutional ‘‘promise to ley is stale precedent, it does not warrant compensate’’ injured plaintiffs such that application of the doctrine to the present an alternate remedy exists. Nor does dispute. the case belong in some other venue. [14] Nor does the Boyle pre-emption Cf. Myers v. United States, 323 F.2d doctrine provide Campbell–Ewald with a 580, 583 (9th Cir.1963) (remanding un- relevant defense. The doctrine precludes der Yearsley for transfer to Court of state claims where the imposition of liabili- Claims). Instead, Congress has ex- ty would undermine or frustrate federal pressly created a federal cause of action interests. See Nielsen v. George Diamond affording individuals like Gomez stand- Vogel Paint Co., 892 F.2d 1450, 1454 (9th ing to seek compensation for violations Cir.1990) (explaining that the Boyle stan- of the TCPA. In the seventy-year histo- dard is used to determine when ‘‘federal ry of the Yearsley doctrine, it has ap- law should displace state law’’). Boyle in- parently never been invoked to preclude volved a wrongful death action brought litigation of a dispute like the one be- under Virginia law against a government fore us. This Court, in particular, has contractor that had supplied a helicopter rarely allowed use of the defense, and to the United States military. See 487 only in the context of property damage U.S. at 502, 108 S.Ct. 2510. After a jury resulting from public works projects. returned a verdict in favor of the plaintiffs, In its brief discussion, the district court the Fourth Circuit reversed, holding that did not explain its decision to apply Years- liability was precluded in part by the fed- ley to the facts and issues at bar. The eral interest inherent in military decisions. cases cited by the court do not support Id. at 503, 510, 108 S.Ct. 2510. The Su- such an interpretation.7 At oral argument, preme Court agreed, explaining that when we asked Campbell–Ewald to name any ‘‘an area of uniquely federal interest’’ is authority that might justify the application implicated by a federal purchase, state law of Yearsley to the facts of this case. is displaced where ‘‘a significant conflict Campbell–Ewald responded by pointing to exists between an identifiable federal poli-
7. See Ackerson v. Bean Dredging LLC, 589 (4th Cir.2000) (adjudicating immunity under F.3d 196, 204–07 (5th Cir.2009) (applying the Foreign Sovereign Immunity Act); Myers, Yearsley in traditional public works context); 323 F.2d at 583 (applying Yearsley to property Butters v. Vance Int’l Inc., 225 F.3d 462, 466 loss resulting from highway construction).
207 of 234 GOMEZ v. CAMPBELL–EWALD CO. 881 Cite as 768 F.3d 871 (9th Cir. 2014) cy or interest and the operation of state vested interest in maintaining every possi- law, or the application of state law would ble means of exoneration—admits that a frustrate specific objectives of federal leg- Boyle defense is not permissible here. Be- islationTTTT’’ Id. at 507, 108 S.Ct. 2510 cause the defendant does not assert a (internal brackets, quotation marks, and Boyle defense, we need not belabor the citations omitted). The Court then re- present discussion—we accept Campbell– manded after establishing a rule by which Ewald’s concession that Boyle is not rele- courts should determine whether a specific vant. contractor is acting pursuant to a military Campbell–Ewald contends that a new contract such that the defense is available. immunity for service contractors was es- Id. at 512, 108 S.Ct. 2510. poused by the Supreme Court in Filarsky Although Boyle in effect created a de- v. Delia, ––– U.S. ––––, 132 S.Ct. 1657, 182 fense for some government contractors, it L.Ed.2d 662 (2012). Yet the Court did not is fundamentally a pre-emption case. The establish any new theory, and although the Boyle Court established two related rules: Filarsky discussion does include a broad (1) a general rule whereby state claims reading of the qualified immunity doctrine, may be pre-empted by federal law, and (2) id. at 1667–68, that doctrine is not impli- a specific rule whereby certain military cated by this case. Filarsky involved al- contractors may be exempt from state tort leged constitutional violations brought pur- liability in furtherance of that pre-emption. suant to 42 U.S.C. § 1983. See id. at 1661. 487 U.S. at 507–08, 512, 108 S.Ct. 2510. In The Supreme Court granted certiorari to arguing that Boyle governs here, Gomez resolve a dispute as to whether one of the overlooks the pre-emption predicate, as- defendants—an attorney contracted by suming that Boyle represents a general municipal government—was eligible for grant of immunity for government contrac- the qualified immunity afforded to his city- tors. Yet Boyle itself includes footnotes employed colleagues. Id. at 1660–61. To emphasizing the displacement question determine the scope of the doctrine, the and indicating that it should not be con- Court examined ‘‘the ‘general principles of strued as broad immunity precedent. Id. tort immunities and defenses’ applicable at at 505 n. 1, 508 n. 3, 108 S.Ct. 2510. We common law.’’ Id. at 1662 (quoting Imbler have already clarified this point, explaining v. Pachtman, 424 U.S. 409, 418, 96 S.Ct. that Boyle ‘‘is directed toward deciding the 984, 47 L.Ed.2d 128 (1976)). When the extent to which federal law should displace examination revealed that part-time and state law with respect to the liability of a lay officials had been granted immunity military contractor.’’ Nielsen, 892 F.2d at throughout the nineteenth century, id. at 1454. Accordingly, although Boyle may 1665, the Court concluded that the con- apply more broadly than to the facts of tractor was properly entitled to the same that case alone, that broader applicability qualified immunity enjoyed by his publicly is rooted in pre-emption principles and not employed counterparts. in any widely available immunity or de- Filarsky has little to offer Campbell– fense. Ewald. The decision is applicable only in Returning to the present case, Gomez the context of § 1983 qualified immunity brings a claim under federal law, so pre- from personal tort liability. See, e.g., ibid. emption is simply not an issue. The Boyle (‘‘[I]mmunity under § 1983 should not doctrine is thus rendered inapposite. vary depending on whether an individual Even Campbell–Ewald—notwithstanding a working for the government does so as a
208 of 234 882 768 FEDERAL REPORTER, 3d SERIES full-time employee, or on some other ba- 56(a). Accordingly, we VACATE the dis- sis.’’). Moreover, the Court afforded im- trict court’s order and remand the case for munity only after tracing two hundred further proceedings consistent with this years of precedent. Here, not only do we opinion. lack decades or centuries of common law VACATED and REMANDED. recognition of the proffered defense, we are aware of no authority exempting a The costs shall be taxed against the marketing consultant from analogous fed- Defendant–Appellee. eral tort liability. Nor are we persuaded that we should establish the novel immunity asserted by , defendants. As the Supreme Court has recognized, immunity ‘‘comes at a great cost.’’ Westfall v. Erwin, 484 U.S. 292, 295, 108 S.Ct. 580, 98 L.Ed.2d 619 (1988), superseded by statute on other grounds, Tio Dinero SESSOMS, Petitioner– Pub.L. No. 100–694, 102 Stat. 4563 (1988), Appellant, codified at 28 U.S.C. § 2679(d), as recog- nized in Adams v. United States, 420 F.3d v. 1049, 1052 (9th Cir.2005). Where immuni- Randy GROUNDS, Warden, ty lies, ‘‘[a]n injured party with an other- Respondent–Appellee. wise meritorious tort claim is denied com- pensation,’’ which ‘‘contravenes the basic No. 08–17790. tenet that individuals be held accountable United States Court of Appeals, for their wrongful conduct.’’ Westfall, 484 Ninth Circuit. U.S. at 295, 108 S.Ct. 580. Accordingly, immunity must be extended with the ut- Argued and Submitted March 18, 2014. most care. The record contains sufficient Filed Sept. 22, 2014. evidence that the text messages were con- trary to the Navy’s policy permitting texts Background: Following affirmance of a only to persons who had opted in to re- defendant’s conviction for murder, rob- ceive them. Consequently, we decline the bery, and burglary, 2004 WL 49720, the invitation to craft a new immunity doctrine defendant sought federal habeas relief. or extend an existing one. The United States District Court for the Eastern District of California, John A. VI. Mendez, J., 2008 WL 4699796, denied re- As explained herein, Campbell–Ewald’s lief. The defendant appealed. The Court of four arguments in support of summary Appeals, 650 F.3d 1276, affirmed. On re- judgment each fail. And because the mo- hearing en banc, the Court of Appeals, 691 tion was based on pure questions of law, F.3d 1054, reversed. The United States we were not briefed on the factual predi- Supreme Court, ––– U.S. ––––, 133 S.Ct. cates of liability. Campbell–Ewald has 2886, 186 L.Ed.2d 930, granted certiorari therefore not carried its burden to demon- and vacated. strate an absence of material fact or to Holding: On remand, the Court of Ap- show that it is otherwise ‘‘entitled to judg- peals, en banc, McKeown, Circuit Judge, ment as a matter of law.’’ FED.R.CIV.P. held that the defendant clearly and unam-
209 of 234 14-857 CAMPBELL-EWALD COMPANY V. GOMEZ DECISION BELOW: 768 F.3d 871 LOWER COURT CASE NUMBER: 13-55486
QUESTION PRESENTED:
1. Whether a case becomes moot, and thus beyond the judicial power of Article III, when the plaintiff receives an offer of complete relief on his claim. 2. Whether the answer to the first question is any different when the plaintiff has asserted a class claim under Federal Rule of Civil Procedure 23, but receives an offer of complete relief before any class is certified. 3. Whether the doctrine of derivative sovereign immunity recognized in Yearsley v. W.A. Ross Construction Co., 309 U.S. 18 (1940), for government contractors is restricted to claims arising out of property damage caused by public works projects.
CERT. GRANTED 5/18/2015
210 of 234
Ascertainability
(1) Carrera v. Bayer Corp., 727 F.3d 300 (3d Cir. 2013) (2) Carrera v. Bayer Corp., No. 12-2621, 2014 WL 3887938 (3d Cir. May 2, 2014) (en banc) (3) Lilly v. Jamba Juice Co., Civ. No. 13-2998, 2014 WL 4652283 (N.D. Cal. Sept. 18, 2014)
211 of 234 300 727 FEDERAL REPORTER, 3d SERIES formation during the permitting process. (3d Cir.2009) (‘‘A fleeting reference or See 42 U.S.C. § 7661d(b)(1). And the vague allusion to an issue will not suffice to threat of criminal charges confronts any preserve it for appeal [.]’’). person who knowingly submits a deficient application. 42 U.S.C. § 7413(c)(2)(A). III. Even if the deficiencies are overlooked and remain undiscovered until after the permit In an age when coal-burning power is issued—as they allegedly were in this plants mingle with electric cars and when case—the proper avenue is for the EPA or our scientific understanding of the planet states to reopen the permit to add any grows at the same exponential rate that ‘‘applicable requirement’’ that was omitted our natural resources deteriorate, protect- during the permitting process. 40 C.F.R. ing the environment is an almost-fearsome § 70.7(f); see also 42 U.S.C. § 7661d(e); responsibility. But when Congress’s stat- 25 Pa.Code §§ 127.542, 127.543. utory directives are at issue, that responsi- Consequently, the District Court lacked bility must yield to our duty to follow our jurisdiction over the EPA’s Title V coordinate branch’s commands. Those claims.24 commands could not be plainer here. We will affirm the District Court’s order dis- C. State–Law Claims missing the EPA’s and States’ claims. The Pennsylvania Department of Envi- ronmental Protection and New York also appeal the dismissal of various state-law claims under the Pennsylvania Air Pollu- tion and Control Act, Pennsylvania SIP, , and common-law public nuisance. They concede that these claims track the federal claims. See Dist. Ct. Op., JA36; States Br. at 67. And to the extent the state-law claims differ from the federal ones, the District Court found that ‘‘[t]hese claims Gabriel Joseph CARRERA, on behalf were not thoroughly developed.’’ Id. We of himself and all others will affirm their dismissal. See Steagald v. similarly situated United States, 451 U.S. 204, 209, 101 S.Ct. v. 1642, 68 L.Ed.2d 38 (1981) (holding that arguments not developed in district court BAYER CORPORATION; Bayer are forfeited on appeal); In re Ins. Bro- Healthcare, LLC., kerage Antitrust Litig., 579 F.3d 241, 262 Appellants.
24. The EPA spars with the Current Owners a Title V permit that either expressly includes over whether the Current Owners are insulat- those provisions or states that they are inap- ed from liability by Title V’s safe-harbor pro- plicable. 42 U.S.C. § 7661c(f). But these vision. Title V contains two permit shields— permit shields are merely sideshows. Even one that precludes Title V liability if an owner assuming the EPA is correct that neither per- or operator ‘‘compli[es] with a permit issued mit shield protects the Current Owners, the in accordance with’’ Title V, and a second availability of this defense has no bearing on that insulates an owner or operator from lia- whether § 7607 strips district courts of juris- bility for violating ‘‘other applicable provi- diction over collateral challenges to Title V sions’’ of the Clean Air Act if it complies with permits.
212 of 234 CARRERA v. BAYER CORP. 301 Cite as 727 F.3d 300 (3rd Cir. 2013)
*(Amended Pursuant to the Clerk’s law to fact. Fed.Rules Civ.Proc.Rule 23, Order of July 5, 2012). 28 U.S.C.A. No. 12–2621. 2. Federal Courts 776 O Whether an incorrect legal standard United States Court of Appeals, has been used is an issue of law to be Third Circuit. reviewed de novo. Argued April 16, 2013. 3. Federal Civil Procedure 172 O Filed: Aug. 21, 2013. A party seeking class certification Background: Consumer filed action must affirmatively demonstrate his compli- claiming that manufacturer falsely and de- ance with the class action rule. Fed.Rules ceptively advertised its diet supplement. Civ.Proc.Rule 23, 28 U.S.C.A. The United States District Court for the 4. Federal Civil Procedure 171, 174 District of New Jersey, Jose L. Linares, O Class certification is proper only if the J., 2011 WL 5878376, certified class. Manu- trial court is satisfied, after a rigorous facturer appealed. analysis, that the prerequisites of class Holdings: The Court of Appeals, Scirica, action rule are met; frequently that ‘‘rigor- Circuit Judge, held that: ous analysis’’ will entail some overlap with (1) class could not be ascertained based on the merits of the plaintiff’s underlying retailer records of online sales and claim. Fed.Rules Civ.Proc.Rule 23, 28 sales made with store loyalty or re- U.S.C.A. wards cards; 5. Federal Civil Procedure 172 (2) class could not be ascertained by affi- O Factual determinations necessary to davits of class members; make findings under the class action rule (3) possibility that proposed method for must be made by a preponderance of the ascertaining class via affidavits of class evidence. Fed.Rules Civ.Proc.Rule 23, 28 members would dilute recovery of true U.S.C.A. class members, as well as manufactur- 6. Federal Civil Procedure 172, 176 er’s interest in ensuring it paid only O legitimate claims, precluded certifica- A plaintiff must show, by a preponder- tion on that basis; and ance of the evidence, that the class is currently and readily ascertainable based (4) declaration from person at firm that on objective criteria, and a trial court must had administered class settlements for undertake a rigorous analysis of the evi- nearly 25 years did not show that affi- dence to determine if the standard is met. davits would satisfy class action ascer- Fed.Rules Civ.Proc.Rule 23, 28 U.S.C.A. tainability requirement. Vacated and remanded. 7. Federal Civil Procedure 176 O A plaintiff may not merely propose a method of ascertaining a class without any 1. Federal Courts 817 evidentiary support that the method will O A class certification order is reviewed be successful; a critical need of the trial for abuse of discretion, which occurs if the court at certification is to determine how district court’s decision rests upon a clear- the case will be tried, including how the ly erroneous finding of fact, an errant con- class is to be ascertained. Fed.Rules Civ. clusion of law or an improper application of Proc.Rule 23, 28 U.S.C.A.
213 of 234 302 727 FEDERAL REPORTER, 3d SERIES
8. Federal Civil Procedure 176 12. Federal Civil Procedure 176 O O At the commencement of a class ac- To satisfy ascertainability as it relates tion, ascertainability and a clear class defi- to proof of class membership, the plaintiff nition allow potential class members to must demonstrate his purported method identify themselves for purposes of opting for ascertaining class members is reliable out of a class, it ensures that a defendant’s and administratively feasible, and permits rights are protected by the class action a defendant to challenge the evidence used mechanism, and it ensures that the parties to prove class membership. Fed.Rules can identify class members in a manner Civ.Proc.Rule 23, 28 U.S.C.A. consistent with the efficiencies of a class 13. Federal Civil Procedure 182.5 action. Fed.Rules Civ.Proc.Rule 23, 28 O U.S.C.A. Class of persons who purchased diet supplement in Florida could not be ascer- 9. Federal Civil Procedure 161, 176 tained based on retailer records of online O The class-action device saves the re- sales and sales made with store loyalty or sources of both the courts and the parties rewards cards, and thus class could not be by permitting an issue potentially affecting certified on that basis in action against manufacturer under Florida Deceptive and every class member to be litigated in an Unfair Trade Practices Act (FDUTPA), economical fashion; if a class cannot be since there was no evidence that single ascertained in an economical and adminis- purchaser of supplement could be identi- tratively feasible manner, significant bene- fied using records of customer member- fits of a class action are lost. Fed.Rules ship cards or records of online sales; there Civ.Proc.Rule 23, 28 U.S.C.A. was no evidence that retailers even had 10. Federal Civil Procedure 176 records for relevant period. Fed.Rules O Civ.Proc.Rule 23, 28 U.S.C.A.; West’s A trial court should ensure that class F.S.A. § 501.201 et seq. members can be identified without exten- sive and individualized fact-finding or mini- 14. Federal Civil Procedure 182.5 O trials, a determination which must be Class of persons who purchased diet made at the class certification stage. Fed. supplement in Florida could not be ascer- Rules Civ.Proc.Rule 23, 28 U.S.C.A. tained by affidavits of class members, at- testing that they purchased supplement 11. Constitutional Law 3981 O and stating amount they purchased, and A defendant in a class action has a thus class could not be certified on that due process right to raise individual chal- basis in action against manufacturer under lenges and defenses to claims, and a class Florida Deceptive and Unfair Trade Prac- action cannot be certified in a way that tices Act (FDUTPA); even if it was less eviscerates this right or masks individual likely someone would fabricate claim be- issues; a defendant has a similar, if not the cause claims were of low value, individuals same, due process right to challenge the likely would have difficulty accurately re- proof used to demonstrate class member- calling their purchases of supplement and ship as it does to challenge the elements of defendant’s ability to challenge class mem- a plaintiff’s claim. U.S.C.A. Const.Amend. bership was core concern of ascertainabili- 14; Fed.Rules Civ.Proc.Rule 23, 28 ty. Fed.Rules Civ.Proc.Rule 23, 28 U.S.C.A. U.S.C.A.; West’s F.S.A. § 501.201 et seq.
214 of 234 CARRERA v. BAYER CORP. 303 Cite as 727 F.3d 300 (3rd Cir. 2013)
15. Federal Civil Procedure 182.5 requirement, in action against manufactur- Possibility that proposedO method for er under Florida Deceptive and Unfair ascertaining class via affidavits of class Trade Practices Act (FDUTPA), since it members, attesting that they purchased did not propose model for screening claims supplement and stating amount they pur- that were specific to case and it did not chased, would dilute recovery of true class show that affidavits would be reliable; members, as well as manufacturer’s inter- plaintiff’s assurances that it would be ef- est in ensuring it paid only legitimate fective were insufficient. Fed.Rules Civ. claims, precluded certification on that ba- Proc.Rule 23, 28 U.S.C.A.; West’s F.S.A. sis, in action against manufacturer under § 501.201 et seq. Florida Deceptive and Unfair Trade Prac- tices Act (FDUTPA); thus, level of proof for ascertainability could not be relaxed even if liability under FDUTPA was not based on individual issues. Fed.Rules Civ. Matthew R. Ford, Esq., Christopher D. Proc.Rule 23, 28 U.S.C.A.; West’s F.S.A. Landgraff, Esq., Rebecca Weinstein Ba- § 501.201 et seq. con, Esq., [argued], Bartlit, Beck, Herman, Palenchar & Scott, Chicago, IL, for Appel- 16. Antitrust and Trade Regulation lants. 134 Caroline F. Bartlett, Esq., James E. A O consumer claim for damages under Cecchi, Esq., Lindsey H. Taylor, Esq., Florida Deceptive and Unfair Trade Prac- Carella, Byrne, Cecchi, Olstein, Brody & tices Act (FDUTPA) has three elements: Agnello, Roseland, NJ, Joe R. Whatley, (1) a deceptive act or unfair practice; (2) Jr., Esq., [argued], Whatley, Drake & Kal- causation; and (3) actual damages. West’s las, New York, NY, for Appellee. F.S.A. § 501.201 et seq. John Beisner, Esq., Skaden, Arps, Slate, 17. Antitrust and Trade Regulation Meagher & Flom, Washington, DC, for 138 Amicus Curiae. UnderO the Florida Deceptive and Un- fair Trade Practices Act (FDUTPA), there Before: SCIRICA, SMITH and is no requirement of actual reliance on the CHAGARES, Circuit Judges. deceptive act; the question is not whether the plaintiff actually relied on the alleged deceptive trade practice, but whether the OPINION OF THE COURT practice was likely to deceive a consumer SCIRICA, Circuit Judge. acting reasonably in the same circum- In this Fed.R.Civ.P. 23(f) appeal, Bayer stances. West’s F.S.A. § 501.201 et seq. Corporation and Bayer Healthcare contest 18. Federal Civil Procedure 182.5 the certification of a class of consumers Declaration from person O at firm that who purchased Bayer’s One–A–Day had administered class settlements for WeightSmart diet supplement in Florida. nearly 25 years that addressed methods The sole issue on appeal is whether the for allocating payment to settlement class class members are ascertainable. While did not show that affidavits of class mem- this interlocutory appeal was pending, we bers, attesting that they purchased supple- decided Marcus v. BMW of North Amer- ment and stating amount they purchased, ica, LLC, in which we held ‘‘[i]f class mem- would satisfy class action ascertainability bers are impossible to identify without ex-
215 of 234 304 727 FEDERAL REPORTER, 3d SERIES tensive and individualized fact-finding or Carrera then moved to certify a Rule ‘mini-trials,’ then a class action is inappro- 23(b)(3) class of Florida consumers under priate.’’ 687 F.3d 583, 593 (3d Cir.2012). the Florida Deceptive and Unfair Trade We explained that if class members cannot Practices Act. One of Bayer’s challenges to be ascertained from a defendant’s records, certification, and the issue on this appeal, there must be ‘‘a reliable, administratively is whether the class members are ascer- feasible alternative,’’ but we cautioned tainable. In this case, there is no dispute ‘‘against approving a method that would that class members are unlikely to have amount to no more than ascertaining by documentary proof of purchase, such as potential class members’ say so.’’ Id. at packaging or receipts. And Bayer has no 594. In light of Marcus, we will vacate list of purchasers because, as noted, it did the class certification order and remand. not sell WeightSmart directly to consum- ers. Carrera advanced two ways to ascertain I. the class: first, by retailer records of on- Gabriel Carrera brings this class action line sales and sales made with store loyalty against Bayer Corporation and Bayer or rewards cards; second, by affidavits of Healthcare, LLC (‘‘Bayer’’), claiming that class members, attesting they purchased Bayer falsely and deceptively advertised WeightSmart and stating the amount they its product One–A–Day WeightSmart. purchased. Bayer challenged this latter WeightSmart was promoted as a multivita- method on the ground that memories of min and dietary supplement that had me- putative class members will be unreliable. tabolism-enhancing effects. The recom- Bayer argued that, in Carrera’s own depo- sition testimony, he failed to remember mended daily dose was one tablet and when he purchased WeightSmart and that prices ranged from about $8.99 for fifty he confused it with WeightSmart Ad- tablets to about $16.99 for one hundred vanced and other generic or similar prod- tablets. Bayer sold WeightSmart in retail ucts (none of which are part of this litiga- stores, such as CVS, until January 2007. tion). In response, Carrera produced a Bayer did not sell it directly to consumers. declaration of James Prutsman, who works Carrera alleges Bayer falsely claimed that for a company that verifies and processes WeightSmart enhanced metabolism by its class settlement claims, in which Prutsman inclusion of epigallocatechin gallate, a stated there are ways to verify the types of green tea extract. affidavits at issue here and screen out Carrera initially sought to certify a na- fraudulent claims. tionwide class under Fed.R.Civ.P. 23(b)(3) The court certified the class, defined as bringing a claim under the New Jersey all persons who purchased WeightSmart in Consumer Fraud Act, as Bayer’s head- Florida.1 It characterized the issue of as- quarters is in New Jersey. The court certainability as one of manageability, stat- denied certification, concluding that New ing ‘‘ ‘speculative problems with case man- Jersey law did not apply to out-of-state agement’ ’’ are insufficient to prevent class customers. This order is not before us on certification. Carrera v. Bayer Corp., Civ. appeal. A. No. 08–4716, 2011 WL 5878376, at *4
1. The class definition does not include a class cember 2003 through January 2007. period. Bayer sold WeightSmart from De-
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(D.N.J. Nov. 22, 2011) (quoting Klay v. manufactured by Bridgestone TTT and sold Humana, Inc., 382 F.3d 1241, 1272–73 or leased in New Jersey whose Tires have (11th Cir.2004)). The court concluded gone flat and been replaced.’’ Id. at 590 Carrera had satisfied his burden, noting (quotation and alterations omitted). The ‘‘that the claims involved will be relatively defendants appealed, and we vacated the small and Plaintiff points to methods to order certifying the class. verify claims.’’ Id. Bayer appealed. It Before turning to the explicit require- contends Carrera has failed to demon- ments of Rule 23 in Marcus, we addressed strate the class is ascertainable because two ‘‘preliminary matters’’: first, whether there is no evidence that any retailer rec- the class was clearly defined, and second, ords show who purchased WeightSmart. ‘‘whether the class must be (and, if so, is in Bayer also argues that the use of unverifi- fact) objectively ascertainable.’’ Id. at 591. able affidavits to ascertain class members We concluded the class was not clearly fails to comply with Rule 23 and violates defined. At the least, the definition of the its rights under the due process clause. class was broader than intended and did not define the claims, issues, or defenses to II. be treated on a class-wide basis. Id. at [1, 2] The District Court had jurisdic- 592. Accordingly, we remanded the case tion under 28 U.S.C. § 1332(d). We have for clarification of the class definition. jurisdiction under 28 U.S.C. § 1292(e) and We then addressed ascertainability. We Fed.R.Civ.P. 23(f). ‘‘We review a class began by stating, ‘‘[m]any courts and com- certification order for abuse of discretion, mentators have recognized that an essen- which occurs if the district court’s decision tial prerequisite of a class action, at least rests upon a clearly erroneous finding of with respect to actions under Rule fact, an errant conclusion of law or an 23(b)(3), is that the class must be currently improper application of law to fact.’’ In re and readily ascertainable based on objec- Hydrogen Peroxide Antitrust Litig., 552 tive criteria.’’ Id. at 592–93 (citing cases). F.3d 305, 312 (3d Cir.2008) (quotation ‘‘If class members are impossible to identi- omitted). ‘‘Whether an incorrect legal fy without extensive and individualized standard has been used is an issue of law fact-finding or ‘mini-trials,’ then a class to be reviewed de novo.’’ Id. (quotation action is inappropriate.’’ Id. at 593. We omitted). noted, ‘‘[s]ome courts have held that where III. nothing in company databases shows or could show whether individuals should be In Marcus, we explained the concept of included in the proposed class, the class ascertainability at length for the first time. definition fails.’’ Id. (citing cases). 687 F.3d at 592–95. The claim in Marcus was that Bridgestone run-flat tires We then explained the (‘‘RFTs’’) were defective because they ascertainability requirement serves sev- were highly susceptible to flats; could only eral important objectives. First, it elimi- be replaced, not repaired; and were highly nates serious administrative burdens priced. Id. at 588. The district court that are incongruous with the efficien- certified a Rule 23(b)(3) class consisting of cies expected in a class action by insist- ‘‘any and all current and former owners ing on the easy identification of class and lessees of 2006, 2007, 2008, and 2009 members. Second, it protects absent BMW vehicles equipped with run-flat tires class members by facilitating the best
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notice practicable under Rule 23(c)(2) in ‘‘Class certification is proper only ‘if the a Rule 23(b)(3) action. Third, it protects trial court is satisfied, after a rigorous defendants by ensuring that those per- analysis, that the prerequisites’ of Rule 23 sons who will be bound by the final are met.’’ Hydrogen Peroxide, 552 F.3d judgment are clearly identifiable. at 309 (quoting Gen. Tel. Co. of Sw. v. Id. (citations and quotations omitted). Falcon, 457 U.S. 147, 161, 102 S.Ct. 2364, 72 L.Ed.2d 740 (1982)). ‘‘Frequently that We set forth why the ‘‘proposed class ‘rigorous analysis’ will entail some overlap action raise[d] serious ascertainability is- with the merits of the plaintiff’s underlying sues.’’ Id. Defendant BMW explained that claim. That cannot be helped. ‘[T]he it could not determine by its records which class determination generally involves con- vehicles fit the definition of the class be- siderations that are enmeshed in the factu- cause it did not keep records of which cars al and legal issues comprising the plain- got fitted with Bridgestone RFTs, because tiff’s cause of action.’ ’’ Dukes, 131 S.Ct. some customers may have changed tires at 2551–52 (alteration in original) (quoting (of which BWM had no record), and be- Falcon, 457 U.S. at 160, 102 S.Ct. 2364). cause BMW would not have known which ‘‘Factual determinations necessary to customers experienced flat tires. Id. at make Rule 23 findings must be made by a 593–94. We stated that if plaintiff were to preponderance of the evidence.’’ Hydro- attempt to re-certify a class on remand, gen Peroxide, 552 F.3d at 320. the court ‘‘must resolve the critical issue of whether the defendants’ records can ascer- [6] These same standards apply to the tain class members and, if not, whether question of ascertainability. Class ascer- there is a reliable, administratively feasi- tainability is ‘‘an essential prerequisite of a ble alternative.’’ Id. at 594. We cau- class action, at least with respect to actions tioned ‘‘against approving a method that under Rule 23(b)(3).’’ Marcus, 687 F.3d at would amount to no more than ascertain- 592–93. ‘‘[T]here is ‘no reason to doubt’ ’’ ing by potential class members’ say so. that the ‘‘rigorous analysis’’ requirement For example, simply having potential class ‘‘ ‘applies with equal force to all Rule 23 members submit affidavits that their requirements.’ ’’ Hydrogen Peroxide, 552 Bridgestone RFTs have gone flat and been F.3d at 309 n. 5 (quoting In re Initial Pub. replaced may not be proper or just.’’ Id. Offerings Sec. Litig., 471 F.3d 24, 33 n. 3 (quotation omitted). ‘‘Forcing BMW and (2d Cir.2006)). Accordingly, a plaintiff Bridgestone to accept as true absent per- must show, by a preponderance of the sons’ declarations that they are members evidence, that the class is ‘‘currently and of the class, without further indicia of reli- readily ascertainable based on objective ability, would have serious due process criteria,’’ Marcus, 687 F.3d at 593, and a implications.’’ Id. trial court must undertake a rigorous anal- ysis of the evidence to determine if the IV. standard is met. [7] ‘‘A party’s assurance to the court A. that it intends or plans to meet the re- [3–5] ‘‘A party seeking class certifica- quirements [of Rule 23] is insufficient.’’ tion must affirmatively demonstrate his Hydrogen Peroxide, 552 F.3d at 318. A compliance with’’ Rule 23. Wal–Mart plaintiff may not merely propose a method Stores, Inc. v. Dukes, ––– U.S. ––––, 131 of ascertaining a class without any eviden- S.Ct. 2541, 2551, 180 L.Ed.2d 374 (2011). tiary support that the method will be suc-
218 of 234 CARRERA v. BAYER CORP. 307 Cite as 727 F.3d 300 (3rd Cir. 2013) cessful. ‘‘ ‘A critical need’ ’’ of the trial [11] In this case, the ascertainability court at certification ‘‘ ‘is to determine how question is whether each class member the case will be tried,’ ’’ id. at 319 (quoting purchased WeightSmart in Florida. If Fed.R.Civ.P. 23 advisory committee’s note, this were an individual claim, a plaintiff 2003 Amendments), including how the would have to prove at trial he purchased class is to be ascertained. WeightSmart. A defendant in a class ac- tion has a due process right to raise indi- vidual challenges and defenses to claims, B. and a class action cannot be certified in a [8] Ascertainability mandates a rigor- way that eviscerates this right or masks ous approach at the outset because of the individual issues. See McLaughlin v. Am. key roles it plays as part of a Rule 23(b)(3) Tobacco Co., 522 F.3d 215, 231–32 (2d Cir. class action lawsuit. First, at the com- 2008) (rejecting a ‘‘fluid recovery’’ method mencement of a class action, ascertainabili- of determining individual damages, in ty and a clear class definition allow poten- which aggregate damages would be based tial class members to identify themselves on estimates of the number of defrauded for purposes of opting out of a class. Sec- class members and their average loss), ond, it ensures that a defendant’s rights abrogated on other grounds by Bridge v. are protected by the class action mecha- Phoenix Bond & Indem. Co., 553 U.S. nism. Third, it ensures that the parties 639, 128 S.Ct. 2131, 170 L.Ed.2d 1012 can identify class members in a manner (2008); see also Dukes, 131 S.Ct. at 2561 consistent with the efficiencies of a class (rejecting a method of class certification in action. which a sample set of class members would be used to extrapolate average dam- [9, 10] ‘‘ ‘[T]he class-action device ages). A defendant has a similar, if not saves the resources of both the courts and the same, due process right to challenge the parties by permitting an issue poten- the proof used to demonstrate class mem- tially affecting every [class member] to be bership as it does to challenge the ele- litigated in an economical fashion under ments of a plaintiff’s claim. See Marcus, Rule 23.’ ’’ Falcon, 457 U.S. at 155, 102 687 F.3d at 594 (‘‘Forcing BMW and S.Ct. 2364 (second alteration in original) Bridgestone to accept as true absent per- (quoting Califano v. Yamasaki, 442 U.S. sons’ declarations that they are members 682, 701, 99 S.Ct. 2545, 61 L.Ed.2d 176 of the class, without further indicia of reli- (1979)). If a class cannot be ascertained in ability, would have serious due process an economical and ‘‘administratively feasi- implications.’’). Ascertainability provides ble’’ manner, Marcus, 687 F.3d at 594, due process by requiring that a defendant significant benefits of a class action are be able to test the reliability of the evi- lost. See id. at 593 (explaining ascertaina- dence submitted to prove class member- bility ‘‘eliminates serious administrative ship. burdens that are incongruous with the effi- The method of determining whether ciencies expected in a class action’’ (quota- someone is in the class must be ‘‘adminis- tion omitted)). Accordingly, a trial court tratively feasible.’’ Id. A plaintiff does not should ensure that class members can be satisfy the ascertainability requirement if identified ‘‘without extensive and individu- individualized fact-finding or mini-trials alized fact-finding or ‘mini-trials,’ ’’ id., a will be required to prove class member- determination which must be made at the ship. Id. at 593. ‘‘Administrative feasibil- class certification stage. ity means that identifying class members
219 of 234 308 727 FEDERAL REPORTER, 3d SERIES is a manageable process that does not purchases of WeightSmart. We conclude require much, if any, individual factual in- that, based on the evidence produced be- quiry.’’ William B. Rubenstein & Alba low, neither method satisfies Carrera’s Conte, Newberg on Class Actions § 3:3 burden to show the class is ascertainable. (5th ed.2011); see also Bakalar v. Vavra, 237 F.R.D. 59, 64 (S.D.N.Y.2006) (‘‘Class A. membership must be readily identifiable such that a court can determine who is in Carrera argues he will be able to show the class and bound by its ruling without class membership using retailer’s records engaging in numerous fact-intensive inqui- of sales made with loyalty cards, e.g., CVS 3 ries.’’). ExtraCare cards, and records of online sales. Carrera points to a Federal Trade [12] The type of challenge to the relia- Commission (FTC) settlement with CVS bility of evidence that is required will vary regarding the sale of a supplement that based on the nature of the evidence. For was falsely advertised as boosting immune example, if Carrera produces retailer rec- systems. The supplement was sold only at ords that purport to list purchasers of CVS. The FTC stated in its press release WeightSmart, Bayer can challenge the re- regarding the settlement that ‘‘[p]urchas- liability of those records, perhaps by de- ers will be identified through the CVS 2 posing a corporate record-keeper. In ExtraCare card program and sales on cvs. sum, to satisfy ascertainability as it relates com.’’ A1089. to proof of class membership, the plaintiff must demonstrate his purported method Bayer contends there is no evidence that for ascertaining class members is reliable any other retailer of WeightSmart has and administratively feasible, and permits membership cards, that the FTC case is a defendant to challenge the evidence used inapposite as it was a stipulated settlement 4 to prove class membership. in a non-Rule 23 context, in which some of the money paid might go to class members V. but did not have to, and that it is specula- tive whether CVS or any other retailer’s [13] Carrera contends the class is as- records will reveal customers who pur- certainable. He points to two types of chased WeightSmart. evidence that can be used to determine who is a class member. First, he argues The evidence put forth by Carrera is the class can use records from retailers, insufficient to show that retailer records in which purportedly track customers who this case can be used to identify class make purchases online or who use loyalty members. Depending on the facts of a cards. Second, he proposes using affida- case, retailer records may be a perfectly vits of class members attesting to their acceptable method of proving class mem-
2. Although some evidence used to satisfy as- 4. Settlement classes raise different certifica- certainability, such as corporate records, will tion issues than litigation classes. See Am- actually identify class members at the certifi- chem Prods., Inc. v. Windsor, 521 U.S. 591, cation stage, ascertainability only requires the 620, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997). plaintiff to show that class members can be Accordingly, we question whether the FTC’s identified. proposals for identifying purchasers, made as part of a settlement (and a non-class action 3. ExtraCare cards are membership cards that settlement at that), bear any relevance to the offer customers discounts. A1091. issue of ascertainability in this case.
220 of 234 CARRERA v. BAYER CORP. 309 Cite as 727 F.3d 300 (3rd Cir. 2013) bership. But there is no evidence that a class membership. This is especially true single purchaser of WeightSmart could be where the named plaintiff’s deposition tes- identified using records of customer mem- timony suggested that individuals will have bership cards or records of online sales. difficulty accurately recalling their pur- There is no evidence that retailers even chases of WeightSmart.5 Cf. In re Phe- have records for the relevant period. The nylpropanolamine (PPA) Prods. Liab. Li- FTC’s press release does not support a tig., 214 F.R.D. 614, 618–19 (W.D.Wa.2003) finding that these records can determine (concluding affidavits could not be used to class membership on the facts of this case. ascertain a class because the named plain- Moreover, we have no evidence the FTC’s tiffs had difficulty remembering the prod- method was successful. ucts they bought that contained PPA).
B. 2. [15–17] Carrera also argues ascertain- Carrera also contends the class is ascer- ability is less important in this case be- tainable using affidavits of class members. cause Bayer’s total liability will be deter- He advances three arguments. First, due mined at trial, and will not increase or to the low value of the claims, class mem- decrease based on the affidavits submitted. bers will be unlikely to submit fraudulent As noted, this is an action under the Flori- affidavits. Second, because Bayer’s total da Deceptive and Unfair Trade Practices liability will not depend on the reliability of Act (FDUTPA), Fla. Stat. § 501.201 et seq. the affidavits, the ascertainability require- ‘‘[A] consumer claim for damages under ment should be relaxed. Finally, a screen- FDUTPA has three elements: (1) a decep- ing method such as the one described in tive act or unfair practice; (2) causation; the Prutsman Declaration will ensure any and (3) actual damages.’’ Rollins, Inc. v. unreliable affidavits are identified and dis- Butland, 951 So.2d 860, 869 (Fla.Dist.Ct. regarded. App.2006). There is no requirement of actual reliance on the deceptive act. See 1. Fitzpatrick v. Gen. Mills, Inc., 635 F.3d [14] Because the claims are of low val- 1279, 1282–83 (11th Cir.2011) (citing Davis ue, Carrera argues it is less likely someone v. Powertel, Inc., 776 So.2d 971, 973 (Fla. would fabricate a claim. He concedes it is Dist.Ct.App.2000)). ‘‘[T]he question is not unlikely customers would have retained a whether the plaintiff actually relied on the receipt, but asserts this is irrelevant to alleged deceptive trade practice, but possible falsification. He contrasts the whether the practice was likely to deceive claims at issue here to those in Marcus, a consumer acting reasonably in the same which involved more money and more com- circumstances.’’ Davis, 776 So.2d at 974. plicated issues of fact as to whether an Contending liability under the FDUTPA individual was a class member. is not based on individual issues, Carrera This argument fails because it does not argues that he can prove at trial that address a core concern of ascertainability: Bayer owes a refund for every purchase of that a defendant must be able to challenge WeightSmart.6 Since Bayer’s records
5. As mentioned, in his deposition testimony, WeightSmart with other products that are not Carrera was unable to remember when he part of this litigation. purchased WeightSmart and confused 6. Bayer argues that if it is liable, its liability will be limited to refunding the premium con-
221 of 234 310 727 FEDERAL REPORTER, 3d SERIES show it sold approximately $14 million lihood their recovery will be diluted by worth of WeightSmart in Florida, Carrera fraudulent or inaccurate claims. In this asserts Bayer’s liability will be determined case, as we discuss, there is the possibility at trial to be $14 million—no more, no less. that Carrera’s proposed method for ascer- As a result, affidavits attesting to class taining the class via affidavits will dilute membership will only be used to determine the recovery of true class members. to whom to pay the refund, and in what Bayer too has an interest in ensuring it amount. pays only legitimate claims. If fraudulent Under no circumstances, Carrera as- or inaccurate claims materially reduce sures us, will Bayer pay any amount other true class members’ relief, these class than $14 million, even if a significant num- members could argue the named plaintiff ber of inaccurate claims are submitted and did not adequately represent them be- paid out. For example, if claims are made cause he proceeded with the understand- for more than $14 million, and inaccurate ing that absent members may get less or false claims cannot be screened out, than full relief 7 When class members are claimants will simply receive less than they not adequately represented by the named are entitled to. And if too few claims are plaintiff, they are not bound by the judg- made, Carrera asserts the excess funds ment. See Hansberry v. Lee, 311 U.S. 32, will not be returned to Bayer but will go to 42, 61 S.Ct. 115, 85 L.Ed. 22 (1940) (ex- an unclaimed property fund. Carrera con- plaining that due process requires the in- trasts this situation with Marcus. In terests of absent class members to be ade- Marcus, there was no evidence of the total quately represented for them to be bound number of RFTs allegedly purchased in by the judgment). They could then bring violation of the consumer protection laws. a new action against Bayer and, perhaps, Accordingly, each claim submitted would apply the principles of issue preclusion to have increased the amount of money the prevent Bayer from re-litigating whether defendants would have had to pay. As a it is liable under the FDUTPA. Bayer result, the defendants had a more substan- has a substantial interest in ensuring this tial interest in screening out false claims. does not happen. Accordingly, we reject Because Bayer’s total liability cannot be so Carrera’s argument that the level of proof affected by unreliable affidavits, Carrera for ascertainability should be relaxed be- argues Bayer lacks an interest in challeng- cause Bayer’s ultimate liability will not be ing class membership. based on the affidavits. Under Carrera’s view, if fraudulent or inaccurate claims are paid out, the only 3. harm is to other class members. But as- [18] Finally, Carrera argues that a certainability protects absent class mem- screening method such as the one de- bers as well as defendants, Marcus, 687 scribed in the Prutsman Declaration will F.3d at 593, so Carrera’s focus on Bayer ensure that Bayer pays claims based only alone is misplaced. It is unfair to absent on reliable affidavits. In his declaration, class members if there is a significant like- James Prutsman states that he works at
sumers paid for WeightSmart based on its 7. We express no opinion on whether absent metabolism-enhancing claims. For purposes class members would be successful in arguing of this appeal, it makes no difference whether they were not adequately represented on this customers would be entitled to a full refund ground. or merely a refund of this premium.
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Rust Consulting, Inc., a firm that has ad- The Prutsman Declaration does not ministered class settlements for nearly 25 show the affidavits will be reliable.8 Nor years. A992. He explains that Rust ‘‘em- does it propose a model for screening ploys numerous methods to detect claims claims that is specific to this case. And that are submitted fraudulently.’’ A995. even if Prutsman produced a model that is ‘‘For example, the firm runs programmatic specific to this case, we doubt whether it audits to identify duplicate claims, outliers, could satisfy the ascertainability require- and other situations. In addition, Rust ment. At this stage in the litigation, the has successfully utilized fraud prevention district court will not actually see the mod- techniques where by [sic] the claim form el in action. Rather, it will just be told offers claim options that do not reflect how the model will operate with the plain- valid product descriptions, prices paid, tiff’s assurances it will be effective. Such geographic locations or combinations of assurances that a party ‘‘intends or plans such factors.’’ Id. ‘‘By providing claims to meet the requirements’’ are insufficient options such as a very high pill count or to satisfy Rule 23. Hydrogen Peroxide, significantly higher purchase price in this 552 F.3d at 318; see also Comcast Corp. v. case, fraudulent claim filers would natural- Behrend, ––– U.S. ––––, 133 S.Ct. 1426, 1434, 185 L.Ed.2d 515 (2013) (rejecting ly be inclined to select options that they contention that Rule 23 is satisfied by an believe would increase their claim value. assurance that the plaintiffs can produce a As such, techniques such as these can be damages model capable of measuring dam- used to effectively [eliminate] fraudulent ages caused by a specific theory of anti- claims.’’ Id. trust impact). Carrera has suggested no Bayer maintains the Prutsman Declara- way to determine the reliability of such a tion is insufficient to satisfy the reliability model. For example, even if a model standard because it only addresses meth- screens out a significant number of claims, ods for allocating payment to a settlement say 25%, there is probably no way to know class. This fact is important, according to if the true number of fraudulent or inaccu- Bayer, because there are different stan- rate claims was actually 5% or 50%.9 dards for approving a settlement class As Marcus was decided after the trial than for certifying a litigation class, and court certified the class, Carrera should because Prutsman does not opine that his have another opportunity to satisfy the method would satisfy the standard for ascertainability requirement. Accordingly, class certification. Bayer also argues that we will afford Carrera the opportunity to just because some defendants have agreed submit a screening model specific to this to use such techniques in administering a case and prove how the model will be class settlement, it does not mean that it is reliable and how it would allow Bayer to sufficiently reliable. challenge the affidavits. Mere assurances
8. Based on this conclusion, we do not need to 9. Carrera’s ability to meet the ascertainability reach Bayer’s argument that the District requirement using a screening model is fur- Court erred by considering the Prutsman Dec- ther in doubt due to his inability to clearly laration, which was produced with Carrera’s remember his purchases of WeightSmart, al- reply brief in support of its motion for class though the District Court did not determine certification. Accordingly, we will deny Bay- whether his testimony was reliable. It would er’s motion to supplement the appellate rec- appear that the less reliable a class member’s ord, which relates solely to this issue. memory is, the more reliable any screening method would have to be.
223 of 234 312 727 FEDERAL REPORTER, 3d SERIES that a model can screen out unreliable officer who allegedly used excessive force affidavits will be insufficient.10 against inmate in violation of Eighth Amendment. Correctional officer moved VI. for judgment as a matter of law (JMOL) on the ground he was entitled to qualified For the foregoing reasons, we will va- immunity. The United States District cate the District Court’s order certifying Court for the Western District of Virginia, the class action and remand for further James C. Turk, Senior District Judge, de- proceedings consistent with this opinion. nied the motion, and jury returned verdict Because Marcus was decided after the in inmate’s favor. After his renewed mo- court’s certification of the class, Carrera tion for JMOL was denied, 2012 WL should be allowed to conduct further, limit- 517544, correctional officer appealed. ed discovery on the issue of ascertainabili- ty and afforded another opportunity to Holdings: The Court of Appeals, Agee, satisfy the ascertainability requirement. Circuit Judge, held that: (1) Court of Appeals had jurisdiction to , consider appeal; (2) inmate’s right to be free from nontrivi- al force that was applied maliciously Demetrius HILL, Plaintiff–Appellee, and sadistically to cause harm, even if only de minimis injury was inflicted, v. was not clearly established at time of C.O. CRUM, Defendant–Appellant, officer’s alleged assault; and and (3) officer’s alleged assault did not consti- tute excessive force under clearly es- Terry O’Brien, Warden; Mr. Strickland, tablished law at time of assault, and Associate Warden; Mr. Wilson, Cap- thus officer was entitled to qualified tain; Lt. Stiger; Pulivar, Counselor; immunity. Counselor Mullins; Ms. Hall, Case Manager; Nurse Meade; Dr. Allred; Reversed and remanded with instructions. Dr. Roff, Health Administrator; C.O. Thacker, Circuit Judge, filed dissenting T. Taylor; C.O. Taylor; C.O. Martin, opinion. Defendants. No. 12–6705.
United States Court of Appeals, 1. Federal Courts 801 O Fourth Circuit. On review of district court’s denial of a motion for judgment as a matter of law Argued: March 22, 2013. (JMOL), Court of Appeals reviews the Decided: Aug. 14, 2013. facts in the light most favorable to the Background: Federal prison inmate non-movant. Fed.Rules Civ.Proc.Rule brought Bivens action against correctional 50(b), 28 U.S.C.A.
10. Bayer also argues that because the statute Florida, whether an individual’s claim is of limitations will bar some claims, the class barred by the statute of limitations is not an cannot be ascertained. Because the class is aspect of ascertainability in this case. defined as all purchasers of WeightSmart in
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Carrera v. Bayer Corp., Not Reported in F.3d (2014)
(D. NJ No. 2–08–cv–04716).
Attorneys and Law Firms
Caroline F. Bartlett, Esq., James E. Cecchi, Esq., Donald A. Ecklund, Esq., Lindsey H. Taylor, Esq., Carella, Byrne, Cecchi, Olstein, Brody & Agnello, Roseland, NJ, Joe R. Whatley, Jr., Esq., Whatley, Drake & Kallas, New York, NY, for Gabriel Joseph Carrera.
Lorna A. Dotro, Esq., Timothy I. Duffy, Esq., Coughlin Duffy, Morristown, NJ, Matthew R. Ford, Esq., Christopher D. Landgraff, Esq ., Rebecca Weinstein Bacon, Esq., Bartlit, Beck, Herman, Palenchar & Scott, Chicago, IL, for Appellants.
Present McKEE, Chief Judge, RENDELL, AMBRO, FUENTES, SMITH, FISHER, CHAGARES, JORDAN, HARDIMAN, GREENAWAY, JR., VANASKIE, SHWARTZ and SCIRICA, Circuit Judges.
SUR PETITION FOR REHEARING
ANTHONY J. SCIRICA, Circuit Judge.
*1 The petition for rehearing filed by Appellee the above-entitled case having been submitted to the judges who participated in the decision of this Court and to all the other available circuit judges of the circuit in regular active service, and no judge who concurred in the decision having asked for rehearing, and a majority of the judges of the circuit in regular service not having voted for rehearing, the petition for rehearing by the panel and the Court en banc, is denied. Chief Judge McKee and Judges Ambro, Rendell, and Fuentes issue a separate opinion dissenting sur denial of the petition for rehearing en banc. Judges Smith, Chagares, and Scirica issue a separate opinion sur denial of panel rehearing.
OPINION DISSENTING SUR DENIAL OF PETITION FOR REHEARING EN BANC
AMBRO, Circuit Judge, with whom McKEE, Chief Judge, RENDELL, and FUENTES Circuit Judges, join. *1 Marcus v. BMW of North America, LLC, an opinion I authored, agreed with those “courts and commentators [who] have recognized that an essential prerequisite of a class action, at least with respect to actions under Rule 23(b)(3), is that the class must be currently and readily ascertainable....” 687 F.3d 583, 592–93 (3d Cir.2012) (citations omitted). Our Court's opinion in Carrera gives the impression to many that we now carry that requirement too far. Several amici—including this country's
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Carrera v. Bayer Corp., Not Reported in F.3d (2014) most recognized expert on procedure, Arthur Miller—warn that Carrera threatens the viability of the low-value consumer class action “that necessitated Rule 23 in the first instance.” Br. of Amici Curiae Professors of Civil Procedure & Complex Litigation at 3. One District Court believes that Carrera “eviscerates low purchase price consumer class actions in the Third Circuit.” McCrary v. Elations Co., LLC, No. 13–00242 JGB, 2014 U.S. Dist. LEXIS 844, at *24 (C.D.Cal. Jan. 13, 2014). Even if, as I believe, the ability to identify class members is a set piece for Rule 23 to work, how far we go in requiring plaintiffs to prove that ability at the outset is exceptionally important and requires a delicate balancing of interests. It merits not only en banc review by our Court but also review by the Judicial Conference's Committee on Rules of Practice and Procedure.
I.
Carrera brought a class action on behalf of Florida consumers alleging false advertising by the defendants (collectively “Bayer”) in their marketing and sale of the multivitamin WeightSmart. In a fortuity that will undoubtedly become more prevalent should the Court's decision become entrenched law, Bayer did not sell WeightSmart directly to consumers. Moreover, there is no dispute that prospective class members are unlikely to have documentary proof of purchase. Few people keep receipts from drug stores for low-cost items. Despite the District Court's determination that the administrative burden of class certification was “not insurmountable” (as class members could be ascertained based on loyalty and reward card purchases, online sales, and affidavits), and despite that determination being unassailable but for an abuse of discretion, our Court reversed and vacated the certification order. Relying largely on our decision in Marcus, the Court held that the plaintiffs methods offered for ascertaining valid class members were insufficient.
II.
*2 “The policy at the very core of the class action mechanism is to overcome the problem that small recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or her rights.” Amchem Prods. v. Windsor, 521 U.S. 591, 617 (1997) (quoting Mace v. Van Ru Credit Corp., 109 F.3d 338, 344 (7th Cir.1997)). The decision in Carrera gives fear that some wrongs will go unrighted because the wrongdoers successfully gamed the system.
The panel calls this case the natural follow-on to Marcus. I believe instead that Carrera goes too far. In Marcus the plaintiffs alleged that Bridgestone run-flat tires (“RFTs”) were defective and sought to certify a New Jersey subclass of “[any] and [a]ll current and former owners and lessees of 2006, 2007, 2008, and 2009 BMW vehicles equipped with run-flat tires manufactured by Bridgestone ... and sold or leased in [New Jersey] whose Tires have gone flat and been replaced....” Marcus, 687 F.3d at 590. We explained, among other things, that being able to ascertain who the class members are is an essential precondition for Rule 23 to operate. There, determining someone was a member of the class required difficult individual findings that:
(1) The purported member had purchased a car from BMW with RFTs (made difficult because BMW did not have a record of which cars had RFTs);
(2) The car was equipped with RFTs when it left the dealership (made difficult because dealers would often alter the tires on a car); and
(3) The RFTs had gone flat and been replaced (made difficult because the class was not limited to those who brought their cars to BMW for repairs).
Id. at 593–94. Because the plaintiff offered no administratively feasible method to make these determinations on a class-wide basis, we vacated the class certification order.
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Carrera v. Bayer Corp., Not Reported in F.3d (2014)
In contrast to the prolix class definition in Marcus, the class here is simply “all persons who purchased WeightSmart in Florida.” Carrera v. Bayer Corp., 727 F.3d 300, 304 (2013). Despite this straightforward class definition, in ruling that the District Court abused its discretion, our Court's reasoning has a consistent theme—there is no evidence that class membership is capable of identification.
— “There is no evidence that retailers even have records for the relevant period.” Id. at 309.
— “[W]e have no evidence the [Federal Trade Commission's method for identifying customers in CVS in another case involving a supplement with allegedly false advertising] was successful.” Id .
— “Carrera has suggested no way to determine the reliability of ... [the] model [proposed to weed out invalid affidavits of WeightSmart purchases].... And even if [Carrera's expert] produced a model that is specific to this case, we doubt whether it could satisfy the ascertainability requirement.” Id. at 311.
However, the District Court grappled with this precise question, examined the plaintiff's methods of ascertainability, and reached a contrary conclusion. Carrera v. Bayer Corp., No. 08–4716, 2011 WL 5878376, at *4 (D.N.J. Nov. 22, 2011). The Court recognized that, because of Bayer's business model, it may not be simple to ascertain the class members, but nonetheless found that the hurdle was “not insurmountable.” Id. The rationale for this finding was that the majority of class members could be determined by records from loyalty card programs and online purchasing receipts, and the remaining may be found through affidavits. Id. Undoing that determination requires us to decide that the District Judge abused his discretion. That is hard to do, as at the certification stage “ascertainabilty only requires the plaintiff to show that class members can be identified,” not their actual identities. Carrera, 727 F.3d at 308 n.2 (emphasis added).
*3 Our Court's decision begs the question of what does work to identify class members. The opinion gives no hint even though it remanded for another “opportunity to satisfy the ascertainability requirement.” Id. at 312. A guess at subtext for the rigid ruling of our Court is that the panel found fault with the Florida statute on which Carrera based his class action—the Florida Deceptive and Unfair Trade Practices Act, Fla. Stat. § 501. 201 et seq.—as it has “no requirement of actual reliance on the deceptive act.” Carrera, 727 F.3d at 309. The Florida provision requires only that the deceptive practice was likely to deceive a consumer. Id. Likely lurking as well is the real chance that few class members, once identified, will submit claims to share in a pot that is, at the theoretical maximum, $14 million. Only Carrera's counsel will profit along with the organization(s) designated to receive the surplus that may spawn an objection that there is insufficient direct compensation to class members. See In re Baby Prods. Antitrust Litig., 708 F.3d 163 (3d Cir.2013).
Rule 23's implied requirement of ascertainabilty is judicially created. Because it is a creature of common law, I believe that we should be flexible with its application, especially in instances where the defendant's actions cause the difficulty. Where, as here, a defendant's lack of records and business practices make it more difficult to ascertain the members of an otherwise objectively verifiable low-value class, the consumers who make up that class should not be made to suffer. The consequence of a step too far is the curtailment of well-intentioned class actions with many members yet all with claims too minimal to be asserted individually. I thus respectfully dissent from the denial of en banc rehearing.
In this context, I suggest that the Judicial Conference's Committee on Rules of Practice and Procedure look into this matter. Rule 23 explicitly imposes limitations on the availability of class actions. Marcus adds another—that class membership is reasonably capable of being ascertained. If the Committee agrees with that, how easy (or how hard) must this identification be?
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Carrera v. Bayer Corp., Not Reported in F.3d (2014)
OPINION SUR DENIAL OF PAN EL REHEARING
SMITH, CHAGARES, and SCIRICA, Circuit Judges. The petition for panel rehearing is denied. On the facts of this case, Carrera has not satisfied his burden to show that there is a reliable, administratively feasible method to determine class membership. As Bayer notes in its Answer to Appellee's Petition for Rehearing, “the Court invited Carrera on remand to develop a screening method to account for the unreliability demonstrated by his own testimony.” Answer to Appellee's Petition for Rehearing and Rehearing En Banc at 14, Carrera v. Bayer Corp., No. 12–2621 (3d Cir. Dec. 30, 2013). On remand, Carrera has the opportunity to submit a screening model specific to this case that can reliably distinguish between accurate affidavits and fraudulent or inaccurate ones. Bayer may challenge the reliability of the screening model. Carrera has yet to propose a specific model and the District Court has yet to examine one. We express no view regarding whether Carrera will satisfy this Rule 23 burden.
*4 The other method Carrera put forth to show class membership—retail records—also suffered from a failure of proof. To date, Carrera has produced no evidence that a single purchaser of WeightSmart could be identified using records of customer membership cards or records of online sales.
Finally, as raised in Bayer's Answer to Appellee's Petition for Rehearing, it is unclear whether the Florida Supreme Court would determine that the causation element in the Florida Deceptive and Unfair Trade Practices Act (“FDUTPA”) requires individualized proof. This issue was not developed in the briefs before the panel. There is significant disagreement on this matter within both the Florida District Courts of Appeal and the federal courts. Compare Davis v. Powertel, Inc., 776 So.2d 971, 974–75 (Fla.Dist.Ct.App.2000) (holding FDUTPA has no reliance element and its causation element is susceptible to common proof), with Philip Morris USA Inc. v. Hines, 883 So.2d 292, 294 (Fla.Dist.Ct.App.2003) (per curiam) (questioning “whether Davis gives fair consideration to the principle of causation” in FDUTPA and decertifying the class because, on the facts before it, causation required individualized proof); compare also Fitzpatrick v. Gen. Mills, Inc., 635 F.3d 1279, 1282–83 (11th Cir.2011) (concluding causation in FDUPTA may be proved through common evidence), with In re Sears, Roebuck & Co. Tools Mktg. & Sales Practices Litig., Nos. 05 C 4742, 05 C 4744, 2012 WL 1015806, at *9–10 (N.D.Ill. Mar. 22, 2012) (disputing Fitzpatrick's conclusion, determining “the great weight of recent authority in [the Florida state appellate courts] ... holds that causation [under FDUTPA] typically requires individualized proof and citing for support Miami Auto. Retail, Inc. v. Baldwin, 97 So.3d 846, 857 (Fla.Dist.Ct.App.2012), Tire Kingdom, Inc. v. Dishkin, 81 So.3d 437, 448 (Fla.Dist.Ct.App.2011), quashed on other grounds sub nom by Soper v. Tire Kingdom, Inc., 124 So.3d 804 (Fla.2013), Kia Motors Am. Corp. v. Butler, 985 So.2d 1133, 1140–41 (Fla.Dist.Ct.App.2008), Egwuatu v. S. Lubes, Inc., 976 So.2d 50, 53–54 (Fla.Dist .Ct.App.2008), Rollins, Inc. v. Butland, 951 So.2d 860, 871–75 (Fla.Dist.Ct.App.2006), Philip Morris USA Inc. v. Hines, 883 So.2d 292, 294–95 (Fla.Dist.Ct.App.2003) (per curiam), and Hutson v.. Rexall Sundown, Inc., 837 So.2d 1090, 1092–93 (Fla.Dist.Ct.App.2003)). In light of these decisions, we ask the District Court to revisit whether causation under FDUTPA requires individualized proof.
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Lilly v. Jamba Juice Company, Not Reported in F.Supp.3d (2014)
Attorneys and Law Firms
Danielle A. Stoumbos, Rosemary M. Rivas, Finkelstein Thompson LLP, San Francisco, CA, Marc Lawrence Godino, Glancy Binkow & Goldberg LLP, Los Angeles, CA, for Plaintiffs.
Robert Stephen Niemann, Keller & Heckman LLP, San Francisco, CA, Anna H. Finn, David Bruce Rosenbaum, James K. Rogers, Maureen Beyers, Osborn Maledon, P.A., Phoenix, AZ, for Defendants
ORDER GRANTING IN PART AND DENYING IN PART MOTION FOR CLASS CERTIFICATION; VACATING ORDER TO SHOW CAUSE; SETTING CASE MANAGEMENT CONFERENCE
Re: ECF No. 29-3
JON S. TIGAR, United States District Judge
I. INTRODUCTION *1 In this action challenging the labeling of Jamba Juice home smoothie kits, Plaintiffs Aleta Lilly and David Cox (“Plaintiffs”) have moved to certify the following class: “all persons in California who bought one of the following Jamba Juice Smoothie Kit products: Mango-a-go-go, Strawberries Wild, Caribbean Passion, Orange Dream Machine, and Razzmatazz.” Plaintiffs' Motion for Class Certification (“Mot.”), at 2, ECF No. 29–4. The matter came for hearing August 21, 2014.
II. BACKGROUND
A. Factual Background Since 2010, Defendants Jamba Juice Company and Inventure Foods, Inc. (“Defendants”) have produced at-home frozen smoothie kits for sale in retail grocery stores, big box stores, and wholesale clubs throughout California. Class Action Complaint (“Compl.”) ¶¶ 2–3 (ECF No. 1–1). The Smoothie Kits, which come in five flavors, are sold in a three-sided pouch with the words “All Natural” appearing prominently on the front of the package. Compl. ¶ 3; see also, Exh. 1 to Declaration of Rosemary M. Rivas. Plaintiffs allege that the Smoothie Kits contain ascorbic acid, xanthan gum, steviol glycosides, modified corn starch, and gelatin (the “challenged ingredients”). Compl. ¶¶ 121–29.
Plaintiff Aleta Lilly purchased the “Strawberries Wild” and “Caribbean Passion” smoothie kits from March 2010 to November 2012. Compl. ¶ 12. Plaintiff David Cox purchased the “Caribbean Passion” smoothie kits “within the last three years.” Compl. ¶ 13. Plaintiffs allege that, in making their purchases, they relied on the representation that the smoothie kits are “all natural,” and they believe that because the Smoothie Kits contain the challenged ingredients, the kits are not “all natural.” Compl. ¶¶ 12–13.
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B. Procedural History Plaintiffs Lilly and Cox filed a proposed class action complaint in this action in June 2013. The complaint brings causes of action under the California Consumer Legal Remedies Act (“CLRA”), Cal. Civ.Code §§ 1750 et seq., the California False Advertising Law (“FAL”), Cal. Bus. & Prof.Code §§ 17500 et seq., the California Unfair Competition Law (“UCL”), Cal. Bus. & Prof.Code §§ 17200 et seq., and for breach of warranty pursuant to Cal. Comm.Code § 2313. ¶¶ 42–70.
In November, the Court denied Defendants' motion to dismiss. 2013 WL 6070503 (N.D.Cal. Nov. 18, 2013). This motion for class certification followed.
C. Jurisdiction After reviewing the parties' responses to the Court's Order to Show Cause regarding Subject–Matter Jurisdiction, and the evidence submitted in support of those responses, the Court has determined that it has jurisdiction over this action pursuant to 28 U.S.C. § 1332(d)(2) & (6), the Class Action Fairness Act of 2005 (“CAFA”). Considering all Proposed Class members' claims, the “matter in controversy” exceeds $5,000,000, exclusive of interests and costs, and at least one plaintiff and defendant are citizens of different states. Even though the Proposed Class is composed entirely of California residents, the “local controversy” exception to CA FA jurisdiction does not require dismissal, for reasons persuasively explained in Phillips v. Kaiser Found. Health Plan, Inc., 953 F.Supp.2d 1078, 1086 (N.D.Cal.2011). The Court's order to show cause is VACATED.
D. Legal Standard *2 Class certification under Rule 23 is a two-step process. First, Plaintiff must demonstrate that the four requirements of 23(a) are met: “numerosity,” “commonality,” “typicality,” and “adequacy.” “One or more members of a class may sue or be sued as representative parties on behalf of all members only if (1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class.” Fed. R. Civ. Pro. 23(a). “Class certification is proper only if the trial court has concluded, after a ‘rigorous analysis,’ that Rule 23(a) has been satisfied.” Wang v. Chinese Daily News, Inc., 709 F.3d 829, 833 (9th Cir.2013) (quoting Wal–Mart Stores, Inc. v. Dukes(“Dukes”), ––– U.S. ––––, 131 S.Ct. 2541, 2551 (2011)).
Second, a plaintiff must also establish that one of the bases for certification in Rule 23(b) is met. Here, Plaintiffs invoke 23(b) (3), which requires plaintiffs to prove the elements of “predominance” and “superiority”: “questions of law or fact common to class members predominate over any questions affecting only individual members, and ... a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” Fed. R. Civ. Pro. 23(b)(3). 1
The party seeking class certification bears the burden of demonstrating by a preponderance of the evidence that all four requirements of Rules 23(a) and at least one of the three requirements under Rule 23(b) are met. See Dukes, 131 S.Ct. at 2551 (“A party seeking class certification must affirmatively demonstrate his compliance with the Rule—that is, he must be prepared to prove that there are in fact sufficiently numerous parties, common questions of law or fact, etc.”).
In addition, “[w]hile it is not an enumerated requirement of Rule 23, courts have recognized that ‘in order to maintain a class action, the class sought to be represented must be adequately defined and clearly ascertainable.’ ” Vietnam Veterans of Am. v. C.I.A., 288 F.R.D. 192, 211 (N.D.Cal.2012) (quoting DeBremaecker v. Short, 433 F.2d 733, 734 (5th Cir.1970)).
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Lilly v. Jamba Juice Company, Not Reported in F.Supp.3d (2014)
III. ANALYSIS
A. Ascertainability/Definiteness In their motion, Plaintiffs do not specifically address the “ascertainability” requirement. In their opposition, Defendant argues that Plaintiffs have failed to demonstrate the existence of an ascertainable class, and that this failure should defeat class certification. Defendants' Response to Motion for Class Certification (“Response”) 3–5 (ECF No. 39).
The Court is unaware of the Ninth Circuit or the Supreme Court ever explicitly acknowledging in any published opinion that “ascertainability” or “definiteness” is a required element of class certification that imposes obligations independent of the enumerated Rule 23 factors. But see Berger v. Home Depot USA, Inc., 741 F.3d 1061, 1071, n. 4 (9th 2014) (referring, in dicta, to the “threshold ascertainability test”); Pierce v. County of Orange, 526 F.3d 1190, 1200 (9th Cir.2008) (concluding that the district court did not abuse its discretion in decertifying a damages class because “Rule 23(b)(3) would not offer a superior method for fair and efficient adjudication in light of expected difficulties identifying class members”); Martin v. Pac. Parking Sys. Inc., No. 12–56654, 2014 W L 3686135, at * 1 (9th Cir. July 25, 2014) (unpublished) (“Given these difficulties identifying the members of the proposed class, and the fact that Martin proposed no plan to the district court for manageably determining which individuals are members, we conclude that the court did not abuse its discretion in denying class certification”).
*3 However, this Court joins numerous circuit courts and courts of this district in finding that this criterion is an inherent requirement of at least Rule 23(b)(3) class actions. 2 See William B. Rubenstein, Newberg on Class Actions (“Newberg”) §§ 3:1–3:3 (5th ed.) (collecting cases). “A class definition is sufficient if the description of the class is ‘definite enough so that it is administratively feasible for the court to ascertain whether an individual is a member.’ ” Viet. Veterans, 288 F.R.D. at 211 (quoting O'Connor v. Boeing N. Am., Inc., 184 F.R.D. 311, 319 (C.D.Cal.1998)). “Administrative feasibility means that identifying class members is a manageable process that does not require much, if any, individual factual inquiry.” Newberg § 3:3. However, “the class need not be so ascertainable that every potential member can be identified at the commencement of the action.” Mazur v. eBay, Inc., 257 F.R.D. 563, 567 (N.D.Cal.2009) (quoting O'Connor, 184 F.R.D. 311, 319 (C.D.Cal.1998) (internal quotations omitted).
Courts have examined at least three types of “ascertainability” (or “definiteness”) concerns in determining whether class certification is appropriate. First, “[a]n identifiable class exists if its members can be ascertained by reference to objective criteria.” Manual for Complex Litigation (4th) § 21.222. “The order defining the class should avoid subjective standards (e.g., a plaintiff's state of mind) or terms that depend on resolution of the merits (e.g., persons who were discriminated against).” Id. See, e.g., Xavier v. Philip Morris USA Inc., 787 F.Supp.2d 1075, 1089 (N.D.Cal.2011) (denying certification where “[t]he question” of class membership “would come down to the state of mind of the putative class member, and it would be easy to fade in or out of the class depending on the outcome.”). Here, the class definition is based on objective criteria that do not depend on the resolution of the merits, and Defendants do not argue otherwise.
Second, some courts appear to accept the argument, advanced by Defendants here, that the ascertainability analysis requires district courts to deny certification if the class includes any members who will not be able to recover. See Wright & Miller, 7A Fed. Prac. & Proc. Civ. § 1760 (3d ed.) (“Some courts also have considered whether the class definition must exclude anyone who does not have a viable claim.”) For reasons more fully explained in a previous order, the undersigned does not endorse this view. See Rodman v. Safeway, Inc., No. 11–cv–03003–JST, 2014 WL 988992, at * 15–16 (N.D.Cal. Mar. 10, 2014); accord In re Con Agra Foods, Inc., ––– F.Supp.2d ––––, No. 11–cv–05379 MMM AGRX, 2014 WL 4104405, at *20–22 (C.D.Cal. Aug. 1, 2014) (collecting cases in thorough analysis of relevant case law). “When rejecting class certification based on overbreadth ... the problem lies in the court's ability to ascertain the class, not whether the putative classmembers have [each] been aggrieved.” Kurihara v. Best Buy Co., Inc., No. 06–cv–01884 M HP, 2007 WL 2501698, at *5 (N.D.Cal. Aug. 30, 2007) (citing Mateo v. M/S Kiso, 805 F.Supp. 761, 773 (N.D.Cal.1992)).
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Lilly v. Jamba Juice Company, Not Reported in F.Supp.3d (2014)
*4 Third and finally, some courts have denied class certification motions, even when the criteria for class membership are objective, if plaintiffs cannot show at the class certification stage that they will be able to locate the absent class members. In a line of recent cases, the Third Circuit has accepted this argument, as has at least one court in this district. Carrera v. Bayer Corp., 727 F.3d 300, 308 (3d Cir.2013); Hayes v. Wal–Mart Stores, Inc., 725 F.3d 349, 356 (3d Cir.2013); Sethavanish v. ZonePerfect Nutrition Co., No. 12–cv–2907–SC, 2014 WL 580696, at *4–6 (N.D.Cal. Feb. 13, 2014). Defendants argue that the Court should reject certification here because, as in those cases, neither Plaintiffs nor Defendants have produced records demonstrating which specific individuals (other than the named Plaintiffs) purchased the challenged smoothie kits from the retail outlets to which Defendants distributed them.
“[I]t appears that pursuant to Carerra in any case where the consumer does not have a verifiable record of its purchase, such as a receipt, and the manufacturer or seller does not keep a record of buyers, Carerra prohibits certification of the class.” McCrary v. Elations Co., LLC, No. 13–cv–00242 JGB OP, 2014 WL 1779243, at *8 (C.D.Cal. Jan. 13, 2014). At oral argument on this motion, Defendants' counsel straightforwardly acknowledged that this is, in fact, the logical consequence of the Carrera decision. But “[w]hile this may now be the law in the Third Circuit, it is not currently the law in the Ninth Circuit.” Id. (citing cases).
Adopting the Carrera approach would have significant negative ramifications for the ability to obtain redress for consumer injuries. Few people retain receipts for low-priced goods, since there is little possibility they will need to later verify that they made the purchase. 3 Yet it is precisely in circumstances like these, where the injury to any individual consumer is small, but the cumulative injury to consumers as a group is substantial, that the class action mechanism provides one of its most important social benefits. In the absence of a class action, the injury would go unredressed. See Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 161 (1974) (“since [n]o competent attorney would undertake this complex antitrust action to recover so inconsequential an amount ... [e]conomic reality dictates that petitioner's suit proceed as a class action or not at all.”). Moreover, while difficulties identifying class members may frustrate the compensatory purposes of class action litigation, “[a] class action, like litigation in general, has a deterrent as well as a compensatory objective.” Hughes v. Kore of Indiana Enterprise, Inc., 731 F.3d 672, 677– 79 (7th Cir.2013); see also Coneff v. AT & T Corp., 673 F.3d 1155, 1159 (9th Cir.2012) (discussing a “primary policy rationale for class actions, as discussed by the district court in terms of deterrence.”).
Before rejecting the proposition, however, it is worth considering the reasons that have motivated courts to require a plan to identify specific class members at the class certification stage. Two reasons appear to be paramount.
*5 The first concern is that if it is impossible to actually deliver to class members the notice and relief to which they are entitled, it would be unfair to bind them to any final judgment; and if the class action is insufficient to release absent class members of their claims, it would deprive defendants of the benefit of global peace. See Marcus v. BMW of North Am., LLC, 687 F.3d 583, 593 (3d Cir.2012) (ascertainability requirement “protects absent class members by facilitating the ‘best notice practicable’ under Rule 23(c)(2)” and “protects defendants by ensuring that those persons who will be bound by the final judgment are clearly identifiable.); Carrera, 727 F.3d at 307 (“at the commencement of a class action, ascertainability and a clear class definition allow potential class members to identify themselves for purposes of opting out of a class” and “ensures that a defendant's rights are protected by the class action mechanism”).
This concern is legitimate, but our law has long recognized that direct notice to every class member is not always possible. What Rule 23 and the Due Process Clause require is “the best notice that is practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort.” Fed. R. Civ. Pro. 23(c)(2)(B); see also Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 812 (1985) (“The notice must be the best practicable, ‘reasonably calculated,
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Lilly v. Jamba Juice Company, Not Reported in F.Supp.3d (2014) under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.’ ”) (quoting Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314–15 (1950)).
Plaintiffs here have submitted a detailed plan for notice prepared by a commissioned media and notice expert, indicating that they will attempt to provide direct notice to many retail customers whose contact information may be on file with the retailer (such as those who purchased products from the retailer with store-specific membership cards), and that an extensive but targeted internet and print media campaign will be aimed at providing notice to other potential class members. Declaration of Alan Vazquez (ECF No. 42–1, at ECF Page Nos. 17–26). After reviewing the proposal, the Court sees no reason to conclude at this stage that the plan to identify class members will fail to comport with due process. This distinguishes this case from those in which plaintiffs provided no plan to ascertain class membership. Cf. Sethavanish, 2014 W L 580696, at *6 (“In the instant action, Plaintiff has yet to present any method for determining class membership, let alone an administratively feasible method.”); Martin, 2014 W L 3686135, at *1 (“Given these difficulties identifying the members of the proposed class, and the fact that Martin proposed no plan to the district court for manageably determining which individuals are members, we conclude that the court did not abuse its discretion in denying class certification”).
There is a second concern that appears to have motivated at least some other courts to require identification of actual class members at the certification stage. This case, like others, will require at least some potential class members to respond to a general notice and then assert their class membership by attesting to the fact that they purchased the challenged products. The Carrera court, among others, objected to this, arguing that “[a] defendant in a class action has a due process right to raise individual challenges and defenses to claims,” and “has a similar, if not the same, due process right to challenge the proof used to demonstrate class membership as it does to challenge the elements of a plaintiff's claim.” 727 F.3d 300 at 307; see also Marcus, 687 F.3d at 594 (“forcing ... [defendants] to accept as true absent persons' declarations that they are members of the class, without further indicia of reliability, would have serious due process implications”); Hayes, 725 F.3d at 356 (“This petition for class certification will founder if the only proof of class membership is the say-so of putative class members.”).
*6 But Plaintiffs are not proposing to establish the fact or extent of a defendant's liability through the notice and claim administration process. The notice process is a way to deliver class members their relief, but the amount of liability will be proven at trial. Defendants would certainly be entitled to object to a process through which a non-judicial administrator “ascertains” each applicant's class membership on the basis of the applicants' own self-identification, gives a defendant no opportunity to challenge that determination, and then racks up the defendant's bill every time an individual submits a form. But the fact and extent of Defendants' liability will be proven by admissible evidence submitted at summary judgment or at trial, or it will not be proven at all. In other words, it is Plaintiffs' burden is to establish, with admissible evidence, that Defendants' challenged labeling practices violated to the law, and to produce evidence of the total damages to which the Class is entitled. Plaintiffs cannot lighten their burden by leaning on the responses to the class notice (unless those responses are provided, in admissible form, as evidence to the Court, subject to Defendants' right to challenge and object). But neither can Defendants shortcut the class action process by claiming that these responses will have some impact on their liability.
The Carrera court recognized this important distinction, acknowledging Carrera's argument that “affidavits attesting to class membership will only be used to determine to whom to pay the refund, and in what amount,” and that therefore, any inaccurate claim submissions will not affect the defendant's due process rights. 727 F.3d at 310. The Third Circuit was dissatisfied with this explanation, however, concluding that “[i]f fraudulent or inaccurate claims materially reduce true class members' relief,” those true class members might be able to challenge the adequacy of the named plaintiff's representation. Id. If successful, those class members would not be bound by the judgment and could bring their own claims against the defendant. Id.
This concern seems, at best, premature at this stage of the litigation. If the responses to class notice present the specter of diluting legitimate claims, the Court can address the issue at that point, especially (but not exclusively) if absent class members appear to object. But that speculative possibility is not a compelling reason to refuse to certify any class at all. If the problem
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Lilly v. Jamba Juice Company, Not Reported in F.Supp.3d (2014) is that some absent class members may get less relief than they are entitled to, it would be a strange solution to deprive absent class members of any relief at al l.
Plaintiffs have demonstrated that the class is sufficiently ascertainable.
B. Typicality and Adequacy Typicality ensures that “the interests of the named representatives align with the interests of the class.” Wolin v. Jaguar Land Rover N. Am. LLC, 617 F.3d 1168, 1175 (9th Cir.2010). “The test of typicality ‘is whether other members have the same or similar injury, whether the action is based on conduct which is not unique to the named plaintiffs, and whether other class members have been injured by the same course of conduct.’ ” Hanon v. Dataproducts Corp., 976 F.2d 497, 508 (9th Cir.1992) (quoting Schwartz v. Harp, 108 F.R.D. 279, 282 (C.D.Cal.1985). “The adequacy of representation requirement ... requires that two questions be addressed: (a) do the named plaintiffs and their counsel have any conflicts of interest with other class members and (b) will the named plaintiffs and their counsel prosecute the action vigorously on behalf of the class?” In re Mego Fin. Corp. Sec. Litig., 213 F.3d 454, 462 (9th Cir.2000).
“The adequacy-of-representation requirement ‘tend[s] to merge’ with the commonality and typicality criteria of Rule 23(a).” Amchem Products, Inc. v. Windsor, 521 U.S. 591, 626, n. 20 (1997) (quoting Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 158, n. 13 (1982). Among other functions, these requirements serve as ways to determine whether “the named plaintiff's claim and the class claims are so interrelated that the interests of the class members will be fairly and adequately protected in their absence.” Falcon, 457 U.S. at 158, n. 13.
Named Plaintiffs Lilly and Cox clearly have a similar alleged injury as the rest of the proposed class, since they purchased products that are the same as, or very similar to, the products challenged by the rest of the proposed class. Their claims are not based on any conduct that is unique to them. There are no apparent conflicts between the named Plaintiffs, their counsel, and the proposed class, and neither is there any reason to believe they will not prosecute the action vigorously or adequately protect the absent class members' interests.
*7 Defendants argue that Lilly and Cox are unrepresentative and atypical because they have sometimes consumed other products that contain the ingredients they complain of here. This argument misapprehends the Plaintiffs' complaint; when Lilly and Cox consumed those other products, they did so with full knowledge of what they were eating, because the ingredients were disclosed. That the named Plaintiffs sometimes consume products with ingredients they challenge in this action does not harm their case any more than a person who sometimes eats ice cream would be deprived of her legal ability to challenge a product falsely labeled to contain no sugar. Defendants also argue that some of Plaintiffs' deposition testimony indicates they may have purchased Smoothie Kits for reasons other than the “All Natural” label, but this does not make them atypical for purposes of bringing this action, since their consumer actions do not rise or fall on the basis of their particular experience with the product. Finally, Defendants argue that Plaintiff Lilly is subject to a unique defense because, when asked (over objection), “[d]o you think you were harmed, from purchasing and consuming the smoothie kit?,” she answered “no.” Deposition of Aleta Lilly, at 75 (ECF No. 40–1). Plaintiff Lilly's layperson understanding of the word “harm” has no effect on her legal claim.
Plaintiffs have established typicality and adequacy.
C. Numerosity “[C]ourts generally find that the numerosity factor is satisfied if the class comprises 40 or more members.” In re Facebook, Inc., PPC Advertising Litig., 282 F.R.D. 446, 452 (N.D.Cal.2012). Plaintiffs submit, Defendant does not dispute, and the Court concludes based on the record, that this requirement is satisfied.
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2:12–cv–0317–JMS–DML—Document habeas corpus action unless the petition nos. 20 & 21 attacks a state-court criminal judgment. To that list, we can add case numbers See Montgomery v. Davis, 362 F.3d 956, 2:12–cv–344–LJM–WGH and 2:13–cv–175– 957–58 (7th Cir.2004). As in Montgomery, WTL–WGH, both of which also reflect the filing bar imposed by this order applies Neal’s effort to rely on his ‘‘arbitration to any postjudgment motions Neal might agreement.’’ In short, by his own admis- try to file in any existing case. After two sion, Neal has over and over again flouted years, Neal may seek modification or re- his duty to be honest with the court. scission of this order. We note as well that Neal’s course of Second, we order Neal to show cause conduct before this court has earned him a within 14 days of this opinion why we sanction for his repeated filing of frivolous should not sanction him under Federal appeals and documents. See Neal v. Unit- Rule of Appellate Procedure 38 for filing a ed States, No. 13–2486 (7th Cir. Oct. 29, frivolous appeal. 2013), and Neal v. Oliver, No. 13–2598 (7th Third, we order the Clerk of this court Cir. Oct. 29, 2013). In those two cases, to send copies of this opinion and the case which were consolidated for purposes of file to the United States Attorney for the the sanctions ruling, Neal was fined $500 Southern District of Indiana, so that he and ordered to pay within 14 days of the may consider the question whether Neal order. Until he pays both the sanction should be prosecuted for the crime of per- and the filing fees owed for those appeals, jury, 18 U.S.C. § 1621, or any other of- the clerks of all federal courts in this fense that he deems appropriate. circuit have been directed to return unfiled The judgment of the district court is any papers he submits either directly or AFFIRMED. indirectly. See Support Sys. Int’l, Inc. v. Mack, 45 F.3d 185, 186 (7th Cir.1995). There is an exception to the filing bar for , criminal cases and for applications for ha- beas corpus; we assume that Neal tried to slip under the latter exception here. Peg BOUAPHAKEO; Javier Frayre; Neal obviously did not get the message Jose A. Garcia; Mario Martinez; Je- we intended to send through the Mack sus A. Montes; Heribento Renteria, order. This suggests that a monetary fine on behalf of themselves and all other alone for his perjury is not likely to deter similarly situated individuals, Plain- him from future abuse, although perhaps tiffs–Appellees such a fine might send some incremental v. message. We therefore have decided to take three steps, for the purpose of deter- TYSON FOODS, INC., Defendant– ring Neal from future abuse of the habeas Appellant. corpus process, punishing him for his ac- No. 12–3753. tions, and protecting the integrity of the United States Court of Appeals, court. Eighth Circuit. First, we are imposing an additional fine of $500 on Neal. Until he pays all out- Submitted: Feb. 11, 2014. standing fees and sanctions, clerks of all Filed: Aug. 25, 2014. federal courts within this circuit must re- Background: Named plaintiffs represent- turn unfiled any papers he submits in any ing class of employees of Iowa meat pro- 792 765 FEDERAL REPORTER, 3d SERIES cessing facility sued employer for not production line, are compensable under the paying wages due under Fair Labor Stan- FLSA if those activities are an integral dards Act (FLSA) and Iowa Wage Pay- and indispensable part of the principal ac- ment Collection Law (IWPCL). FLSA tivities for which covered workmen are claim was certified as collective action and employed and are not specifically excluded IWPCA claim as class action. The United by the Portal-to-Portal Act. Fair Labor States District Court for the Northern Standards Act of 1938, § 7(a)(1), 29 District of Iowa, John A. Jarvey, J., 2011 U.S.C.A. § 207(a)(1); Portal–to–Portal Act WL 3793962, denied employer’s motion of 1947, § 4(a), 29 U.S.C.A. § 254(a). for decertification of Rule 23 class and, 3. Labor and Employment 2315 after jury returned verdict for class, de- O nied employer’s motion for judgment as During the continuous workday, the matter of law (JMOL) and motion to de- compensability of all activities that other- certify or, in the alternative, for new trial wise satisfy the requirements of the FLSA on damages, 2012 WL 4471119. Employer is not affected by the Portal-to-Portal Act’s appealed. exceptions. Fair Labor Standards Act of 1938, § 7(a)(1), 29 U.S.C.A. § 207(a)(1); Holdings: The Court of Appeals, Benton, Portal–to–Portal Act of 1947, § 4(a), 29 Circuit Judge, held that: U.S.C.A. § 254(a). (1) district court did not abuse its discre- tion in certifying FLSA claim as collec- 4. Federal Courts 3585(3) O tive action or IWPCA claim as class Class certification is reviewed for action; abuse of discretion. Fed.Rules Civ.Proc. (2) federal and state claims would not be Rule 23, 28 U.S.C.A. decertified for various reasons assert- 5. Labor and Employment 2375 ed; and O Plaintiffs may be ‘‘similarly situated’’ (3) plaintiffs presented sufficient evidence within meaning of FLSA collective action to prove damages classwide, and evi- provision when they suffer from a single, dence was susceptible to reasonable FLSA-violating policy, and when proof of inference that jury’s verdict was cor- that policy or of conduct in conformity with rect. that policy proves a violation as to all the Affirmed. plaintiffs. Fair Labor Standards Act of Beam, Circuit Judge, filed dissenting opin- 1938, § 16(b), 29 U.S.C.A. § 216(b). ion. See publication Words and Phras- es for other judicial constructions and definitions. 1. Labor and Employment 2385(3) O 6. Labor and Employment 2375 An employee who sues for unpaid O overtime under the FLSA has the burden In determining whether employees of proving that he performed work for are ‘‘similarly situated’’ within meaning of which he was not properly compensated. FLSA collective action provision, court Fair Labor Standards Act of 1938, may consider (1) disparate factual and em- § 7(a)(1), 29 U.S.C.A. § 207(a)(1). ployment settings of the individual plain- tiffs, (2) the various defenses available to 2. Labor and Employment 2316 defendant which appear to be individual to O Activities performed either before or each plaintiff, and (3) fairness and proce- after the regular work shift, on or off the dural considerations. Fair Labor Stan- BOUAPHAKEO v. TYSON FOODS, INC. 793 Cite as 765 F.3d 791 (8th Cir. 2014) dards Act of 1938, § 16(b), 29 U.S.C.A. and Iowa Wage Payment Collection Law § 216(b). (IWPCL) class action did not improperly rely on ‘‘trial by formula’’ to prove liability; 7. Federal Civil Procedure 184.5 they did not prove liability only for sample Labor and Employment O2375 set of class members and proved liability District court did not abuseO its discre- for class as whole, using employee time tion in certifying meat processing facility records to establish individual damages, employees’ FLSA claim as collective action and while they relied on inference from or Iowa Wage Payment Collection Law average donning, doffing, and walking (IWPCL) claim as class action, despite em- times, they applied that analysis to each ployer’s contention that factual differences class member individually, and use of such between plaintiffs, i.e., differences in per- representative evidence was comparable to sonal protective equipment (PPE) and jury applying testimony from named plain- clothing between positions, individual rou- tiffs to find classwide liability. Fed.Rules tines of employees, and variation in duties Civ.Proc.Rule 23, 28 U.S.C.A.; Fair Labor and management among departments, Standards Act of 1938, § 16(b), 29 made certification improper; employer had U.S.C.A. § 216(b); I.C.A. § 91A.1 et seq. specific company policy, i.e., payment of K- code time for donning, doffing, and walk- 10. Federal Courts 3602, 3673 O ing, that applied to all class members, and Court of Appeals will not reverse a while individual plaintiffs varied in their jury verdict for insufficient evidence unless donning and doffing routines, their com- after viewing the evidence in the light plaint was not dominated by individual is- most favorable to the verdict, it concludes sues. Fed.Rules Civ.Proc.Rule 23(b)(3), 28 that no reasonable juror could have re- U.S.C.A.; Fair Labor Standards Act of turned a verdict for the non-moving party. 1938, § 16(b), 29 U.S.C.A. § 216(b); I.C.A. § 91A.1 et seq. 11. Labor and Employment 2333, 2394 O 8. Federal Courts 3261 When an employer has failed to keep Meat processingO facility employees’ proper records, courts should not hesitate FLSA collective action and Iowa Wage to award damages in FLSA action based Payment Collection Law (IWPCL) class on the just and reasonable inference from action would not be decertified because the evidence presented. Fair Labor Stan- evidence at trial showed that some class dards Act of 1938, §§ 11(c), 16(b), 29 members did not work overtime and would U.S.C.A. §§ 211(c), 216(b). receive no FLSA damages even if employ- 12. Labor and Employment 2394 er under-compensated their donning, doff- O In meat processing plant employees’ ing, and walking, as employer’s instruction FLSA collective action and Iowa Wage directed jury to treat plaintiffs with no Payment Collection Law (IWPCL) class damages as class members and thus invit- action, plaintiffs presented sufficient evi- ed claimed error. Fed.Rules Civ.Proc. dence to prove damages classwide, and Rule 23(b)(3), 28 U.S.C.A.; Fair Labor evidence was susceptible to reasonable in- Standards Act of 1938, § 16(b), 29 ference that jury’s verdict was correct; to U.S.C.A. § 216(b); I.C.A. § 91A.1 et seq. prove damages, plaintiffs used individual 9. Labor and Employment 2394 timesheets, along with average times cal- Named plaintiffs in meatO processing culated from sample of 744 observations of facility employees’ FLSA collective action employee donning, doffing, and walking, 794 765 FEDERAL REPORTER, 3d SERIES and while employer asserted that it was The background is similar to that in Lopez uncertain if any uncompensated work was v. Tyson Foods, Inc., 690 F.3d 869, 873–75 performed, it stipulated that workers at (8th Cir.2012) (adapted to the facts of this that plant tended to work a significant case): amount of overtime on a weekly basis and To calculate the employees’ compensable plaintiffs showed uncompensated overtime working time, Tyson measures ‘‘gang work by applying average donning, doff- time’’—when the employees are at their ing, and walking times to employee time- working stations and the production line sheets. is moving. The employees claim Tyson failed to provide FLSA overtime com- pensation for donning (putting on) per- sonal protective equipment (PPE) and Michael J. Mueller, argued, Washington, clothing before production and again af- DC, (Thomas Edwin Johnson, Allison Ba- ter lunch, and for doffing (taking off) lus, Omaha, NE, Thomas Walsh, Saint PPE and clothing before lunch and Louis, MO, Evangeline C. Paschal, Wash- again after production. The PPE and ington, DC, Emily Burkhardt Vicente, Los clothing worn by individual employees Angeles, CA, on the brief), for appellant. vary depending on their role in the pro- cess. Tyson classifies items of PPE and Robert L. Wiggins, Jr., argued Birming- clothing as either ‘‘unique’’ or ‘‘non- ham, AL, (William Michael Hamilton, unique’’ to the meat-processing indus- Nashville, TN, Brian P. McCafferty, Blue tryTTTT The employees also seek com- Bell, PA, Daniel Arciniegas, Candis A. pensation for transporting the items McGowan, Birmingham, AL, Roger K. from lockers to the production floor. Doolittle, Jackson, MS, on the brief) for In addition to ‘‘gang time,’’ Tyson adds appellee. ‘‘K-code’’ time to each employee’s pay- Before SMITH, BEAM, and BENTON, check. Before 2007, Tyson paid four Circuit Judges. minutes of K-code time per day to each [employee in a department where knives BENTON, Circuit Judge. were used] in order to compensate for Peg Bouaphakeo and other named plain- the donning and doffing of unique items. tiffs are employees of Tyson Foods, Inc. From [February] 2007 to [June] 2010, They represent a class of employees at Tyson added [several minutes] per day Tyson’s meat-processing facility in Storm for pre-and post-shift walking time re- Lake, Iowa. They sued Tyson for not pay- quired of the employeeTTTT Tyson does ing wages due under the Fair Labor Stan- not record the actual time that employ- dards Act of 1938 (FLSA), 29 U.S.C. § 201 ees perform any of these tasks. et seq., and the Iowa Wage Payment Col- TTTT lection Law (IWPCL), Iowa Code 91A.1 et [1–3] The FLSA prohibits the employ- seq. A jury returned a verdict for the ment of any person ‘‘for a workweek class. Tyson appeals. Having jurisdiction longer than forty hours unless such em- under 28 U.S.C. § 1291, this court affirms. ployee receives compensation for his em- ployment in excess of the hours above I. specified at a rate not less than one and The employees are current and former one-half times the regular rate at which ‘‘gang-time’’ employees at Tyson’s facility. he is employed.’’ 29 U.S.C. § 207(a)(1); BOUAPHAKEO v. TYSON FOODS, INC. 795 Cite as 765 F.3d 791 (8th Cir. 2014)
IBP, Inc. v. Alvarez, 546 U.S. 21, 25 [126 ity or activities, which occur either S.Ct. 514, 163 L.Ed.2d 288] (2005). An prior to the time on any particular employee who sues for unpaid overtime workday at which such employee com- ‘‘has the burden of proving that he per- mences, or subsequent to the time on formed work for which he was not prop- any particular workday at which he erly compensated.’’ Anderson v. Mt. ceases, such principal activity or activ- Clemens Pottery Co., 328 U.S. 680, 686– ities. 87 [66 S.Ct. 1187, 90 L.Ed. 1515] (1946), superseded by statute on other grounds, 29 U.S.C. § 254(a); Alvarez, 546 U.S. at Portal–to–Portal Act of 1947, Pub.L. No. 26–28, 126 S.Ct. 514. ‘‘[A]ctivities per- 80–49, 61 Stat. 84; Fast v. Applebee’s formed either before or after the regular Int’l, Inc., 638 F.3d 872, 881 (8th Cir. work shift, on or off the production line, 2011). ‘‘Neither ‘work’ nor ‘workweek’ are compensable TTT if those activities is defined in the statute.’’ Alvarez, 546 are an integral and indispensable part U.S. at 25 [126 S.Ct. 514]. At one time, of the principal activities for which cov- the Supreme Court defined work as ered workmen are employed and are not ‘‘physical or mental exertion (whether specifically excluded by [29 U.S.C. burdensome or not) controlled or re- § 254(a)(1) ].’’ Steiner v. Mitchell, 350 quired by the employer and pursued U.S. 247, 256, 76 S.Ct. 330, 100 L.Ed. necessarily and primarily for the benefit 267 (1956) (emphasis added). And, ‘‘any of the employer and his business.’’ Ten- activity that is ‘integral and indispens- nessee Coal, Iron & R.R. Co. v. Musco- able’ to a ‘principal activity’ is itself a da Local No. 123, 321 U.S. 590, 598 [64 ‘principal activity’ under [29 U.S.C. S.Ct. 698, 88 L.Ed. 949] (1944), super- § 254(a) ].’’ Alvarez, 546 U.S. at 37, 126 seded by statute on other grounds, Por- S.Ct. 514. tal–to–Portal Act of 1947, Pub.L. No. 80–49, 61 Stat. 84. The Court then The Department of Labor has a ‘‘contin- ‘‘clarified that ‘exertion’ was not in fact uous workday rule,’’ generally defining necessary for an activity to constitute an employee’s ‘‘workday’’ as ‘‘the period ‘work’ under the FLSA.’’ Alvarez, 546 between the commencement and com- U.S. at 25 [126 S.Ct. 514], citing Arm- pletion on the same workday of an em- our & Co. v. Wantock, 323 U.S. 126, 133 ployee’s principal activity or activities.’’ [65 S.Ct. 165, 89 L.Ed. 118] (1944). 29 C.F.R. § 790.6(b); Alvarez, 546 U.S. Whether an employee’s activity is at 29, 37 [126 S.Ct. 514] (describing and ‘‘work’’ does not end the compensability applying the continuous workday rule). analysis. In the Portal–to–Portal Act, During the continuous workday, the Congress excluded some activities that compensability of all activities that oth- might otherwise constitute work from erwise satisfy the requirements of the the FLSA. The Act excepts two catego- FLSA is not affected by the Portal–to– ries: Portal Act’s exceptions. In Alvarez, the (1) walking, riding, or traveling to and Supreme Court held that ‘‘during a con- from the actual place of performance tinuous workday, any walking time that of the principal activity or activities occurs after the beginning of the em- which such employee is employed to ployee’s first principal activity and be- perform, and fore the end of the employee’s last prin- (2) activities which are preliminary to cipal activity is excluded from the scope or postliminary to said principal activ- of [the Portal–to–Portal Act], and as a 796 765 FEDERAL REPORTER, 3d SERIES
result is covered by the FLSA.’’ Alvarez, (11th Cir.2001) (‘‘The decision to create an 546 U.S. at 37 [126 S.Ct. 514]. opt-in class under § 216(b), like the deci- The employees sued in 2007, claiming sion on class certification under Rule 23, that Tyson’s K-code time was insufficient remains soundly within the discretion of to cover compensable pre- and post-pro- the district court.’’). A district court may certify a class under Rule 23(b) if ‘‘ques- duction line activities, violating the FLSA tions of law or fact common to class mem- and IWPCL. The district court 1 certified bers predominate over any questions af- the FLSA claim as a collective action and fecting only individual members,’’ and ‘‘a the IWPCL claim as a Rule 23 class ac- class action is superior to other available tion.2 During a nine-day trial, plaintiffs methods for fairly and efficiently adjudi- proved liability and damages by using indi- cating the controversy.’’ Fed.R.Civ.P. vidual timesheets, along with average don- 23(b). The FLSA allows named plaintiffs ning, doffing, and walking times calculated to sue ‘‘for and in behalf of TTT themselves from 744 employee observations. The jury and other employees similarly situated.’’ returned a verdict for the class of 29 U.S.C. § 216(b). Plaintiffs may be sim- $2,892,378.70. With liquidated damages, ilarly situated when ‘‘they suffer from a the final judgment totaled $5,785,757.40. single, FLSA-violating policy, and when proof of that policy or of conduct in con- II. formity with that policy proves a violation [4–6] Tyson argues that the district as to all the plaintiffs.’’ O’Brien v. Ed court erred in certifying the FLSA collec- Donnelly Enters., Inc., 575 F.3d 567, 585 tive action—under 29 U.S.C. § 216(b)— (6th Cir.2009). A court may consider ‘‘(1) and the IWPCL class—under Rule 23.3 disparate factual and employment settings Class certification is reviewed for abuse of of the individual plaintiffs; (2) the various discretion. Avritt v. Reliastar Life Ins. defenses available to defendant which ap- Co., 615 F.3d 1023, 1029 (8th Cir.2010) pear to be individual to each plaintiff; (reviewing class certification under Rule 23 [and] (3) fairness and procedural consider- for abuse of discretion); Hipp v. Liberty ations.’’ Thiessen v. Gen. Elec. Capital Nat’l Life Ins. Co., 252 F.3d 1208, 1219 Corp., 267 F.3d 1095, 1103 (10th Cir.2001).4
1. The Honorable Mark W. Bennett, United generally Lindsay v. Gov’t Emps. Ins. Co., 448 States District Judge for the Northern District F.3d 416, 425 (D.C.Cir.2006) (finding ‘‘state of Iowa. The case was later transferred to the law claims essentially replicate the FLSA Honorable John A. Jarvey, United States Dis- claims’’ in an overtime case). trict Judge for the Southern District of Iowa. 3. The district court conditionally certified the 2. See Salazar v. Agriprocessors, Inc., 527 FLSA class, and many employees opted in. F.Supp.2d 873, 884 (N.D.Iowa 2007) (finding, See Genesis Healthcare Corp. v. Symczyk, ––– in a similar donning and doffing case, that U.S. ––––, 133 S.Ct. 1523, 1530, 185 L.Ed.2d ‘‘there is no novel issue of state law in the 636 (2013) (finding that ‘‘employees TTT be- IWPCL Claim, nor is there a difference in the come parties to a collective action TTT by terms of proof required by the FLSA Claim filing written consent with the court’’ after and the IWPCL Claim. There are no issues of conditional certification). While the district first impression in the IWPCL Claim that the court never revisited the conditional certifica- Iowa courts would be better suited to an- tion, the parties treat the FLSA certification swerTTTT [T]he substance and basis of the as unconditional. FLSA Claim and the IWPCL Claim is virtually indistinguishable, that is, the claims involve 4. FLSA collective actions and Rule 23 class identical facts and highly similar legal theo- actions have separate procedures, such as the ries.’’) (internal quotations removed). See ‘‘opt in’’ requirement to an FLSA collective BOUAPHAKEO v. TYSON FOODS, INC. 797 Cite as 765 F.3d 791 (8th Cir. 2014)
[7] According to Tyson, factual differ- exist). While individual plaintiffs varied in ences between plaintiffs—differences in their donning and doffing routines, their PPE and clothing between positions, the complaint is not ‘‘dominated by individual individual routines of employees, and vari- issues’’ such that ‘‘the varied circum- ation in duties and management among stances TTT prevent ‘one stroke’ determi- departments—make class certification im- nation.’’ Luiken, 705 F.3d at 374, 376, proper. These differences, Tyson says, do quoting Dukes, 131 S.Ct. at 2551. The not allow the class action to ‘‘generate district court did not abuse its discretion in common answers apt to drive the resolu- certifying the class. tion of the litigation.’’ Wal–Mart Stores, [8] Tyson also contends that the class Inc. v. Dukes, ––– U.S. ––––, 131 S.Ct. should be decertified because evidence at 2541, 2551, 180 L.Ed.2d 374 (2011). See trial showed that some class members did Luiken v. Domino’s Pizza, LLC, 705 F.3d not work overtime and would receive no 370, 374–76 (8th Cir.2013) (applying Dukes FLSA damages even if Tyson under-com- and reversing certification when the inter- pensated their donning, doffing, and walk- action between individual customers and ing. See In re Zurn Pex Plumbing Prods. employees meant liability was ‘‘dominated Liab. Litig., 644 F.3d 604, 616 (8th Cir. by individual issues’’); Bennett v. Nucor 2011) (‘‘A district court may not certify a Corp., 656 F.3d 802, 815 (8th Cir.2011) class TTT ‘if it contains members who lack (denying certification when there were standing.’ ’’), quoting Avritt, 615 F.3d at ‘‘stark inter-departmental variations in job 1034; Blades v. Monsanto Co., 400 F.3d titles, functions performed, and equipment 562, 571 (8th Cir.2005) (when ‘‘not every used’’). Unlike Dukes, Tyson had a specific member of the proposed classes can prove company policy—the payment of K-code with common evidence that they suffered time for donning, doffing, and walking— impact from the alleged conspiracy TTT that applied to all class members. Unlike damages to all class members must be Dukes, class members worked at the same shown to justify the class action’’). Cf. plant and used similar equipment. The Espenscheid v. DirectSat USA, LLC, 705 time study showed that donning and doff- F.3d 770, 774 (7th Cir.2013) (finding certi- ing all equipment, plus walking, took an fication improper when piece-rate system average of 18 minutes in the fabrication varied pay from worker-to-worker, use of department and 21 minutes in the kill de- an average conferred a ‘‘windfall’’ on some partment. True, applying Tyson’s K-code class members, and employees had incen- policy and expert testimony to ‘‘generate tive to under-report time). Tyson exag- TTT answers’’ for individual overtime gerates the authority for its contention. claims did require inference, but this infer- See Comcast Corp. v. Behrend, ––– U.S. ence is allowable under Anderson v. Mt. ––––, 133 S.Ct. 1426, 1433, 185 L.Ed.2d 515 Clemens Pottery Co., 328 U.S. 680, 687, 66 (2013) (allowing variation in damages un- S.Ct. 1187, 90 L.Ed. 1515 (1946) (allowing less ‘‘individual damage calculations TTT liability based on ‘‘just and reasonable in- overwhelm questions common to the ference’’ when complete records do not class’’); Amgen Inc. v. Connecticut Ret.
action and the ‘‘opt out’’ requirement for a Symczyk did not find that these actions ‘‘may Rule 23 class action. See Symczyk, 133 S.Ct. not be procedurally homogenized for trial’’ or at 1529 (finding Rule 23 precedent inapposite ‘‘do not lend themselves to inextricably inter- when considering the mootness of an FLSA twined trials.’’ Neither party complains of action with no ‘‘opt in’’ parties). Contrary to procedural error from ‘‘homogenizing’’ the the dissent’s statement, the Supreme Court in claims at trial. 798 765 FEDERAL REPORTER, 3d SERIES
Plans & Trust Funds, ––– U.S. ––––, 133 A sample set of the class members S.Ct. 1184, 1191, 185 L.Ed.2d 308 (2013) would be selected, as to whom liability (‘‘Rule 23(b)(3) requires a showing that for sex discrimination and the backpay questions common to the class predomi- owing as a result would be determined nate, not that those questions will be an- in depositions supervised by a master. swered, on the merits, in favor of the The percentage of claims determined to class.’’) (second emphasis added); DeBoer be valid would then be applied to the v. Mellon Mortg. Co., 64 F.3d 1171, 1174 entire remaining class, and the number (8th Cir.1995) (‘‘The fact that individuals of (presumptively) valid claims thus de- TTT will have TTT claims of differing rived would be multiplied by the average strengths does not impact on the common- backpay award in the sample set to ar- ality of the class as structured.’’); Mej- rive at the entire class recovery—with- drech v. Met–Coil Sys. Corp., 319 F.3d 910, out further individualized proceedings. 911 (7th Cir.2003) (‘‘If there are genuinely common issues, issues identical across all Dukes, 131 S.Ct. at 2561. Here, plaintiffs the claimants, issues moreover the accura- do not prove liability only for a sample set cy of the resolution of which is unlikely to of class members. They prove liability for be enhanced by repeated proceedings, the class as a whole, using employee time then it makes good sense, especially when records to establish individual damages. the class is large, to resolve those issues in Using statistics or samples in litigation is one fell swoop.’’).5 not necessarily trial by formula. See Com- cast, 133 S.Ct. at 1434 (considering ex- At any rate, at Tyson’s request, the jury pert’s multiple-regression model); Perez v. was instructed, ‘‘Any employee who has Mountaire Farms, Inc., 650 F.3d 350, 372 already received full compensation for all (4th Cir.2011) (favoring ‘‘a calculation activities you may find to be compensable based on the summation of mean times’’ to is not entitled to recover any damages.’’ represent ‘‘the amount of time that em- Tyson’s instruction directed the jury to ployees working at the plant actually treat plaintiffs with no damages as class spend donning and doffing’’). Cf. Mar- members. It is ‘‘fundamental that where tinez v. Ryan, ––– U.S. ––––, 132 S.Ct. the defendant TTT ‘invited error’ there can 1309, 1325 n. 5, 182 L.Ed.2d 272 (2012) be no reversible error.’’ United States v. (relying on ‘‘a sample of federal habeas Beason, 220 F.3d 964, 968 (8th Cir.2000), cases’’). quoting United States v. Steele, 610 F.2d 504, 505 (8th Cir.1979). Plaintiffs do rely on inference from aver- age donning, doffing, and walking times, III. but they apply this analysis to each class [9] Tyson believes that plaintiffs im- member individually. Using this repre- properly relied on a formula to prove lia- sentative evidence is comparable to a jury bility. In Dukes, the Supreme Court dis- applying testimony from named plaintiffs approved of ‘‘Trial by Formula.’’ to find classwide liability. See Fed.
5. The dissent says that the class fails because whelm questions common to the class.’’ commonality under Rule 23 ‘‘requires TTT Comcast, 133 S.Ct. at 1433. The district that all class members suffered the same inju- court found the differences between gang- ry,’’ and that ‘‘the locution ‘injury’ includes time employees ‘‘small’’ and allowed individu- the measure of a class member’s individual al damage calculations based on undisputed damages.’’ Individual damage calculations, employee timesheets. This was not an abuse however, are permissible if they do not ‘‘over- of discretion. BOUAPHAKEO v. TYSON FOODS, INC. 799 Cite as 765 F.3d 791 (8th Cir. 2014)
R.Civ.P. 23 (allowing representative par- KARE 11, 108 F.3d 832, 836 (8th Cir.1997) ties when their claims ‘‘are typical of the (en banc). See Sandifer v. United States claims or defenses of the class’’ and they Steel Corp., ––– U.S. ––––, 134 S.Ct. 870, ‘‘fairly and adequately protect the interests 880, 187 L.Ed.2d 729 (2014) (agreeing of the class’’). For the donning, doffing, ‘‘with the basic perception of the Courts of and walking in Mt. Clemens, testimony Appeals that it is most unlikely Congress from eight employees established liability meant [the FLSA] to convert federal for 300 similarly situated workers. Mt. judges into time-study professionals’’). Clemens, 328 U.S. at 684, 66 S.Ct. 1187; Tyson has no evidence of the specific time Mt. Clemens Pottery Co. v. Anderson, 149 each class member spent donning, doffing, F.2d 461, 462 (6th Cir.1945) (discussing and walking. ‘‘[W]hen an employer has testimony). To prove damages, the Court failed to keep proper records, courts remanded for ‘‘the determination of the should not hesitate to award damages amount of walking time involved and the based on the ‘just and reasonable infer- amount of preliminary activities per- ence’ from the evidence presented.’’ Reich formed’’ based on ‘‘whatever reasonable v. Stewart, 121 F.3d 400, 406 (8th Cir. inferences can be drawn from the employ- 1997), quoting Martin v. Tony & Susan ees’ evidence.’’ Mt. Clemens, 328 U.S. at Alamo Found., 952 F.2d 1050, 1052 (8th 693–94, 66 S.Ct. 1187. Cir.1992) (allowing ‘‘pattern or practice’’ evidence when defendant provided ‘‘self- [10, 11] Tyson claims that plaintiffs serving, unsubstantiated approximations’’ presented insufficient evidence to prove of employee hours), citing Mt. Clemens, damages classwide. See Murray v. Stuck- 328 U.S. at 687–88, 66 S.Ct. 1187. ey’s, Inc., 939 F.2d 614, 621 (8th Cir.1991) (‘‘[P]laintiffs’ evidence failed to show, for [12] To prove damages, plaintiffs use each individual plaintiff, ‘that he has in individual timesheets, along with average fact performed work for which he was times calculated from a sample of 744 ob- improperly compensated.’ ’’), quoting Mt. servations of employee donning, doffing, Clemens, 328 U.S. at 687, 66 S.Ct. 1187; and walking. Plaintiffs’ expert testified Marshall v. Truman Arnold Distrib. Co., that the sample was large for this type of Inc., 640 F.2d 906, 911 (8th Cir.1981) (re- study, representative, and approximately quiring further evidence from non-testify- random. He testified that the study used ing employees before awarding damages ‘‘accepted procedure in industrial engi- when earnings projections were substan- neering.’’ Tyson’s Director of Human Re- tially rebutted by cross-examination). Cf. sources testified that K-code time did not Dukes, 131 S.Ct. at 2560 (requiring ‘‘indi- include the donning and doffing of much vidualized determinations of each employ- non-unique PPE. Pay data—which came ee’s eligibility for backpay’’ as a procedural directly from Tyson—showed the amount prerequisite for certification under Title of K-code time each individual received. VII). This court ‘‘will not reverse a jury Sufficient evidence existed to support a verdict for insufficient evidence unless ‘af- ‘‘reasonable inference’’ of classwide liabili- ter viewing the evidence in the light most ty. Mt. Clemens, 328 U.S. at 687, 66 S.Ct. favorable to the verdict, [it concludes] that 1187. no reasonable juror could have returned a Tyson asserts that even if sufficient evi- verdict for the non-moving party.’ ’’ Dene- dence supported damages, plaintiffs’ sha v. Farmers Ins. Exch., 161 F.3d 491, claims still fail because it is uncertain if 497 (8th Cir.1998), quoting Ryther v. any uncompensated work was performed, 800 765 FEDERAL REPORTER, 3d SERIES citing Carmody v. Kansas City Board of neither the putative Fair Labor Standards Police Commissioners, 713 F.3d 401, 406 Act (FLSA) collective action (the so-called (8th Cir.2013) (‘‘Anderson [v. Mt. Clemens federal class) nor the purported Iowa Pottery Co.] only applies where the exis- Wage Payment Collection Law (IWPCL) tence of damages is certainTTTT Anderson Rule 23(b)(3) class (the so-called state allows uncertainty only for the amount of class) were eligible for class certification, damages.’’). In Carmody, the plaintiffs either as a matter of fact or a matter of did not ‘‘produce[ ] evidence indicating any law. Wal–Mart Stores, Inc. v. Dukes, ––– hours worked over forty hours per week U.S. ––––, 131 S.Ct. 2541, 2551, 180 TTT were never paid.’’ Id. The plaintiffs L.Ed.2d 374 (2011); O’Brien v. Ed Don- ‘‘did not provide any evidence of actual nelly Enters., Inc., 575 F.3d 567, 583–84 damages because the testimony contained (6th Cir.2009); Thiessen v. General Elec. no reference to overtime hours that violat- Capital Corp., 267 F.3d 1095, 1102–03 ed the FLSA.’’ Id. at 407. Here, Tyson (10th Cir.2001). Second, Rule 23 state- stipulates that ‘‘workers at the Storm Lake law-based class actions are fundamentally plant tend to work a significant amount of different than collective actions authorized overtime on a weekly basis.’’ Plaintiffs under the FLSA and may not be procedur- show uncompensated overtime work by ap- ally homogenized for trial as done in this plying average donning, doffing, and walk- case.7 Genesis Healthcare Corp. v. Symc- ing times to employee timesheets. The zyk, ––– U.S. ––––, 133 S.Ct. 1523, 1529, evidence is ‘‘susceptible to [the] reasonable 185 L.Ed.2d 636 (2013). inference’’ that the jury’s verdict is cor- rect. Troknya v. Cleveland Chiropractic Clinic, 280 F.3d 1200, 1206 (8th Cir.2002).6 I. BACKGROUND * * * * * * This litigation generally involves hourly The judgment is affirmed. production employees of Tyson Foods at its Storm Lake, Iowa, meat-processing fa- BEAM, Circuit Judge, dissenting. cility. But, the dispute more basically in- For two independent but somewhat fac- volves six named (lead) plaintiff employees tually related reasons, this case should be from the kill, cut and retrim departments reversed, remanded and dismissed. First, of the Storm Lake operation who were under the circumstances of this litigation, paid their wages using, in part, Tyson’s
6. Tyson also argues that the jury failed to eral cause of action (the FLSA) and a state follow the directions of plaintiffs’ damages cause of action (the IWPCL) ‘‘derive’’ suffi- expert, who testified that the jury could ciently from the same ‘‘common nucleus of choose only ‘‘all or nothing’’ of her model. A operative facts’’ that, when joined, they form jury is not required to follow an expert’s con- part of a case and controversy under Article clusion. See Children’s Broad. Corp. v. The III of the United States Constitution. Lind- Walt Disney Co., 357 F.3d 860, 866 (8th Cir. say, 448 F.3d at 424 (quotation omitted), Sa- 2004). lazar, 527 F.Supp.2d at 880 (quotation omit- 7. In its footnote 2, the court takes issue with ted); See 28 U.S.C. § 1367(a). But, ‘‘case this observation. In support, the court cites and controversy’’ standing is not the funda- Salazar v. Agriprocessors, Inc., 527 F.Supp.2d mental issue here. The question is whether 873 (N.D.Iowa 2007), and Lindsay v. Govern- the separate federal and state claims were ment Employees Insurance Co., 448 F.3d 416 sufficiently identical to be presented to the (D.C.Cir.2006). Although subject matter ju- jury, as here, as one amalgamated cause of risdiction was not in dispute in this case, action. In my view, Supreme Court prece- Salazar and Lindsay deal with whether a fed- dent indicates they were not. BOUAPHAKEO v. TYSON FOODS, INC. 801 Cite as 765 F.3d 791 (8th Cir. 2014)
‘‘gang-time’’ compensation system but who filed in the court in which such action is also claim to have been owed overtime pay brought.’’ Id. resulting from disparate compensable The six named lead plaintiff employees work activities occurring at times other who sought to establish this collective ac- than while earning daily ‘‘gang time’’ kill, tion bore the ‘‘burden of showing that the cut and retrim department production line opt-in [consenting] plaintiffs are similarly compensation. The six attempt to assert situated to the lead plaintiffs.’’ O’Brien, two separate collective actions-a federal 575 F.3d at 584. Judge Bennett, appar- statutory action asserting violations of the ently recognizing the likely existence of FLSA, 29 U.S.C. §§ 201–219, and a state numerous factors unrelated to the ‘‘gang- statutory action separately based upon the time’’ pay used to determine a given Tyson IWPCL, Iowa Code Chapter 91A. employee’s regular wages—factors amply This case was originally assigned to the established by the evidence at trial—certi- Honorable Mark Bennett who conditional- fied a ‘‘conditional’’ FLSA class consisting ly ‘‘certified’’ a federal collective action of employees from the kill, cut and retrim class pursuant to 29 U.S.C. § 216(b) and a departments at the Tyson plant paid purported IWPCL state law class pursu- through the so-called gang-time compensa- ant to Federal Rule of Civil Procedure tion system within a discrete time period 23(b)(3). Then, because the Honorable set forth in the certification. Indeed, the John Jarvey was already assigned to sev- conditional certification related only to the eral comparable cases involving Tyson, in- three departments and the gang-time pay cluding a case involving Tyson employees earned in the production line in those de- at Columbus Junction, Iowa, Guyton v. partments. No other regular or overtime Tyson, No. 3:07–cv–00088–JAJTJS pay calculation factors discussed at the (S.D.Iowa) (a companion case on appeal), merits portion of the trial (such as: indi- this matter was transferred to Judge Jar- vidual employment codes, specific duties, vey for further pretrial and post-trial pro- wage-rate variations, knife wielding pro- ceedings and for trial. The case has now tections, sanitary clothing and equipment, been litigated and is before this panel on part-time work, illness, injury, shift differ- appeal. entials, and routine production line over- time) were in any way incorporated as II. DISCUSSION limitations on the use of the FLSA condi- tional class. The record reveals that this 1. The Classes ‘‘conditional’’ designation was never with- A. The Federal FLSA Class drawn or modified at any time during or A collective action to recover damages after the trial. According to the joint stip- permitted by the FLSA ‘‘may be main- ulation of facts by the parties, there were tained against any employer TTT in any 444 employees who consented to be a part Federal or State court of competent juris- of this FLSA collective action class includ- diction by anyone or more employees for ing the six named lead plaintiffs. and in behalf of himself or themselves and other employees similarly situated.’’ 29 B. The IWPCL State Class U.S.C. § 216(b). However, ‘‘[n]o employee ‘‘ ‘In order to obtain class certification, a shall be a party plaintiff to any such action plaintiff has the burden of showing that unless he gives his consent in writing to the class should be certified and that the become such a party and such consent is requirements of Rule 23 are met.’ ’’ Luik- 802 765 FEDERAL REPORTER, 3d SERIES en v. Domino’s Pizza, LLC, 705 F.3d 370, To be certified for purposes of Rule 372 (8th Cir.2013) (quoting Coleman v. 23(a), the collective groupings, that is the Watt, 40 F.3d 255, 258 (8th Cir.1994)). putative classes, must have been such that Judge Bennett, at the request of the same Tyson was positioned to assert its legiti- six named plaintiffs who sought creation of mately held common-to-the-class defenses and joined the FLSA collective class, ulti- against all members of the group who mately certified what he termed a ‘‘modi- claimed to have earned unpaid overtime fied’’ 3,344–person putative Rule 23 state wages. See Fed.R.Civ.P. 23(a)(3). In this law class consisting of all ‘‘current and same context, the class must have been former employees of Tyson’s Storm Lake, limited to Tyson employees who could and Iowa, processing facility who have been did establish entitlement to overtime pay employed at any time from February 7, resulting from overtime work performed 2005, to the present, and who are or were during compensable time, that is, work paid under a ‘gang-time’ compensation sys- performed at times other than production tem in the Kill, Cut or Retrim depart- line gang-time pay periods-periods for ments.’’ This certification also included no which all class members were already rou- other limiting or enhancing overtime pay calculation elements. The record discloses tinely, regularly, and unquestionably paid that this certification was likewise never by Tyson in accordance with the law. further embellished or modified during or ‘‘In order to obtain class certification, a after trial. plaintiff has the burden of showing that The ‘‘gang-time system of payment’’ as the class should be certified and that the referred to by Judge Bennett and defined requirements of Rule 23 are met.’’ Luik- by the evidence is a system where employ- en, 705 F.3d at 372 (quotation omitted). ees are paid from the time their produc- While a Rule 23(b)(3) class was purported- tion line starts to the time their production ly certified, any Rule 23 class may only be line ends. There is no contention by the lawfully certified if the ‘‘trial court is satis- named plaintiffs that the Storm Lake Ty- fied, after a rigorous analysis, that the son employees did not receive all wages prerequisites of Rule 23(a) have been satis- due and owing for time worked during the fied.’’ Dukes, 131 S.Ct. at 2551 (quotation production line gang-time pay periods. omitted). Actual, not presumed, conform- So, standing by itself, as it does in the ance with Rule 23(a) remains indispens- class certifications, the gang-time produc- able. Id. Frequently, as in this case, tion line classification means little in the context of proving at trial through evi- ‘‘ ‘rigorous analysis’ will entail some over- dence common to the class the overtime lap with the merits of the plaintiff’s under- pay claims of the 3,344 members of the lying claim.’’ Id. Rule 23(a)’s four bedrock allegedly underpaid overtime class. Su- requirements are numerosity, commonali- preme Court and Eighth Circuit precedent ty, typicality and adequate representation demands otherwise. See Dukes, 131 S.Ct. (here, a named plaintiff with standing). at 2549–50 (discussing the requirements of Commonality requires the plaintiff to dem- class certification); see also Lopez v. Ty- onstrate at the time of the merits hearing son Foods, Inc., 690 F.3d 869, 874 (8th on the underlying claim—that all class Cir.2012) (an employee who sues for un- members suffered the same injury. paid overtime has the burden of proving Dukes, 131 S.Ct. at 2551. So, if the locu- he performed work for which he was not tion ‘‘injury’’ includes the measure of a properly compensated). class member’s individual damages, as I BOUAPHAKEO v. TYSON FOODS, INC. 803 Cite as 765 F.3d 791 (8th Cir. 2014) believe it does, this class fails on that score be held to their evidentiary burdens of alone. proof.
The court majority apparently sees a C. The Merits pathway around plaintiffs’ legal dilemma Fundamentally, as previously noted, this arising from the above-noted class formu- case emerges from two separate causes of lation failures. Although acknowledging action brought through a single federal that class certification is improper when a court complaint—a federal law cause of ‘‘windfall’’ is conferred on some class mem- action alleging liability leading to damages bers, ante at 797, the court makes the arising from violation of the FLSA and a following observation: state law cause of action alleging liability At any rate, at Tyson’s request, the jury and damages arising from violation of the was instructed, ‘‘Any employee who has IWPCL. The burden of proof on all issues already received full compensation for of statutory liability, injury and measure of all activities you may find to be compen- damages rests squarely upon the shoulders sable is not entitled to recover any dam- of the named plaintiffs. Lopez, 690 F.3d ages.’’ Tyson’s instruction directed the at 874. In this case, gang-time pay is not jury to treat plaintiffs with no damages in dispute. The plaintiffs contend, as does as class members. It is ‘‘fundamental the court majority, that the overtime pay that where the defendant TTT ‘invited dispute involves time spent by a class of error’ there can be no reversible error.’’ Tyson employees in doffing and donning United States v. Beason, 220 F.3d 964, various sanitary and personal protection 968 (8th Cir.2000) (quoting United equipment before and after the gang-time States v. Steele, 610 F.2d 504, 505 (8th production line work has been completed Cir.1979)). each day. Ante at 798. Tyson’s Storm Lake employees are re- Thus, says the court, Tyson ‘‘directed quired to wear a different combination of the jury to treat plaintiffs with no damages sanitary and protective gear. Those em- as class members.’’ However, Tyson made ployees wearing knives to use in conjunc- no such class membership directive to the tion with their particular duties on a jury through its instructional request and particular day are required to wear a Beason and Steele are wholly inapposite as combination of a plastic belly guard, case precedent for the court’s faulty prem- mesh apron, mesh sleeve, plexiglass arm ise. The cases deal only with run-of-the- guard, mesh glove, Polar glove, mem- mill evidentiary matters, not waivers of brane skinner gloves, Polar sleeves, legal principles. Beason simply opened ‘‘steel’’ for maintaining the knives and the door to the making of a Bruton excep- knife scabbards (‘‘knife related gear’’). tion by permitting an admission from a Other workers are required to wear a non-testifying co-defendant, and Steele ad- hard hat, hairnet, beard net, earplugs, mitted otherwise inadmissible hearsay evi- ear muffs, rubber or cotton gloves, and dence to clarify and rebut an issue opened rubber or plastic aprons (‘‘sanitary by the criminal defendant’s cross-examina- gear’’). tion. Tyson, after vigorously resisting From 1998 until February 4, 2007, Ty- class action formulations at every turn in son paid four extra minutes beyond pro- this litigation, and being denied, properly duction line time for all production employ- requested an instruction that the plaintiffs ees, referred to as ‘‘K–Code’’ time. From 804 765 FEDERAL REPORTER, 3d SERIES
February 4, 2007, to June 28, 2010, Tyson Rule 23(a)(2) contemplates that ‘‘there ceased paying non-knife-wielding employ- are questions of law or fact common to the ees for the time donning and doffing sani- class.’’ ‘‘Commonality requires the plaintiff tary gear. From February 4, 2007, to to demonstrate that the class members June 28, 2010, Tyson paid knife-wielding have suffered the same injury. This does employees between 4 to 8 minutes of K– not mean merely that they have all suf- Code time, depending on the job, and em- fered a violation of the same provision of ployees who did not have a knife did not law.’’ Dukes, 131 S.Ct. at 2551 (quotation receive K–Code time payments. and citation omitted). Rather, ‘‘[t]heir claims must depend upon a common con- Plaintiffs offered evidence at trial con- tention. TTTT That common contention, cerning a sample of putative class employ- moreover, must be of such a nature that it ees from Dr. Kenneth Mericle and Dr. is capable of class-wide resolution-which Liesl Fox. Fox’s calculation testimony fed means that determination of its truth or off of Mericle’s evidence concerning Rule falsity will resolve an issue that is central 23 class damages for overtime pay. Fox to the validity of each one of the claims in testified, assuming Mericle’s evidence was one stroke.’’ Id. ‘‘What matters to class true, that at least 212 members of the certification TTT is not the raising of com- purported class did not suffer any dam- mon ‘questions’ TTT but, rather the capaci- ages because the doffing and donning time, ty of a class-wide proceeding to generate less the K–Code time ‘‘would not have common answers apt to drive the resolu- been enough to kick them into overtime.’’ tion of the litigation.’’ Id. (first alteration and italics in original) (quotation omitted). Further, while the plaintiffs’ evidence gen- That was not the case here. While it is erally indicated some individual overtime true that all class members were subject to damages ranging from a few cents to sev- a common policy-gang-time payment— eral thousand dollars, there were at least there is no ‘‘common answer,’’ arising from 509 workers whose injuries ranged from the evidence concerning the individual $0.27 to less than $100. And, the record overtime pay questions at issue in this discloses that the jury in returning only a case. Thus, this case with these classes single gross amount of damages verdict, as cannot be resolved in ‘‘one stroke,’’ given instructed, discounted plaintiffs’ evidence the differences in donning and doffing by more than half, likely indicating that times, K–Code payments, abbreviated more than half of the putative class suf- gang time shifts, absenteeism, sickness, fered either no damages or only a de min- vacation and a myriad of other relevant imis injury measured in cents rather than factors. The ‘‘rigorous’’ analysis of class dollars. In spite of having the burden of certification in this case, which overlaps proof, there was no evidence adduced by with the merits as required by Dukes, 131 plaintiffs that established the number of S.Ct. at 2551, clearly discloses that the purported class member employees fully Rule 23 class claim does not comply with compensated or not fully compensated by either rule or precedent and should have the K–Code payments already paid by Ty- been decertified. son. It is evident, however, that many Finally, the wisdom of the Supreme class employees fit within each category Court’s statement in Symczyk, 133 S.Ct. at and all were apparently included as benefi- 1530, that Rule 23 class actions and collec- ciaries of the single damages verdict re- tive actions under the FLSA are funda- turned by the jury. mentally different and thus do not lend DEGNAN v. BURWELL 805 Cite as 765 F.3d 805 (8th Cir. 2014) themselves to inextricably intertwined tri- als, as here, is well dramatized by this Charles DEGNAN; Kenneth McCardle; case.8 Here we have undifferentiated Virginia Belford; Dale Erlandson, In- presentations of evidence, including signifi- dividually and on behalf of a class, cant numbers of the putative classes suf- Plaintiffs–Appellants fering no injury and members of the entire v. classes suffering wide variations in dam- Sylvia BURWELL,1 Secretary of the De- ages, ultimately resulting in a single-sum partment of Health and Human Ser- class-wide verdict from which each pur- vices; Carolyn W. Colvin, Acting ported class member, damaged or not, will Commissioner of the Social Security receive a pro-rata portion of the jury’s Administration, Defendants–Appel- one-figure verdict. Assuming that the dis- lees. trict court could now re-open the proceed- ings in an effort to deal with an individual No. 13–3055. plaintiff’s damages using the Mericle/Fox United States Court of Appeals, evidence, the exercise would be laborious, Eighth Circuit. virtually unguided, and well outside of the limiting parameters the Supreme Court Submitted: June 11, 2014. has, as a matter of law, placed upon use of Filed: Aug. 25, 2014. the Rule 23 class action machinery. Background: In benefits dispute arising out of alleged miscalculation of enrollees’ III. CONCLUSION Medicare Part B premiums owed, enroll- ees filed second amended complaint alleg- From this result, I dissent. ing violation of Medicare Act, specifically that calculation of their late enrollment penalty conflicted with statutory language. The United States District Court for the District of Minnesota, David S. Doty, J., , 959 F.Supp.2d 1190, granted motion of the Secretary of Department of Health and Human Services (HHS) and Acting Com- missioner of Social Security Administra-
8. In footnotes 3 and 4, the court again takes consequence of conditional certification is the issue with this contention. Interestingly, in sending of court-approved notification to em- doing so, the court cites Symczyk, a case that ployees.’’ Id. at 1530. Thus, the FLSA class clearly holds to the contrary. In Symczyk, the in this case never progressed beyond ‘‘condi- Supreme Court, in discussing an FLSA moot- tional’’ status and could not, as a matter of ness issue and the applicability, or not, of law, have been joined with the supposed Rule Rule 23 class action cases to that particular 23 class in an actionable claim of any kind, question, stated: ‘‘Rule 23 actions are funda- however the parties may have chosen to treat mentally different from collective actions un- this conditional effort, which treatment is un- der the FLSA.’’ 133 S.Ct. at 1529. And then clear from the record. more to the point here, the Supreme Court held that although a putative class acquires ‘‘independent legal status once it is certified 1. Sylvia Burwell is substituted for her prede- under Rule 23[, u]nder the FLSA, by contrast, cessor, Kathleen Sebelius, as the Secretary of ‘conditional certification’ does not produce a the Department of Health and Human Ser- class with an independent legal status, or join vices. Fed. R.App. P. 43(c)(2). additional parties to the action. The sole 14-1146 TYSON FOODS, INC. V. BOUAPHAKEO DECISION BELOW: 765 F.3d 791 LOWER COURT CASE NUMBER: 12-3753
QUESTION PRESENTED:
I. Whether differences among individual class members may be ignored and a class action certified under Federal Rule of Civil Procedure 23(b)(3), or a collective action certified under the Fair Labor Standards Act, where liability and damages will be determined with statistical techniques that presume all class members are identical to the average observed in a sample. II. Whether a class action may be certified or maintained under Rule 23(b)(3), or a collective action certified or maintained under the Fair Labor Standards Act, when the class contains hundreds of members who were not injured and have no legal right to any damages.
CERT. GRANTED 6/8/2015