SNYDER v. HARRIS
Legal provision: Federal Rules of Civil Procedure, including Appellate Procedure (or relevant rules of a circuit court)
Argument of Charles Alan Seigel
Chief Justice Earl Warren: Number 109, Snyder versus Harris.
Mr. Charles Alan Seigel: Yes, Your Honor, justice.
Mr. Justice, this is a case that was initially instituted in the Eastern District of Missouri by the petitioner, a diversity case brought under the Federal Rule 23, the class action rules seeking to recover for herself and for some 4,000 members of her class a judgment in the amount of $1,200,000.00.
The petitioner is the owner of some 2,000 shares of stock of the Missouri Union Fidelity Insurance Company.
In the petitioner's complaint, it is alleged that the National Western Life Insurance Company entered into an agreement with the controlling members of the Board of Directors of Missouri Fidelity Union Trust Company, Insurance Company, whereby the National Western agreed that they would buy some 300,000 shares of stock owned by the directors and members of the directors family for a premium price of a $1,200,000.00 and by premium price I mean $1,200,000.00 over what the stock was sell for in the market and the condition was, is that these directors resign and that -- and that is what happened.
The directors did resign on the shares being purchased and the nominees and national western were then elected to control to the board of directors and were then elected to control of the executive committee and the financial committee.
The relief sought in the petition, the complaint was that this $1,200,000.00 should be distributed to the shareholders of Missouri Union Fidelity because that this was an illegal sale of the officers of the directors and it was a breach of trust owed by the directors to the stockholders.
The respondent filed a motion to dismiss taking the position in the motion to dismiss that the claim of each member of the class was a separate and distinct claim and that in as much as the claim, the respective amount of the petitioner's case was only $8,740.00 that the jurisdictional amount of $10,000.00 had not been met.
The district judge, District Court sustained this motion.
This was affirmed by the Court of Appeals and certiorari is applied for and granted to the court on this matter.
The sustaining of this motion to dismiss is what made up the issues in this case.
The respondents' claim that under the old rule, Federal Rule 23 and of many cases decided before the amended rule of Federal Rule 23, is that you could not aggregate, you cannot aggregate separate and distinct claims.
It's the position of the petitioner that amended rule, Federal Rule 23 does awake completely with any designation of separate distinction claims and that under Federal Rule 23 there is provided for one action and one judgment finding on the whole class except those who want to be -- indicate that they want to be excluded.
There is no such thing as separate and distinct claim, therefore aggregation is permitted.
Now going into a little history, the United States Constitution Article 3 says that the judicial power should be in one Supreme Court and then such inferior courts as the Congress should then designate.
The Section 2 of the Constitution provides that the judicial powers should extend to matters of citizens of different states.
Now in the Judicial Act of 1789, there was set forth by Congress the jurisdiction amount of $500.00 for jurisdiction in district courts.
This has now been extended presently to $10,000.00.
As might be expected after there was set this jurisdictional limit, there came up the problem -- there came the problem as what happens in joinder cases and what happens in class action cases, how do you compute to $10,000.00.
For the courts then looked, they cannot look to statute, there was nothing in the statute a term saying how it should be determined.
There's nothing in the Constitution so they then look to their rules, the rules of common law and of equity practice as it grew up as to joinder equity practice and also the interpretations to the old amended -- old Federal Rule 23 which really was a codification of the rule, the old rules of common law joinder and of equity practice.
And as we go back and to look at the common law rules of joinder class actions and of equity practice, and as also was -- were codified in Federal Rule 23, we find that there was such terms used as joint and common and separate and distinct and the courts came down with this theory.
They came down with this theory by looking not at the statutes, not the constitution but at their own procedural rules and they came with this conclusion that if there was a joint action and that would be an action for example when there was an interpretation of a trust, a raise that would be binding and all the parties plaintiff, this was a true class action and therefore aggregation should be permitted.
But if there was a separate and distinct claims, such as the claims which we admit under the prior rule would be this particular case that these could not be aggregated because there could be separate judgments and in every respect under Federal Rule 23, the old Federal Rule 23 and under the old equity and common law practice, the -- even though there was a joinder or clause of class action when there was a separate distinct claims, each claim maintained its own identity.
This joint and several claims were called spurious claims and in these claims the court would not allow aggregation and again under Federal Rule 23, the old rule Federal 23 is that the only effect of a joinder and a class action whether a separate or distinct claims was that the -- when the person do had a separate distinct claim could intervene in the action.
It was not binding on any other members of the class unless the class member actually intervened in the action and the -- there could be separate and distinct judgments and there could be a judgment for plaintiff and it could be against the plaintiff.
In 19 -- July of 1967, amended Rule 23 was passed and basically the amended Rule 23 provides, is that when the class is so numerous, they're being practical to join all the parties involved and there are common questions of law in fact common to the class and that their claims or defenses common to the class and that the petitioner will fairly represent the class and that the questions of law in fact common to members of the class prevail over any question affecting individual members then a class action may be maintained and then after -- if a judgment is entered, the rule specifically says, the judgment -- does not say the judgments, the judgment in such an action, not in actions, shall describe the member of this class and shall be binding on all members of the class who do not notify the court after being notified by the court that the action is pending that they want to be excluded.
So, as in this particular case if the petitioner was prevailed, there would be one judgment in the amount of $1,200,000.00 and which will be binding on all members of the class except those members who notified the court that they do not want to be included in the judgment.
Justice Byron R. White: What would they have left?
Mr. Charles Alan Seigel: Mr. Justice, they would be distributed to each member of this class, his respective share.
Justice Byron R. White: How about those ones who notified that they didn't want to be part of the action?
What would they have retained by that action?
Mr. Charles Alan Seigel: They would have to retain the right to bring their own independent action Mr. Justice.
They could bring an independent action for example in the State Court action if they so desire.
Justice Byron R. White: So they were -- so there would be at least two actions in that possible.
Mr. Charles Alan Seigel: There could be, that's correct Mr. Justice.
Justice Byron R. White: And if a hundred shareholder, each said “I want to stay out”, there would be -- all of those hundred could bring their own separate action?
Mr. Charles Alan Seigel: That is correct.
Justice Byron R. White: And state their own cause of action.
Mr. Charles Alan Seigel: That is correct.
Justice Byron R. White: And what if -- what if two of those hundred joined in one suit?
Two named -- two parties, two of his class, two of the hundred who said we don't want to be part of this case, then brought in their own name --
Mr. Charles Alan Seigel: Mr. Justice the --
Justice Byron R. White: Their own actions against the company each for 2,000 -- each for $5,000.00.
Mr. Charles Alan Seigel: They could maintain that action.
Justice Byron R. White: How could they do that?
Mr. Charles Alan Seigel: Well, if they do not have the $10,000.00 jurisdictional amount involved between them, then they would file their suit in the state court.
Justice Byron R. White: Yes but as between them they do, but you say that -- you say the two stockholders may aggregate if they bring -- if two stockholders joined in one action against the company?
Mr. Charles Alan Seigel: Under the class action rules, yes.
Justice Byron R. White: Well this isn't a class action.
They don't report to be bringing a class action for anybody.
They just say we are bringing our own causes of action, the two of us, right here.
Mr. Charles Alan Seigel: Well, if their claims are in excess of $10,000.00, they could bring it in the federal court, if they were not, they would bring their claims in the state court.
Justice Byron R. White: I understand that, how -- what makes you say that can aggregate in that case?
Mr. Charles Alan Seigel: Well, in that case Mr. Justice that would be a simple case of joinder of two --
Justice Byron R. White: That's right, exactly.
Mr. Charles Alan Seigel: -- of two plaintiffs and that would not fall under the class action rule and the old rules as far as joinder would apply.
Justice Byron R. White: Which means that they couldn't aggregate?
Mr. Charles Alan Seigel: That is correct.
Justice Byron R. White: So they wouldn't -- they couldn't bring their action in the federal court?
Mr. Charles Alan Seigel: Well, under the old rule that this was strictly a joinder case Mr. Justice, that would be correct because I want to make it clear, is that our position on -- that the claim should be aggregated is really based solely --
Justice Byron R. White: I know.
Mr. Charles Alan Seigel: -- on amended rule, Federal Rule 23.
Justice Byron R. White: I understand that, I understand that.
Mr. Charles Alan Seigel: And under the case that Mr. Justice has put forth, is that would be just simply a permissive joinder --
Justice Byron R. White: Simple joinder case, no aggregation.
Mr. Charles Alan Seigel: And I think that we have to look to the old court decisions on that and that there would not be aggregation because the sole basis of our claim for aggregation is amended Rule 23 which now provides for one judgment finding of the whole class.
Justice Byron R. White: But in that, there's a case I brought you, I gave to you, you said there would be no aggregation but nevertheless both parties would be bound by the judgment.
Mr. Charles Alan Seigel: In -- Mr. Justice in the case that you mentioned, there could be -- there would be not one judgment, there would be two separate judgments because this thing in a strictly permissive joinder case, there is not provision for a single judgment.
There -- it would be a judgment for each plaintiff and --
Justice Byron R. White: But nevertheless when the lawsuit was over, both parties would be bound.
Mr. Charles Alan Seigel: That is correct.
Justice Byron R. White: And furthermore, the issues of that fact and law are identical.
Mr. Charles Alan Seigel: That is correct, that is correct.
But I might point this out that theoretically in a permissive joinder case, there could be different judgments whereas in a class action under amended Rule 23, there cannot be different judgments, there is one judgment that is binding on the whole class and there is only one consistent judgment that cannot be separate judgments or like four or one member of the class against the other because the rule says that if the claims or defenses are not common, then there should not be a class action rule.
So there is no possibility of inconsistent judgment and amended Rule 23.
Justice Abe Fortas: Well your position really means that the jurisdictional amount is not “would not be consequential for purposes of determining federal jurisdiction in diversity case,” that's a practical effect, that would of course -- in theory you could have as -- my Brother White's question indicated you could have enough stockholder saying we don't want to be included so that the remaining group would not have the $10,000.00 jurisdictional amount, but actually the position that you take construing the rule wouldn't mean that anybody could start a stockholder's derivative action as a practical matter and would not be troubled by the jurisdiction -- requirement of a jurisdictional amount.
Mr. Charles Alan Seigel: Mr. Justice that would be so as long as the -- the aggregate amount of the total claims of the whole class was in excess of the $10,000.00 jurisdiction.
Justice Abe Fortas: This probably would -- probably worth bringing the suit?
Mr. Charles Alan Seigel: Right, that's correct.
The respondents have contended that we must look to the old rules as to aggregation.
The old rules as to what the courts -- the decisions what the courts held that there could not be aggregation if there were separate distinct claims.
We must look to the old federal rule which had this break down and use these terms, a carryover from the old common law and class actions of joint common and several and that as I indicated that if it was a joint claim, there could be aggregation but if it were several, there cannot be.
Now, that is what the respondents looked to in support of their position.
But now when the petitioner wants to look at amended Rule 23 to find out that there can be aggregation in the whole claims, the respondents now claim that this is in violation of rule 82 of the federal rules of civil procedure which says that the federal rules cannot expand federal jurisdiction.
I submit that if the petitioner in seeking to justify aggregation and rule -- under amended Rule 23 is in violation of expanding jurisdiction then the respondents in looking at the court's interpretation of its own rules, its own common law rules, equity rules and old rule Federal 23 is also in violation of the restrictions of rule 82 which says not only must you not extend jurisdiction, you might not limit jurisdiction.
Otherwise if we are expanding jurisdiction by looking on amended Rule 83, they are limiting jurisdiction by looking at the old Federal Rule 23 and we're looking at the court's decisions which were handed down before the old Rule 23, obviously a court cannot limit its own jurisdiction but actually what we are not -- we're not really talking about jurisdiction.
We are talking about procedure.
The amended Rule 23 in no way seeks to increase or decrease the amount of the $10,000.00 jurisdictional amount.
It simply provides a procedure that where in a class action brought under amended Rule 23, there is one binding judgment and this judgment is binding on the whole class.
And we might say that how is it possible in a case such as this one when there is one binding judgment on the whole class which would -- could be in amount of $1,200,000.00 that there is not in controversy, the sum of $10,000.00.
Again, I want to emphasize is that we are talking about one judgment the rule speaks about one judgment and one action.
I've been talking about theory and there is a practical sensibility to the amended Rule 23.
A class action really is -- was thought of and enacted and devised to provide a form to get rid of a multitude of cases, decide them all in one case and also it was devised to give a small litigant, a chance to litigate his claim of the makers -- the rule recognized this when they -- in their statements, the advice of committee notes that they were doing their way completely with these terms, joint, common, several, true, spurious and hybrid actions.
These were being done away and there was going to be provided new amended Rule 23 would provide it for only one action.
These terms were no longer going to be looked to and I submit that if we take the interpretation as urged by the respondent in this case that there would never be a very seldom ever be brought an action under -- excuse me, the amended class action rules.
And as for this reason, the first requirement of amended Rule 23 is that the class be so numerous, that it would be impractical to bring them all before the court.
I cannot think of any case that I've read or heard about and with there was so many people that suffered independent damages of $10,000.00 that they could not be brought before the court and most of the cases such as the case we are talking about, you find persons who has sustained damages of $500.00, a thousand dollars, in our case, the petitioner in this case was $8,740.00 but in very few case if any will you find so many people that would be impractical to bring the court, each one of them has sustained a $10,000.00 and therefore the position urged by the respondent really completely makes Rule 23, amended Rule 23 a nullity, it will never be used and I suggest and urge this Court that the interpretation urged by the petitioner be adopted.
That was the intention of the framers of the rule that small litigants haven't formed to litigate their claims and that under the federal -- amended Rule 23 that there would be one action, one judgment binding on all the members of the class that have not chosen to be excluded and certainly in this case, that amount would be for an excess of the $10,000.00 jurisdictional amount.
Justice Abe Fortas: But it isn't quite bad, is it? It's a question of whether you have to litigate in a state or to federal courts.
Mr. Charles Alan Seigel: Well the --
Justice Abe Fortas: I mean to say you have a forum.
Mr. Charles Alan Seigel: There -- that's true.
There could be a forum but I think that the litigants are entitled to an impartial forum as provided for -- by the diversity of the citizen -- the citizenship of provisions of our -- of a traditional act of the constitution, pardon me.
And the mere fact that there might be a form in the state court, does not mean that there cannot be also be a form in the federal court and I think it was the intention of the framers to have a rule -- the state courts -- none that I know have this particular rule.
I think it was the intention of the framers of amended Rule 23 to provide such a form because it was seen that under the old rule is that no class actions were being brought.
The only thing that was happening was, is that when there is a separate and distinct claims that one or two persons would intervene in the case, it was really a method of permissive joinder.
It's all the old class action rule was and it was not a class action in the true sense.
It was not designed to do a way and to finally decide a multitude of claims.
It was not designed to give as a class action should be to give the small litigant a chance to litigate his claim and I think that was the intention of the framers, I think it is clearly expressed when they -- as I indicated before, the state -- the class must be so numerous.
Well, obviously we know that there can never -- that in -- from our practical dealing with life that there would not be so many people and very seldom it would be so many people that would lose $10,000.00 in a transaction it would be impractical to bring it into the court.
So the framers were thinking of the small litigant.
Justice Thurgood Marshall: That was in the old rule, wasn't it?
Mr. Charles Alan Seigel: That is correct.
Justice Thurgood Marshall: That same provision, wasn't it?
There's nothing new about that provision.
Mr. Charles Alan Seigel: No, that is correct Mr. Justice, it was in the old rule forever --
Justice Thurgood Marshall: The number didn't change that.
Mr. Charles Alan Seigel: That is correct but the old rule could not work because the -- each person under the old rule, they're being separate and distinct claims had to have suffered a $10,000.00 jurisdictional amount lost so the purpose of a class action rule of doing a way with a multitude of litigation would not be -- would not have been carried forth.
Justice Thurgood Marshall: Professor Capton doesn't quite agree with you, does he?
Mr. Charles Alan Seigel: No.
Thank you very much.
Chief Justice Earl Warren: Mr. Zemelman.
Argument of James L. Zemelman
Mr. James L. Zemelman: Mr. Chief Justice and may it please the Court.
I would like to first direct the Court's attention to one particular position that we've adopted in our prosecution of this matter.
That is and I'll start out with that that the history of the aggregation doctrine leads us as the respondents to the inescapable conclusion that the doctrine, that's the aggregation doctrine is not tied to the federal rules of civil procedure.
The aggregation doctrine began approximately a hundred years prior to the time that our federal rules were enacted.
The jurisdiction of our lower courts was established by the legislature and from time to time modified and amended until such times it reached the $10,000.00 limitation that it presently has.
Admittedly when the federal rules of civil procedure were amended, there was an effort on the part of the advisory committee to give it seems to me the federal district courts wider discretion as to the type, the latitude that they could choose in applying any sort of joinder application.
Nevertheless, it's our contention, it's been our contention form the beginning that this amendment to Rule 23 although it does a way with the designations we call hybrid, spurious and true and those I remind this Court were creations I think of the writers rather than of the courts.
Nevertheless, they have to be used today as some form of a guideline.
Mr. Justice White asked my opponent as to what procedure might be evolved in the event that various of the parties within a class should seek to remove themselves from that class and clearly as we pointed our in our brief.
The possibility is that the final remaining or remaining parties would not have the jurisdictional limit.
I think that the intention of the federal rules was not to determine whether or not the party litigant could get into court but rather what procedure might be used to simplify the approach that the court could take to the handling of the various litigation before it.
The jurisdictional limits that are imposed upon the courts must be viewed first and in this instance, it's a $10,000.00 limitation.
The plaintiff in this case by the admission of counsel has only approximately an $8,000.00 claim and that only by aggregation could she have as a forum the federal court.
She is not without of form, the Missouri Rules of Civil Procedure as set out in our brief provide the same or comparable provisions as did Rule 23 prior to its amendment.
It would be my understanding that the simple result of the amendment to the rule was to promulgate a more practical working of the class procedure.
It enabled the court to determine whether or not a matter if filled within the class action procedures and would be appropriate to that court.
But prior to making that determination, it seems to me that this court or any court has to determine whether or not the jurisdictional requirements are met.
Counsel has suggested that we might be talking about a limiting factor by invoking Rule 82.
Federal Rule 82 says and I quote in part “That the jurisdiction shall not be extended or limited.”
I am not suggesting to this Court that we're talking about any limitation.
The limitation is in existence by the present statutory enactment being the $10,000.00 limitation.
We're suggesting that the Court is not changing that.
We're merely suggesting that if petitioner's application were applied here that any number of people with separate and distinct claims with a common matter of law in fact could join in and bring a cause before the court.
In the federal district court in making its decision in this matter, it referred to the Pinel case and we subsequently called the court's attention to Troy Bank of Troy, Indiana versus G. A. Whitehead and in that case probably the aggregation doctrine is more clearly defined than in any I have read and that points out that when two or more plaintiffs having separate and distinct demands unite for convenience and economy that is in a single suit, it is essential that the demand of each be of the requisite jurisdictional amount.
Clearly in this case, this plaintiff bringing of this lawsuit on her own seeking the $8,000.00 based upon her 2,000 shares does not have a forum in the federal court.
She is not limited from a day in court but she is limited in our -- at least within in our understanding of the forum of this court or of the federal courts.
Justice Abe Fortas: Well isn't the claim in the present case peculiarly a derivative claim?
That is to say a claim of the corporation against some of its officers and directors?
Mr. James L. Zemelman: Mr. Justice Fortas, it is not.
This is a class action claim that has been brought not under the derivative proceedings of the federal court.
There is a derivative suit that has been filed and I would point that out to this Court by a shareholder in the state courts of Missouri.
In addition, this particular petitioner has filed cases in the District Court in the State of California and in the District Court of the State of Wisconsin.
One of which was dismissed, the California case.
The Wisconsin case following the holding of the Tenth Circuit in the Gas Service case and accepting that proposition determine that the action was properly brought and overruling so to speak the decision of the Eighth Circuit Court in our case and in the Fifth Circuit Court in the case of Alvarez versus Pan American Life Insurance Company.
Justice Abe Fortas: Well I'm not sure I understand you, isn't the claim here corporate mismanagement or use of inside, the claim here, let's say now as I recall it, the claim is that the insiders sold their stock to -- at a specially high price to a company which sought to acquire control of your claim, is that right?
Mr. James L. Zemelman: The allegation Mr. Justice Fortas is that certain of the directors --
Justice Abe Fortas: Yes.
Mr. James L. Zemelman: -- who controlled a large block of their stock.
Justice Abe Fortas: Yes.
Mr. James L. Zemelman: Sold their stock to other persons.
Justice Abe Fortas: At a premium price.
Mr. James L. Zemelman: At a premium price and the claims --
Justice Abe Fortas: Now the resulting -- the resulting cause of action is conventionally speaking a corporate cause of action, is it not?
Mr. James L. Zemelman: It may be in this instance --
Justice Abe Fortas: And this would be typically a derivative stockholder's action.
Mr. James L. Zemelman: The one petitioner, the petitioner in our state courts in Missouri has chosen that route, the derivative route.
In this instance, what the petitioner has chosen to do is to recover not for the corporation but for the stockholders themselves, this fund that they've determined by multiplication to be approximately $1,200,000.00.
They're not seeking this money for the corporation which is the derivative action.
My corporation has been damaged I as a shareholder seek to recover when new directors will not take such action.
Justice Abe Fortas: Now let us suppose that the stockholder here had brought this as a derivative action, that is to say, assert of the cause of action on behalf of the corporation or recovery to go to the corporation if the suit were successful.
Would you still challenge the jurisdictional amount?
Mr. James L. Zemelman: This would take some thought but it would appear that if it was the corporation that we're seeking the fund by it before.
If the fund was to be sought for the corporation and no singular stockholder, I think this is an important element and no singular stockholder was to realize other than the enrichment of the corporation.
Justice Abe Fortas: Well that's a derivative stockholder's action.
Mr. James L. Zemelman: Right.
In that situation it would be conceivable that if the amount that had been taken away from the corporation were a $1,200,000.00 that they would reach the jurisdictional limit but that is not the case here.
Justice Abe Fortas: Well you say to be conceivable, I go with you, I could conceive of a lot of things.
Mr. James L. Zemelman: Well --
Justice Abe Fortas: But do you think that is a correct construction, correct interpretation of the law.
In other words, this I believe that the question is quite relevant to your case when I say so, because the question that we have to consider is whether the rule that we would lay down in this case will also apply to a derivative stockholder's action or would not -- or whether the two are distinguishable, that's really what I'm asking you.
Mr. James L. Zemelman: Well, I am not certain that I agree with, Mr. Justice Fortas that the same procedure would be followed in a derivative action.
I don't --
Justice Abe Fortas: I'm asking you whether the rule that with respect to computing jurisdictional amount in the case before us now would necessarily apply, had the stockholder here brought a derivative stockholder's action whether you say that the rule is the same or if it's different and if you think that it would be different, what would be the rule in a derivative action?
Mr. James L. Zemelman: I think that they would have to be different and I think that the derivative -- I don't -- it's my understanding that Rule 23 be that the procedure is on (b) (3) that the -- we're proceeding under here is a derivative action.
It's a class, a form of class action and that under a derivative action, the amount in controversy would be determined by what the corporation would be entitled to rather than by aggregating the claims of the very stock.
Justice Abe Fortas: You mean that stockholder owning one share of stock worth $1.00 would have -- would satisfy the requirements of jurisdictional amount provided that it brought a derivative stockholder's action?
Mr. James L. Zemelman: A shareholder with one share of stock worth a market value of $1.00 in bringing a shareholder's derivative actions, I care not with the value of the shareholder stock is, it's what is the amount of the claim that that shareholder is asserting on behalf of that corporation.
In this instance, we are led down the path of a single shareholder seeking a single recovery for her self and by --
Justice Abe Fortas: No but she is not.
Mr. James L. Zemelman: Well she is --
Justice Abe Fortas: She brought a class action.
Mr. James L. Zemelman: That is what -- no, that is what she's doing -- well, she's doing this under the class action procedure here.
She is saying to this -- to the federal court that I may aggregate my $8,000.00 claim with your $4,000.00 claim and your $11,000.00 claim.
Justice Abe Fortas: Suppose nobody comes in and joins here.
Mr. James L. Zemelman: Well --
Justice Abe Fortas: Been -- and what would be and let's suppose the court -- and let's suppose the plaintiff wins.
Now, would the judgment rendered by the court be related solely to these ones, stockholder's holdings or would it be a judgment on behalf of the entire class?
Mr. James L. Zemelman: It's my position that in this case, in this litigation assuming it follows the merit, the merits or the cost that this -- that the federal district court in Missouri would give this lady an award of, and I will refer to my -- which I can't really find, some $8,000.00, a judgment for $8,000.00.
Justice Abe Fortas: Well then you are back to the point of saying that this is not a proper class action under the rule as amended, aren't you?
Mr. James L. Zemelman: Under Rule 23 (b), I'm saying that she has not the jurisdictional requisite to come within the class action. Yes.
Justice Abe Fortas: Alright, you understand my point, my quarrel with you because I'm saying that if you say that this is a proper class action under Rule 23 as amended, then I believe you have the greatest difficulty in sustaining your position that the recovery would be limited to the damages according to this single stockholder on the kind of her single holdings.
Mr. James L. Zemelman: This is a separate and distinct claim brought by this petitioner enacting Rule 23 (b) as they interpret it to be which entitles them to ask because of the cumbersome condition of the class to represent the class.
Justice Thurgood Marshall: Suppose the petitioner had one $10,000.01.
Mr. James L. Zemelman: I'm sorry.
Justice Thurgood Marshall: Suppose the petitioner was claiming for her self $10,000.01.
Then she could file a class action?
Mr. James L. Zemelman: She may if she has $10,000.00 herself and she as I understand it --
Justice Thurgood Marshall: Well she got that $10.01, it has to be over ten.
Mr. James L. Zemelman: $10,000.01, yes.
Justice Thurgood Marshall: Then she could file a class action?
Mr. James L. Zemelman: Then she could bring this action, absolutely.
Justice Thurgood Marshall: And everything would attach to it.
Mr. James L. Zemelman: It would attach in the way that counsel wishes it to attach that a judgment would be rendered which would bind the class excepting for those members of the class that chose to get out of it.
Justice Thurgood Marshall: Well some could refuse to take the money.
Mr. James L. Zemelman: Take the action as to be excused from.
Justice Thurgood Marshall: Yes refused to take the money.
Mr. James L. Zemelman: Well they could ask to be excused from the action and bring their own private action.
I don't think this will happen, the practicality dictate otherwise.
I would like to speak to one additional point, that's this that one of the matters that's been beleaguered here has been this feeling sorry for this people who do not have the jurisdictional requirement to get in this Court.
But not withstanding that, we have every day and the courts of this land, cases where plaintiffs and petitioners have 9,800 or $9,999.00 and they are unable to avail these themselves of this forum.
If this is the excuse that's going to be used to allow them to arrive within the forum of the federal court, then of course new learning is going to have to be established here and it is our position and our argument that the entire aggregation doctrine which has been derived and from the many cases that have come before this in the other federal courts, will have to be waived away and I don't believe that ipso facto, we're going to take wand in a race, all of these procedures and again, I go back to my initial claim which is this that it's our contention that the jurisdictional requirements have to be met and then we look to the federal rules of civil procedure to determine what manner of action may be brought here and if a class action properly lies because I have the $10,000.01 then so be it, I'm in this Court.
Otherwise, I am limited to a perfectly adequate forum which provides the same sort of determination as the federal court.
I'm not led to believe that the state courts of Missouri are going to be arbitrary in reaching a decision here anymore than I would be at the federal courts and I feel that an adequate result if the law so supports, it can be achieved by the petitioner in the state courts.
Again, I allude to the fact that based upon my interpretation, the interpretation of Judge Harper in our District Court and a reading of the Advisory Committee indicates that this a procedural working and that under the doctrine established in the Pinel case, under the doctrine established in the Troy Bank versus Whitehead case and under all of the cases that we've cited in our brief that the aggregation doctrine is not to be wiped away.
It's a procedural -- it's a doctrine that determines that is determinative of the jurisdictional requisites needed to get into this Court.
I would call Mr. Chief Justice Warren's attention to a paragraph that we've referred to in our brief which points out among other things that the increase in 1958 of the jurisdictional amount to $10,000.00 seemingly has only had a slight effect on the workload of the jurist -- of the judiciary.
If this effort on the part of petitioner to invoke Federal Rule 23 (b) is allowed to be utilized under the situation that they claim, then I can see that this Court will be flooded with just extensive litigation because all of those claimants who have one cent that when they get together and get $10,000.01 together under a separate and distinct claim procedure will have the forum of this Court available to them.
This petitioner represent -- recognized the separate and distinct nature of its claim throughout and we merely urge upon this Court that the decisions of the Fifth Circuit which this Court -- which applied for certiorari to this Court and which is subsequently denied the decision of the Eight Circuit and of by the way some of the federal districts of Illinois are very well reasoned and have arrived at a proper result.
I would call the Court's attention to one other case.
There are two cases in Illinois which go in opposite routes and it would be our position that the Booth versus General Dynamics case which seems to permit an aggregation.
Actually, was viewed in the Lesh case also cited in our brief and recognized by the Lesh case as reaching an improper result.
I would also like to call this Court's attention to the Gas Service Company case.
The Tenth Circuit in reaching its result, it was at least was our determination in relying on the Gibbs versus Buck case has misconstrued the decision of that case but that in fact in that case an examination shows that all of the parties that were petitioners to that case have the requisite jurisdictional amount so that there was no question here as to whether aggregation was required.
And it seems to me that the Buck case, Gibbs versus Buck case reiterates and reaffirms the earlier and later decisions of this Court that the aggregation doctrine is a well thought up and a well situated doctrine that should not be wiped away and I would suggest to this Court that if the Court feels that amended Rule 23 (b) permits this than what the Court is doing is in one fell's hoop is wiping out the aggregation doctrine which seems to us to be a very realistic doctrine that has been established for over a hundred years in this Court.
Thank you very much.
Chief Justice Earl Warren: Mr. Seigel.
Rebuttal of Charles Alan Seigel
Mr. Charles Alan Seigel: I'll just have very short -- two short statements.
Chief Justice Earl Warren: Very well.
Mr. Charles Alan Seigel: Mr. Justice, members of the Court, I think that question that really brings this whole thing to a point is the question what happens if there is $10,000.01 or $10,001.00, does that make it a class action?
Well under the theory of the respondents, although respondents suggested does here but under the theory it would not because still for each -- under their theory, for each member of the class you would have to have $10,000.00 and as I stated before, where we ever going to find a class action as we think of a class action where there have been so many people that have sustained $10,000.00 lost.
The amended rule would be a complete futility, be a futile.
The amount raised --
Chief Justice Earl Warren: Mr. Zemelman argued that each of them have to have $10,000.00 interest or that one have to have $10,000.00 and then he could aggregate.
Mr. Charles Alan Seigel: Well, Mr. Justice he -- on being questioned here by Mr. Justice Marshall, his answer was, is that if the petitioner had $10,001.00, that would permit a class action.
Chief Justice Earl Warren: Yes.
Mr. Charles Alan Seigel: However, throughout their brief, they take the position that there are separate and distinct claims and that there must be $10,000.00 for each claim.
Chief Justice Earl Warren: Where do you find that in his brief?
Mr. Charles Alan Seigel: Well, -- bear with me just one second Mr. Justice.
Here, they say -- well Mr. Justice, Mr. Zemelman in behalf of the respondents cite the case in United States Supreme Court case of Troy.
Chief Justice Earl Warren: Where is this?
Mr. Charles Alan Seigel: On page 13.
Chief Justice Earl Warren: 13?
Mr. Charles Alan Seigel: Of the respondent's brief.
And I think this sets forth their position that -- and this was under the old rule and under the old court procedure of joinder when two or more plaintiffs having separate and distinct demands unite for convenience in economy to a single suit, it is essential that the demand of each be the requisite jurisdictional amount and so --
Justice Potter Stewart: That's joinder, that's not a class action.
That that appears from the language is to be simple joinder.
Mr. Charles Alan Seigel: That is correct Mr. Justice but it's the position of the respondent in this case that the rules of aggregation for joinder apply in the class action.
Now under the old Rule 23, it was really no more than a joinder action and so in interpreting the amended Rule 23 is really the first class action as we think of it that the federal court has ever had.
Amend that the old Rule 23 was no more than a permissive joinder because when there was separate distinct claims and common questions of law, all it did was give a person having a separate and distinct claim be right to come into the Court and join and any judgment, there would be separate judgments and it would not bind any other members of the class.
It was not a class action --
Justice Thurgood Marshall: But isn't it also true that the old rule require that the named plaintiff and for example a spurious class suit, the name plaintiff must have all of the -- all emphasize underscore jurisdictional qualifications to maintain the action as an individual, isn't that the old rule?
Mr. Charles Alan Seigel: Mr. Justice, the rule does not so state.
That was the interpretation that was given by the courts not by looking at the rule or not looking by any statute, by looking at the old principles of what was a joint claim and what was a true -- a common claim.
There is nothing in the rule.
Justice Thurgood Marshall: But the spurious class action required that.
That the first plaintiff have to be diversity 10,000 plus 3,000 it was then plus of age and everything and then the class was mass outside, --
Mr. Charles Alan Seigel: Well Mr. Justice that the rule --
Justice Thurgood Marshall: If you file that, the only amendment, only change that you can argue for would be that the one person would have to set it then anybody could come in.
You would -- I don't see how you can argue that they're asking that everybody has to show 10,000.
I don't understand the argument to me, not at all.
Mr. Charles Alan Seigel: Well, it's just that has been their position throughout the whole proceedings and I might say this is that Mr. Justice, there is nothing in the old Rule 23 that in any way indicates or states that the person bringing a separate and distinct claim must have separate and independent federal jurisdiction.
Justice Thurgood Marshall: Because the rules cannot touch jurisdiction.
You get jurisdiction out of the code.
Mr. Charles Alan Seigel: Well, Mr. Justice, as our position in this case that when we talk about jurisdiction, what we are talking about is the $10,000.00 limitation that was established originally it was 500 by the Federal Judiciary Act.
This was established by Congress.
We are not talking about jurisdiction because there is no statute at all that tells how you should compute that $10,000.00 amount.
We are talking about a method of procedure.
Justice Thurgood Marshall: (Voice Overlap) the decisions of this Court?
Mr. Charles Alan Seigel: Pardon, I didn't here you.
Justice Thurgood Marshall: Should we look to the decisions of this Court?
Mr. Charles Alan Seigel: I think that we have --
Justice Thurgood Marshall: That's what the respondent's doing.
Mr. Charles Alan Seigel: But I -- that is correct.
Now, the respondent is looking to decisions of this Court.
Now a court cannot limit jurisdiction or cannot expand jurisdiction.
A rule cannot limit or expand jurisdiction so we must be talking about procedure because the Court cannot touch jurisdiction that is set by statute.
Justice Potter Stewart: Well except that Congress I suppose can be presumed to have known the case law at the time it enacted these various jurisdictional amounts.
Isn't that fair to say?
Mr. Charles Alan Seigel: Well, I assume the Congress did know the case law but of course there was no mention as to how computation should be made but still the Court had to look to its procedural rules to find out how the jurisdictional amounts will be computed and then that's we are urging here.
Justice Potter Stewart: In this $10,000.00 -- the current $10,000.00 jurisdictional amount in diversity jurisdiction, I suppose reflects some sort of a policy on the part of Congress to limit diversity jurisdiction to that extent.
Mr. Charles Alan Seigel: That is correct.
Justice Potter Stewart: And in so limiting it, I suppose the Congress as I said earlier can -- we have to assume the Congress knew about the cases that had construed the requirements with respect to class actions, isn't that?
Mr. Charles Alan Seigel: Well, there at the time when the Congress initially passed the jurisdictional amounts, there really wasn't any -- this is way back in 1789, there really wasn't any law as far as joinder and class actions --
Justice Potter Stewart: And back then the amount was $500.00.
Mr. Charles Alan Seigel: That is correct.
But the point is and I know I emphasized, this is that you're only talking about jurisdiction when you talk about raising or lowering the 10,000 a month.
We are not talking about that.
We say that amended Rule 23 has provided for a procedure whereby there is a binding one single judgment in a class action, binding on each and every member of the class which is not -- choose to withdraw from the class and that in this case that one single action, one single judgment would be a $1,200.000.00 --
Justice Abe Fortas: Your adversary says that that's not the way you framed your complaint.
If you framed your complaint that way then it might very well be argued that that is a way of determining the amount in controversy and that the amount in controversy namely the judgment to be entered if you win exceeds $10,000.00 and your argument has a point.
Your adversary seems to contest that that is the way you drafted your complaint that says you got a complaint in the state court as I remember that on that theory but that this is not such an action and I take it you dispute that.
Mr. Charles Alan Seigel: Mr. Justice, I might say that the -- there isn't action in the state court, a corporate -- traditional corporate derivative action which we do not participate in and that our position is this.
Our action is brought on behalf of the stockholders, not on behalf of the corporation for the reason is that if this $1,200,000.00 will be covered and would be paid in to the corporation that it would be the wrongdoers who now control, who would be getting the benefit of this premium that was paid to them and there are cases to substantiate our position.
So therefore, we are asking that the million and our complaint specifically states that we are asking judgment for a $1,200,000.00 for the members of the class, that is the judgment prayed for.
Justice Potter Stewart: In other words you agree that this is not a derivative action?
Mr. Charles Alan Seigel: This is not a derivative action.
Chief Justice Earl Warren: Very well.
Mr. Charles Alan Seigel: Thank you very much.
Argument of Gerrit H. Wormhoudt
Chief Justice Earl Warren: Gas Service Company, petitioner versus Otto R. Coburn, etcetera.
Mr. Gerrit H. Wormhoudt: Mr. Chief Justice and may it please the Court.
Chief Justice Earl Warren: Mr. Wormhoudt.
Mr. Gerrit H. Wormhoudt: At the close of argument yesterday, I was trying to establish that there has been an existence long before the enactment of the federal rules, a body of law derived from the Acts of Congress and interpreting decisions of this Court which are applicable to the jurisdictional requirements for Federal Courts, that body of law being independent of and indeed I think superior to the rules of practice that this Court may promulgate from time to time.
Because of that body of law I think we have Rule 82 of the present federal rule.
Rule 82 provided initially that none of the rules would be interpreted to extend or limit the jurisdiction of Federal Court when the 1966 amendments were adopted.
Rule 82 was restated making reference to admiralty but continuing the restrictive language I’ve just mentioned.
I submit that Rule 82 is there simply as a guide to construction and an admonition that in interpreting the rules they simply shall not affect the jurisdictional standards of the Lower Federal Courts.
I would now direct the Court’s attention to the nature of the particular claims involved in this action.
I think I mentioned yesterday that neither the District Court nor the Court of Appeals attempted to categorize the claims involved in this action as (b) (1), (b) (2) or (b) (3) claims.
I don’t think there can be any question however that if this is a proper class action, it must fall within the terms of rule -- of subdivision (b) (3) of amended Rule 23 which refers in substance to cases presenting common questions of law or fact where the predominating common question would take precedents over any separate questions arising out of the claims.
Justice Potter Stewart: Well, you do not question the proposition that this action is a class action under amended Rule 23 at least under (b) (3), you don’t quarrel about that?
Mr. Gerrit H. Wormhoudt: I do not sir.
Justice Potter Stewart: No.
Mr. Gerrit H. Wormhoudt: I’m merely trying to --
Justice Potter Stewart: Categorize it, under the rule.
Mr. Gerrit H. Wormhoudt: Categorize it under the rules.
Justice Potter Stewart: Yup.
Mr. Gerrit H. Wormhoudt: I think in respondents brief, references made to the fact that prior to the amendment cases such as we have here today involving separate and distinct claims really amounted under the prior rule to a permissive joinder en masse so to speak under prior Rule 23.
That being the case, I do think then we must consider as Mr. Justice White was suggesting yesterday the logic of applying or abandoning the aggregation doctrine under (b) (3) cases to the other rules which deal likewise with permissive joinder and subdivision (b) (3) certainly presents an instance of permissive joinder provided by its own terms that any pardon may opt out upon recieve of notice that he has been included in a class which is in litigation before the court.
So, consequently we still have the permissive feature involved in at least Rule 23 (b) (3) cases.
Justice Byron R. White: I take it you would say that in an action by stockholders in cases where they have similar claims that three stockholders sued the same defendant and they all were named plaintiffs that each would have to have the necessary jurisdictional amount.
Mr. Gerrit H. Wormhoudt: Well, if Your Honor please, at least under the laws of Kansas, merely all stockholder cases would have to be filed as derivative suits.
There may be special instances and departures from the derivative rule but normally that stockholder's actions present but a single action on behalf of the corporation.
Consequently, there would not be a joinder problem under the situation you put.
Perhaps there may be another state jurisdiction if so, I'm not familiar with the problem that would be present.
Justice Byron R. White: But you, do you think in permissive joinder cases where each one has a distinct claims a three parties are permitted to join one action suing the same defendant and that each must have the jurisdictional amount.
Mr. Gerrit H. Wormhoudt: I don't think there has ever been any question about that.
Justice Byron R. White: And the suggestion is here that if -- that -- I think your claim is that the other side suggest that all you have to do is to drop out the other two names and sue as a class.
Mr. Gerrit H. Wormhoudt: That is correct.
Justice Byron R. White: To avoid the same result?
Mr. Gerrit H. Wormhoudt: And it seems to me also on those lines that if aggregation has not been permitted under Rule 19 in an ordinary permissive joinder case where all the parties are before the Court they're identifiable and certainly res judicata would apply to any matters litigated where the parties were named that in a situation where all the parties may not actually be before the court, there is even less reason to aggregate their claims in order to satisfy jurisdictional amount then there would be in an ordinary permissive joinder situation.
Justice Byron R. White: Even if they are bound to the judgment?
Mr. Gerrit H. Wormhoudt: Yes, because I think the same principles involved in those situations, they are all bounded.
Justice Abe Fortas: Well, let's take your case and let's suppose that the plaintiff here lost and let's suppose that some other user of gas service brought subsequent suit exactly the same sort, would he be -- would the doctrine of collateral estoppel buy that suit?
Mr. Gerrit H. Wormhoudt: Are you as -- may I ask if you are assuming that the subsequent suit is filed by a person who was a named party in the original action?
Justice Abe Fortas: No, no.
Not a named party at all but this suit is -- let's suppose that present suit goes at the judgment and the judgment runs against the plaintiff here.
Another guest user situated in exactly the same position brings a subsequent suit that as you know is sometimes a very -- as a useful way to get -- work backwards to the nature of the action.
Mr. Gerrit H. Wormhoudt: I understand and I'm also --
Justice Abe Fortas: Now would he be -- or would he be stopped, suit was a matter of public record and he didn't join that.
Let us assume he could have joined that but he didn't join in it and he brings subsequent suit.
Mr. Gerrit H. Wormhoudt: Now we also assume that he did not upheld on the receipt of notice that the suit had been filed.
Justice Abe Fortas: Well then, you're assuming that it's a class action, aren't you?
Mr. Gerrit H. Wormhoudt: Yes.
Justice Abe Fortas: And so, do you concede that this is a class action in which a compulsory class action in which in effect the kind of a class action in which joinder is compulsory in the sense that if a person in the same situation does not join is forever barred?
Mr. Gerrit H. Wormhoudt: Not on the facts of this case.
Justice Abe Fortas: Well, it must be, would you say that he is bound unless -- maybe I misunderstood you.
He's bound unless he opts out and this is not a permissive joinder case but it is a true class action.
Mr. Gerrit H. Wormhoudt: I might suggest it's a permissive misjoinder case then where you have the option to take yourself out.
On the facts you put Mr. Justice --
Justice Abe Fortas: But maybe I never heard that term but it has certain chime but the fact of the matter is that this is pretty close to a true class action, isn't it if it's not a true class action.
This one -- I -- part from how it's phrased, I'm going to call how the complaint was framed up.
Mr. Gerrit H. Wormhoudt: I think in this traditional sense, I would have to disagree that this is not a true class action.
These claims are separate and distinct and traditionally at least under those circumstances any member of the class would have had perfect freedom prior to the enactment of this rule to litigate where he pleases, when he pleases by --
Justice Abe Fortas: No, we're not talking about prior to the enactment of this rule.
This rule, you are not asking us, you're addressing an argument to us on the jurisdictional amount but I take it that your argument does not necessarily amount to a plea to us to have a way at the rule itself.
Mr. Gerrit H. Wormhoudt: That is correct.
Justice Abe Fortas: So, let's take it under this rule.
Under this rule I suggest to you that this is the possibility that this is a -- exactly the kind of a situation that the rule contemplated as a class action.
Mr. Gerrit H. Wormhoudt: Oh, I think within the terms of the rule, I have no disagreement.
Justice Abe Fortas: So, that if somebody does not doubt, he is forever barred?
Mr. Gerrit H. Wormhoudt: I think this is correct.
Justice Abe Fortas: And on the whether -- then the question is, do you or do you not properly infer from that -- from those legal consequences a conclusion with respect to the jurisdictional amount, what you call an aggregation or something else, am I right?
Mr. Gerrit H. Wormhoudt: I think that is the question and again I maybe repetitious but I would still take the position that you must consider the nature of the claims involved in order to test jurisdiction.
Justice Abe Fortas: Well, everybody here is claiming it.
The claim here is a -- is exactly the same with respect to old members of a large and definable group, the only thing that differs is the amount.
Mr. Gerrit H. Wormhoudt: Yes, sir.
Justice Abe Fortas: From the case of each claim, now what more do you want for a -- an aggregation case or whatever words you want to use?
Mr. Gerrit H. Wormhoudt: Your Honor, if I were --
Justice Abe Fortas: If this is not a case in which you can put together the total amount of the claim, could you state one to me?
Forgetting the derivate of -- the stockholder's derivative action cases which I think you properly distinguished and which is involved in the preceding case which however was brought as a class action.
Apart from that, can you give me any case in which there can be a proper aggregation or pooling of amount?
Mr. Gerrit H. Wormhoudt: I think a good example would be a trustee situation under trust indenture.
Justice Abe Fortas: Well, that -- that action be brought by the trustee alone?
Mr. Gerrit H. Wormhoudt: Assuming that the trustee would somehow rather derelict in his duties with respect to the preservation of the trust property.
I would think then that any beneficiary of the trust would have the right on behalf of all other members who are beneficiaries to attempt to enforce or employ --
Justice Abe Fortas: That's either like derivative action or it's like this action, isn't it?
Mr. Gerrit H. Wormhoudt: Yes, there may be other categories where you have a fund involved where first the -- whether maybe undivided interest in the fund, I would suggest that is a possible certain category, something in the nature of quiet title suits.
Justice John M. Harlan: That is impossible (Inaudible).
Mr. Gerrit H. Wormhoudt: I think so, Your Honor.
And there as I mention I don't think you have any problem of aggregation because you only really have a single claim, it doesn't affect many people but to claim single.
Justice John M. Harlan: Did you see anything in here -- instances would say that you cannot aggregate to all members of this particular possible (Inaudible)?
Mr. Gerrit H. Wormhoudt: No, I see nothing inherently inconsistent to that if were --
Justice Byron R. White: Maybe some reasons why you think that should be termed, but (Inaudible)
Mr. Gerrit H. Wormhoudt: That's correct.
I think we simply have a policy consideration here which derives from Congress in a prior body of decisions of this Court which is namely to ristrict access to the Lower Federal Courts to ease their case load.
And for that reason, we have a rule of construction which says in so many words does not construe these rules to increase that case load.
And the Tenth Circuit Court conceded that prior to the amendment of these rules, this case simply could not have been filed.
The conclusion is that by virtue of the amendment now it can be.
And I submit that consequently jurisdiction has been large because it's now present where it wasn't before.
And as a result, we're going to have considerably more litigation in the federal courts of the most complicated kind.
And the kind of litigation that can certainly properly be handled in the Federal Court and I beg your pardon, in State Courts and I think both of these cases present good instances of that.
We have in this case a question of the legality of the municipal ordinance involving a franchise tax collected by a public utility which is subject to regulation by Kansas authorities.
There are just simply no policy reasons apparent apart from the so-called desirability or workability of the rules which override I submit the congressional policy of easing the work load on our Lower Federal Courts.
I think at least in my district, we can get a case disposed of in half the time in Federal Court, I beg your pardon again, in our State Courts.
Justice Potter Stewart: And did you, the guys say that your State Courts procedurally allow for class actions of this type?
Mr. Gerrit H. Wormhoudt: Yes in Kansas we have the former -- equivalent of the former Rule 23.
Justice Potter Stewart: So-called spurious class action.
Mr. Gerrit H. Wormhoudt: No, the entire former Rule 23 which included --
Justice Potter Stewart: You pretty much adopted the counterpart of the federal rules.
Mr. Gerrit H. Wormhoudt: That is correct.
Justice Potter Stewart: And is haven't yet amended them as at least haven't amended them.
Mr. Gerrit H. Wormhoudt: Insofar as I know there is no consideration of being --
Justice Potter Stewart: Of doing so.
Mr. Gerrit H. Wormhoudt: Amended as a present time.
Chief Justice Earl Warren: Mr. Martin.
Argument of Robert Martin
Mr. Robert Martin: Mr. Chief Justice and may it please the Court.
I think we have two platforms from which to look at the question before the Court.
The first one being the proper effect and interpretation of amended Rule 23 and the second one being whether there is any substance to the argument here that the effect of the amended rule is to extend the jurisdiction of Federal Courts unlawfully.
Now, most of the questions that if occurred or that had been asked from the bench in the preceding case and in this case really concerned the first question, the proper interpretation and application and practical effect of Rule 23 on class litigation.
So, I want to address myself to that aspect of what we have before us first.
I'm embarrassed to say that I have a somewhat different view of amended Rule 23 than seems to be the view by any of the three preceding counsel.
I see Rule 23 as it's now amended as an attempt to straighten out and do away with some terrible problems that confronted us in the practical application of former Rule 23 and very briefly what I am referring to is this.
Former Rule 23 did have its origin as one of the counsel stated in the old equity rules but when Rule 23 was promulgated, it appears from the history that Professor Moore undertook to categorize the circumstances under which you could have a class action and he came up with a three categories which were not resided in the rule by name but were described really in subdivisions (a) (1), (2) and (3) of true hybrid and spurious.
Now he thought and I think the bar thought and you can find in the literature statements by writers to the effect that this was a clear rule and plain English and everybody could understand it.
I think everyone thought that those categories are going to work well and they do work well when you're talking about property rights and they had some historical basis.
If you were bringing a -- if two people were joined together to -- as plaintiffs to try title to quarter section of land, what any problem to understand that they could aggregate their claims, they were all going to be bound by the judgment, you really had one piece of litigation.
And we have what we call in rem jurisdiction and all these things were familiar to lawyers and they understood them.
Unknown Speaker: And if it wasn't aggregation (Inaudible)?
Mr. Robert Martin: Yes, sir.
And it was really aggregation of plaintiffs and not aggregation of claims at all.
Now, Professor Moore attempted to apply that the class actions and I think the history demonstrates that it works well when you're dealing with property or a fund but class actions very quickly became broader than that.
There were all kinds of rights and all kinds of situations developed chiefly by modern commerce that demanded, cried out for adjudication by class action.
And it isn't a question of increasing case, load as a question of decreasing and when we try to extend these categories beyond property rights, we got into trouble and we got in to bad trouble.
Rule 23 left cases spread over our reports that simply couldn't be rationalized or harmonized in certain areas, one of them being the question of jurisdiction that we have before us both as to amount and as to diversity.
Now, there was no problem about aggregation when you talked about a claim to try title where you have more than one party but when you got down to what Professor Moore termed and the committee termed a spurious class action.
You have the literature which said this really isn't a class action at all.
This is a permissive joinder device.
Well then, you were face to face with this problem not only as to jurisdictional amount but as to whether or not intervenors had to show diversity.
Another area that we have which was -- which develops some terrible law was in the effect of a judgment.
As a matter of fact the burden of my argument will be that those two are bound up.
If you are going to bind a class with the judgment then you have the amount in controversy is the effect of that judgment on the class and that's the value you have to look at.
But in under old Rule 23, when we got down to the effect of the judgment, we developed the set of laws which said that in true class actions those really involved in property or something directly related to, all of the class was bound.
In Hybrid class actions, they were bound but to a lesser extent and under different circumstances and frankly there were so many different decisions that I haven't been able to figure out when they're bound and when they're not in a hybrid class action.
In a spurious class action, the law is clear that no one in the class is bound except those who intervene.
But -- and that seems reasonable, somewhat reasonable until you carried another step.
The practice developed of starting a spurious class action.
The other members of the class who were aware of this anomaly which sit on the outside and able to wait until the case was adjudicated or almost adjudicated until it became clear that the plaintiff was going to win then they'd come in and intervene, say we want the benefits of the decree.
But the problem was that it was a one way intervention.
They could stay out and not be bound if the -- if the defendant won and they could come in and be bound if the plaintiff won.
Further than that the courts quickly confronted themselves with this problem.
Here is what we call a class action.
The literature says, it really isn't a class action, it's a permissive joinder.
One of the plaintiffs, one of the members of the class stays out for a while.
As a matter of fact there was no requirement that he be given notice.
He might not know that he was being represented in Court or not represented depending on how the Court viewed it but in any event he stayed out.
He finally learned a bit or decided he would come in and he comes in and the defendant says well.
This is a spurious class action.
It isn't really a class action.
You're claim is barred by the statute of limitations whereas the plaintiff, the original member of the class, his claim is not.
Well now, there's many way to -- you can't reconcile these conflicting interests.
There were other problems that crop up in trying to pigeonhole the class action.
In effect what Professor Moore did to is and the advisory committee in the framing of the original rule was to lead us down the same path as the old common law pleaders.
We were trying --
Justice Potter Stewart: The federal -- the original federal rule to civil procedure in other rules provided for a joinder, joinder of parties and joinder of causes of actions --
Mr. Robert Martin: Yes, sir.
Justice Potter Stewart: Basically there was a very free joinder?
Mr. Robert Martin: Yes, sir.
Justice Potter Stewart: And still is, what would have been the -- if a so-called spurious class action is nothing more nor less than something that covers permissive joinder, what would have been the point of putting it in there along with the joinder rules?
Mr. Robert Martin: Well, that's what one wonders.
I don't -- personally I don't agree with the -- from the standpoint of personal philosophy, I don't agree that it was only a permissive joinder device but that became the law or at least everybody thought it was the law.
I don't agree with that.
I think it was intended to be something more and what I'm saying is that at the present time under amended Rule 23, it is something more and it should be the -- as I see it, the effect of amending Rule 23 wasn't really amendment but it was a complete redrafting.
The effect of that has been to eliminate just exactly the problem that you mentioned.
We -- I don think now we have any such thing as a spurious class action.
I don't think we have any such thing as a hybrid class action.
I think that now for the first time and as it should be, all class actions are true class actions.
Justice Potter Stewart: Except you do have (b) (1), (b) (2), (b) (3)?
Mr. Robert Martin: Yes, sir.
But (b) (1), (b) (2), (b) (3) cannot be related to true hybrid or spurious either historically or in the context of the rule.
What really has happened under amended Rule 23 and the answer to counsel's argument that the amended rule is going to vastly increase the case burden of the Federal Courts is the rule itself.
Rule 23 has now amended or new Rule 23 as I will call it provides a very workable precise and careful description of what is and what is not a class action.
Now there is a little different treatment in terms of procedure given to a class action in which the cohesive force of the class is a common question of law or fact in an interest -- the common interest in relief.
As distinguished from that situation in which the cohesive force of the class is a joint interest in property or a fund.
But it's a procedural difference and nothing more.
It isn't the difference in substance and it ought not to be.
Justice Byron R. White: But what if your gas users bring an action by himself?
These are gas users here, aren't they?
Mr. Robert Martin: Yes, sir.
Justice Byron R. White: Could just one of the members of this group bring his own action if he wanted to?
Mr. Robert Martin: He could in State Court and there might be one.
We've stipulated that we don't know any and I don't know of any but I suspect that they are industrial users who would have $10,000.00 and could bring one in federal court but I don't know that.
Justice Byron R. White: Let's assume that -- let's assume that two or three of them together brought their own action naming each other as a party in the Federal Court and the three of them together added up to $10,000.00.
They didn't report to bring a class action, there are just three of us are suing permissive joinder case.
I suppose its permissive joinder?
Mr. Robert Martin: It would be, yes, sir.
Justice Byron R. White: There's no aggregation there?
Mr. Robert Martin: Absolutely not.
Justice Byron R. White: And this is -- this is because of a statute that requires $10,000.00.
Mr. Robert Martin: It is but the amount in controversy even though they might by permissive joinder style themselves as plaintiffs in the same lawsuit rather than separate number of cases.
Justice Byron R. White: Yes.
Mr. Robert Martin: Doesn't change the fact that amount in controversy truly is the individual claim of each one.
Justice Byron R. White: But they say, well, yes.
But we can add up together the $10,000.00.
Mr. Robert Martin: That wouldn't make any difference.
Justice Byron R. White: But you think that one of the men could say “Well, let's just -- two of you get out and all bring a class action.”
Mr. Robert Martin: Well, Mr. Justice White, the two of them would have to get out but to take your example, one of them could say or all three of them could say we are not going to --
Justice Byron R. White: We're just going to state this -- our cause under Rule 23.
Mr. Robert Martin: We're going to state our cause under Rule 23 and we contend that this is in fact the class action.
Now, if I may give you a long answer to that question.
Justice Byron R. White: Well, if there were only three members of the class, there are only three members of the class that you -- the three could still stay and just say we are suing as a class action?
Mr. Robert Martin: I think I see what you are getting at.
If these were a different suit and there were three members of the class, in theory, you might argue that they could.
Justice Byron R. White: You mean just by putting the Rule 23 label on it?
Mr. Robert Martin: Well, no.
Because the rule -- the court would not apply Rule 23 label because the --
Justice Thurgood Marshall: You can as the larger numbered in three and the--
Mr. Robert Martin: Yes, sir.
Justice Thurgood Marshall: larger number you can't really ascertain.
Mr. Robert Martin: The answer to your question is that it would be very rare circumstance where that can conceivably be a class action because one of the requirements is that the number of the class has to be so large that it can't effectively be brought before the Court.
Justice Byron R. White: But in any event, the three of them could in your case you think where there are lots of gas users unidentifiable to raise in, they could bring a class action?
Mr. Robert Martin: Well, yes, sir.
In my case where there are 18,000 --
Justice Byron R. White: Even though they could stay in the Federal Court themselves if they just name themselves as plaintiffs?
Mr. Robert Martin: Yes, sir.
And the reason for that is that if three or five or get together or one comes in and says this is a class action and I want not only to adjudicate my rights but the rights of the classes hold then the changed procedure is this.
The Federal Court is then required to give notice to all of the identifiable members of the class and inform the members of the class that this action has been brought as a class action on their behalf who the plaintiffs are and that they will be bound by the judgment unless they come in and option themselves out that they have they right to come in and option themselves out but they also have the right to appear or not appear.
In other words you must give a practical notice then he is required under the new rule to proceed as quickly as possible to determine whether this properly is a class action and their various factors he must consider.
One of the things that he must determine is that the classes so numerous that class actions justify that the plaintiffs whether they will be one or three are in position fairly to represent -- present the interest of the class, then he must consider as additional factors under (b) (3) action that the -- the class action method is superior to any other available procedure for the adjudication of these claims.
He must also determine if the cases to be maintained as a class action that the interest of the -- what the interest is of the individuals that are controlling the litigation, he must take into account any other suits that are pending or any right on the part of any individuals to separately litigate their claims and any difficulties in management of this class action.
It gives him precise standards but broad discretionary powers.
Now and he must determine that at the beginning of the case before he takes another step.
Now, the burden of my argument really is that whether it's (b) (3) action as counsel says this one is and I agree.
We pleaded it is a (b) (3) action but we could have pleaded it as a -- under one of the other situations.
If the Court has made that determination, then it is a class action and if enough people come in and decide that they want to be optioned out, that of course should indicate to the court that it is properly a class action that there are reasons why individuals want to adjudicate their own claims if two or three out of 18,000 would come in and opt out as Professor Captain (ph) puts it, that would be alright.
Justice Byron R. White: But if the three -- if the three people we are talking about awhile ago have individual claims when they name themselves as plaintiffs.
I suppose they still have individual claims when they name themselves as plaintiffs but also purport to be bringing in class action and why isn't -- why aren't the -- and if their claims were individual claims, why aren't the claims of all of the unnamed members of the class also individual claims?
Mr. Robert Martin: They are.
Justice Byron R. White: They are individual claims but because of Rule 23, you say that they -- they can aggregate.
Mr. Robert Martin: I say Mr. Justice White that they are individual claims until the Court says this is a proper class action.
At that minute --
Justice Byron R. White: And then knows --
Mr. Robert Martin: The claims have --
Justice Byron R. White: Then the three --
Mr. Robert Martin: -- swallowed up --
Justice Byron R. White: Then the three named plaintiffs claim -- their claims also become a --
Mr. Robert Martin: Yes.
Justice Byron R. White: -- non-individual claim.
Mr. Robert Martin: Yes sir.
And as proof of that as an example, they can't dismiss the case except with consent of the court and notice to all of the other members of the class.
They lose control of their own litigation and they should.
Justice Byron R. White: So they can get out themselves, they can't dismiss the case on behalf of other people take it out themselves.
Mr. Robert Martin: I haven't had a chance to think that went through whether Mr. Justice White, a plaintiff, could come in and start the lawsuit and then option themselves out.
I suppose he could if turned it over to someone else.
Justice Byron R. White: He doesn't have to dismiss the lawsuit.
Mr. Robert Martin: But he cannot dismiss the lawsuit and that's the answer to the jurisdictional question.
Everyone there is bound and Justice Frankfurter in 1942 really --
Justice Byron R. White: Well, so if the three people be bound if they just sued for themselves?
Mr. Robert Martin: Yes they would but the other --
Justice Byron R. White: All three of them would be bound by a judgment
Mr. Robert Martin: Yes, sir.
Justice Byron R. White: They just sued on their own behalf and yet you say no aggregation.
Mr. Robert Martin: Well, this would be true, they would be bound but the defendant would not be bound as to the other members of the class Mr. Justice White and the other members of the class would not be bound by them.
Justice Byron R. White: That's right.
That's right, but when you do report to bring in the unnamed parties, do report to bring what you call a class action.
You say that because they are bound, therefore it's one claim and therefore there is in effect aggregation.
Mr. Robert Martin: Yes, sir.
Justice Byron R. White: And I -- I'm just not sure that necessary follows from the fact from the consequence of binding that there is aggregation.
Mr. Robert Martin: I'm not saying Mr. Justice White that that is the only -- that it necessarily follows from that.
I'm not saying that that's the only argument in favor of aggregation.
I am saying that that is one of the strong arguments and historically that has really been the effect here when the subject matter of the litigation is shown to have the value of more than $10,000.00, there is no reason why a Federal Court ought not to proceed.
It's a question of the procedure by which you reach this ultimate objective.
You see in the prior Rule 23, there was no way by which in a spurious class action for example, the Court could ever force that decree off on someone else.
It just could not be done therefore it was not correct to say that the amount in controversy was the amount that that is the total value of the rights of the class because the rights of the class were not to be effective, only the rights of the actual parties litigant.
Justice Byron R. White: Well, certainly Rule 23 in the long run has to be in effect be consistent with the statutory limit of $10,000.00.
Mr. Robert Martin: Yes, sir it does and it is --
Unknown Speaker: And the --
Mr. Robert Martin: -- in my judgment sir.
Justice Byron R. White: And yet the $10,000.00 limitation is then the amount has been changed but the requirement of that amount against the background of these older cases have been reenacted time and again.
Mr. Robert Martin: Well, it has Mr. Justice White but this Court has answered that question in a companion matter which is the consideration of the amendment of Rule 19 in the Provident Bank & Trust Company versus Patterson, that decision came down in January and I think that the situation that Mr. Justice Harlan described there and the argument that he rejected is really the argument of the petitioner here and the respondent prior case.
What they are really saying is that this old concept of aggregation in common property suits was alright but in other suits was wrong or not permissible that that establishes a common law which is inflexible, a substantive right and no matter how we change the rule, we can't get rid of this pigeonholes of true, hybrid, and spurious.
That -- that's not really so and it ought not to be so.
Those cases were somewhat similar to the cases that Mr. Justice Harlan said -- described as the 19th century joinder cases.
That really is some of the same cases and they don't establish --
Justice Abe Fortas: I beg your pardon, Mr. Martin, let's get back then to the language of 28 U.S.C. 1332, when the first paragraph of it referring to the $10,000.00 jurisdictional requirement refers to the matter in controversy that is to say the matter in controversy has to exceed $10,000.00, that's 1332 (a), is that right?
Mr. Robert Martin: Yes, sir.
Justice Abe Fortas: And I suppose your argument is that taking the amended Rule 23 (a) assuming that this case comes within 23 (a) then it follows at the amount in controversy is the amount to which all of the persons in the class would be entitled if they were successful.
Mr. Robert Martin: Yes, sir.
Justice Abe Fortas: And that is the manner in controversy and therefore you say it satisfies 1332 (a), is that right?
Mr. Robert Martin: Yes, sir.
That is what I say.
Justice Abe Fortas: Now one of the problems if we go back to the source and get underneath the class of the ages of the statute, one of the problems comes in subsection (b) and in subsection (b) as a reference to the denial of cause to the plaintiff where he is finally judged where the plaintiff who files a case originally, the plaintiff who files the case originally and the Federal Courts has finally judged to be entitled or recover less than the sum of $10,000.00.
Now, if that is to be taken as bearing upon the meaning of the term matter in controversy, then you got a real problem, haven't you?
Mr. Robert Martin: Yes sir, if you would say Mr. Justice Fortas that subsection (b) really limits the general statement or the earlier proposition that the District Court have original jurisdiction when the amount in controversy is $10,000.00.
Justice Abe Fortas: Question is whether it's a general amount in controversy, are the amount in controversy measured solely by the claim of the plaintiff who originally files a case in the Federal Court, that's right, isn't it?
Mr. Robert Martin: That's really right.
In subsection (b) that you've just read is the only thing in the rule or the statute that gives any hint that it is the claim of a plaintiff.
The answer -- the best answer that I can give you and I have considered this, the best answer I can give you is that aggregation in some circumstances, the ones I described was allowable when that statute was passed.
Justice Abe Fortas: Exactly, in other words, historically despite the language of subsection (b), aggregation has been permitted in certain instances --
Mr. Robert Martin: Yes, sir.
Justice Abe Fortas: Under the rules and your argument is that since 23 (a) eliminates the distinction between true spurious and hybrid class actions and since in your submission, all class actions under 23 (a) are now to be considered as true class actions, therefore the line of cases permitting aggregation in the case of true class actions should control here.
Mr. Robert Martin: Your Honor has made my submission on the second point, that is exactly -- that is exactly what I intend to say and I think that should be the rule, I believe that is the rule.
I want to fortify the proposition with the statement that originally, century ago, more than a century starting I think in 1843, we first begin to have these questions, this -- the circumstances where aggregation was allowed were really comparable in terms of commerce then and in terms of the lack of complexity of litigation then as compared to now.
They were allowing aggregation where it should be allowed, where the matter in controversy was $10,000.00 or at that time $500.00 or more.
All I'm saying is that procedures like suits of clothes ware out and no longer fit the necessities of commerce and human relations and that's what has happened with the old concept of true, hybrid, and spurious and that's what happened with Rule 23 originally, it wore up in 25 years.
And I think that the present rule that we have now, the amended rule is splendid, will solve the problem and directs itself to the problem.
There is no reason why to get back to one of Mr. Justice Marshall's question yesterday.
If the Court adopts the view urged by the petitioner here, we are going to have a situation where the only people who can represent the class are those who have $10,000.00 or more.
The other people, there might be another man who has $10,000.00 even, that's his claim, a stockholder and we are saying to him you can't come in, you can't start the action, you can't represent the class but to Mr. B who has $10,000.01, you can, the door of the courthouse is open to you.
Well, the arbitrary limit is fine in private litigation.
It must be made to limit litigation in Federal Courts but when in reality, when the man comes in to court, he presents and there is adjudicated not only his claim but a whole class of claims, it doesn't make any sense.
It isn't logical and it isn't -- it doesn't afford what the procedure that is necessary.
One further comment --
Justice Thurgood Marshall: Oh, I assume that it just won't -- this investigation, people opt out and all, if he finds it is less than 10,000, you prove the case out preliminarily?
Mr. Robert Martin: Yes, sir.
I believe that's quite correct.
One of the things that he would find out when he makes the determinations which must be made before the action can be maintained, one of the things of course he would find out is whether we are dealing with a small class action, a piece of petty litigation where really the class only --
Justice Thurgood Marshall: That's the point that worries me, if you go on to matter in controversy and the matter in controversy is $100,000.00 but only $10,000.00 worth comes in and the rest opt out, we get back to the point that actual amount of controversy, the actual amount is being claimed, not the amount that's in controversy, that's my trouble.
Mr. Robert Martin: I believe the answer to your question Mr. Justice Marshall is that if you have that situation, a possible $100,000.00 class, the action started by someone who has a smaller claim of 10,000 and all of the members of the class or sufficient number of members of the class to bring the claims down below 10,000 opt out, then I think the Court has lost jurisdiction, the Court should dismiss the case and there for of many reasons, one of them being that --
Justice Thurgood Marshall: And that's the trouble, what is the amount in controversy?
The amount that the corporation has or the amount that people claim?
Mr. Robert Martin: The amount in controversy Mr. Justice Marshall is really what Mr. Justice Frankfurter said it was in 1942.
He said that in diversity actions and he wasn't talking about class actions but this is what I -- this is my argument.
He said that in diversity actions, the amount in controversy is measured not by the monetary result of determining the principle involved but by the pecuniary consequences to those involved in the litigation.
Now, to answer your question, the pecuniary consequences to those involved in the litigation in the class action ones it's determined that it is a class action consists of everybody whose bound by it, the defendant as --
Justice Thurgood Marshall: At least your claim is not worth than the average diversity claims which claims a $100,000.00 and then 2 years later settled it to 500.
Mr. Robert Martin: In my claim I think Your Honors are even better than that and it should be.
Justice Potter Stewart: Mr. Martin, excuse me, we've been talking about the jurisdictional amount ingredient of federal diversity jurisdiction, how about the diversity ingredient, the diversity of citizenship ingredient of diversity jurisdiction.
What if some members of the class have the same citizens of the same status, the defendant and they don't opt out, does that defeat diversity jurisdiction?
Mr. Robert Martin: No, sir.
In my view it does not affect diversity jurisdiction and of course this was one of the anomalies under old Rule 23, we were saying spurious class actions were not really class actions and yet we were allowing people to come in who couldn't show diversity and we were in hybrid actions, we were binding people who had no diversity, they were bound and they couldn't litigate it.
Justice Thurgood Marshall: So--
Mr. Robert Martin: It can bring the action and they couldn't really litigate it.
Justice Potter Stewart: And what do you say the situation is now under new --
Mr. Robert Martin: I say the situation now is that if the original plaintiffs show diversity of citizenship, then anyone who doesn't opt out can't benefit himself from the decree and is bound by it regardless of his citizenship.
Justice Potter Stewart: And the existence of those people don't defeat diversity in your submission?
Mr. Robert Martin: No, sir.
In my view it does not and it really didn't under old Rule 23.
Justice Potter Stewart: It doesn't in their decisions to that effect, are they?
Mr. Robert Martin: Yes, sir.
Chief Justice Earl Warren: Thank you.