TICOR TITLE INSURANCE CO. v. BROWN
Argument of Richard G. Taranto
Chief Justice Rehnquist: We'll hear argument now in Number 92-1988, the Ticor Title Insurance Company v. Walter Thomas Brown and Jeffrey Dziewit.
Mr. Taranto: Mr. Chief Justice and may it please the Court:
This case presents the question whether it is constitutionally permissible to insist that certain claims be litigated all at once in a single Federal class action, rather than through numerous repetitive and possibly inconsistent lawsuits.
Our position is, first, that there is no due process bar to this useful procedure where, as is no longer disputed in this case, the class action court has jurisdiction over the class and the interests of the class members were fairly represented.
Where those conditions are met, the choice whether to have a mandatory class action for particular kinds of claim should remain only a matter of policy, including where monetary claims are at stake, and second, even if the Constitution requires more than the interest in avoiding multiple suits to justify mandatory class action, such as the interest reflected in (b)(1) and (b)(2) of current Rule 23, those additional interests are present in this case.
Now, if I can put aside the question of personal jurisdiction, which is now conceded here, I want to begin with the relevant history as to class actions.
That history has two aspects, the first--
Unknown Speaker: Mr. Taranto, I hope in your history you will cover whether you think (b)(2) and (b)(3) classifications are interchangeable so that if you have a group where some might prefer the (b)(3) class, that is, making compensatory damages the thing, and others are content with the (b)(2) classification, a court can nonetheless force on the people who might prefer the (b)(3) class the one in which you cannot opt out.
Mr. Taranto: --I think that as a constitutional matter, it is permissible for the rulemakers or for Congress to decide that once the conditions of numerosity and adequate representation are fully guaranteed, that the interests in having a single mandatory class and therefore denying opt-out rights are constitutionally sufficient, necessarily notwithstanding the desire of certain individuals to pursue their own litigation, and I think, as a constitutional matter, that is in fact consistent with the history of this Court's treatment and the evolution of the rules.
This Court has, beginning in the 1854 case of Smith, on through the insurance benefit cases in the early decades of this century, then on through Hansberry v. Lee and later cases, always identified adequacy of representation as the constitutional benchmark, and some of those cases, notably the insurance cases, specifically involve monetary claims where in some sense (b)(3) in current terms might have been available for certain people who wanted to opt out.
What the Court has never done is to declare the particular circumstances where mandatory class actions have been permitted are the only ones where that is constitutionally so, and in particular, the one sentence in Shutts, Phillips Petroleum v. Shutts, that the Ninth Circuit relied on, doesn't do that, because Shutts is only about the prerequisites for personal jurisdiction.
The second aspect of the history that I think is important here is precisely the evolution of choices about when mandatory classes are appropriate.
One set of choices is, of course, embodied in the current Rule 23.
Another set of choices is currently under consideration by the advisory committee.
An earlier set of choices was embodied in the original 1938 rules, and still before that, before the rules in 1938, there was a wide variety of opinion among all sorts of courts about when mandatory class actions were appropriate with... and the important point about that variety of opinion and the evolution of choices is that the debate has always been on nonconstitutional grounds, insofar as relevant today.
There was once a jury trial issue, but that's not any longer a live issue after the merger of law and equity.
So what the history I think stands for is precisely flexibility as a policy matter about when the interests in consolidating all actions in a single proceeding override any remaining individual interest, and that flexibility I think is perfectly correct under the prevailing due process analysis of Mathews v. Eldridge.
The reasons for mandatory class actions derive from the basic defining characteristic of numerosity.
Where that is present, there are strong interests in avoiding costly, repetitive, possibly inconsistent results, and these interests have a number of overlapping aspects that can appear in different mixes in different kinds of cases.
Unknown Speaker: May I ask if it's your view that if the district judge here had determined that (b)(3) was the appropriate mode for this, that that would also be all right, that this is totally a matter of discretion for the initial trier?
If he styles this a (b)(2) class, then that's okay, but equally, it wouldn't have been wrong, would it, for the trial judge to have said, this case I think belongs under the (b)(3) mold, and there should be notice and an opportunity to opt out, because some people might prefer compensatory relief?
Mr. Taranto: I think it is a matter of discretion in the sense that courts of appeals review certification decisions under a fairly deferential abuse of discretion standard.
I think a certification under (b)(3) rather than under (b)(1) or (b)(2) where those conditions are met can in fact be an abuse of discretion.
One of the points that has been made by many courts is that (b)(3) is a kind of catch-all provision, and most cases that would properly fall under (b)(1) and (b)(2) could also come within (b)(3), and the structure of the rules therefore suggest that there will be some cases that really should be categorized under (b)(1) and (b)(2).
There are cases, and I think this is properly one, in which at a minimum it was proper to certify the case under (b)(1) and (b)(2).
Whether the certification was so clearly proper under those standards that certifying it under (b)(3) instead would have been an abuse of discretion, I don't know.
Of course, if this had been certified under (b)(3), this whole constitutional issue would not in fact have arisen, because then opt-out rights would have been provided in the original lawsuit.
Unknown Speaker: Mr. Taranto, can... do you think a State or Congress could establish a system in which you no longer have the choice of your own lawyer to prosecute causes of action, saying, you know, lawyers have gotten too expensive, we're going to establish a career attorney system, and you simply get assigned your lawyer when you want to vindicate some civil right?
Mr. Taranto: Well, I think that the analysis that would have to be followed would be a Mathews v. Eldridge analysis, and I'm, as I'm standing here, uncertain what kind of weighty State interest there might be in saying that any particular individual has no right to choose an individual's own lawyer.
Unknown Speaker: Well, it should just be expense of attorneys.
But that's how you'd approach it.
Every... despite the fact that we've had a tradition that you can pick your own lawyer in the past, it's an open question, and you simply balance--
Mr. Taranto: Well, I think... no.
No, I don't--
Unknown Speaker: --the elimination of that historic right against... against the utility to the State.
Mr. Taranto: --Well, I think that what the Mathews v. Eldridge analysis does provide for is the change from earlier, the traditionally established ways of proceeding.
Unknown Speaker: So does what you're proposing.
I mean, the cases that you've mentioned are cases that involve either equity or limited funds, the historic cases, so this is really a new proposal.
Mr. Taranto: Well, the kinds of cases that have been permitted as mandatory class actions under (b)(1) and (b)(2) since 1966 have extended beyond--
Unknown Speaker: Well, I consider--
Mr. Taranto: --(b)(1) and (b)--
Unknown Speaker: --Yes, I'm sorry, I have a warped timeframe.
I mean, as far as the Due Process Clause is concerned I consider 1966 recent.
175 years too late.
Mr. Taranto: --But the history in particular of monetary claims, and it does go back to 1854, it's a little--
Unknown Speaker: It goes back to that date in a very different context, where you have a limited fund.
Everybody can't possibly get it, and maybe you could extend that to the situation where defendant is likely to be bankrupted by too many private claims, and I suppose that would be analogous, but where that isn't... where that isn't in the cards, or there's no indication of that, and the only problem is there are a lot of lawsuits, I think that's pretty new.
Mr. Taranto: --Well, I don' think so, Justice Scalia.
Unknown Speaker: How about a mass tort... a plane crash, a railroad disaster?
Could you bring that as a mandatory (b)(2), and then after you settle the liability, just have individual hearings on damages?
Mr. Taranto: Well, if the question is as a constitutional matter, I think that the answer is yes.
I think that rulemakers or Congress could determine that, if the issues are truly common, so that any particular interest is in fact adequately being represented, then a mass tort case could constitutionally be consolidated in a single proceeding.
Unknown Speaker: And a mass tort case in fact isn't, so it remains an academic question.
Is it not so that you might get a (b)(3) but you would not get a (b)(2) class certified?
Mr. Taranto: It is... mass tort cases are commonly treated under (b)(3), not under (b)(2).
There is an increasing development to treat at least some aspects of mass tort cases, maybe even all of them, under (b)(1), under (b)(1)(B), which is roughly speaking about limited funds, where the assets of the defendant would... might well be exhausted by tens of thousands of tort suits, and then the traditional limited fund justification comes in.
But let me return if I may for 1 minute, it is true that this Court has not... had not had to deal with a class action, a mandatory class action outside some broad view of what a limited fund is, but other courts did in fact deal with such cases, and if one looks at some of the prior history, prior to 1938, some of the cases discussed in the influential articles by Professor Chafee, I think what that shows is that various courts were in fact treating the avoidance of multiple litigation as, by itself, a sufficient interest to have a single, mandatory proceeding.
So there is, in fact, some historical precedent for this, though admittedly not in this Court.
Unknown Speaker: Congress could repeal outright any private claim of antitrust for antitrust liability against a defendant, couldn't it?
Mr. Taranto: Yes.
I think in--
Unknown Speaker: So why couldn't it do this lesser thing of requiring a certain degree of consolidation take place?
Mr. Taranto: --I think with respect to a Federal statutory claim, there probably is an additional congressional power to, in effect, condition the kinds of proceedings in which certain kinds of claims created by Congress can be brought.
This case, of course, is one in which we do have a Federal statutory claim, but I do think that as a constitutional due process matter the point extends further, and the basic reason is, aside from the fact that I think the history is relatively open on the subject and precisely allows flexibility of choice, is that what's on the individual side of the balance is an interest in controlling one's own litigation to ensure against incorrect adjudication or unfair compromise.
Unknown Speaker: Mr. Taranto, your response to the Chief Justice surely doesn't suggest that simply because Congress can eliminate a claim entirely it can provide for that claim to be tried with any process whatever?
Mr. Taranto: No, I don't think that's right.
I think this Court's--
Unknown Speaker: The one doesn't necessarily include the other.
If you allow the claim to subsist, there are certain process requirements for its trial that apply nonetheless.
Mr. Taranto: --Yes, I think that's right, but what Congress has done in a number of contexts is to say, in particular when an administrative agency makes a ruling, sets prices, for example, under the price administration regime of World War II, that there shall be one forum at one time in which that can be challenged, and if... I assume there are hundreds of such challenges brought within the 30 days in the D.C. circuit or the Emergency Court of Appeals.
There is going to be, necessarily, some kind of consolidated, representative proceeding in which that claim will be heard.
What the mandatory class action device does is essentially mirror that kind of consolidated proceeding where the justification of numerosity calls for it.
Now, many different choices, I think are permissible about when that can... that ought to be done, and the current rules clearly do weigh different interests somewhat differently.
The interests that are present in (b)(1) and (b)(2) are interests that the rulemakers deem somewhat greater of greater weight than the interest present in what... in the residual (b)(3) category.
In addition to the shear burden of multiple litigation, there are the additional interests of avoiding inconsistent obligations or the so-called cohesion interests that respondents refer to.
Unknown Speaker: Mr. Taranto, given the reflection of those interests, if you're right on due process, does a court have any discretion in applying preclusion rules?
In other words if we were to say, sure, there's no due process problem in your position, does that... does that leave a court with any opportunity to hear a claim simply based on the inappropriateness of applying preclusion in a given case, given the fact that the preclusion rules themselves embody a... ultimately a flexible, a kind of an equitable circuit breaker standard?
Mr. Taranto: I think so.
I mean, the... Rule 23 does not itself determine the preclusive effect of judgments.
It plainly was intended to provide that everybody included within the judgment shall be bound by the judgment but does not itself lay down the preclusion rules.
The preclusion rules continue, by and large, to be a matter of Federal common law, and those rules, if one looks at the Restatement or this Court's cases, basically say that a representative action where adequacy of representation is guaranteed shall have preclusive effect.
There are certain elements of discretion embodied in those rules, but in general the finality and efficiency purposes that preclusion rules are designed to serve do in fact require a certain measure of clarity as to those standards as well, and therefore the discretion as to preclusion is relatively minimal, though there is a genuine important judgment to be made about when the representation was truly adequate.
Now, that judgment, of course, was made in this case.
The principal challenge to the binding effect of the Philadelphia class action in this case was a challenge based on adequate representation.
Unknown Speaker: But would it make any sense to conclude here that the representation was adequate, again so far as any due process standard might be concerned.
It was certainly adequate in the sense of competence, but that there was in fact at least a sufficient disparity of interest between, we'll say, the intending Arizona plaintiffs here, so that for res judicata purposes we would not apply preclusion against them.
Would that... is there any way that would make sense?
Mr. Taranto: Well, let me say two things about that.
First, I think that that would necessarily present a question about adequacy of representation that is not presented in his Court, but second, I think in this particular case that would not make sense.
If one puts oneself back in the framework of 1985 and 1986, and looks in particular at the dispute over whether Arizona and Wisconsin and certain other States were different in relevant respects from the other States affected by the class, I think it is very hard to question the judgment of not only adequate but in fact quite vigorous representation.
Recall, back in '85, within 3 months of the filing of this lawsuit, this Court decided the Southern Motor Carriers case, suddenly creating a much more substantial... indeed, what the district court in Philadelphia thought, a pretty clearly winning State action defense on antitrust grounds.
There is also the McCarran-Ferguson question, which has still not been finally resolved in this case.
Those are questions that, of course, have taken the FTC 9 years to litigate, and the judgment is still not final as to them.
Beyond those two questions there is at least the question, not present in the FTC case, of seeking damages, and where damages are alleged, there would be the additional burden of establishing that, even if the participation in the rating bureaus was illegal under the antitrust laws, that the resulting rates were higher than what they would have been in a purely competitive system.
And with respect to all of those factors, what Judge Van Artsdellon decided, and what the lower courts in this case decided, was that there really were no concrete appreciable differences between Arizona and Wisconsin on the one hand, and the other States on the other.
And whatever differences there may have been were so outweighed by the prospect of 9 years of additional litigation, all for the prospect of possibly no damages at the end of the day, that it was a perfectly reasonable, responsible choice of a vigorous advocate to say, we will settle for the following sorts of injunctive relief, some of which is retrospective, in the sense that it provides additional insurance benefits to all members of the class, and so I think in this particular case there really is no ground for deciding that some higher level of representative adequacy is necessary.
Unknown Speaker: I suppose it would follow from what you say that it would at least be constitutionally open to provide a trial regime in which a Court could conclude that one were... that a given plaintiff was not subject to a summary judgment motion, and was not subject to a dismissal motion, but on grounds of unlikelihood of success, in effect could suffer a dismissal, because that in effect is the standard by which you are judging, or I think you were judging the reasonableness of the decision that was made about the adequate representation of those who wanted to go all the way for damages, or at least claimed they did.
Mr. Taranto: Well, I think it is important to separate the question of adequacy of representation leading to an adjudicated decision and adequacy of representation leading to a settlement, although the two are necessarily, in practical terms, interlinked.
Here, I think, in fact both of those that the representation was perfectly adequate as to both, just as I think it was perfectly reasonable to certify this particular class under both (b)(1) and (b)(2), and (b)(1), the critical point is... what (b)(1) says is that we should certify a class if there's a risk of varying inconsistent or varying adjudications.
And what that has been used for time and again are cases not simply in which the defendant might be told by one court to do something and another court to do precisely the opposite, but rather for a whole range of circumstances involving Government benefits and other kinds of situations where the defendant has some kind of legal obligation to act consistently toward all the plaintiff class.
Here, the defendants do have that obligation, and they have that obligation not only prospectively in terms of the rates that they would charge or their behavior in establishing insurance rates within a particular State, but retrospectively as well, because any damages that would be paid would in effect create a retroactive rate, and all the... all the State regulatory regimes here declare that there shall not be discrimination through all of the writs.
Unknown Speaker: Wasn't this class originally... wasn't there a question in the complaint originally for (b)(3) certification?
Mr. Taranto: Well, there were a dozen complaints, eventually reduced to, I think, nine.
Some of them asked for (b)(3), some of them did not specify.
They simply said, under Rule 23.
I think four of the complaints did not specify what subsection they were seeking to proceed under.
That would, though, however, have been quite dramatically changed by this Court's decision in Southern Motor Carriers, because by the time the FTC brought its action in early 1985, and these actions were then filed literally within days of the FTC action, the participation in the rating bureaus was by and large over, so in that sense, at that time, they were mostly looking for retrospective relief.
What Southern Motor Carriers did was suddenly, in a very real sense, to raise the prospect of future participation in rating bureaus being permitted.
There was now something very much forward-looking to think about, and at the same time there was very much a weaker claim for any kind of retrospective relief, so--
Unknown Speaker: Mr. Taranto, in the chronology of these proceedings, what was the last point at which these respondents or other persons in their position could object to the certification of the class?
Was the issue of miscertification open to them at all points?
At what point were they barred from rearguing the certification of the class?
Mr. Taranto: --Well, I think that if the question of certification is not a constitutional one, then I think the question of certification is not open in a separate collateral suit.
These particular plaintiffs, as well as the various attorneys general who pursued this interest in the Philadelphia action, were entitled to, and did, press the question of certification in that action and took an appeal and eventually cert was denied.
On the other hand, if the certification standards of (b)(1) and (b)(2) become constitutionalized, and it becomes a matter of due process right to have an opt-out opportunity in those circumstances where one can only be in (b)(3) but not in those circumstances where (b)(1) and (b)(2) are appropriate, then at least I think I have a hard time seeing how the certification question, now constitutionalized, wouldn't be open on collateral attack.
Unknown Speaker: Well, under your view of the case, under your submission, when was the last point at which these respondents could have asked the class be recertified or objected to the miscertification of the class?
Sometime before our decision in Southern Motor Carriers?
Mr. Taranto: Well, they could have made the argument about certification at any time in the Philadelphia proceeding before there was a final judgment.
I think the argument would have, in fact--
Unknown Speaker: But any time before final judgment.
Mr. Taranto: --Yes, I think so, and indeed, that issue was taken up to the Third Circuit eventually on certiorari, but one reason I think that, aside from the fact that this is a case in which (b)(1) and (b)(2) were found to be present and have not been challenged in this Court, and I think were quite proper because of the need for uniformity in the treatment by defendants of all of their consumers, even aside from that, I think one important reason why the current Rule 23 categories shouldn't be constitutionalized any more than the original 1938 Rule 23 category should be constitutionalized, is that--
Unknown Speaker: Mr. Taranto, are you saying that no one of the other side is claiming that it was wrong to make this a mandatory class as distinguished from a class... from a (b)(3) class in which people can opt out?
I thought that was what the case was about on the other side, that there was a constitutional right here to notice, and an opportunity to opt out, and that was... it was wrong for the district judge in Philadelphia to preclude that, and it remains wrong, and that it's a matter of due process.
I thought that was the very argument the other side was making.
Mr. Taranto: --I agree that the argument the other side is making is that due process requires an opt-out right either for all monetary claimants or for some monetary claimants.
What I think has not been contested and certainly was not contested in the lower courts is whether the conditions laid out for mandatory treatment in (b)(1) and (b)(2) are present here.
It has never been disputed that this was properly certified under (b)(1) and (b)(2).
Unknown Speaker: Could one take the position, so far, yes, as far as injunctive relief is concerned, the class is delighted with that, but you can't cut out the damage remedy without giving us an opportunity to have notice, an opportunity to be heard on our own.
That is, to accept the mandatory class for purposes of injunctive relief, but not for purposes of cutting out compensatory relief.
Mr. Taranto: I think that that is a reasonable policy choice, but it's not constitutionally required, because monetary claims have always... some monetary claims have always--
Unknown Speaker: Is it possible to argue that that's the policy choice that a fair reading of the entire rule made?
Mr. Taranto: --I think the current rule... I think it is possible to interpret the current rules as making that policy choice.
I think it is also possible to interpret them otherwise.
Unknown Speaker: But if we interpret the current rule as having made that policy choice, we wouldn't... and if we agreed with your opponent, having made that policy choice, then we wouldn't reach the constitutional issue, we would reverse on a construction of the rule, wouldn't we?
Mr. Taranto: Except that the construction of the rule has not in fact been litigated in this particular case.
It has never been disputed in this case that (b)(1) and (b)(2) were proper, and--
Unknown Speaker: Yes, but has it not been disputed that... whether you could recover damages, whether that would foreclose the damage claim?
Haven't they contended right along that the certification, as Justice Ginsburg suggested, is only good for equitable relief?
Mr. Taranto: --As a constitutional matter they have made an argument that adequate representation is not present, and that due process under Shutts always requires monetary claims to be separated out, which it plainly cannot do in (b)(1), and I don't think it needs to in (b)(2) either, and even if it were... that were true under (b)(2) as a matter of interpreting the rule, I don't think it's true as a constitutional matter.
Unknown Speaker: If it follows that for the monetary claims the people who would like to press such claims can't be taken out, then the label that you put on it, then you say well, to that extent it belongs under (b)(3), but the claims don't come into court with some kind of magic label ahead of time.
If you decide that there is... that the damage claim is something that can't be cut out because some people in the group like it that way better than others, then the classification is under (b)(3).
Mr. Taranto: I think that that is an argument that was made in the Philadelphia proceeding, can be made under the rules, but the constitutional question is whether that categories that are laid out in (b)(1) and (b)(2) and (b)(3), highly imprecise as they are, must be present as a constitutional matter.
Argument of Gerald D. W. North
Chief Justice Rehnquist: Thank you, Mr. Taranto.
I think you've answered the question.
Mr. North, we'll hear from you.
Mr. North: Mr. Chief Justice and may it please the Court:
I think there is a nonconstitutional basis for deciding this case, and it has been asserted, it was argued in the Ninth Circuit, and it's been argued here.
It stems, however, not from whether the certification in MDL 633 was itself proper, but whether the judgment below, in determining the preclusive effect of the judgment, was proper.
What actually occurred in MDL 633, and the record is quite clear, is the cases both as individually filed and--
Unknown Speaker: Mr.... would you state your nonconstitutional argument again?
Mr. North: --Yes.
The damage claims that were purportedly foreclosed in MDL 633 could not have been asserted there in the proceeding as it was constituted in that court.
Therefore, there was never an opportunity for these plaintiffs to litigate that issue.
No proceeding has a preclusive effect with respect to issues that could not have been litigated, and I'd add that since these were absent plaintiffs, we have no splitting of cause of action type problem.
Unknown Speaker: So this is the law of judgments and--
Mr. North: Precisely.
Unknown Speaker: --estoppel by judgment, that sort of thing, that you're urging now?
Mr. North: Exactly.
Unknown Speaker: But why isn't the argument the deal that was made in the MDL cases the group adequately represented decided to surrender its claims for monetary relief in exchange for these 5(c) equitable type remedies?
Mr. North: Well, the problem is... there's a small procedural problem, but the reality, if I can begin with that... the reality of what occurred is this.
The cases as filed all sought treble damages and were predominantly for money damages under section 4 of the Clayton Act.
Only incidentally was injunctive relief sought, because as my opponent has pointed out, there was nothing left to enjoin.
All the rating bureaus had already been disbanded.
Class counsel during the proceeding decided not to pursue the treble damage claims in both the district court and the MDL 633 proceeding, and the district court below in this case concluded that those claims had been dropped, and that is the language those courts used.
The claims were dropped.
Instead, without ever filing a new case, injunctive claims were asserted, and the case was settled in a manner that both courts deemed primarily or literally exclusively injunctive in nature.
In the process of settling the case, the class attorneys who had declined to continue to represent the damage cause of action traded it to settle the injunction case.
That was improper.
There was never an opportunity by the plaintiffs in this case either to litigate their damage case in MDL 633 or to exclude themselves from that and pursue those claims.
We know the claims were substantial.
MDL 633 in the approval decision itself called them tens of millions of dollars, and we know because this case was already settled, that these particular claimants had substantial damage claims in the millions of dollars.
Unknown Speaker: Well, is there an argument, assuming you lose on the constitutional aspect of the case, that the court's ruling is res judicata as to your clients on this point, that you could have objected to the certification, or the miscertification?
Mr. North: We were absent parties in the case, so we never really had an opportunity to object, and frankly, since there was no first class mail notice, merely notice by publication, I think Mullane would bar that kind of an argument.
These plaintiffs never even knew this was going on.
They never had an opportunity to come in and object.
Yes, the Attorney General of Arizona and the Attorney General of Wisconsin objected, but they were never accepted by the MDL 633 court in a parens patriae capacity, only in their capacity as representing the State and its subdivisions, which also had a damage interest.
Unknown Speaker: Mr. North, the question which we granted certiorari is whether a Federal court may refuse to enforce the judgment in Nationwide class actions certified under Rule 23 on the ground that unnamed class members have a constitutional right to opt out of any class action asserting monetary claims.
Now, your argument here is directed to really what is an alternate ground for affirmance, I take it.
Mr. North: It is, although that we do argue that the answer to the certified question is that yes, the district court most certainly can refuse to give preclusive effect, and we believe this Court's decision in Shutts establishes that.
Unknown Speaker: Yes.
I hope you'll cover that in your argument.
Mr. North: I will right away, if I may.
Shutts has been argued, and we were guilty of this below as well, to some extent, in terms of personal jurisdiction by many, many courts and many parties, but when it is read in light of its predecessor decision, Hansberry v. Lee, it can't mean that.
The basic principle that's at issue here is the principle that parties that are not... persons who are not party to a lawsuit may not be bound by a judgment entered in that litigation, and that an attempt to enforce such a judgment against such a person is violative of both the Fifth and the Fourteenth Amendments, and that is in the critical paragraph spanning pages 40 to 41 of Hansberry v. Lee.
So we already know that there is a principle that is equally applicable under the Fifth and Fourteenth Amendment.
The question is the exception to the basic principle, which is what our opponents urge.
They urge the exception which is the class case.
Hansberry v. Lee, and subsequently this Court's decision in Shutts, sets out the minimal procedural due process protections that are required for that exception for class representation type litigation to overcome the more basic principle.
Those protections were not accorded here.
There was no right to opt out.
Unknown Speaker: Certainly reasonable people could disagree, I think, about your reading of the Shutts opinion as to whether it's dealing with personal jurisdiction or procedural due process.
Mr. North: Reasonable people have disagreed, so the answer must be that they could, but the truth is... the truth is that it doesn't stand analysis, because the due process protections accorded absent class members stems from the Due Process Clause, not from Article 3, so all of the arguments that are made by our opponents about the greater sovereignty of the United States v. that of individual States has nothing to do with the right that is being asserted, which stems from the Due Process Clause, the same clause that appears both in the Fifth and Fourteenth Amendments.
In fact, this Court, when dealing with foreign nationals, has treated their right to protection from jurisdiction of any United States court as stemming also from the Due Process Clause, not from Article 3, so arguments about greater sovereignty of a Federal court potentially, had Congress granted that, versus a State court, really can't be what Shutts is about.
Unknown Speaker: Well, but Shutts could be about the jurisdictional requirements for State courts dealing with these sort of things as opposed to Federal courts.
Mr. North: Well, it could, but it doesn't seem that it is, because the pattern of thinking and the pattern of argument reflected in Shutts is the same as is reflected in Hansberry v. Lee and Mullane.
In each case, this Court addressed first the territorial jurisdictional issue and concluded that State courts did have territorial jurisdiction to entertain class actions in which some of the class members were nonresident.
Having disposed of that issue, as this Court did in Shutts by concluding that there was no requirement for minimum contacts by absent class members, the Court then went on and described what was required as a matter of minimal due process, and it does so in terms of a host of protections that are traditionally thought of in terms of procedural due process equally owed by a Federal court.
There is nothing in the opinion, other than in responding to the personal jurisdiction arguments that had been raised below, that suggests that the decision should not apply to a Federal court.
If Shutts has not resolved this issue, however, and if a Mathews analysis is appropriate for the first time in this case, then we submit that the absent class members win hands down, and they do because there is no... no competing governmental interest to weigh in the balance.
The argument that has been asserted here is that if we allow opt-outs we will have multiple suits.
Well, (b)(3) actions avoid multiple suits just as readily as (b)(2) actions, with the exception--
Unknown Speaker: You concede that there are class actions that would fit in the (b)(1) or the (b)(2) category where it is not necessary to give individual notice and an opportunity to opt out.
Mr. North: --Well, we concede that the rules so provide, and that this Court has allowed such actions in the past, yes.
That's certainly true.
Unknown Speaker: For example, for injunctive relief.
Mr. North: But typically in those cases the individual interest and the value of having an opt-out rate is much less than in cases that would otherwise properly be brought under the (b)(3) label.
In (b)(1) and (b)(2) phases, properly so categorized, the interests of the class are common.
The case will be decided by a judge, and the relief to be accorded will be common to all, whether they opt out or not.
If the named plaintiff proceeds, even without a class being certified, and succeeds in obtaining injunctive relief, all of the class members who might have opted out will benefit from that relief.
The damage case presents some peculiar problems because of the likelihood that individuals within the class will have differing damage claims or be subject in some cases to defenses that other members of the class are not subject to.
That is why (b)(3) has typically been thought of as a joinder device, not a true class action.
That is why there is a greater need for opt-out.
Also, it is more effective.
There is actually, and the history of the litigation shows that allowing an opt-out right is efficacious in cases involving monetary damages.
Unknown Speaker: Mr. Taranto brought up the limited fund case as a case that you could proceed, where you could force... you could have a mandatory class, force everyone into the forum to get pieces of this very limited pie.
Mr. North: Well, the constitutional issues, if there are any, in a (b)(1)(B) class action have perhaps more to do with Article 3 and the interrelationship of sitting Federal judges and bankruptcy judges than any of the issues that have been presented in this case.
Since those issues really haven't been joined in this case, we would have to concede that in that situation a mandatory class is appropriate.
The governmental interest in avoiding multiple suits, we contend, is equally protected in (b)(3) actions with one exception, and the one exception is where, in the case of a settlement class, the settlement is not fair to all of the claimants, and where the settlement is not fair, the governmental interest in avoiding multiple cases must give way to the fairness that is owed to the adversely affected class members.
Few people opt out of settlements that are fair, particularly where they need to then go fund the litigation, and particularly in class action situations where the amount of damages typically is not as large as a normal private suit might involve.
So the reason for attempting to avoid opt-out can't be because there's a strong governmental interest in avoiding multiple suits.
The principal reason is because defendants seek to avoid all future litigation in the settlement, seek to use it as a way to cut off any future claims.
Well, allowing that to occur certainly does foster greater efficiency in the sense that it ends litigation, but it doesn't foster greater fairness.
If opt-out is allowed, those who opt out are opting out because they believe their claims will be adversely affected by the settlement that is proposed, or in the more typical case, which is not this case, where the certification occurs at the beginning of the case, not when the case is being settled and those individual class members are able to exercise their full... their full power under the basic principle of Hansberry v. Lee to decide their own litigation fate.
Unknown Speaker: Mr. North, assuming you're right about this, that you had to be given a right to opt out, why didn't you have to assert that right in the original litigation?
Why didn't you have to assert that right in the Third Circuit, when that MDL case was appealed there?
Mr. North: Two reasons.
First, I believe Hansberry v. Lee and its progeny established that collateral attacks of the kind brought here are the appropriate vehicle for testing the preclusive effect of such a judgment, but more importantly, as I think I mentioned a few moments ago, there was no first class mail notice in this case, so that most, if not all the affected class, did not know there was anything to object to.
It is true that a handful of States attorneys general knew about the case, and one way or the other, a handful of individuals learned about the case through notice by publication, but most of the class, most of the people whose claims were foreclosed, purportedly, never knew that that was happening.
They didn't know there was a case in the first place.
They didn't know they were represented by an attorney.
They didn't know the attorney had dropped the damage claims.
They didn't know that new claims had been asserted of an injunctive nature, and they didn't know that the damage claims were being traded for the injunctive relief.
Unknown Speaker: What about the people who did have... from what you say, I gather some people did have actual notice.
Mr. North: Yes, and they--
Unknown Speaker: What about them?
Mr. North: --Well, the Attorney General of Arizona sought to opt out, and took that to the Third Circuit, which affirmed the judgment without opinion, and in a subsequent opinion explained that decision as likely reflecting their understanding and the argument that the petitioners here had advanced that collateral attack was the appropriate vehicle to test the right to opt out.
Unknown Speaker: If the Attorney General had been recognized as parens patriae, would you still have had a constitutional opt-out right?
Mr. North: Probably not.
Unknown Speaker: Well, why not, under your theory?
Mr. North: Well--
Unknown Speaker: Why is the Attorney General in any better stead--
Mr. North: --If the Attorney--
Unknown Speaker: --than someone who is certified as being an adequate representative after an adversary hearing in the court?
Mr. North: --Well, had he been certified as a representative, had the Attorney... perhaps I misunderstood the question.
Had the Attorney General of Arizona been certified as the class represent... as attorney for a proper class representative of the Arizona class, well then, of course there would be... the issue would have been decided on direct appeal, and there would be nothing left to decide, because the absent class members would have been proper parties at that point.
Here, they never were proper parties.
They weren't named parties.
Unknown Speaker: Well, why don't you have a constitutional right to drop out of a suit where the Attorney General is acting parens patriae?
Mr. North: Well, we would have that right, but all I'm saying is that had we been in the case as proper parties, that right would have been adjudicated in the Third Circuit and we would no longer be able to challenge it again, but that didn't occur.
We never had that opportunity.
The Attorney General tried, but the plaintiff here did not.
Unknown Speaker: Mr. North, you said that the Attorney Generals were not appearing as parens patriae for the citizens of the State at the time.
Were they asserting damage claims on behalf of the State institutions they represented?
Mr. North: They were, the school boards and so forth.
They sought also to appear as parens patriae but were not so accepted by the district court.
Unknown Speaker: I see, but they were denied the right to assert damage claims at the time of the class certification decision?
Mr. North: Yes.
They were as equally adversely affected as the other absent class members, but for the fact that they chose to participate, because they learned of the case and appeared and objected.
Unknown Speaker: I don't really understand what happens in parens patriae, since you say if the Attorney General of the State suing in that capacity wins, everybody benefits, but if he loses, those who didn't get, what, first class notice so that they can opt out, can nonetheless sue again?
Mr. North: Well, no, I don't believe I said that.
Unknown Speaker: No, I'm asking.
Mr. North: --Oh... no, I was not asserting that.
Unknown Speaker: You asserted that there is a right to opt out in parens patriae cases as well, right?
You did say that.
Mr. North: No, I think what I asserted was that had the Attorney General of Arizona been appointed as class counsel for a class representative from Arizona, yes, there would still have been an argument that we had a right to opt out, but that argument would have been adjudicated in the Third Circuit where the Attorney General for the State of Arizona... in fact--
Unknown Speaker: But there was... there were representatives that were designated to represent the entire class.
Mr. North: --None of them were from Arizona or Wisconsin.
Unknown Speaker: But they were... purported representatives.
At least, they were certified as such.
Mr. North: Yes, they were.
Unknown Speaker: And you said something about notice.
The Mullane case on which you rely doesn't require that every person in the class get notice in order to bind them to the adjudication, does it?
Mr. North: Not everybody, but everybody whose address can be found.
That was the holding in Mullane.
Unknown Speaker: Had to get first class mail notice.
Mr. North: Correct.
In other words, when you can give people the notice that is due them, they should get that notice.
Yes, we have the problem where there are trust common fund situations where there are beneficiaries who cannot be found, and so forth, and a court must proceed.
Mullane recognizes that kind of an exception, but here, there were certainly many purchasers of title insurance in the States of Arizona and Wisconsin who could have received first class mail notice.
Unknown Speaker: Well, Mullane was dealing with an existing property right and a trust.
I'm not sure that carries over bag and baggage into the plaintiff's notification in a class action suit.
Mr. North: Well, I think that in all of the cases that have come after Mullane, most class lawyers have thought that Mullane means that first class mail notice is required if it is possible, in an appropriate case.
Now, there are provisions in the rule, in Rule 23, for avoiding that, but the issue comes up, if you will, only in terms of explaining why the absent class members did not have an obligation to come appear and challenge their inability to opt out in MDL 633, and my answer to that is, in many cases they didn't know there was anything to challenge.
Unknown Speaker: Well, you say... several times you've said, in many cases.
Now, is it a fact that some people other than the Attorney General of Arizona, who are simply private plaintiffs, did have actual notice?
Mr. North: I can't know that, but it must be the case that if the notice by publication which the petitioners here certified they did at the time was done and was done properly, someone must have read it in the newspaper.
Unknown Speaker: Mr. North, am I not correct that you argued that the notice was not only inadequate as a constitutional matter, but was inadequate under the rules, because it was the equivalent of a (b)(3) action--
Mr. North: Correct.
Unknown Speaker: --and the judge responded by saying all the damage claims are dropped so the notice by publication is okay.
Mr. North: Yes.
Unknown Speaker: So you argued not only constitutional inadequacy of notice, but inadequate under the rules.
Mr. North: We believe that it was inadequate under the rules.
Unknown Speaker: Yes.
Mr. North: It depends on how you look at what actually transpired in MDL 633, because technically the complaints never were amended to drop the damage claims, but as a practical matter and by judicial decision, they were.
The class lawyers who had brought these treble damage claims, clearly (b)(3) type cases, decided they would not pursue those claims because they didn't think they'd win, so they brought, in effect, another case, and then traded the claims they were no longer going to pursue for the claims they now wished to pursue, the net result being the payment of substantial attorneys fees and no recovery for the class.
That's what we object to.
We think there's two ways of looking at that.
One is that the certification itself was okay under (b)(1) and (b)(2), but what was improper was the attempt by the trial court in 633 to foreclose damage claims that were never really litigated.
Unknown Speaker: What would the class... assuming the class loses here, would they have a cause of action against the lawyers who did that to them?
Mr. North: Probably barred by the statute of limitations, Justice Scalia.
Probably at this point barred by the statute.
I might add, however, just... since you've raised it, because the case has settled, this case will proceed on its track in a sense regardless of the outcome here, and so I don't think that issue will ever actually arise.
Unknown Speaker: We're talking about a different settlement now, and maybe--
Mr. North: The settlement that's actually in this case.
Unknown Speaker: --Yes.
Can you tell us at what stage that is... you... I forgot, now, which side moved to dismiss the petition for cert because you were pursuing settlement.
Mr. North: We... it was our side, and what we moved for was a deferral of the briefing and the argument pending final approval in the district court.
The status is that since the court denied that motion, a final settlement agreement has been entered into between the parties, a motion has been filed in the Ninth Circuit seeking a limited return of a mandate for purposes of allowing the district court to consider the settlement, and I believe we're within a few days of finalizing a proposed order to submit the entire matter to Judge McNamee in Arizona for preliminary and ultimately final approval.
Unknown Speaker: How... what is the projected timetable for when that settlement agreement will be... final order will be entered in the district court on it?
Mr. North: That would be very difficult for me to say.
I believe that we will be able to submit it to Judge McNamee in the month of March, possibly early in the month of March, because there are very few issues between us on the proposed order at this point.
There are some matters that he will want to consider when we bring it to his attention, and I don't know how quickly he'll act.
Unknown Speaker: And then because it's a notice of a class settlement you'd have to give notice--
Mr. North: Yes.
Unknown Speaker: --and opportunity to people.
Mr. North: Yes.
There will be a month or two period for notice, and opportunity to object in the final approval hearing.
Perhaps this is a 6-month matter, but that's just a guess.
Unknown Speaker: Because it's conceivable that a judgment by this Court might have an effect on those pending settlement--
Mr. North: I don't think so.
Unknown Speaker: --proposals.
Mr. North: I don't believe it would.
I believe that... well, except in... it's difficult to predict a result that hasn't... an outcome that doesn't exist yet, but it's my belief that regardless of what happens in this Court, the settlement process will go forward.
We have an agreed-upon settlement, and certainly from the side of the petitioners, they've bound themselves to the settlement both 3 days before cert was granted and now again, since cert was granted, so we believe that the settlement would certainly be binding upon the petitioners, regardless of the outcome.
Unknown Speaker: So the opposite result is more likely.
That is, that the settlement will affect the decision of this Court, rather than that the decision of the Court will affect the settlement.
Mr. North: I think that entirely depends upon the speed with which you--
Unknown Speaker: That's right.
Mr. North: --dispose of the case.
Unknown Speaker: Mr. North, just so I'm sure about the state of the law, your opponent cannot cite common law cases, by which I mean pre-1966 cases, in which... in which actions of this sort were brought for money damages, but on the other hand, you cannot cite any in which such actions were denied.
Am I correct?
I mean, you point out that there are no bills of peace allowed for money damages, class actions for money damages, but you don't have any cases where that was sought to be done and the Court said no.
Mr. North: I can't provide that to you standing here, Justice Scalia.
I will point out, however--
Unknown Speaker: No, I'm... you can answer that question standing there.
Do you know of any?
Mr. North: --No, I cannot--
Unknown Speaker: Okay.
Mr. North: --give that to you here, but I can point out to you that the traditional, the old and original equity rule under which the permissive joinder cases were allowed as a matter of the rule specified that there would be no binding effect as a result of any judgment entered on absent class members, those who chose not to interplead under the procedures of the day.
Unknown Speaker: But you're not questioning that in (b)(1) and (b)(2) actions that the rule framers meant those to be binding on all members of the class, like it or not?
Mr. North: --We're not questioning that.
I have nothing further to add in my argument.
Chief Justice Rehnquist: Thank you, Mr. North.
The case is submitted.
Argument of Chief Justice Rehnquist
Mr. Taranto: I have the opinion of the Court to announce in No. 93-1988, Ticor Title Insurance Company versus Brown.
In a Per Curiam opinion filed with the Clerk this morning, it is ordered that the writ be dismissed as improvidently granted.
Justice O'Connor has filed a dissenting opinion in which I and Justice Kennedy have joined.