Criticism has been leveled at class actions which are brought pursuant to Rule 23 of the Federal Rules of Civil Procedure on the ground that they impose burdens on already crowded dockets. Prospective litigators have described the procedure as a form of legalized blackmail.
The American College of Trial Lawyers, in a thoughtful report just issued last month, suggested substantial restrictive rewriting of Rule 23. Complaints have not been with what have been termed appropriate class actions, but with what one appellate judge in our circuit has dubbed the elusive Frankenstein Monster posing as a class action.
I suggest that the monster is neither so large or as terrible as some would have us believe. The procedure is merely one means for transforming legal rights into effective remedies. As a general principle, and the 1966 revision of Rule 23 is no exception, procedural change has substantive impact. It makes litigation easier either for plaintiffs or defendants, thereby affecting the substantive balance between the two. Whether we characterize any revised practice as an "abuse" or a "reform" depends largely on our evaluation of policies underlying the type of litigation likely to be affected.
Class actions favor plaintiffs. There is no doubt about it.
They have been supported by their proponents as a labor and timesaving device, permitting numerous legal disputes to be handled at one time. This is an overstatement. On balance there is a loss of court time. Matters which would not have been litigated can now be brought to court. Actions are more complex and there is additional responsibility on the courts to protect absent class members. Nevertheless, I think that the price is worth paying.
The fact that there are advantages to a group of litigants as a result of these changes in procedures is not unique. It runs right through our history, right from Magna Carta through the Federal Rules of Civil Procedure in the 30's, which made it easier for a certain class of litigants to bring and prove their cases.
Most judges would agree that the class actions serve their intended function when they accomplish either of two purposes: when they prevent a multiplicity of suits or when they expedite the disposition of otherwise unredressable legally cognizable grievances.
The Rule is subject to criticism when it places an unwarranted burden on the court and it produces other undesirable effects.
The first consideration, that class actions generally impose too heavy a burden on the federal courts, does not present great latitude for constructive discussion without the reliable kind of quantitative data not yet, in my opinion, available. Opinions vary in accordance with belief about the purpose and limitations of our judicial machinery.
My own view is that federal courts should not lightly abdicate their responsibility to provide a forum for the disposition of civil disputes presently within their jurisdiction merely because individual claims appear small or insignificant. Increased availability of the courts to those with grievances as a result of providing lawyers for the poor and modifications of such doctrines as standing, mootness, abstention and justiciability, have provided a valuable escape valve, preventing explosive reactions during a period of boiling social change.
In support of this view that class actions constitute no threat to the viability of the federal courts, I stress just a few practical considerations.
First, the Supreme Court, in its decision in Snyder v. Harris [ 394 U.S. 332, 89 S.Ct. 1053, 22 L.Ed.2d 319], precluded aggregating claims to satisfy the $10,000 requirement, so that there is little likelihood that a great many small diversity cases will burden us. The list of cases that come within the Rule affected by the modifications in Rule 23 is very small. They are civil rights, private anti-trust, and federal securities fraud cases.
If Congress adopts consumer protection legislation permitting class actions, they will be added to this restricted group of cases. This is a policy decision, and I do not think the federal judges ought to tell Congress that consumers do not need this kind of protection. If we are given the burden, we can develop procedures to handle it adequately.
Second, based on my personal experience, and the observations of federal judges in a number of districts, I cannot conclude that the workload of federal trial judges, has reached a level which can fairly be termed unreasonable or that cannot be dealt with by moderate expansion in personnel. For better or worse, we still have time to prepare and listen to speeches and we still have time to write opinions which are gradually crowding us out of our libraries.
Third, there are some bright glimmers ahead. There are possibilities of more efficient handling of cases. The statistics indicate, I think, that the federal courts are becoming more effective and efficient. Enactment of no-fault automobile insurance plans will take out of the federal courts a great deal of litigation which we probably ought not have.
Finally, it is possible that additional states which presently have rather restrictive class action procedures, will adopt more liberal rules. A number of cases are brought in our courts which would not be brought were there an adequate state procedure. The same thing was true in the 40's, when the federal courts had adequate discovery and the state courts did not.
The troublesome charge against class actions is that they produce unintended effects on the course of litigation itself. One of those troublesome aspects is that there is a subtle erosion of substantive law. There are examples in the area of antitrust law, possibly, and certainly in the area of securities law.
This phenomenon deserves attention by the district judges as well as the appellate judges and the bar generally. A substantive change may be desirable on policy ground, and it is certainly appropriate to consider procedural difficulties in designing a change in the substantive rule, but it is, it seems to me, quite unwise to slip into important changes, in substantive law on the happenstance that a suit is brought by a class rather than by an individual claimant.
A particularly bothersome aspect of the class action is their strike suit aspect. That does bother people, and with justification. As in any litigation, the pressure on the defendant to buy his peace through settlement cannot be totally eliminated. It exists in every individual litigation, and we all acknowledge and deal with it in settlements every day. The trial judge may, however, use his discretion to reduce the effect of possible abuse in these class actions, and when they are suitably controlled, the balance of possible abuse against social advantage, it seems to me, is tolerable.
Discovery is one area in which abuses can be dealt with. We must be very careful not to foreclose legitimate lines of inquiry prematurely. But we do have very broad discretion to prevent the indefinite expansion of discovery in these actions. Now, that is very easy to say and very difficult to apply, as you all know. Based upon experience of the judges with the standards and guidelines in the Manual for Complex and Multidistrict Litigation, I believe the problem can be handled. Most lawyers are responsible and cooperative. They can be counted on to assist the court, although a greater amount of our time will be required than in other kinds of actions.
Abuses can be controlled and cost reduced in the area of notice. In a case involving numerous small claimants, it is possible that individual notice to all members of the class would involve disproportionate expense. Even if it were borne by the plaintiff, the embarrassment and the difficulties created because the defendant must cooperate in giving lists and the like, and acknowledge indirectly some kind of possible liability, creates substantial hazards.
But here, too, intelligent use of discretion can be helpful. In the Eisen case, which I understand my brother Miller will talk about, involving some six million odd-lot traders in securities, the notice was handled in a way that seemed adequate, with costs in the order of ten thousand dollars. We can even follow Madison Avenue and use radio and TV rather than direct mailing to give notice.
A third area for the proper exercise of discretion by the trial judge is in determining whether the class action should be permitted to proceed at all. In making that decision, the trial judge must find, at least under Rule 23(b)(3), that a class action is superior to other available methods for the fair and efficient adjudication of the controversy.
One aspect that he has to consider from the outset is whether he will be able to ultimately handle the damage question. If there is no adequate way to award damages to many individual plaintiffs in the class, then the whole procedure is delusive and a waste of time. Typically, class members in many of these suits do not have adequate records. Difficulties may, however, sometimes be resolved by using the records of the defendant, particularly in securities cases.
Upon finding of liability, it may be possible to submit the question to counsel under a standard ordered by the court. I just completed the trial of a securities case that set down criteria for measuring damages. There were many thousands of possible claimants. The lawyers worked out the individual awards with no problems, simply because of their good faith and skill.
In some cases it may be desirable to utilize the so-called fluid class. This involves substantive changes in remedies and has to be very carefully considered. Here we are in the shadowy area between substance and procedure.
One aspect that I think the judges ought to consider is whether there is available a public administrative body capable and willing to grant relief. Very often that body is not available as a practical matter and the court must step in. Sometimes the matter can be handled on a cooperative basis. For example, in one case that I tried a few months ago, I asked the Securities Exchange Commission to submit a brief at the final judgment stage after a trial on the merits. The proposed judgment provided for a substantial fee to the plaintiff's lawyer. The SEC suggested that the litigants should not decide that themselves; that there ought to be a hearing for the class members on the reasonableness of the fee. This suggestion was followed.
Cooperation between administrative agencies and the courts in these areas, it seems to me, is highly desirable. There is no reason why we should not call on these public agencies — publicly, so everybody knows what we are doing.
A somewhat more controversial aspect of the trial judge's discretion to permit a case to proceed is the notion that it may be appropriate at a preliminary stage to hold a hearing to ascertain whether there is a substantial possibility that the plaintiff will be able to succeed on the merits.
No appellate court has yet approved this approach. As I understand it, the Fifth Circuit has rejected it. In its defense, I would say that although the merits hearing does not relieve class action defendants of substantial legal expense, it gives both parties and the court an early indication of the theory and strength of the case, perhaps encouraging more intelligent settlement discussions and more intelligent control of discovery.
Possibly Dolgow v. Anderson, 464 F.2d 437 (2d Cir. 1972) may be considered a deliberate failure to disapprove.
An alternative method is summary judgment. Use of this device depends in part upon appellate court feelings about summary judgments. In the Second Circuit, part of our problem in handling these matters — and I do not say this critically — is that the appellate court has not favored summary judgment. Where the appellate court supports an expansive use of summary judgment for early disposition, preliminary hearing on the merits is not as important.
There is also the possibility — as in Eisen — of using the merits hearing in order to allocate the burden of notice. In that case, after holding a merits hearing, Judge Tyler held that most of the cost of notice would be borne by the defendants. Such a hearing is also questionable, but it is an attempt to deal with a real and difficult problem.
In the area of settlement, in most instances judicial disapproval is based on the ground of inadequate rewards to the plaintiff class. A hearing prevents the selling-out of the class by the plaintiff. It is also possible to utilize it, although I have never seen such a case, to reject a settlement on the ground that it does not adequately protect a defendant class. Notice to the litigants that there will be adequate control of settlements can minimize the possibility of strike suits.
In sum, we want to control, we want to prevent abuses. We do not want to really kill this little beastie. We do not want to so entangle it so that it cannot be used effectively. It does give us a more adequate tool for the deterrence of unlawful, socially destructive conduct through civil suits.
The impact of class suits in civil rights cases is substantial. Precedent alone never has the effect of a judgment naming a particular class of which a person is a member. Very often, a class action permits the judge to get to the heart of an institutional problem.
Individual monetary recovery in anti-trust and securities cases is obviously less significant. Still there is no comparable available deterrent to unlawful conduct in these areas. Administrative agencies have demonstrated an incapacity to carry the entire burden.
In some areas, such as environmental regulation, very often public control is more desirable than private litigation. I see Whitney Seymour, Jr. here; he is familiar with the problems of balancing public against private suits. Where the public authorities are remiss for a variety of reasons — inadequate legal authority, too heavy workload, or what have you — the class action does furnish a desirable remedy.
It seems to me that this matter touches on the credibility of our judicial system. Either we are committed to make reasonable efforts to provide a forum for the adjudication of disputes involving all our citizens — including those deprived of human rights, consumers who overpay for products because of antitrust violations, and investors who are victimized by misleading information — or we are not. There are those who will not ignore the irony of courts ready to imprison a man who steals some goods in interstate commerce, while unwilling to grant a civil remedy against a corporation, which has benefited to the extent of many millions of dollars from collusive, illegal pricing of goods.
When the organization of a modern society, such as ours, affords the possibility of illegal behavior, accompanied by widespread diffuse consequences, some procedural means should exist to remedy or at least deter that conduct.
That is not to say that we can solve all social ills or even that all justiciable controversies of broad public concern merit class action status. We are just beginning to feel our way in the direction of appropriate limits, as in the recent case on behalf of all Americans who may at some time wish to express unpopular beliefs. That was a class action. The court dismissed the class action allegations as insubstantial atmosphere.
The solution, it seems to me, will have to come from a case by case interpretation of subtle doctrines and standards, and not by a rigid narrowing of the Rule, preventing those who need it from obtaining appropriate redress.
Control of the relatively small problems of abuse involving solicitations and the like can be handled by guidelines without any difficulty. The Manual for Complex and Multi-District Litigation has set them forth adequately.
I am much impressed with the suggestion made privately to me by Professor Kaplan of the Harvard Law School, who served as Reporter to the Advisory Committee on Civil Rules when Rule 23 was modified. He suggested that for the next few years prospective guidance might appropriately take the form of modifications in the Manual for Complex and Multi-District Litigation, to supplement case law developments. The Manual is presently under revision, and it is easier to revise than is the Rule itself.
It seems to me, with all due respect — and I do have high respect for the organization and its many eminent members — that proposals such as those of the American College of Trial Lawyers to restrict federal class actions are premature. In the relatively few years since its revision, I submit that the problems presented by Rule 23 have been superable. Thus far, it seems to me that the courts have adequately dealt with abuse.
THE EFFECT OF THE CLASS ACTION DEVICE UPON THE SUBSTANTIVE LAW by GEOFFREY B. HAZARD Professor of Law, Yale UniversityWith the general tone of what Judge Weinstein has said, I entirely agree. The class action is manageable, if not always easily managed. It serves some important public and private necessities if its scope is kept in manageable bounds. It is having effects, and will have more effects, on the substantive law. I do not agree with those who characterize these effects as "subtle erosion," unless we are to assume that the law as it happens to stand today is to assume a fixed cast for all future time. Indeed, we may go even further. Taking the long view, to borrow the title of an address on a different subject by the Solicitor General of the United States, it seems fair to say that procedure's very function is to modify the substantive law.
Maitland put it that the substantive law is laid down in the interstices of procedure, and he was of course correct. Substantive law is shaped and articulated by procedural possibilities. Moreover, the function of procedure would be unintelligible if it were not to have substantive consequences. So the question here, as elsewhere, in the relation of substance and procedure is one of pace and of role: How quickly and how far should the courts go in using procedural devices that are in their disposal? The necessary technique is one of circumspect consideration of the appropriate role of the judicial institution in shaping the substantive consequences of procedures such as those established in Rule 23.
Let me make two other preliminary comments in the way of establishing a perspective. It seems to me that many of the expressions of despair, dismay, disorientation, outrage, concern and chagrin that are being addressed by some judges confronting Rule 23 are very similar in tenor and often in substance, and frequently identical in rhetoric, to criticisms addressed years ago to the monster of Federal Rules summary judgment and the monster of Federal Rules liberality in the joinder of parties. Of course, those innovations were monstrous in some sense of the word when they were first introduced — new, untamed procedural beasts. Their implementation required modification of accustomed habits of mind and frames of reference. But that is only to say that as judges, and as scholars, and as lawyers, and ultimately as citizens, we have to learn to adapt our legal thinking to the changing social environment.
That brings me to my other preliminary point. We should consider very carefully the fact situations in the cases that are involved in class suits. Generally speaking, they represent an attempt to provide something in the nature of a mass production remedy. That offends the sense of individualization that is very important in the administration of justice. It is incongruent with the sense of scale that we are used to as lawyers. It calls on the courts to confront matters in a dimension of social consequence that perhaps we would rather not deal with. Thinking of "class" legal problems is a disconcerting intellectual, social and moral responsibility. It raises difficult questions about the role of judges and lawyers, not only in the narrow ethical sense, but in the larger sense of our professional office and function.
But if all that is true, it is also true that the occasions generating the class suits were themselves mass production events. Consider the situation in cases such as Swarb v. Lennox, 405 U.S. 191, 92 S.Ct. 767, 31 L.Ed.2d 138 (1972). The legal question was that of overreaching on the terms of a promissory note. But the note was a printed form, used in substantially identical form by dozens or hundreds of retailers in behalf of dozens, and maybe more, money brokers — lenders to retailers who supplied the forms on which the retailers were to execute credit transactions. And the notes in this form were signed by thousands and perhaps millions of purchasers. Yet the law that is to govern those mass-production transactions finds its origin in the simple hand-tailored promissory note that was the subject of an over-reaching 300 years ago, perhaps between a London merchant and some down-county purchaser in rural England. The fraud, or the overreaching, if that's what it was in the original English case, was done one to one. In our modern case it was done by the technology of uniform documents, uniformly produced.
So with the securities cases. They also involve mass production wrongs, rather than single instances like their original prototype. The disclosure requirements of the Securities Act are prescribed in contemplation of a mass money market. But at the same time the legal principle involved is derived from basic principles of fraud and nondisclosure which in their origin were conceived and applied in single transactions.
This is true of the common law generally. The rules of the common law are legal responses to single transactions, each hand-tailored. Recall the origins of our own commercial law, regulating a commerce so heavily centered in the Fourth and Fifth Circuits, mainly in cotton and rice and the other commodities exchanged between the colonies and young states and Europe. The legal concepts in those cases were based on the assumption of hand-tailored transactions, each more or less unique unto itself. Today that commerce moves in a mass production of ships, airways, containers, and standardized documents.
Take another illustration, this time in the area of public nuisance. Public nuisance today is a great steel company with a computerized operation for specifying the precise tonnage of coal, the amount of iron ore, and the amount of limestone and other chemicals that it needs, arriving in carefully scheduled boxcars, piled in carefully scheduled piles, delivered into carefully scheduled furnaces, with carefully scheduled effluents that may pollute the air or the streams or the underground waters. It is a scheduled mass-production event. Where is the origin of the law that covers that case? It is of course the neighborhood kiln, the brick-oven case, found in the 18th Century Reports. You see the case there, a local incident between A and B, the immemorial parties to the cases in which our ideas of the law are conceived.
The thought I am trying to suggest is that, whereas our traditional ideas of substantive and procedural law derive from contemplating and reacting to "A v. B" as a single transaction, the world in which we must today make our legal concepts work is a world of many A's and many B's and many transactions.
We have recognized this problem in smaller scale in other procedural contexts besides the class suit. Joinder of multiple claims and multiple parties is an illustration. So is the extension of collateral estoppel in the multi-party tort situation and the modification of stare decisis through the "non-retroactive" doctrines. In a still broader sense, the mass-production characteristic of many modern legal wrongs, or claims of wrong, is reflected in the array of administrative regulations and agencies that are found in today's legal world. These devices are responses to the mass-production of legal problems. So is the class action such a response. Indeed the class action and regulation by administrative agency are in many respects alternatives and competitors as legal remedies.
Perhaps this helps put the class action in context. Its unique characteristic is the assertion that a large number of individuals are, in one aspect of their legal status, indistinguishable from each other and that they should therefore be considered essentially as one. The members of the class can say this of themselves precisely because in this aspect of their legal status, they were treated as one by their antagonist, or so they claim. Their contention, in other words, is that they were the result of mass production activities: The very identity of consequence is the product of an activity which itself was programmed for uniform results in the commercial areas, the programming typically went to the point that the people who were supposed to execute the transaction — the local loan officers, the brokers who actually sold the securities — were precluded by internal controls within the issuer from having any authority or discretion to vary the transaction to any significant degree.
I recite all this not as an advocate of the class action, for I share all the concerns about its fairness and utility. My purpose is only to show that we should not view the class action from a 19th Century perspective of substantive law. We have to view it in relation to the substantive legal problems of the 20th Century.
In trying to see the problem this way, I find it very helpful to draw on my own experience in the legislative process. It was my good fortune to spend some time in the legislative counsel's office of one of our states. It has also been my opportunity to have participated in drafting legislation under the auspices of law reform commissions and bar associations.
I know from experience, therefore, as many of you do, that approaching law from the legislative point of view is a perfectly manageable task; it is done every day.
The legislative viewpoint involves thinking in large numbers, in terms of large classes and of sub-classes; thinking of the boundary lines between classes or sequences of events; and thinking in levels and alternative concepts of legal fault and responsibility. It requires formulating legal ideas in general or universal terms, rather than ad hoc. It is, of course, a different mode of thought than the case method.
The mode of thought of the legislator, more specifically the legislative consultant and draftsman, is the one that perhaps should be used in thinking of class suits. If we try to think of class suits as A v. B, plus A v. B, plus A v. B — single cases that have occurred simultaneously — we proceed on a wrong line of thought. Rather, we should bring in mind the method used in mathematics for designating an indefinitely large series: A1, A2, A3 . . . An where A1 and A2 and A3 are specifically identified (representatives of the class), but where it is known also that there is a large and perhaps uncertainly enumerated group (the class) just like them in all material respects.
If we think this way, then we see that the important problem centers around the "A" characteristics of the individuals and the extent to which there are significant differences among the group in terms of this characteristic. Thus, to go back to concrete situations, we have to think about the members of the alleged class in terms of their position as purchasers of an issue of stock, their position as downstream riparian owners along a polluted river, their position as owners of property in the vicinity of smelter, or their position — to refer to a recent California case — of the objects of an aggressive sales campaign for frozen food and frozen food lockers.
If we adopt this frame of reference, it may prove to be a more comfortable, more manageable, more appropriate, more responsive way of thinking what the class suit problem is all about. That is not to say that in adopting a legislative viewpoint the courts can or should abandon the restrictions on role and competence that are properly imposed on the judiciary. It is not to say that the courts should convert themselves into legislatures. It is to say only that in thinking about class suits, one can usefully think about them as a problem of indefinite numbers and a problem of classification, as though one were in the legislature.
I now come to my second point. When one begins to think of legal problems from a legislative viewpoint, a central problem is presented that is usually obscure or latent when we think of legal problems case-by-case. This is the tension between the law's moral integrity and its practical effectiveness. Our law is characteristically infused with a high degree of moral enthusiasm, and we try to maximize it when we can. Hence, we like to think of making regulations that will purify the air, the waters, the marketplaces and relations between men generally. Very often statutes have preambles and judicial opinions have dicta to this effect. But when you get down to the enacting clauses of a statute or the holding of an opinion, the question becomes more complicated. Aside from what ought to be from a moral viewpoint the question becomes, what can be from a practical viewpoint? Do we really mean to hold people to the standard of conduct expressed or implied in the sweep of our moral major premises? It is nice to say that punitive damages should be awarded in the case of reckless behavior, and perhaps even satisfying to do it in a single case. But is this the right thing to do for every contract that fails to comply with a usury law or every automobile that fails to comply with a safety or emission-control standard?
Courts don't always face this kind of question when they decide cases one-to-one. At the same time, the legislature doesn't always face this question when it propounds the rules which the courts ultimately have to enforce. The legislature often pitches legislation at a higher level of expectation than it really intends to require. It anticipates a kind of discount for non-enforce-ability, and thereby enjoys a pleasant moral luxury in proclaiming high expectations. But one can't indulge that luxury, or its judicial equivalent in the form of expansive dicta, when one has to face up to enforcing the proposed rule. And that, of course, is what is involved in the class suit. That is why the strict liability rules of the securities legislation, the consumer protection laws, and the nuisance and warranty doctrines present so much difficulty in the class suit: substantive legal aspiration becomes reality through the procedural transformation of Rule 23. The class action is thus unique, perhaps, in forcing us simultaneously to think precisely about the terms of the substantive law's boundary lines, and to think seriously about what is involved in actually enforcing the law. That, of course, is our ultimate responsibility as jurists.PROBLEMS OF GIVING NOTICE IN CLASS ACTIONS by ARTHUR R. MILLER Professor of Law, Harvard University I. When Notice of the Institution of a Class Action Must be Given One of the most significant problems concerning class actions that has faced the federal courts since the 1966 amendment of Rule 23 is the question when the members of the class must be given notice of the action. The federal rule, specifically Rule 23(c)(2), states that notice must be given to members of the class in actions brought under Rule 23(b)(3). But nothing in the rule requires that notice be given to absent class members in actions instituted under Rule 23(b)(1) or Rule 23(b)(2).
A split of authority has emerged on the question whether notice is necessary in these two categories of cases. One line of decisions takes the position that since Rule 23(c)(2) indicates that notice is to be given in (b)(3) cases and says nothing about (b)(1) and (b)(2) actions, then notice is not required in the latter situations. The other line embraces the view that due process, in and of itself, particularly as expounded in the cases involving the requirement that the defendant is entitled to reasonable notice of the institution of a civil action requires notice to class members in all Rule 23 actions. According to this approach, the fact that Rule 23(c)(2) deals only with common question class actions under Rule 23(b)(3) simply indicates that notice of a certain quality is required in those cases.
See, e. g., Francis v. Davidson, D.O.Md. 1972, 340 F.Supp. 351; Wil-czynski v. Harder, D.C.Conn. 1971, 323 F.Supp. 509, 512 n. 3; Clark v. American Marine Corp., D.C.La. 1969, 297 F.Supp. 1305; Northern Natural Gas Co. v. Grounds, D.C. Kan. 1968, 292 F.Supp. 619, affirmed in part, reversed in part on other grounds C.A.10th, 1971, 441 F.2d 704, certiorari denied 404 U.S. 951, 92 S.Ct. 268, 30 L.Ed.2d 267. See also Johnson v. City of Baton Rouge, Louisiana, D.C.La. 1970, 50 F.R.D. 295.
The leading case on this point is Eisen v. Carlisle Jacquelin, C.A. 2d, 1968, 391 F.2d 555, 564-565. Other cases relying on Elsen include U. S. ex rel. Walker v. Mancusi, D.C.N.Y. 1971, 338 F.Supp. 311; Lopez v. Wyman, D.C.N.Y. 1971, 329 F.Supp. 483; Zachary v. Chase Manhatten Bank, D.C.N.Y. 1971, 52 F.R.D. 532; Clark v. American Marine Corp., D.C.La. 1969, 297 F. Supp. 1305, 1306; Cranston v. Freeman, D.C.N.Y. 1968, 290 F.Supp. 785, reversed on other grounds sub nom. Cranston v. Hardin, C.A.2d, 1970, 428 F.2d 822, certiorari denied Duncan v. Cranston, 401 U.S. 949, 91 S.Ct. 937, 28 L.Ed.2d 232.
The uncertainty on this issue is illustrated by a series of related cases involving the res judicata effect of the decision in Gregory v. Hershey, D.C.Mich. 1969, 311 F. Supp. 1, reversed on the merits sub nom. Gregory v. Tarr, C.A.6th, 1971, 436 F.2d 513, certiorari denied 403 U.S. 922, 91 S.Ct. 2229, 29 L.Ed.2d 701. Plaintiff in Gregory obtained a declaratory judgment on behalf of all selective service registrants to the effect that a denial of a fatherhood classification to persons who have received either an undergraduate or a graduate student deferment is illegal and void. Before the Sixth Circuit reversed, several actions were instituted in which plaintiffs claimed that they were members of the class in Gregory and asked to be reclassified on the basis of the res judicata effect of the decision in that case.
The court in Gregory had not required notice of the initiation of the action to be given because of the large number of people in the class and the lack of any reasonable way of identifying them. Two courts, following the principle stated in Eisen, held that "the absolute failure to give any kind of notice violated due process," Pasquier v. Tarr, D.C.La. 1970, 318 F.Supp. 1350, 1354, affirmed per curiam C.A.5th, 1971, 444 F.2d 116, and concluded that the Gregory decision was not binding under principles of res judicata. McCarthy v. Director of Selective Serv., D.C.Wis. 1970, 322 F.Supp. 1032; Pasquier v. Tarr, supra. This reasoning was specifically rejected in another case, however. Schrader v. Selective Serv. Sys. Local Bd. No. 76 of Wisconsin, D.C. Wis. 1971, 329 F.Supp. 966. The court argued that the adequacy of the class' representation and not simply notice to the class members determined whether due process was served and the judgment should be binding. In light of the then favorable resulting Gregory, it was apparent that the class was adequately represented.
My own view is that this second school of thought is wrong; that it fails to give sufficient weight to the mass quality of the class action; that the analogy occasionally drawn to the Supreme Court's decision in Mullane v. Central Hanover Bank Trust Company is not persuasive; and that most of the Supreme Court pronouncements concerning notice are distinguishable because they involve single plaintiff-single defendant litigation.
Support for the position that notice to absent class members is not mandatory, is provided by the availability of other procedural safeguards. Before a class action can proceed, Rule 23(a) requires the court to determine that the class is adequately represented. This prerequisite effectively satisfies the due process concerns that usually are reflected in a notice requirement. If the class representatives are found to have the qualities necessary to protect the interests of the other class members, then those represented, in effect, have had a day in court under conditions that meet due process standards and notice is not constitutionally required.
See, e. g., Feder v. Harrington, D.C.N.Y. 1970, 52 F.R.D. 178; Northern Natural Gas Co. v. Grounds, D.C.Kan. 1968, 292 F.Supp. 619, 636, affirmed in part, reversed in part on other grounds C.A.10th, 1971, 441 F.2d 704, certiorari denied 404 U. S. 951, 92 S.Ct. 268, 30 L.Ed.2d 267; Dolgow v. Anderson, D.C.N.Y. 1968, 43 F.R.D. 472, grant of summary judgment reversed C.A.2d, 1970, 438 F.2d 825; 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; Note, Proposed Rule 23: Class Actions Reclassified, 1965, 51 Va. L. Rev. 629, 654.
Adequacy of representation is discussed at length in 7 Wright Miller, Federal Practice and Procedure sections 1765-1770.
I think this conclusion is reinforced by the distinctive nature of (b)(1) and (b)(2) classes. They tend to be cohesive groups because the rule requires that the members have similar interests in the subject matter of the litigation or be seeking relief applicable to all of them (an injunction or declaratory judgment). Thus, members of a Rule 23(b)(1) or a Rule 23(b)(2) class usually are related in interest in the sense that they are seeking the same remedy or are asserting the same claims or defenses. Therefore, it is not imperative that each of them receive individual notice to insure the full presentation of the merits of the litigation. This cohesiveness, of course, does not exist in the (b)(3) case; in these actions the class members are bound together only by the fact that they are asserting one or more common issues. There typically is no ongoing association among them and the members often have different remedial objectives. Indeed, it was these differences that seem to have motivated the draftsmen of Rule 23 to include an express notice requirement for (b)(3) cases and not for (b)(1) and (b)(2) cases.
Class actions under Rule 23(b)(1) and (b)(2) are discussed at length in 7A Wright Miller, Federal Practice and Procedure sections 1772-1776.
Class actions under Rule 23(b)(3) are discussed at length in 7A Wright Miller, Federal Practice and Procedure sections 1777-1784.
See the Advisory Committee Note to the 1966 amendment to Rule 23, reprinted at 39 F.R.D. 98, 106.
In keeping with this philosophy, class members in Rule 23(b)(1) and Rule 23(b)(2) actions are not provided an opportunity by the rule to exclude themselves from the action as is true in Rule 23(b)(3) actions. Because class members in a (b)(1) or (b)(2) action do not have the alternative of excluding themselves from the class action and bringing a separate suit, notice really serves only to allow those members the opportunity to decide if they want to intervene or to monitor the representation of their rights. Moreover, in light of the objectives of the Rule 23 class action, one of which is to facilitate the bringing of litigation concerning certain areas of social and public policy as well as to promote a sense of the availability of justice, the establishment of a mandatory, across the board, individual notice requirement in Rule 23(b)(1) and 23(b)(2) cases would be an undesirable inhibition on use of the class action procedure.
Rule 23(c)(3) provides that the judgment in an action brought under either of the first two subdivisions of Rule 23(b) "whether or not favorable to the class shall include and describe those whom the court finds to be members of the class." For a discussion of this provision, see 7A Wright Miller, Federal Practice and Procedure section 1789.
I should make it clear that my comments thus far only concern the question whether there is a constitutional requirement of notice to class members in all Rule 23 actions. Although my conclusion is negative, I do recognize that, as a matter of sound practice, notice would be desirable and should be given in many Rule 23(b)(1) and (b)(2) cases. As a safety valve, the court has discretion under Rule 23(d)(2) to direct notice to be given in any class action "for the protection of the members of the class or otherwise for the fair conduct of the action." Thus, if there is any question as to the adequacy of the representation or the propriety of adjudicating the dispute on a class basis, notice clearly would be appropriate. Determining when this is true requires the exercise of judicial discretion on a case by case basis.
Conversely, there are situations in which a court may decide that other factors outweigh the need to give notice. For example, in Johnson v. City of Baton Rouge, Louisiana, four named plaintiffs, who were Negro residents of a parish, brought a class action seeking to enjoin the recurrence of certain alleged incidents, which they characterized as examples of discriminatory police practices against Negro residents of the parish. The court thought that publishing notice of the action would pose an unnecessary risk of further disturbing the interracial relations in the community while contributing nothing to the resolution of the lawsuit. Thus, in the exercise of its discretion under Rule 23(d)(2) it declined to order publication.
D.C.La. 1970, 50 F.R.D. 295.
A court also may feel that notice is not needed under the circumstances of a particular case. In Mungin v. Florida East Coast Railway Company, the court held that notice was not necessary to inform the members of the class that they could be separately represented or of any specific right to object to a proposed settlement since it was clear that they were fully aware of their rights. It noted that two letters received from individual members objecting to the allowance of the suit as a class action "make clear the level of their intelligence and the basis of their objections gave the Court no reason to believe that it had any duty to inform them of any right to hire other lawyers to represent them."
Id. at 732.
II. The Timing of the NoticeRule 23(c)(2) does not specify when the notice required in Rule 23(b)(3) actions should be given. Generally, however, it will be sent as soon as the court determines under subdivision (c)(1) that a class action is proper in order to provide the absentees with a full and meaningful opportunity to intervene to protect their rights or to opt-out of the action. Although the timing of the notice has little or no practical effect on the class members' ability to exclude themselves from the action, inasmuch as that right is preserved until the date specified in the notice, the utility of entering the action may be substantially impaired if the absent parties are not notified of the suit's existence until the adjudicatory process is well under way.
On the other hand, the court is free to decide to postpone giving formal notice under Rule 23(c)(2) if there is a reason for the delay and it would not prejudice those class members who are not before the court. For example, in Fischer v. Kletz, the court ruled that notice could be delayed until after discovery was completed since the class members already had been notified of the existence of the action by the defendant corporation's trustee during reorganization proceedings. And there are situations in which the court delays its decision under Rule 23(c)(1) as to the propriety of class action treatment or, as is true in the securities field, early public notice may adversely affect the rights of the class or the party opposing the class.
D.C.N.Y. 1966, 41 F.R.D. 377.
Rule 23(c)(1) is discussed in 7A Wright Miller, Federal Practice and Procedure section 1785.
Class actions in the securities field are discussed in 7A Wright Miller, Federal Practice and Procedure section 1781.
III. The Character of the Notice
Rule 23(c)(2), which applies directly to class actions under subdivision (b)(3) and, by analogy, to those instances when a court decides to give notice to absent class members in cases under subdivision (b)(1) or (b)(2), calls for "the best notice practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort." The first half of that standard, "the best notice practicable," is taken from the line of Supreme Court decisions starting with Mullane v. Central Hanover Bank Trust Company, mentioned previously, which involved the issue of what type of notice is required by the Due Process Clause of the Constitution.
In many instances, it will be clear what steps should be taken to identify members of the class. For example, in shareholder litigation there will be a list of stockholders. Similarly, in many antitrust or consumer cases, there will be records of purchasers when the class consists of buyers of a particular product, or some other relatively easy way to determine who may have been damaged by the challenged conduct. On the other hand, there have been, and will continue to be, cases in which the class is amorphous and individual members will be difficult or impossible to identify. In these situations the court must use a rule of reason with regard to what efforts should be undertaken in a particular context.
See Mader v. Armel, C.A.6th, 1968, 402 F.2d 158, certiorari denied Young v. Mader, 394 U.S. 930, 89 S.Ct. 1188, 22 L.Ed.2d 459; Korn v. Franchard Corp., D.C.N.Y. 1970, 50 F.R.D. 57, motion to dismiss appeal denied C.A.2d, 1971, 443 F.2d 1301, reversed on the merits C.A.2d, 1972, 456 F.2d 1206; 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; Harris v. Jones, D.C.Utah 1966, 41 F.R. D. 70, 74 n. 8. See also Lewis v. Bogin, D.C.N.Y. 1972, 337 F.Supp. 331; Buford v. American Fin. Co., D.C.Ga. 1971, 333 F.Supp. 1243 (defendant's files); Kronenberg v. Hotel Governor Clinton, Inc., D.C.N.Y. 1966, 41 F.R.D. 42.
A typical procedure is for the court to require the representative plaintiffs to submit a proposed list of persons to whom notice should be sent and then allow defendant to object or submit a counter-proposal. See Weiss v. Tenney Corp., D.C.N.Y. 1969, 47 F.R.D. 283; Brennan v. Midwestern United Life Ins. Co., D.C.Ind. 1966, 259 F.Supp. 673. If the members of the class can be identified more readily by defendant, then he may be obliged to compile the list. See Battle v. Municipal Housing Authority for the City of Yonkers, D.C.N.Y. 1971, 53 F. R.D. 423; Contract Buyers League v. F F Investment, D.C.Ill. 1969, 48 F.R.D. 7.
"There are no precise rules as to what constitutes adequate notice, and the due process standards have been held to vary depending on the circumstances of each case." State of West Virginia v. Chas. Pfizer Co., C.A.2d, 1971, 440 F. 2d 1079, 1000, certiorari denied Cotler Drugs, Inc. v. Chas. Pfizer Co., 404 U.S. 871, 92 S.Ct. 81, 30 L.Ed.2d 115.
See also Eisen v. Carlisle Jacquelin, D.C.N.Y. 1971, 52 F.R.D. 253, 266, on remand from C.A.2d, 1968, 391 F.2d 555; Cusick v. N. V. Nederlandsche Combinatie Voor Chemische Industrie, D.C.Pa. 1970, 317 F.Supp. 1022; Dolgow v. Anderson, D.C.N.Y. 1968, 43 F.R.D. 472, grant of summary judgment reversed C.A.2d, 1970, 438 F.2d 825.
Service of process in the traditional mode need not be made on those class members who are identified. Although the rule does not expressly so state, Mullane and other cases indicate that notification by mail is sufficient. The basic requirement is that the method chosen be reasonably calculated to reach the class members. Thus, the Supreme Court in Mullane remarked that: "A construction of the Due Process Clause which would place impossible or impractical obstacles in the way could not be justified".
Certain difficulties have arisen under the second half of the Rule 23(c)(2) standard — requiring "individual notice to all members who can be identified through reasonable effort." This language suggests that every member of a class who is identified must be given individual notice. However, any attempt to give this passage a literal interpretation would have a damaging effect on the operation of the rule. Not surprisingly, there have been instances in which something less has been accepted.
As was pointed out by a New York district court in Berland v. Mack, D.C.N.Y. 1969, 48 F.R.D. 121, 129, to apply an absolute requirement of notice to each individual member who is identified regardless of other practical considerations would "stymie the purpose of the class action device as a means of privately requiring fiduciaries to toe the mark." The court went on to note that if each class member only has a small claim, it is highly unlikely that any of them would be able to bring a separate suit and therefore that any of them would seek to be excluded from the class. If one of the main purposes of notice under Rule 23(c)(2) is to assure the absentee an opportunity to opt-out of the action, that purpose probably is not germane in actions involving relatively insignificant monetary claims.
Judge Weinstein has properly observed: "In determining what constitutes `the best notice practicable under the circumstances,' it is necessary to remember that the recent amendments were specifically designed to broaden the usefulness of the class action device. * * * By overemphasizing the notice requirement that purpose may be defeated." Dolgow v. Anderson, D.C. N.Y. 1968, 43 F.R.D. 472, 497, grant of summary judgment reversed C.A. 2d, 1970, 438 F.2d 825.
A good illustration of this is provided by Eisen v. Carlisle Jacquelin. In that case Judge Tyler of the Southern District of New York was confronted by a class of approximately six million people who had been buyers and sellers of odd-lots of stock during a given period of time. Two million members of the class could be identified through computerized lists of stock purchases and sales. The question therefore was whether Rule 23(c)(2) required that all two million be given individual notice. The estimated cost of doing so was approximately three hundred to four hundred thousand dollars. Instead, Judge Tyler, in my view correctly, ordered that individual notice be given (1) to all members of the New York Stock Exchange; (2) to all banking institutions with substantial trust departments; (3) to those people on the computerized list of two million who had engaged in more than ten odd-lot purchases or sales during the relevant period, these being the people who were most actively involved in odd-lot trading (this category consisted of approximately two thousand people); and (4) to five thousand additional people randomly selected from the remaining names on the list of two million. In addition, he directed that the notice be published. The estimated cost of the notice given under Judge Tyler's order was between ten and twenty thousand dollars, which represented less than five percent of the cost of giving individual notice to the two million identified class members.
D.C.N.Y. 1971, 52 F.R.D. 253.
If the class action is to be a useful device for vindicating various Congressional policies, such as the one involved in the Eisen case — private enforcement of the antitrust laws — then the passage in Rule 23(c)(2) regarding individual notice cannot be read literally. Moreover, it would be unfortunate if federal judges fell into the habit of invoking vague conclusions about the notice being too "expensive" or too "difficult" in order to justify the termination of a class action that might have some merit. Accordingly, in appropriate cases, the court should use selective individual notice or when the court is certain it will be effective, publication.
See, e. g., Buford v. American Fin. Co., D.C.Ga. 1971, 333 F.Supp. 1243, 1250.
See generally Nolop v. Volpe, D. C.S.D. 1971, 333 F.Supp. 1364; Herbst v. Able, D.C.N.Y. 1970, 49 F.R.D. 286; Dolgow v. Anderson, D.C.N.Y. 1968, 43 F.R.D. 472, 500, grant of summary judgment reversed C.A.2d, 1970, 438 F.2d 825; Booth v. General Dynamics Corp., D.C.Ill. 1967, 264 F.Supp. 465, 472.
The next question is: How should notice be communicated to the members of the class? Realistically, notice by publication will not reach the average citizen, especially if it is in the recesses of the financial pages of the New York Times or the Wall Street Journal. Quite appropriately, the Supreme Court often has commented on the fictive quality of notice by publication. Similarly, a legalistic letter from the court will not really further the objective very much.
In some of the antibiotics (tetracycline) cases the settlement notice was published as a quarter-page advertisement in the major daily newspapers in the United States. Very few responses were received; certainly not enough to justify the expenditure of approximately $114,000. The lawyers then undertook something akin to a public education campaign. They enlisted the aid of the media; Ralph Nader appeared on the Today Show to publicize the case; State Attorney Generals and various public officials gave public service announcements on local radio and television as permitted by the Federal Communications Commission. All this was accomplished at virtually no cost. In addition, counsel devised a carefully worded, comprehensible notice and sent it, through State Attorney Generals, to a wide spectrum of people who might have used tetracycline during the applicable period. As a result of these efforts approximately 40,000 people responded. This was 20 or 25 times the number that reacted to the published notice.
Obviously, the federal courts should not involve themselves in Madison Avenue activities. I am not advocating the use of gayly colored judicial mail embossed: "Important! Open this envelope! You may be entitled to a cash reward!!" The courts cannot act as if they were hawking the Reader's Digest. Nevertheless, the notice-giving process under Rule 23 must be reasonably pragmatic. The sad truth is that notices issued by courts or attorneys typically are much too larded with legal jargon to be understood by the average citizen.
A good illustration of this also is offered by the tetracycline cases. The Attorney General of North Carolina sent notice of the action to citizens of his state who had paid income taxes during a particular period. The theory underlying this procedure was sound enough. Given the wide use of the medication it was important to send notice to a broadly based list of citizens. Some of the responses are worth reading because they are symptomatic of the difficulty with the wording of most notices and reflect the problem of communicating to lay people about legal matters.
Dear Mr. Clerk: I have your notice that I owe you $300 for selling drugs. I have never sold any drugs, especially those you have listed; but I have sold a little whiskey once in a while.
Dear Sir: I received this paper from you. I guess I really don't understand it, but if I have been given one of those drugs, nobody told me why. If it means what I think it does, I have not been with a man in nine years.
Dear Sir: I received your pamphlet on drugs, which I think will be of great value to me in the future. I am unable to attend your class, however.
Dear Mr. Attorney General: I am sorry to say this, but you have the wrong John Doe, because in 1954, I wasn't but three years old and didn't even have a name. Mother named me when I got my driver's license. Up to then, they just called me Baby Doe.
IV. The Cost of Giving NoticeAnother aspect of the notice-giving process that causes difficulty is the question of who bears the cost. The generally accepted proposition is that the party invoking the class action procedure, typically the plaintiff, bears the financial burden of giving notice.
It seems self-evident that in some cases forcing one party to discharge that obligation will have the effect of terminating the action. In recognition of this problem, some courts have given careful consideration to cost-shifting and cost-sharing. Of course, this has been done only as an initial matter, inasmuch as the court may tax the cost of the notice against the losing party at the conclusion of the action.
In Battle v. Municipal Housing Authority for the City of Yonkers, D.C.N.Y. 1971, 53 F.R.D. 423, 426-427, the court upheld a class action by welfare recipients who claimed that their rights were being violated by the Municipal Housing Authority's refusal to rent apartments to them solely because their leases were not cosigned by the County Department of Social Services. The court then said: "The notice shall be prepared in the least costly fashion feasible, and the expense of such preparation and mailing shall be borne by defendant MHA. In lieu of first class mailing, MHA may deliver the notice directly to all members of the class who reside in MHA facilities provided MHA secures a receipt on delivery from any person to whom the notice is so delivered."
See also Ostapowicz v. Johnson Bronze Co., D.C.Pa. 1972, 54 F.R.D. 465; Bragalini v. Biblowitz, D.C.N.Y. 1969, 13 F.R.Serv.2d 23b.3, case 8; Dolgow v. Anderson, D.C.N.Y. 1968, 43 F.R.D. 472, 498, grant of summary judgment reversed C.A.2d, 1970, 438 F.2d 825.
Thus, if the class representatives demonstrate that they are financially incapable of bearing the cost of giving notice and that they would have to abandon the action if forced to, perhaps the cost should be borne by the opposing party or shared in some equitable manner. Because this may be too broad an exception from the general rule, some judges, notably in the Southern District of New York, have held a sketchy merits hearing; if the class action seems meritorious and not a strike suit, the court has been willing to order cost-shifting or cost-sharing. Another reasonable position is that when the class' action seems to further some legislative policy, as is true of securities fraud, civil rights, and treble damage actions, then it is appropriate to cost-share or cost-shift to carry out that policy.
In Feder v. Harrington, D.C.N. Y. 1970, 52 F.R.D. 178, 184, the court said that the best approach to the question of which party should pay for notice to the class "is to weigh all of the relevant criteria and then assign the costs to one or both of the parties. The relevant factors include: the merit of the claim, the defendants' desire for a res judicata effect on the class; the number of plaintiffs and their financial responsibility; the value and percentage of plaintiff's holdings as compared with those of the class; the plaintiff's ability to make the initial outlay; and the cost of notice." The court then held that since there was considerable doubt that plaintiff would succeed in the action before it, that defendants vigorously opposed the class action, and that plaintiff had not indicated she was prepared to reimburse defendants in the event she lost the case, plaintiff would be required to pay the cost of the initial notice. See also Berland v. Mack, D.C.N.Y. 1969, 48 F.R.D. 121.
It seems clear that the judicial treatment accorded notice costs is in a state of flux. However, a rule of reason appears to be emerging. It is true that a few courts have said that if the class representatives cannot bear the cost of the notice the action must be dismissed, on the ground that to do otherwise might alter the applicable substantive law or shift the litigation balance of power. But this is too facile an application of the single plaintiff-single defendant paradigm and ignores the special status of the class action. Mass litigation requires that certain adjustments in the "norm" be made in order to reap the benefits of the class action procedure.
V. The Contents of the Notice
Rule 23(c)(2), which usually will be used by analogy in Rule 23(b)(1) and 23(b)(2) cases, as well as in Rule 23(b)(3) cases to give notice of the pendency of the action, states that the notice should inform the recipient of (1) his ability to opt-out of the action, which is relevant only in Rule 23(b)(3) cases, (2) that the judgment will be binding on him, and (3) that the class member has a right of appearance.
The contents of the notice under Rule 23(c)(2) are discussed in 7A Wright Miller, Federal Practice and Procedure section 1787.
A few courts in Rule 23(b)(3) actions involving extremely large plaintiff classes seeking damages have concluded that the notice also may contain a demand that those class members who do not opt-out under subdivision (c)(2) take some affirmative action to remain in the class as a condition of participating in the award. Typically, this has led to each member being required to file a proof-of-claim form stating that he intends to try to prove damages; the judicial intent seems to be that a failure to do so will bar him from recovering under the judgment. Thus, for example, in State of Minnesota v. United States Steel Corporation, a civil antitrust action on behalf of numerous state agencies, the court specified that in addition to the matter set forth in Rule 23(c)(2), the notice should include something in the nature of a verified proof-of-claim form to be completed and returned with a certified resolution of the official body authorizing the submission of the claim.
See State of Iowa v. Union Asphalt Roadoils, Inc., D.C.Iowa 1968, 281 F.Supp. 391, affirmed on other grounds C.A.8th, 1969, 409 F. 2d 1239; State of Minnesota v. United States Steel Corp., D.C. Minn. 1968, 44 F.R.D. 559, 577; Philadelphia Elec. Co. v. Anaconda Am. Brass Co., D.C.Pa. 1968, 43 F. R.D. 452. Compare Quinault Allottee Ass'n Individual Allottees v. United States, Ct.Cl. 1972, 453 F. 2d 1272.
D.C.Minn. 1968, 44 F.R.D. 559, 577.
It has been argued that the district court's power to require affirmative action by nonparty class members may be implied from Rule 23(d). Furthermore, it may be justified as an aid in determining who should be included in the class for purposes of scheduling the various phases of the action, particularly the handling of damage issues. This is important since some knowledge of the size and membership of the class is necessary in order to make certain orders during the course of the proceedings and to give everyone some sense of the litigation's dimensions.
See State of Iowa v. Union Asphalt Roadoils, Inc., D.C.Iowa 1986, 281 F.Supp. 391, 403, affirmed on other grounds C.A.8th, 1969, 409 F.2d 1239; Ward Elliott, The Contents and Mechanics of Rule 23 Notice, in The Class Action — A Symposium, 1969, 10 B.C.Ind. Com. L. Rev. 557, 568. See also Brennan v. Midwestern United Life Ins. Co., C.A.7th, 1971, 450 F. 2d 999, certiorari denied Herriman v. Midwestern United Life Ins. Co., 405 U.S. 921, 92 S.Ct. 957, 30 L.Ed. 2d 792.
Despite the weight of these arguments, this additional requirement has the effect of obliging absent class members to opt-in and seems directly contrary to the philosophy of Rule 23(c)(2). Thus, the district court in Korn v. Franchard Corporation commented that "there appears to be a fundamental inconsistency in providing, on the one hand, that a member who fails to request exclusion shall be included in the class and, on the other hand, that a member who fails to file a proof of claim shall be excluded from any recovery". The court then went on to hold that although a proof-of-claim form could be included in the notice, the members should not be barred from asserting their rights simply because they failed to demonstrate at the action's outset that their claims had some validity. Further elaborating on this question, the Second Circuit on an appeal from the district court's holding, noted that the proof-of-claim statement is particularly useless in securities fraud cases since the investor class typically is lacking in sophistication and knowledge so that their response may not be meaningful. Despite this qualification, once liability is established, the court may be justified in ordering a second notice sent pursuant to Rule 23(d)(2) requiring class members to file statements of their claims and barring those not presented at that time.
Id. at 60.
Abulaban v. R. W. Pressprich Co., D.C.N.Y. 1971, 51 F.R.D. 496; Korn v. Franchard, D.C.N.Y. 1969, 50 F.R.D. 57, motion to dismiss appeal denied C.A.2d, 1971, 443 F.2d 1301, reversed on the merits C.A. 2d, 1972, 456 F.2d 1206.
C.A.2d, 1972, 456 F.2d 1206.
Harris v. Jones, D.C.Utah 1966, 41 F.R.D. 70. See also Biechele v. Norfolk W. Ry. Co., D.C.Ohio 1969, 309 F.Supp. 354 (the court entered an order requiring all those intending to present damage claims to enter an appearance by a specified date).
Because the proof-of-claim statement may serve an important function, the best approach is to consider the desirability of its use in terms of the facts in each case. This recognizes the court's discretion to utilize the procedure; but it should not be invoked when it only will confuse the absentees, some class members can demonstrate that it will prejudice their rights, it will be employed prematurely or administered in an inappropriate fashion, or it will serve only to reduce the efficiencies of the class action.
See Philadelphia Elec. Co. v. Anaconda Am. Brass Co., D.C.Pa. 1968, 43 F.R.D. 452, 460.
See Abulaban v. R. W. Press-prich Co., D.C.N.Y. 1971, 51 F.R.D. 496.
See Ward Elliott, The Contents and Mechanics of Rule 23 Notice, in The Class Action — A Symposium, 1969, 10 B.C.Ind. Com. L. Rev. 557, 568.
An excellent example of the type of balancing that may be involved is presented by State of West Virginia v. Chas. Pfizer Company. In that case, several states brought class actions on behalf of their citizen consumers for treble damages for violations of the antitrust laws by defendant drug companies. The Second Circuit held permissible a notice to the consumers stating that if they did not file individual claims by a certain date they would be assumed to have authorized the states to recover on their behalf. The court reasoned as follows:
Presumably there were among this group some who read the notice and made an affirmative decision to assign their claims. Undoubtedly there were also those who did not receive notice, and it is with this group we should be concerned. Since under the revised rule those in a (b)(3) class who do not elect to opt out will be bound by the judgment, it is difficult to see how those who do not receive notice but on whose behalf damages are awarded to the state are in any way harmed by permitting the use of this procedure. To require those who wish to authorize the state to recover for them to affirmatively notify the court to this effect would obviously, as a practical matter, be likely to reduce the amount of these recoveries to a minimum.
Id. at 1091.
In deciding what other information the notice should contain, the court often will find itself on the horns of a dilemma. If the notice states too much, it may become incomprehensible or seem threatening to the absent class members, thereby encouraging them to take the path of least resistance, which will be to optout; if it contains too little, it will not fully inform the absentees and may render meaningless their rights to opt-out, to appear, to contest such matters as the adequacy of the representation, and to pursue their own lines of inquiry.
To illustrate the difficulty, it might be asked whether the notice should state that if the absent class member appears he may be held for a pro rata portion of the taxable costs or that he may be subjected to a discovery order. If these obligations are spelled out, the absentee simply may quit the class in a Rule 23(b)(3) action. If he is not told, the notice really is somewhat misleading. In my view the notice should inform the absent class member of his litigation burdens, but these must be presented in a very balanced fashion. Of course, there is less need to be unduly cautious in Rule 23(b)(1) and Rule 23(b)(2) cases inasmuch as the class members have no right to opt-out.
The problem discussed in text is presented by Brennan v. Midwestern United Life Ins. Co., C.A.7th, 1971, 450 F.2d 999, certiorari denied Herriman v. Midwestern United Life Ins. Co., 405 U.S. 921, 92 S.Ct. 957, 30 L.Ed.2d 792.
Mention also should be made of the risk of claim solicitation when the notice is attorney-drawn. Although this factor has been much commented upon, the cases indicate that the district judges are being very sensible in terms of the procedures for composing and distributing the notice. Thus, although there have been instances of improper conduct in connection with the notice procedure, it is fair to say that these abuses have been extremely rare. Moreover, this particular threat can be handled by local rule or by following some of the suggestions made in the Manual for Complex and Multi-District Litigation. The possibility of overreaching should not obscure the fact that the composition and dissemination of the notice often should be a cooperative venture.
See, e. g., Halverson v. Convenient Food Mart, Inc., C.A.7th, 1972, 458 F.2d 927; State of Minnesota v. United States Steel Corp., D.C. Minn. 1968, 44 F.R.D. 559, 576; School Dist. of Philadelphia v. Harper Row Publishers, Inc., D.C.Pa. 1967, 267 F.Supp. 1001. See also Frankel, Some Preliminary Observations Concerning Civil Rule 23, 1967, 43 F.R.D. 39; Kaplan, Continuing Work of the Civil Committee: 1966 Amendments of the Federal Rules of Civil Procedure (I), 1967, 81 Harv. L. Rev. 356, 398-399; Ward Elliott, The Contents and Mechanics of Rule 23 Notice, in The Class Action — A Symposium, 1969, 10 B.C.Ind. Com. L. Rev. 557; Note, Federal Rules of Civil Procedure: Rule 23, the Class Action Device and Its Utilization, 1970, 22 U.Fla. L. Rev. 631.
See, e. g., Kronenberg v. Hotel Governor Clinton, Inc., D.C.N.Y. 1967, 281 F.Supp. 622.
See Manual for Complex and Multidistrict Litigation section 1.61.
See, e. g., City of Philadelphia v. Emhart Corp., D.C.Pa. 1970, 50 F.R.D. 232, 236; Contract Buyers League v. F F Investment, D.C.Ill. 1969, 48 F.R.D. 7, 15 n. 5; Herbst v. Able, D.C.N.Y. 1969, 47 F.R.D. 11, order amended D.C.N.Y. 1970, 49 F.R.D. 286; State of Minnesota v. United States Steel Corp., D.C. Minn. 1968, 44 F.R.D. 559, 577; Dolgow v. Anderson, D.C.N.Y. 1968, 43 F.R.D. 472, 498, grant of summary judgment reversed C.A.2d, 1970, 438 F.2d 825; Brennan v. Midwestern United Life Ins. Co., D.C.Ind. 1966, 259 F.Supp. 673.
VI. Notice Under Rule 23(d)(2)Mention should be made of another provision in the rule dealing with notice; this is Rule 23(d)(2). It speaks broadly about the court's power to give notice "for the protection of the members of the class or otherwise for the fair conduct of the action." As examples of the purposes that resort to subdivision (d)(2) might serve, the rule specifies that the court may direct notice
to some or all of the members of any step in the action, or of the proposed extent of the judgment, or of the opportunity to members to signify whether they consider the representation fair and adequate, to intervene and present claims or defenses, or otherwise to come into the action.
This statement does not represent an exhaustive list of occasions on which notice to the class might be appropriate.
Basically Rule 23(d)(2) is a catch-all and merely codifies the inherent judicial power to give notice to absent parties whenever the court deems it advisable to do so. There are numerous situations when this will be desirable and Rule 23(d)(2) is a valuable tool in managing the action, insuring the continuing adequacy of the representation, and making certain that all facets of the class' claims or defenses are before the court.
In certain cases the court may use the notice provisions of subdivision (d)(2) to provide protection to the class beyond the minimum requirement of fair and adequate representation prescribed by Rule 23(a)(4). For example, in Knight v. Board of Education of the City of New York, a class action brought against the board of education by named plaintiffs individually and on behalf of hundreds of fellow students who allegedly had been expelled on a discriminatory basis and without a hearing, it was important for the court to determine the scope of the grievance and the number of class members who genuinely were interested in continuing their education so that appropriate steps could be taken to protect them. The court stated that notice to members of the class should be accommodated to the particular purpose of the action. For that reason, each class member was sent a letter and questionnaire informing him of the pending action and inquiring whether he wished to be represented without charge. The court indicated that special steps might have to be taken to protect the interests of the class depending on its size. Illustratively, it said that if several hundred students had to be readmitted at once, special masters might be required to conduct the hearings. In another case the district court ordered that its decision against the class be communicated to its members by the representatives with a statement indicating whether they would take an appeal and, if not, providing information as to how and within what time frame class members might seek leave to file an appeal.
See Doe v. General Hosp. of District of Columbia, 1970, 140 U.S. App.D.C. 153, 434 F.2d 427, 433; Knight v. Board of Educ. of City of New York, D.C.N.Y. 1969, 48 F. R.D. 108; Hayes v. Seaboard Coast Line R. R. Co., D.C.Ga. 1969, 46 F. R.D. 49.
D.C.N.Y. 1969, 48 F.R.D. 108.
Cranston v. Freeman, D.C.N.Y. 1968, 290 F.Supp. 785, reversed on other grounds sub nom. Cranston v. Hardin, C.A.2d, 1970, 428 F.2d 822, certiorari denied Duncan v. Cranston, 401 U.S. 949, 91 S.Ct. 937, 28 L.Ed.2d 232. Although the court did not cite Rule 23(d)(2), it seems evident that the order falls within its purview.
As indicated in the Knight case, notice may be given under Rule 23(d)(2) if the court decides that it will aid in determining how to conduct or manage the action, particularly with regard to the need for subclasses. Thus, in Johnson v. Georgia Highway Express, Inc., the Fifth Circuit commented that although the action before it would present several management difficulties to the lower court if it were allowed to proceed as a class action, the court had resources to handle those burdens. Specifically, the court indicated that notice could be sent to the members of the class to reduce the confusion and to meet any special problems that might arise. As I mentioned earlier, a few federal courts have authorized notice to be sent requiring the class members to file a statement of their claims on specially prepared forms by a certain date or be barred from asserting them. Notice also may be useful in aiding the court in making a determination under Rule 23(c)(1) as to the propriety of class action treatment. In this context, notice may insure that the relevant considerations are fully presented to the court by members of the alleged class.
The formation of subclasses is discussed in 7A Wright Miller, Federal Practice and Procedure section 1790.
C.A.5th, 1969, 417 F.2d 1122, 1125.
Rule 23(c)(1) is analyzed in 7A Wright Miller, Federal Practice and Procedure section 1785.
VII. Notice of the Settlement or Compromise of a Class Action
Before concluding, notice of settlement or compromise should be discussed briefly. According to Rule 23(e), notice of any proposed dismissal or compromise of a class action must be given to all class members in whatever manner the court might direct. The purpose of subdivision (e) is to protect the nonparty members of the class from unjust or unfair settlements affecting their rights when the representatives become fainthearted before the action is adjudicated or secure satisfaction of their individual claims by a compromise. In light of its special prophylactic function, Rule 23(e) is specifically excepted from the general provision in Rule 41(a)(1) allowing voluntary dismissals without court approval, and it has been held to prevail over a local court rule permitting the automatic dismissal of a suit for lack of prosecution. Moreover, the parties should not be allowed to circumvent subdivision (e) simply by classifying a dismissal as a motion to drop one or more parties under Rule 21.
Rule 23(e) is discussed in 7A Wright Miller, Federal Practice and Procedure section 1797.
See, e. g., Norman v. McKee, C.A. 9th, 1970, 431 F.2d 769, 774, certiorari denied I S I v. Myers, 401 U.S. 912, 91 S.Ct. 879, 27 L.Ed.2d 811; Webster Eisenlohr, Inc. v. Kalodner, C.C.A.3d, 1944, 145 F.2d 316, certiorari denied 325 U.S. 867, 65 S.Ct. 1404, 89 L.Ed. 1986; Partridge v. St. Louis Joint Stock Land Bank, C.C.A.8th, 1942, 130 F.2d 281, 286; Pelelas v. Caterpillar Tractor Co., C.C.A.7th, 1940, 113 F.2d 629, certiorari denied 311 U.S. 700, 61 S.Ct. 138, 85 L.Ed. 454; Hutchinson v. Fidelity Inv. Ass'n, C.C.A.4th, 1939, 106 F.2d 431; Weight Watchers of Philadelphia, Inc., v. Weight Watchers Int'l Inc., D.C.N.Y. 1971, 55 F.R.D. 50, mandamus denied C.A.2d, 1972, 455 F.2d 770; Malcolm v. Cities Serv. Co., D.C.Del. 1942, 2 F.R.D. 405. See generally Dole, The Settlement of Class Actions for Damages, 1971, 71 Col. L. Rev. 971.
See National Hairdressers' Cosmetologists' Ass'n, Inc. v. Philad Co., D.C.Del. 1944, 4 F.R.D. 106.
See Philadelphia Elee. Co. v. Anaconda Am. Brass Co., D.C.Pa. 1967, 42 F.R.D. 324, 327. One district court has ruled that even if an amendment as of course deleting the class action allegations in the original complaint would be proper under Rule 15(a), it cannot be allowed because it might be an evasion of subdivision (e). Yaffe v. Detroit Steel Corp., D.C.Ill. 1970, 50 F.R.D. 481.
There are some exceptions to the notice requirement that should be noted. Since the primary concern of the court under Rule 23(e) is to assure that any person whose rights would be affected by a dismissal or compromise has the opportunity to contest the proposed action, there is some authority indicating that if the rights of the other class members could not be prejudiced by a dismissal, notice of the proposed dismissal is unnecessary. Similarly, if an interlocutory decree is entered — for example, a consent decree — advance notice to the class may not be required since that order is not a final settlement of the issues and the action theoretically will proceed.
See Polakoff v. Delaware Steeple-chase Race Ass'n, D.C.Del. 1966, 264 F.Supp. 915, 917; Cohn v. Columbia Pictures Corp., D.C.N.Y. 1949, 9 F.R.D. 204. See also May v. Midwest Ref. Co., C.C.A.1st, 1941, 121 F.2d 431, certiorari denied 314 U.S. 668, 62 S.Ct. 129, 86 L.Ed. 534.
See Cunningham v. English, 1959, 106 U.S.App.D.C. 92, 269 F.2d 539, certiorari denied 361 U.S. 950, 80 S.Ct. 400, 4 L.Ed.2d 383: Mungin v. Florida E. Coast Ry. Co., D. C.Fla. 1970, 318 F.Supp. 720, 733, affirmed per curiam C.A.5th, 1971, 441 F.2d 728, certiorari denied Howard v. Florida East Coast Ry. Co., 404 U.S. 897, 92 S.Ct. 203, 30 L.Ed.2d 175.
Another exception to the mandatory notice requirement in Rule 23(e) occurs when the dismissal is not voluntary. Inasmuch as an involuntary dismissal presumably cannot involve collusion or benefit the representative plaintiffs at the expense of the remaining class members, the protection afforded by giving notice to the absentees is not required. Accordingly, a dismissal on the merits, for lack of personal jurisdiction, or on the ground that the suit is not maintainable as a class action does not fall under Rule 23(e), although the court may choose to give notice in order to enable nonparty class members to participate in the decision making process.
See Cross v. Oneida Paper Prods. Co., D.C.N.J. 1954, 117 F.Supp. 919.
See Pelelas v. Caterpillar Tractor Co., C.C.A.7th, 1940, 113 F.2d 629, certiorari denied 311 U.S. 700, 61 S.Ct. 138, 85 L.Ed. 454; Hutchinson v. Fidelity Inv. Ass'n, C.C.A. 4th, 1939, 106 F.2d 431; Saylor v. Lindsley, D.C.N.Y. 1967, 274 F.Supp. 253, reversed on other grounds C. A.2d, 1968, 391 F.2d 965; National Hairdressers' Cosmetologists' Ass'n, Inc. v. Philad Co., D.C.Del. 1944, 4 F.R.D. 106; Smith v. Industrial Secs. Corp., D.C.Conn. 1943, 49 F.Supp. 959; Mullins v. De Soto Secs. Co., D.C.La. 1942, 45 F.Supp. 871, 886, affirmed in part, reversed in part on other grounds C.A.5th, 1943, 136 F.2d 55; Massaro v. Fisk Rubber Corp., D.C. Mass. 1941, 36 F.Supp. 382.
See Marcus v. Textile Banking Co., D.C.N.Y. 1965, 38 F.R.D. 185.
It also has been held that a dismissal for failing to prosecute does not require notice because of its involuntary character. This result is dubious, however, since a failure to prosecute may reflect the fact that the representatives have lost interest in the suit because their own goals have been satisfied or result from a number of other reasons unrelated to the action's merits or the rights of the other class members. Should this be the case, the representatives might refuse to pursue the action and not seek the court's approval of a dismissal, thereby intentionally or unintentionally evading the safeguards provided by subdivision (e).
A practical problem exists involving the application of Rule 23(e) during the period between the filing of the action and the determination under subdivision (c)(1) of whether it can be maintained on a class basis. This problem was specifically dealt with by the district court in Philadelphia Electric Company v. Anaconda American Brass Company, a class action by plaintiffs against thirteen defendants alleging a conspiracy under the antitrust laws. Three of the thirteen defendants settled their claims and moved to secure the court's approval before the propriety of the class suit had been determined. The court held that during the period before a decision under Rule 23(c)(1) is made, the action must be presumed to be a proper class action for purposes of subdivision (e). This result seems sound inasmuch as a contrary conclusion would put an undue premium on early settlements to avoid the application of Rule 23(e) and even might encourage collusion during the period before the class action issue is resolved. Either possibility might operate to the disadvantage of those class members who are not before the court.
D.C.Pa. 1967, 42 F.R.D. 324. See also Ace Heating Plumbing Co. v. Crane Co., C.A.3d, 1971, 453 F. 2d 30; Washington v. Wyman, D. C.N.Y. 1971, 54 F.R.D. 266; In Philadelphia Housing Authority v. American Radiator Standard Corp., D.C.Pa. 1970, 323 F.Supp. 364, 373; Kahan v. Rosenstiel, C.A.3d, 1970, 424 F.2d 161, certiorari denied Glen Alden Corp. v. Kahan, 398 U.S. 950, 90 S.Ct. 1870, 26 L. Ed.2d 290; Yaffe v. Detroit Steel Corp., D.C.Ill. 1970, 50 F.R.D. 481.
Rule 23(e) provides that the notice is to be given "in such manner as the court directs," which leaves the court with virtually complete discretion. As indicated in the discussion of the other notice provisions in Rule 23, subdivision (c)(2) and subdivision (d)(2), there is no single way in which the notice must be transmitted. In most cases notice by mail to all of the identified members of the class informing them of the proposed action and indicating that they may participate and voice their objections will suffice.
The notice should inform each class member of what is happening in the action and what effect the dismissal or compromise may have on him. As stated in the current Manual on Complex and Multidistrict Litigation:
See, e. g., United Founders Life Ins. Co. v. Consumers Nat. Life Ins. Co., C.A.7th, 1971, 447 F.2d 647.
No settlement of any class action (in whole or in part as to a subclass) should be permitted and approved without full disclosure of the details of the settlement and the attorneys' fees and other expenses to be charged against the members of the class (or subclass). This disclosure should include the identity of all counsel who will share in the receipt and division of fees, and the amounts thereof.
Manual on Complex and Multi-district Litigation, section 1.61.
Because class members may opt-out of a Rule 23(b)(3) action, there is a possibility that the party opposing the class will seek to arrange private settlements with nonparty class members to encourage them to exercise their right of exclusion. This practice has two potentially undesirable byproducts. First, the solicitation by the party trying to secure settlements with individual class members could involve misleading statements about the action that may reflect adversely on the court. Second, encouraging class members to opt-out may weaken the position of the class to the point of rendering the action unviable, thereby undermining the utility of Rule 23(b)(3). On the other hand, the extrajudicial settlement of disputes is something that typically should be promoted.
In Weight Watchers of Philadelphia, Inc. v. Weight Watchers Int'l, Inc., C.A.2d, 1972, 455 F.2d 770, the Second Circuit held that at least prior to a class action determination under Rule 23(c)(1), defendant would be permitted to negotiate settlements under judicial supervision with other potential members of the plaintiff class, even though the result might be to so reduce the size of the class as to destroy the requirement prescribed in subdivision (a)(1) that the class be so numerous that joinder is impracticable.
The language of Rule 23(e) does not appear to apply to settlements with individual class members. Nonetheless, because it could lead to abusive practices, the district court should exercise some control over communications between formal parties and passive class members. The current Manual for Complex and Multidistrict Litigation suggests the adoption of a local rule "forbidding unapproved direct or indirect written and oral communications by formal parties or their counsel with potential and actual class members, who are not formal parties * * * ". This position is sound and would provide the court with a valuable mechanism for carrying out the policies underlying Rule 23(c). Absent a local rule, the court can secure the same result by issuing an order corresponding to the suggested rule on an ad hoc basis.
Weight Watchers of Philadelphia, Inc. v. Weight Watchers Int'l, Inc., C.A.2d, 1972, 455 F.2d 770.
Manual on Complex and Multidistrict Litigation, section 1.61.
My own judgment is that the notice-giving procedure in class actions, although the subject of considerable attention in Rule 23 cases, has not really generated any problems that are insuperable. The district courts seem to have employed their discretion in administering the rule in many ingenious and desirable ways. Furthermore, the instances of abuse by counsel seem to be so few as not to be worthy of serious discussion.
Thus, at least as far as notice is concerned, I think the courts have honored the conception of Rule 23 as a procedural skeleton that is to be fleshed out by judicial discretion and inventiveness as the need arises. With the passage of time and the accumulation of experience under the rule, which, after all, is only six years old at this point, I believe Rule 23 will prove to be a very valuable keystone in making federal procedure responsive to the exigencies of the Twentieth Century and particularly the needs of contemporary litigation.