Opinion
January 1, 1972
The class action was an invention of equity * * * mothered by the practical necessity of providing a procedural device so that mere numbers would not disable large groups of individuals, united in interest, from enforcing their equitable rights nor grant them immunity from their equitable wrongs.
Quotation
Montgomery Ward Co. v. Langer, C.C.A.8th, 1948, 168 F.2d 182, 187.
Unlike Rule 23(b)(1) and Rule 23(b)(2), which provide for the bringing of a class action based on the type or effect of the relief being sought, Rule 23(b)(3) authorizes a class action when the justification for doing so is the presence of common questions of law or fact and the court has determined that the class action is superior to other available methods for resolving the dispute fairly and efficiently. In general, therefore, a Rule 23(b)(3) action is appropriate whenever the actual interests of the parties can be served best by settling their differences in a single action. As was stated by one court: "The fundamental question to decide is whether the group aspiring to class status is seeking to remedy a common legal grievance." Indeed, that usually is the only bond among the members of a Rule 23(b)(3) class.
Actual interests served
Bennett v. Gravelle, D.C.Md. 1971, 323 F.Supp. 203, 218.
Carpenter v. Hall, D.C.Tex. 1970, 311 F.Supp. 1099.
Quotation
Bennett v. Gravelle, D.C.Md. 1971, 323 F.Supp. 203, 218.
Prior to 1966, actions based solely on common questions were entertained under Rule 23(a)(3) and were called "spurious" class suits. In reality, the "spurious" class action was not a representative action at all since only the named parties and those who joined were bound by the judgment. Although there is a superficial similarity between the "spurious" class action and present Rule 23(b)(3), a proceeding under the current provision is a class action in all respects and class members who do not exercise the option given them by Rule 23(c)(2) to be excluded from the class action will be included in the judgment.
"Spurious" suits
See 7 Wright Miller, Federal Practice and Procedure: Civil § 1752. The overlap between the former "spurious" class action and Rule 23(b)(3) is not complete, however.
Named parties bound
See 7 Wright Miller, Federal Practice and Procedure: Civil § 1752.
Option to exclude
See 7A Wright Miller, Federal Practice and Procedure: Civil § 1787.
The Advisory Committee explained the philosophy behind extending the class action device to cover the circumstances described in Rule 23(b)(3) as follows:
In the situations to which this subdivision relates, classaction treatment is not as clearly called for as in those * * * [brought under subdivision (b)(1) or (b)(2)], but it may nevertheless be convenient and desirable depending upon the particular facts. Subdivision (b)(3) encompasses those cases in which a class action would achieve economies of time, effort, and expense, and promote uniformity of decision as to persons similarly situated, without sacrificing procedural fairness or bringing about other undesirable results.
See also
Quotation
39 F.R.D. 98102-103
43 F.R.D. 397
43 F.R.D. 3943
This portion of the rule also was expected to be particularly helpful in enabling numerous persons who have small claims that might not be worth litigating in individual actions to combine their resources and bring an action to vindicate their collective rights. Of course, the Supreme Court's decision in Snyder v. Harris has severely restricted the ability of small claimants to aggregate their claims in order to establish the requisite amount in controversy in Rule 23(b)(3) actions. However, certain important federal statutes do not have a jurisdictional amount requirement and actions under them are unaffected by the Snyder decision. This is true of the cases involving antitrust and securities laws, for example. In these contexts subdivision (b)(3) makes the prosecution of an action by consumers or small investors against an allegedly erring corporation and its management feasible.
Prosecution of small claims
Comment, Rule 23: Categories of Subsection (b), in The Class Action — A Symposium, 1969, 10 B.C.Ind. Com. L. Rev. 539, 555.
See also 7A Wright Miller, Federal Practice and Procedure: Civil §§ 1781-1782.
Snyder case
1969, 89 S.Ct. 1053, 394 U.S. 332, 22 L.Ed.2d 319, noted 1969, 22 Fla. L. Rev. 154, 83 Harv. L. Rev. 202, 1970, 58 Ky.L.J. 403.
The Snyder case is analyzed at length in 7 Wright Miller, Federal Practice and Procedure: Civil § 1756.
Securities and antitrust actions
See 7A Wright Miller, Federal Practice and Procedure: Civil § 1781.
On occasion, the award of relief to a plaintiff class that has brought suit successfully under Rule 23(b)(3) presents some unusual difficulties of administration that do not arise in actions under the other portions of Rule 23(b). In an action instituted under Rule 23(b)(1), the class members by definition have highly similar interests; they generally are seeking damages and the enforcement or prohibition of some course of conduct by the opposing party that affects all of them in much the same way. As a result, basically only one recovery is sought and the determination of the overall amount and the sum due each class member is not difficult. Similarly, suits brought under Rule 23(b)(2) seek declaratory or injunctive relief that will benefit all class members automatically; therefore, the number of persons involved or the fact that it is a class action does not materially increase the problem of framing or enforcing the decree.
Rule 23(b)(1) actions
See 7A Wright Miller, Federal Practice and Procedure: Civil §§ 1772-1774.
Rule 23(b)(2) actions
See 7A Wright Miller, Federal Practice and Procedure: Civil §§ 1775-1776.
But in an action under Rule 23(b)(3) the members are loosely bound together by common questions of law or fact and considerations of convenience. Even the damages they seek generally are individual in character and disparate in amount. Furthermore, Rule 23(b)(3)(D) obliges the court to consider the management difficulties when determining whether the class suit is the best means of resolving the controversy, and this may encourage a court to refuse to give a case class action treatment. But even when that hurdle is surmounted, problems relating to the judicial administration of the relief take on a special significance in determining the amount of the damages and how best to distribute the recovery among the members of the class.
Rule 23(b)(3) actions
See 7A Wright Miller, Federal Practice and Procedure: Civil §§ 1777-1784.
Management difficulties considered
See 7A Wright Miller, Federal Practice and Procedure: Civil § 1780.
Professor Zechariah Chafee has suggested that some additional difficulties in administering relief in modern class actions seeking damages stem from the fact that representative suits involving money claims were tried in equity and allowing them to be brought at law is a relatively recent development. The net effect is that with increasing frequency the federal courts are being called upon to use their discretion, and in many cases their ingenuity, to shape decrees or to develop procedures for ascertaining damages and distributing relief that will be fair to the parties but will not involve them in an unduly burdensome administration of the award.
Professor Chafee
Chafee, Some Problems of Equity, 1950, 285.
When confronting the issue of the maintainability of the class action and, in particular, whether the common questions predominate, differences among class members as to their damages have not led the courts to conclude that representative treatment is inappropriate; a number of cases hold that the existence of separate issues concerning the damages sustained by various class members do not prevent the common issue of liability from being adjudicated on a class basis. Rule 23 provides more than enough flexibility and room for judicial innovation so that the question of damages can be determined through individual trials on that issue pursuant to "equitable procedures" devised by the court.
Class action maintainable
Green v. Wolf Corp., C.A.2d, 1968, 406 F.2d 291, certiorari denied 89 S.Ct. 2131, 395 U.S. 977, 23 L.Ed. 2d 766.
Eisen v. Carlisle Jacquelin, C.A.2d, 1968, 391 F.2d 555.
Alameda Oil Co. v. Ideal Basic Indus., Inc., D.C.Colo. 1971, 326 F.Supp. 98.
Epstein v. Weiss, D.C.La. 1970, 50 F.R.D. 387.
State of Illinois v. Harper Row Publishers, Inc., D.C.Ill. 1969, 301 F.Supp. 484.
Berland v. Mack, D.C.N.Y. 1969, 48 F.R.D. 121.
Weiss v. Tenney Corp., D.C.N.Y. 1969, 47 F.R.D. 283.
Herbst v. Able, D.C.N.Y. 1969, 47 F. R.D. 11, amended D.C.N.Y. 1970, 49 F.R.D. 286.
State of Minnesota v. U. S. Steel Corp., D.C.Minn. 1968, 44 F.R.D. 559.
Siegel v. Chicken Delight, Inc., D.C. Cal. 1967, 271 F.Supp. 722.
Kronenberg v. Hotel Governor Clinton, Inc., D.C.N.Y. 1966, 41 F.R.D. 42.
Flexibility and Innovation
Green v. Wolf Corp., C.A.2d, 1968, 406 F.2d 291, certiorari denied 89 S.Ct. 2131, 395 U.S. 977, 23 L. Ed.2d 766.
Eisen v. Carlisle Jacquelin, C.A. 2d, 1968, 391 F.2d 555.
Brennan v. Midwestern United Life Ins. Co., D.C.Ind. 1966, 259 F.Supp. 673.
Kronenberg v. Hotel Governor Clinton, Inc., D.C.N.Y. 1966, 41 F.R.D. 42.
See also
"Equitable procedures"
43 F.R.D. 472491438 F.2d 825
50 F. R.D. 387
The formulation of procedures by which the individual issues of class membership and damages are determined for each of the claimants, who may number in the hundreds, thousands, or even millions, may demand considerable foresight and ingenuity. Some courts have thought it advantageous to establish the extent of the claims and claimants early in the trial and have ordered appropriate notice to be sent to all class members requiring them to file a statement of their claims within a reasonable period or lose the right to assert them. This procedure provides the court and the litigants with a fairly good idea of the identity of the potential claimants and the amount of their alleged damages prior to the conclusion of the trial on liability. More often, however, the courts await the adjudication of the liability issue before adopting procedures to notify class members to come forward and assert their claims. This approach has the obvious advantage of avoiding considerable paperwork and expense in cases in which no liability is found. In either event, the courts frequently use a proof of claim form that must be filed by members intending to prove damages.
Assert claims during trial
Biechele v. Norfolk Western Ry. Co., D.C.Ohio 1969, 309 F.Supp. 354.
Philadelphia Elec. Co. v. Anaconda Am. Brass. Co., D.C.Pa. 1968, 43 F.R.D. 452.
Harris v. Jones, D.C.Utah 1966, 41 F.R.D. 70.
After judgment
Green v. Wolf Corp., C.A.2d, 1968, 406 F.2d 291, certiorari denied 89 S.Ct. 2131, 395 U.S. 977 23 L.Ed. 2d 766.
Foster v. City of Detroit, Michigan, C.A.6th, 1968, 405 F.2d 138.
See also the discussion of intervention in class actions in 7A Wright Miller, Federal Practice and Procedure: Civil §§ 1799-1800.
Proof of claim form
See 7A Wright Miller, Federal Practice and Procedure: Civil §§ 1786, 1787.
Of course, individual claims could be resolved by separate trials; however, the cost of doing so in the case of a large plaintiff class is likely to be prohibitive and the prospect may deter many members from asserting their claims or discourage class members from bringing suit as representatives in the first instance. One possible solution is the appointment of a special master to process the claims, determine questions of membership in the class, and assess damages in accordance with a formula or guideline established by the court. The appointment of a master to oversee the task of damage distribution, although perhaps a reasonable solution, may not represent the best approach since it frequently is so expensive that a large portion of the recovery might be depleted by its use. Thus the question remains as to what techniques may be utilized to administer relief that will lessen the burden on the court without significantly impairing the potential award.
Special master
Foster v. City of Detroit, Michigan, C.A.6th, 1968, 405 F.2d 138.
Biechele v. Norfolk Western Ry. Co., D.C.Ohio 1969, 309 F.Supp. 354.
One possibility is to try the damage issue only once, making a single award for the class, and then develop an expeditous administrative means of dividing the lump sum among the class members. This approach has been employed in judicially approved settlements under Rule 23(e) and the courts could look for guidance to some of the procedures that have been developed in that context.
See also
Analogous to settlements
52 F.R.D. 253 262391 F. 2d 555
Settlement procedures
See 7A Wright Miller, Federal Practure and Procedure: Civil § 1797.
For example, in State of West Virginia v. Chas. Pfizer Company, private antitrust class actions were brought against drug companies by several classes seeking treble damages under the federal statute: government entities and institutions, individual purchasers, wholesalers, and retailers. Defendants offered a settlement of $100,000,000 and plaintiffs, upon request, submitted various plans for the distribution of that sum. The plan adopted by the court gave the governmental claims first priority since their damages were easily calculable and directly provable. Then reimbursement payments were computed for the class of individual claimants and, finally, the wholesaler-retailer class was given a nuisance value allocation plus interest since they actually had not suffered any damages. The process of identifying claimants and evaluating their requests for reimbursement appears to have gone relatively smoothly and expeditiously.
Chas. Pfizer case
C.A.2d, 1971, 440 F.2d 1079, certiorari denied 92 S.Ct. 81, 404 U.S. 871, 30 L.Ed.2d 115.
The Pfizer opinion raises another important consideration relating to lump sum recoveries. Despite the detailed schedule formulated for distributing the settlement, the court noted that there would be some individual purchasers who would never present claims. Anticipating this problem, plaintiffs had utilized a notice procedure under which consumers who did not assert individual claims were deemed to assign their rights to the Attorneys General of the various states that were involved in the action. As a result, any portion of the settlement that was not claimed would revert to the states and be held by them subject to the court's order. It also was anticipated that the court might consider ways in which to apply the excess funds to achieve socially desirable objectives. For example, it might direct expenditures that would prevent future violations or wrongs of the kind that gave rise to the Pfizer litigation.
Utilizing procedures to distribute a lump sum recovery is judicially economical since it eliminates the need for separate trials on damage issues. In a case involving an extremely large plaintiff class whose members only have small individual claims, the savings in time and expense for all will be considerable. Occasionally, of course, this only can be achieved at the expense of some traditional procedural safeguards, most notably jury trial. Nonetheless, simplifying the process of establishing individual claims may be the only way of making it economically feasible for class members to come forward and assert their rights. As a result, some of the procedural patterns that are considered fundamental when the litigation involves a single plaintiff and a single defendant will have to be abandoned or modified in certain actions under Rule 23(b)(3). The risks that inhere in short circuiting existing procedures can be minimized by insisting upon effective notice-giving and claim-verification practices.
Jury trial
See 7A Wright Miller, Federal Practice and Procedure: Civil § 1801.
In addition to the adverse economic realities of a full-blown trial on each individual's damages, it must be remembered that many of the cases brought under Rule 23(b)(3) are based on alleged violations of the antitrust or securities laws. One of the main reasons for allowing the institution of these private civil actions is that their availability serves as a deterrent to conduct proscribed by the federal statutes. Thus, to the extent that allowing a single damage recovery makes it feasible for representatives to act as private attorneys general while at the same time affording the members of the class some relief, the procedure should be encouraged. In this connection it is worth noting that approximately 40,000 individual consumers filed claims to the Pfizer settlement fund.
The practice of requiring only one damage recovery was specifically endorsed by a New York district court in Eisen v. Carlisle Jacquelin. That suit involved a class action on behalf of all odd-lot stock investors against major dealers on the New York Stock Exchange for an alleged violation of the antitrust laws. The court commented:
Eisen case
D.C.N.Y. 1971, 52 F.R.D. 253, on remand from C.A.2d, 1968, 391 F.2d 555.
In this case, I am satisfied that gross damages may be fairly estimated without having individual claims filed by each class member. The sources for such a computation will include at least the following: defendants' own records, the Report of Special Study of Securities Markets of the Securities and Exchange Commission, * * * records of the NYSE Special Committee on Odd Lots relating to the lowering of the odd-lot differential in 1966 and a cost study of the odd-lot industry conducted for the NYSE by Price Waterhouse Co. * * *
Defendants consistently have stressed the number of variations in the types of odd-lot transactions, implying that this would necessitate a separate calculation of damage for each individual transaction. Although originally influenced by this argument, * * * in light of the availability of such information and records discussed above, I now reject it.
See also
Quotation
The district judge might reduce the burden on himself even further by having the parties submit proposals as to how to distribute the award with a minimal amount of judicial supervision. Encouraging counsel to aid the court in conducting certain aspects of a Rule 23 action is not unique; the courts frequently permit attorneys to manage the notice-giving process under Rule 23(c)(2), making certain, of course, that it does not result in claim solicitation. The courts will have to supervise and approve the activities of counsel, however, since the process of distributing the fund normally is not truly adversarial. Defendant would have no interest in assuring that all claimants were fairly compensated since the class members will be bound by the judgment regardless of their individual recovery. On the other hand, assuming that the class representation is adequate, or could be reinforced for purposes of dividing the award, there is little reason for concern. Another potential difficulty is that an attorney-managed distribution process might be expensive, although probably less costly than separate damage trials by a master. As an alternative to attorney control, in certain types of litigation, such as actions arising out of the antitrust or securities laws as well as consumer and environmental cases, the court might invoke the aid of the governmental agency charged with the responsibility of administering the applicable law to help in distributing the relief.
See also
Counsel aids
52 F.R.D. 253391 F.2d 555
43 F.R.D. 472491438 F.2d 825
50 F. R.D. 387
Parties give notice
See 7A Wright Miller, Federal Practice and Procedure: Civil § 1788.
Parties bound
See 7A Wright Miller, Federal Practice and Procedure: Civil § 1789.
Less cost than master
In Eisen v. Carlisle Jacquelin, D.C. N.Y. 1971, 52 F.R.D. 253, 262, on remand from C.A.2d, 1968, 391 F. 2d 555, the court noted that it would not be necessary to appoint a special master to administer the damages, stating: "Although it is true that plaintiff's counsel here is a single practitioner, he may receive assistance from counsel for other class members, and if not, arrangements for administrative assistance should not be too difficult or costly — and less costly, it is to be assumed, than the fees and expenses of a master."
Another advantage of a single damage award is that it may prove to be extremely equitable inasmuch as the amount of damages arrived at is likely to correspond to the total injury inflicted by defendant or the extent of its unjust enrichment, regardless of how small or large a number of class members come forward in the action. In addition, establishing a single comprehensive figure as a class award in one damage proceeding might best achieve a balance between affording plaintiffs relief and deterring future statutory violations when the action is brought under one of the antitrust or securities acts or some other public policy mandate. As was stated by one commentator:
Damages prevent the insider, the oligopolist, the polluter, and the airline from acting in a manner that exploits weaknesses in the market system. That effect is the same whether or not the damages are ever paid to the small claimant in an amount equal to the losses he sustains.
See also
Quotation
The social desirability of this approach is enhanced by the prospect of the court applying something akin to the cy pres principle to any portion of the recovery that is not distributed to individual claimants. Conversely, in cases involving a large plaintiff class, there is a possibility that when defendants are forced to pay damages computed on an individual basis the total will far exceed any profit they might have made; this result is particularly undesirable if some of the defendants did not intentionally violate the law.
Damages exceed profits
In Comment, SEC Enforcement of the Rule 10b-5 Duty to Disclose Material Information — Remedies and the Texas Gulf Sulphur Case, 1967, 65 Mich. L. Rev. 944, 957, the author discusses the problem of allowing civil damage suits to be brought to help in enforcing the securities legislation. Noting that the civil liability frequently will be overwhelming, he concludes that private actions may not be a viable means of compelling adherence to the disclosure provisions of the Securities Exchange Act. However, this conclusion is not necessary. If a class action were brought, instead of innumerable individual suits, and one gross damage recovery was made binding on all other investors, then a balance would be achieved. The use of class actions to aid in enforcing the securities laws is an important device in effectuating the congressional objectives underlying those statutes. See 7A Wright Miller, Federal Practice and Procedure: Civil § 1781.
Courts should not be reluctant to adopt procedures along the lines described in this paper or any others that seem to fit a particular case. These steps are not radical deviations but have a strong relationship to the wide range of approaches utilized by the courts in the analogous process of framing equity decrees. Historically, equity courts also were reluctant to grant any relief that would require judicial involvement in the administration of the decree, but under the pressures and complexities of modern litigation this hesitance increasingly has been replaced by a judicial willingness to "balance the equities" and undertake the framing of highly refined decrees that afford some relief to plaintiff without unduly burdening defendant.
Equity courts also frequently grant experimental or conditional decrees that may be modified as conditions change and new solutions come into view. For example, in Transcontinental Gas Pipe Line Corporation v. Gault, the owners and occupants of residences and farm properties sued to enjoin defendant from operating a compression gas station, which they alleged created a public nuisance and interfered with the peaceful enjoyment of their homes. The court noted that defendant's station performed a valuable public service by transmitting natural gas and granted the injunction on condition that defendant first be given an opportunity to lessen the noise vibration. The company was required to report to the court after a reasonable period of time so that it could be determined whether circumstances warranted the injunction going into effect or whether the situation indicated that pecuniary damages would be sufficient to protect plaintiffs' interests.
See also
Conditional and experimental decrees
145 P. 2d 55220 Wash.2d 24
Transcontinental case
C.A.4th, 1952, 198 F.2d 196.
The same type of flexibility toward administering relief should be employed in the class action context. The fact that this approach has equitable roots should not bar its use in Rule 23(b)(3) actions for damages. As was stated by one commentator:
Under a merged system the court has succeeded to both the "legal" common law rule and the "equitable" civil law rule and can apply either, irrespective of the type of remedy sought. * * * As has been stated, the power to grant conditional relief inheres to any court, but if further justification be needed, it can be said that the merged court has now succeeded to the powers of the former court of chancery and can use those powers in any case. Courts have many remedies that they can give, and it is immaterial whether the remedy was historically denominated as "legal" or "equitable" except as the constitution requires * * *.
Quotation
Sedler, Conditional, Experimental and Substitutional Relief, 1962, 16 Rutgers L. Rev. 639, 714-715.
Accordingly, a federal court should feel free to experiment in awarding relief under Rule 23. It has the tools to shape the remedy to meet the exigencies of each case and difficulties in administration should not be allowed to destroy the usefulness of the class action procedure. Of course, the burdens that are attached to class actions must be weighed against the benefits that might be derived. One commentator has appropriately noted that:
Benefits considered
Research Corp. v. Pfister Associated Growers, Inc., D.C.Ill. 1969, 301 F.Supp. 497, appeal dismissed sub nom. Research Corp. v. Asgrow Seed Co., C.A.7th, 1970, 425 F.2d 1059.
State of Illinois v. Harper Row Publishers, Inc., D.C.Ill. 1969, 301 F.Supp. 484.
Technograph Printed Circuits, Ltd. v. Methode Electronics, Inc., D.C. Ill. 1968, 285 F.Supp. 714, 724.
Brennan v. Midwestern United Life Ins. Co., D.C.Ind. 1966, 259 F.Supp. 673.
See also the discussion of Rule 23(b)(3)(D) in 7A Wright Miller, Federal Pratice and Procedure: Civil § 1780.
The practical limitations on establishing damages in a lawsuit are some assurance that there will be substantial uncompensated, but measurable, social costs prior to the commencement of a class action. Large uncompensated costs imply that some action should at least be attempted.
Quotation
Note, The Cost-Internalization Case for Class Actions, 1969, 21 Stan. L. Rev. 383, 391.
Except in the most unusual circumstances, alleged difficulties in measuring or distributing damages should not be accepted as an excuse for not proceeding with an action that otherwise is appropriate for class action treatment. Even when relief cannot be administered easily or with precision, the court must under-take to do the best it can if the prospect of civil liability is to serve as an effective deterrent to wrongdoing.
But compare
Effective deterrent
53 F.R.D. 4570-74
Class actions under Rule 23(b)(3) pose many new challenges to the federal courts that must be met with flexibility and imagination. Fortunately, the amended rule gives them numerous tools with which to administer and expedite large cases that otherwise might well prove unmanageable if the court were obliged to follow a more rigid and less fluid procedural structure. If properly utilized, it may well be that Rule 23, for all of its complexity and the many questions its text leaves unanswered, will prove to be a key building block in the federal courts' continuing effort to make our procedural system responsive to the needs of contemporary society.