ADAMS v. ROBERTSON
In 1992, Charlie Frank Robertson filed a class action suit in an Alabama trial court, alleging that Liberty National Life Insurance Company had fraudulently encouraged its customers to exchange existing health insurance policies for new policies that, according to Robertson, provided less coverage for cancer treatment. The trial court appointed Robertson as class representative and certified the class pursuant to provisions of the Alabama Rules of Civil Procedure that do not give class members the right to exclude themselves from a class. The trial court then approved a settlement agreement that precluded class members from individually suing Liberty National for fraud based on its insurance policy exchange program. Guy E. Adams and other petitioners, who had objected to the settlement in the trial court, appealed. The Supreme Court of Alabama affirmed. The court's opinion only addressed state law issues and did not answer whether the certification and settlement of this class action suit violated the Due Process Clause of the Fourteenth Amendment because the class members were not afforded the right to opt out of the class or the settlement.
Does the Supreme Court of Alabama's approval of the certification and settlement of a class action lawsuit, whose class members were not afforded the right to opt out of the class or the settlement, violate the Due Process Clause of the Fourteenth Amendment?
Legal provision: Writ Improvidently Granted
In a per curiam opinion, the Court dismissed the writ of certiorari as improvidently granted. The Court noted that the Alabama Supreme Court did not expressly address the question on which certiorari was granted and that the petitioners had failed to establish that they had properly presented the issue to that court. Therefore, the Court concluded that it could not reach the question presented without unbalancing our dual system of government to "disturb the finality of state judgments on a federal ground that the state court did not have occasion to consider."
Argument of Norman E. Waldrop, Jr.
Chief Justice Rehnquist: We'll hear argument next in Number 95-1873, Guy Adams v. Charlie Frank Robertson.
Mr. Waldrop: Mr. Chief Justice, and may it please the Court:
There were 206,255 class members like petitioners who had fraud claims for substantial money damages as a result of Liberty National exchanging their cancer policies in August of 1986, beginning in August of 1986.
The money damage claims of these plaintiff class members were for fraudulently inflated premiums both as a result of the new policy being more expensive and the shifting of policyholders without their knowledge into higher, more expensive age bands.
Unknown Speaker: Mr. Waldrop, you are here before the Court asking this Court to decide a Federal due process issue, and whether the Federal Constitution requires an opt-out provision for plaintiffs in the class, is that right?
Mr. Waldrop: Yes, that's correct.
Unknown Speaker: And can you show us today or point to a place in the record in this case where that issue was raised by you before the Alabama supreme court?
Mr. Waldrop: Yes.
In our brief on page 21--
Unknown Speaker: The blue brief.
Mr. Waldrop: --The blue brief.
Unknown Speaker: At page 21.
Mr. Waldrop: Twenty-one, we start our discussion--
Unknown Speaker: Are you talking about the blue brief in this Court or in the other court?
Mr. Waldrop: --Oh, I'm sorry.
The Court... I thought Justice O'Connor was asking about the court... the Alabama--
Unknown Speaker: I'm just asking you what document you're referring to.
Mr. Waldrop: --Yes.
Unknown Speaker: Is there some document we can look at in the record here before us, or--
Mr. Waldrop: Well--
Unknown Speaker: --are you referring to something--
Mr. Waldrop: --I'm--
Unknown Speaker: --that isn't in the briefs but would be in the record?
Mr. Waldrop: --Well, I'm referring to the briefs to the Alabama supreme court.
Unknown Speaker: And would they now be in the record before this Court?
Mr. Waldrop: Yes.
Unknown Speaker: Okay, and can you tell us--
Mr. Waldrop: If you start on page 21, and then on page 23 of our brief we state that the minimum due process requires that class members be given the right to opt out, to exclude themselves from the class, and there we begin talking about the decision of Shutts v. Phillips Petroleum.
Unknown Speaker: --Well, what were the questions that you raised, the legal issues and the claims in the Alabama supreme court?
I thought there were three.
Mr. Waldrop: Well--
Unknown Speaker: You raised three issues.
Mr. Waldrop: --Yes, we did.
Unknown Speaker: And one of those issues was that because there was no opt-out provision for the class it violated the Alabama constitutional right to a jury trial.
Mr. Waldrop: We did argue that before the Alabama supreme court.
Unknown Speaker: Okay.
That was one issue that you raised.
Mr. Waldrop: That was one issue.
Unknown Speaker: And there were two others, but neither of them appeared to me on reading them to raise a Federal due process violation like the failure to have an opt-out provision.
Mr. Waldrop: Well, we felt like we raised it with sufficient clarity, because, for example, the respondents' brief, both class counsel in their very first... the class counsel raised it as one of their statement of issues, and then, when you would look at their brief, for example, in their summary of argument, their very first page starts out by saying the mandatory class and class action settlement on a no-opt-out basis was proper and does not violate constitutional guarantees.
Unknown Speaker: All right, but we do know, I guess, or will you concede that the Alabama supreme court did not address this issue.
Mr. Waldrop: Well--
Unknown Speaker: Do you, yes or no?
Mr. Waldrop: --Well, they--
Unknown Speaker: Did it or did it not?
You can answer that yes or no and then explain.
You can say that and then explain what you would like to explain.
Mr. Waldrop: --No, the Alabama supreme court did not directly address the no-out, opt-out issue in regard to due process.
Unknown Speaker: Right.
Mr. Waldrop: They did cite the Shutts opinion, but they cited it merely for the fact that a class action was a type of joinder.
We felt like it was raised with compelling clarity because class counsel responded to it for some 20 pages in their brief.
The Liberty National responded to it for some 29 pages in their brief.
So we felt like the issue was in fact thoroughly briefed to the Alabama supreme court, and they chose not to address it.
Unknown Speaker: And you did not raise it in any of your claimed issues before that court.
Mr. Waldrop: Well, we felt that we did because of our subheading on page 23 of our brief, when we stated that minimum due process required the right to opt out.
Unknown Speaker: So you refer us now to pages 21 and 23 of your brief to the Alabama supreme court.
Mr. Waldrop: Yes.
Unknown Speaker: Was your brief that specific?
When you recharacterized what was in it a moment ago I thought you said that you had claimed in there that the lack of opt-out did not violate any constitutional provision, and now you refer specifically to due process.
Did you say in the brief that it does not violate Fourteenth Amendment due process?
Mr. Waldrop: --Well, what we said--
Unknown Speaker: Well, were you that explicit?
Mr. Waldrop: --Well, we were explicit in saying it violated due process in citing the Shutts v. Phillips Petroleum case.
Unknown Speaker: No, did you expressly say, the lack of the opt-out does not violate Fourteenth Amendment due process?
I mean, was that statement contained--
Mr. Waldrop: Well--
Unknown Speaker: --in page 23?
I guess your position was that it would violate it.
Mr. Waldrop: --Exactly.
Unknown Speaker: Or vice versa.
Did you state that explicitly in your brief?
Mr. Waldrop: Well, we stated it in our head note, Justice Souter, when we said minimum due process requires an opt-out, and then we were discussing--
Unknown Speaker: But I mean, that... all I want to know is that statement, minimum due process requires an opt-out, was in your brief?
Mr. Waldrop: --Yes.
Unknown Speaker: Okay.
But it was in the brief consistently on pages 23 and 24, referring to the jurisdictional right of a plaintiff who is absent from the State.
Is that the argument you're making here?
I thought you were making quite a different argument.
Mr. Waldrop: Well, we're making the argument here that Shutts requires an opt-out.
Unknown Speaker: Yes, but you never raised that point.
That is to say, as I read every single sentence on pages 23 and 24 and 25, which I have in front of me, every time that you refer to it you talk about the rights.
You say, in Shutts the trial court asserted jurisdiction over nonresident class members in a class suit.
Then you quote it.
Then you go on to talk about, this action does not provide absent class members the opportunity to remove themselves.
The U.S. Supreme Court similarly held that the State wishes to bind an absent plaintiff, et cetera.
And I can't find anywhere here the quite different argument that you are now making, which I take it is an interesting question, about whether people who are within a State have a right to be opted out.
If you're making the argument about absent plaintiffs, I guess it was decided in Shutts, and you're certainly right about that one.
Mr. Waldrop: Well, two things, Justice Breyer.
First, the very last sentence we made on page 25, where we state that the United States Supreme Court clearly held that if a State wishes to bind an absent plaintiff, and our term, absent plaintiff, we believe in Shutts means residents and nonresidents.
Unknown Speaker: But it certainly didn't in Shutts.
Mr. Waldrop: Well, Mr. Chief Justice, we believe that Shutts v. Phillips Petroleum does, in fact, say that absent plaintiff in fact refers to residents and nonresidents.
Unknown Speaker: But it doesn't say that in the brief, and moreover, the clause you didn't quote says it's our view that it has to provide minimal procedural due process protection.
It requires absent class members be given the right to opt out, which is the point that you're making in this section of the brief, so where in the brief do you make the claim which you're now making that resident class members have to be given the right to opt out?
Mr. Waldrop: Well, our view is that on page 23, when we said in our head note about minimum due process, we were referring across the board.
Unknown Speaker: Is there a word in the brief anywhere that says it's across the board?
Mr. Waldrop: --Well, only the head note, Justice Breyer, on page 23.
We have... of course, in our petitioners we have residents and nonresidents in our group.
We believe that Shutts v. Phillips Petroleum in fact states that it applies to residents and nonresidents.
Unknown Speaker: Well, let's just suppose that we don't agree with you that it dealt with non-State residents and furthermore that we conclude that the question you want this Court to address on the Due Process Clause and an opt-out requirement for residents of the State was not cleanly presented by you below, and that the Alabama supreme court did not address it.
Now, let's say we get that far in our analysis.
Is that failure jurisdictional or is it simply a prudential concern we might have?
Mr. Waldrop: Well, we, of course, believe it would be a prudential concern, because we believe that the Alabama supreme court did not want to look at Shutts v. Phillips Petroleum because in our situation we had objectors who were nonresidents.
If you look at Shutts, and if you... the most narrow reading in Shutts would have declared at the very least there would have been opt-out rights granted to nonresidents.
For example, if I could refer you to the joint appendix in volume 1, on page 238 and 239 you would see, for example, at the trial court level there were notice of opt-outs filed, for example, at the... in the Barbour County Circuit Court and citing Phillips Petroleum v. Shutts.
There were also pleadings filed, for example on behalf of Mississippi residents saying that the fraud had occurred in Mississippi, and they were... and the policies were delivered in Mississippi.
So we believe that the reason that the Alabama supreme court did not, in fact, want to look at Shutts even in the most narrow sense is because opt-out rights would have surely had to be granted in that type of situation.
Unknown Speaker: How many members of this class were from out of Alabama?
Mr. Waldrop: Well, we have... the objectors, the petitioners are 543 people, and we have 30 petitioners who are nonresidents.
Unknown Speaker: But you have 400,000 in the class.
Mr. Waldrop: That's correct, and... well, as far as being nonresidents, that particular number was not available to us, although we know that these policies were sold in seven or eight States, so we know that the number has to be in the ten of thousands of nonresidents, because when the class was certified in Barbour County it was... it covered all the States, and the problem was, that was one of the problems in the Barbour County Circuit Court.
There was no discovery that was ever conducted in any of the other States.
Now, in regard to the type of money damages that the absent plaintiffs have, in addition to the fraudulently inflated premiums there were money damage claims in this case for the denial of certain medical benefits, for chemotherapy, radiation, and drugs outside the hospital.
There were money damage claims for mental anguish, and there were money damage claims for punitive damages.
Unknown Speaker: How many claims for money damages of this type have gone to judgment in Alabama?
Is there any case other than the McAllister one, where there was a thousand dollars compensatory, a million punitive?
Mr. Waldrop: --There were... there have been two cases that have gone to judgment.
There was the McAllisters case which we tried.
There... which was a thousand dollar... there was a thousand dollars in compensatory damages and a million dollars in punitive damages.
There was one other case that was tried that was a verdict for the defendant.
Unknown Speaker: But that was upset, wasn't it?
Oh, there was... it was actually tried.
There was one that was, pretrial, thrown out and then sent back.
Mr. Waldrop: Well, there were two cases that actually went to a jury verdict.
The McAllister case was then appealed to the Alabama supreme court, and it was affirmed on appeal.
Unknown Speaker: And in any of the individual cases that have been brought so far, have any of those sought anything other than monetary relief?
Mr. Waldrop: There were 32 cases outside the class when the class was certified on March 10, 1993.
To my knowledge, all of those cases that had been filed sought money damages.
Unknown Speaker: How about the two that were... there were two brought by class counsel.
Mr. Waldrop: Class counsel filed on behalf of five individual clients, and in each one of those there was a claim for money damages.
What we believe is... in regard to Shutts, where Shutts says that... and when it establishes that an absent plaintiff who has a claim for money damages is entitled to the due process right of opt out, what we believe is this.
In trying to determine when there is a claim for predominantly money damages, we believe that the test should be three things.
First is, we believe that the Court should look at the cause of action that is constitutionally protected.
In this case, it's a fraud cause of action.
What is the traditional remedy for a fraud cause of action?
Unknown Speaker: When we look at that, as we do after the fact in a case like this, should we bear in mind which of the fraud damages can be satisfied out of these special funds which have been set up?
Mr. Waldrop: --Well, Justice Souter, these special funds were declared to be punitive.
Unknown Speaker: Well, regardless of how they might otherwise be characterized, and I want to hear what you say, but is it at least a subject that we ought to look to?
Mr. Waldrop: We think the most unreliable thing to look to is what was settled.
Unknown Speaker: Okay, but how about the answer to my question?
Just yes or no.
Do we look to whether the fraud damages, or some of them, can be satisfied out of the funds that have been set up?
Do we consider that at all?
Mr. Waldrop: --No, sir.
Unknown Speaker: Okay.
You say that we look to the complaint as it was going in and not... that the settlement, it's the claims that were stated and given up and not the terms of the settlement.
Is that what your position is?
Mr. Waldrop: No, Justice Ginsburg.
What I was saying is, first we think you should look at what is the traditional remedy for the cause of action that's being asserted?
The traditional remedy... not looking at the complaint.
What is the traditional remedy for a--
Unknown Speaker: But how... I think that's up to what the individual wants.
One individual might say, I've been defrauded by this insurance company.
I want nothing more to do with this insurance company.
I want money in my pocket and I'll find another insurer.
Another plaintiff might say, well, I'd like to have my insurance contract reformed so it will get rid of the form... fraud, and so the claim for fraud, it can be regarded as neuter in that respect.
One individual might say, I've got a good common law claim for money for fraud, and another one could say, I like this contract, some things about it, so I just want it to be reformed to get rid of the fraud.
So how can you say that just the fraud inevitably is money?
It could be whatever the individual wants, right?
Mr. Waldrop: --Well, no in this sense, that the remedy... the Alabama courts have held in regard to fraud in regard to an insurance policy, they have held numerous times that you can affirm the contract and sue for money damages, or rescind the contract and sue for money damages.
That is what has been traditionally held is the remedy.
The second thing we think that the Court should look at is, what is the absent plaintiff being asked to give up?
What is the predominant thing the absent plaintiff... in this case, the predominant thing is money damages.
Unknown Speaker: Well, in particular, punitive damages.
Mr. Waldrop: In particular.
Unknown Speaker: Now, what is your response to the argument from the other side that punitive damages are not substantively anybody's entitlement, and it's really up to the State to decide the conditions in which they may be available, and if the State class action rules don't make them available, that's certainly within the power of the State to decide?
What is your response to that?
Mr. Waldrop: Well, Alabama law appears to us to be in conflict.
Henderson v. Alabama Power Company, that struck down a $250,000 legislative cap on punitive damages because it violated the right to trial by jury under the Alabama constitution, so they in fact said that the cause of action was constitutionally protected.
However, in another case--
Unknown Speaker: But that's a question of State law, it's not a question of Federal due process, isn't it?
Mr. Waldrop: --Well--
Unknown Speaker: Even on your own argument.
Isn't that what you just said?
Mr. Waldrop: --Well--
Unknown Speaker: It's just a question of State law whether it be constitutional or statutory?
Mr. Waldrop: --Well, no, sir, Justice Souter.
I believe that once you're given the cause of action and it's vested, as in this case, then you are entitled to due process in the manner--
Unknown Speaker: Who is it vested in?
Mr. Waldrop: --It may be taken away from--
Unknown Speaker: You were just talking about the punitive side of it.
I understand the compensatory side, that every member of the class relinquished that, but the punitive, you were about to say, I think, that there's something else going on in Alabama, that there's some... from the courts coming... that not all 400,000 people are going to get a million dollars punitive damages.
You were telling us about some change in Alabama--
Mr. Waldrop: --Well, all... what I was saying is, in Johnson v. Life of Georgia, in response to Justice Souter, was in that case they said that once you got the award they could take half of it away and give it to the State, and so I really think Alabama law there is saying that constitutionally you have the cause of action, and it's discretionary with the jury as to whether or not you can... whether or not you get punitive damages.
But once you get the award, it can be taken away.
Unknown Speaker: --Well, I wish I knew more about Alabama law, and one reason I don't is because the Alabama court never addressed any of this stuff.
Any... I mean, you know, I'm coming back to the jurisdictional point.
Even if it is, as you say, prudential, and I guess that depends on the terms of the 1257(a)--
Mr. Waldrop: Well--
Unknown Speaker: --which requires that the issue... final judgments or decrees rendered by the highest court of a State in which a decision could be had may be reviewed by the Supreme Court by writ of certiorari where the validity of a statute of any State is drawn in question on the ground of its being repugnant, and I guess that... the issue is whether that means is drawn in question here in the petition for cert, or was drawn in question in the State court.
Mr. Waldrop: --Well--
Unknown Speaker: Is that the distinction?
Mr. Waldrop: --Well, yes.
Unknown Speaker: Let's assume it means in the State court, and therefore let's assume that our cases that have dismissed some of these cases are all based on discretionary judgments.
Why isn't a valid basis for answering that discretion that I have no idea what the State courts think of these issues that you're raising, and they might have interpreted their State statute differently had they seen these issues, had they addressed them, and had they seen Federal constitutional problems?
Isn't that a good prudential reason for us not to jump into the mess?
Mr. Waldrop: --No, sir, because we felt that this issue was, in fact... we had been raising the opt-out from the very beginning.
Unknown Speaker: I think Justice Scalia's question is, assuming that we were to decide that you did not properly raise it, and the question then is, is it jurisdictional so we must dismiss this petition, or is it prudential, and he says is it a good prudential reason that you did fail to raise the question before the supreme court of Alabama?
Mr. Waldrop: Well, we believe certainly that it is... it is not jurisdictional.
We believe that it was, in fact--
Unknown Speaker: Mr. Waldrop, it's an important question.
Would it not be better... since you admit that you've just got snippets in your brief.
You don't have it in the questions presented... to have the Alabama court face this important constitutional question squarely so that we could then be a court of review, instead of saying the Alabama courts didn't touch this.
Maybe you raised it, but hardly in the clearest way.
Mr. Waldrop: --Well, Justice Ginsburg, in the class counsel's brief they in fact stated it as an issue presented, and so we believe--
Unknown Speaker: Which brief are we talking about now?
Mr. Waldrop: --Well, we're talking about the brief, Appellee Charlie Frank Robinson.
If you will look on page 11 of their brief--
Unknown Speaker: A brief in the Alabama supreme court?
Mr. Waldrop: --Yes.
If you will look at the brief of class counsel on page 11, issues presented for review, issue 4, whether an opt-out provision is required by the due process and our trial-by-a-jury guarantees of the U.S. and Alabama Constitution--
Unknown Speaker: Isn't that referring... I've already asked this--
--I don't know what your answer is, though.
It's referring to... there seem to be two claims you're making.
One is, Alabama court, if you characterize this as anything other than a money claim you're going to run afoul of the United States Constitution in respect to absent plaintiffs.
I read that as what you were talking about on pages 23 and 24.
Then I found another claim on 21 On 21 you say, look, given these absent plaintiffs out there who have a claim under Shutts for due process, don't, please, characterize this as if it were nonmoney.
Now, maybe that's the same argument, or maybe it's two, but I don't see anything at all, not a word, that seeks to generalize the Shutts claim to the problem of the resident non... plaintiff, which is a totally different problem, or quite a different problem.
Now, what is your response to that?
I'm not... I'm... you'd say maybe I'm wrong, or you'd say it doesn't matter.
It has to be one of those two.
Mr. Waldrop: --Well, Justice Breyer, all I can say is that we felt like, starting on page 21, that we had raised it, and we felt like we had made that argument, particularly by our head note.
It is absolutely true that we argued the right to trial by jury to the Alabama supreme court very strongly, because that is something that they look at.
We felt that the Alabama supreme court would be much more interested in that issue, but we did, in fact, raise the no-opt-out, and we felt that we had raised that issue.
Unknown Speaker: May I ask you one question on the merits, which I... which I... how we get to this.
It just... is this your view... I'm trying to understand how this works, but suppose that we have a defendant who is being asked by different groups of plaintiffs to do inconsistent things, the classic case where you don't get an opt-out, and each of those plaintiffs adds a clause to his complaint saying, in addition I'd like punitive damages.
What's supposed to happen then?
In your view, is the addition of the words punitive damages... if you go to each of the plaintiffs, by the way, and say is it important to you, they say, sure is.
It might be a lot of money.
So is the simple addition of the word, punitive damages to a class action that plainly is not an opt-out class suddenly converted, making it an opt-out class, or making it a no-opt-out class?
Mr. Waldrop: --Well, yes, and for this reason in Alabama it would be an unliquidated claim, and it would... that would be the case everywhere, but secondly in Alabama if the settlement fund in the class was sufficient to punish the defendant, then opting out would serve you no good under Green Oil v. Hornsby, because if you opted out, if there was already a sufficient fund, the Green Oil curtain would come down in Alabama.
So we believe that under Alabama law that punitive damages in a class action, you should have the opt-out right.
I mean, I'm aware from other jurisdictions--
Unknown Speaker: Well, isn't it true that it doesn't have to be all one thing or another?
You want to have a class for punitive damages, but then you're... doesn't Alabama, in addition to having part of the award go to the State, have some sense that you don't punish the same defendant 5,000 times?
Is there none of that in Alabama case law?
Mr. Waldrop: --There is in Green Oil, v. Hornsby.
One of the things that you look at is successive punitive damage awards.
In this particular case, for example, in the settlement 99.9 percent of the absent plaintiffs don't share in the funds for punitive damages.
The respondents make the argument about punitive damages, but in this case 99 percent of them are not going to share at all in anything to do with punitive damages.
They traded their punitive damages claims for nothing.
So in this case opting out in regard to punitive damages would clearly be the thing to do, because they were traded for nothing, and so that is the reason in this particular case that, as we say, they all had money damages, compensatory, they had money damages, punitive damages.
If I might reserve the remaining time.
Unknown Speaker: Very well, Mr. Waldrop.
Mr. Roberts, we'll hear from you.
Justice Roberts: Thank you, Mr. Chief Justice, and may it please the Court:
I would like to begin with the jurisdictional issue.
Even in the section of the brief that the petitioners cited that was under the heading claiming a right to a jury trial under the Alabama constitution, Alabama law requires a statement of issues that are to be presented to the supreme court and limits the issues to those that are stated.
The Federal Due Process Clause issue is not in those statement of issues.
Unknown Speaker: You mean a statement of issue at the beginning of the brief, Mr. Roberts?
Justice Roberts: Yes, Your Honor, and there was also a subheading to make it clear what the constitutional issue was.
Unknown Speaker: Do you know, Mr. Roberts, what happens if the Alabama supreme court sees a Federal constitutional issue when the briefs have been presented to them in the fashion you describe, and the Federal constitutional issue is not... what does the Alabama supreme court do then, do you know?
Justice Roberts: I don't know as a matter of practice.
If it went on to address it, of course, then it would be--
Unknown Speaker: Of course.
Justice Roberts: --Could be presented here, but it quite clearly did not do that.
Unknown Speaker: I take it under their rules they're free to go ahead and address it if they see a Federal constitutional issue.
Justice Roberts: Yes, Your Honor, which I think partly explains the reason it was in the respondent's briefs before the Alabama supreme court, because it was decided by the trial court in Alabama, and since we went ahead and addressed it because it certainly couid have been addressed by the Alabama supreme court, but that doesn't cure the appellant's failure to raise it properly before the Alabama supreme court.
Unknown Speaker: Did... you did bring up Ticor Title I think, didn't you, in your... in a long footnote in your brief?
Justice Roberts: Yes.
I'm not disputing that we addressed the Federal due process issues in our brief.
I'm explaining that we did so--
Unknown Speaker: Yes.
Justice Roberts: --because the trial court did, because that doesn't cure... and the Alabama supreme court is certainly free to say, under our rules we're not addressing any such question because we don't see it presented.
Unknown Speaker: Mr. Roberts, I think the respond... neither... one respondent made no response to the petition of certiorari.
An individual respondent did and did not make any jurisdictional point.
Justice Roberts: Yes.
That was a--
Unknown Speaker: And so what do we do about that?
Justice Roberts: --That was a mistake, certainly, not to file the opposition--
Unknown Speaker: Oh, indeed.
Justice Roberts: --and not to mention it in the one that was filed.
We think, however, that that doesn't waive the objection because it's jurisdictional under Rule--
Unknown Speaker: Could you address that question, whether it is jurisdictional or prudential?
This Court has not quite solved that, has it, as yet?
Justice Roberts: --Well, it... it did, and then it sort of stepped back away from it.
I thought it was decided in 1836 in Justice Story's opinion in Crowell v. Randell.
More recent opinions have said that it's unsettled, it may be prudential, and the Court's been careful not to decide that question, usually saying the prudential reasons are sufficient for us not to find a waiver, and we think that's the case here as well.
The most obvious one is the federalism concerns.
If this Court were to address the Federal due process issue without the Alabama supreme court having been afforded an opportunity to do so, it will be reversing a State judgment when, for example, the Alabama supreme court may have adopted a different construction of the rule that might have avoided the Federal issue, or it may have... or at least it should be given the opportunity to address it in the first instance.
Unknown Speaker: A prudential reason on the other side, on the other hand, Mr. Roberts, is that our own processes make it important that counse do raise these problems at the outset, and the fact that it wasn't raised in the brief in opposition frankly induces me to say that as a prudential matter, if we're going to be serious about our demands that these issues be presented in the BIO and prevent the waste of our time, we should say whatever prudential considerations there are on the other side has been washed out--
Justice Roberts: Well--
Unknown Speaker: --by the failure to raise it in a timely fashion.
Justice Roberts: --I don't think the federalism concerns and the Alabama supreme court's opportunity to address the validity of its rules in the first instance under the Federal Constitution should suffer simply because of a mistake by counsel in not filing an opposition to certiorari.
Unknown Speaker: Well, Arizona can, you know, after our opinion on the merits, should we find--
I'm sorry, Alabama.
Arizona has enough troubles.
Should we find that it is not jurisdictional the State can proceed to patch up its law to meet any objections that our opinion might have.
I mean, I--
Justice Roberts: It's... well, it's also a concern for this Court in its decisional processes just to make sure another reason, prudential, for having a requirement that the issue be raised is that a full record be developed on that.
We don't have that here.
There are a lot of issues in which there's disagreement about the record, a lot of things we don't know about with respect to some of these particular issues because it wasn't raised below.
I think that's a concern that the Court ought to weigh at least as heavily as incentives to encourage the filings of proper briefs.
Unknown Speaker: --Well, it was raised at the trial level.
Justice Roberts: It was raised at the trial level, but we don't know precisely... and again, the Alabama supreme court could have a different construction of its rule, and the claim has evolved or changed as it's developed.
To the extent it now focuses on nonresidents, we don't know who the nonresidents are from the record.
We don't know what their contacts with the State of Alabama are.
For example, we don't know that... whether they moved after getting the insurance policy or not, so a fuller record would have been ensured, I think, if the issue had--
Unknown Speaker: Mr. Roberts, at least as the question was presented to this Court, and I think as Mr. Waldrop stated it in Court this morning, they are not raising opt out just for nonresidents.
I thought the statement of their question presented in their cert petition was that opt out is the right of any class member where the relief relinquished is money damages.
Justice Roberts: --Yes.
I agree that that is the question before this Court.
However, in their reply brief and in their main brief as well they seem to also be arguing rights of nonresidents, questions I don't think are before the Court, again issues that could have been clarified if the issue had been raised before the Alabama supreme court and decided by that court.
Unknown Speaker: What is the argument that it would be jurisdictional?
Justice Roberts: I think it's based primarily on... well, a number of things.
First of all, Crowell v. Randell and then the recodification of that statute after that opinion is on the books, a federalism concern that this Court should not... that the authority that this Court has to review a State court judgment rests on the assumption that it contains within it a decision on an issue of Federal law that may be erroneous.
Now, if it does not because the highest court in the State has not been afforded the opportunity to address that question, then that authority is not present.
Unknown Speaker: Mr. Roberts, do you think Michigan v. Long cuts either way on this issue?
Justice Roberts: No, I don't.
That's in terms of how you analyze what may be an ambiguous state decision, but here we don't have that.
Unknown Speaker: Because they clearly refer to the Alabama constitution here.
Justice Roberts: They relied only on the Alabama--
Unknown Speaker: So you'd say if Michigan v. Long is implicated it was complied with.
Justice Roberts: --Yes.
If there were some confusion about what the Alabama supreme court decided Michigan v. Long would cut the other way.
Unknown Speaker: We sometimes grant, vacate, and remand in light of new congressional statutes, in light of the decisions of this Court.
I'm not sure, if we say that this is jurisdictional, that that wouldn't confine our authority in those cases, if we say it's jurisdictional if the State hasn't even raised it because there's good reason for it not to have done so.
Justice Roberts: Well, the State courts, of course, can always address the question in another case, the next case that comes along.
I don't think this is quite... I think there's more flexibility in the Federal system.
The Alabama supreme court is not an inferior court with respect to this Court, so that you could say, take a look at this a little more closely or something, as you may with respect to one of the Federal circuit courts.
Unknown Speaker: I don't think you understood Justice Kennedy's point.
I think he's saying that our GVR practice assumes that we have jurisdiction when we remand for the State court to consider a Federal question that it didn't consider, but if this is a jurisdictional statute, the fact that the State court didn't consider it means that we don't have the case in front of us.
We have no power to vacate the judgment of the State--
--We can't even GVR.
--because it's not in front of us.
Justice Roberts: I'm not familiar precisely with the practice in the cases you're thinking of and whether they apply in the State court system as well as with respect to Federal courts, but I would agree that if there's no... if it's not a question of, there's some confusion, you don't know if you addressed it or not, then yes, if it's jurisdictional there would not be authority--
Unknown Speaker: Well, I'm not sure that's consistent with the Court's practice prior to Michigan v. Long.
It frequently GVR'd when it was uncertain whether it had jurisdiction--
Justice Roberts: --Oh--
Unknown Speaker: --and I think it would have the power to do that even if the ultimate decision is there's no jurisdiction.
Justice Roberts: --I... yes, if the basis for action is that the Court is uncertain whether it had jurisdiction, but if it is clear that it does not because there... it's not a question of an ambiguous--
Unknown Speaker: But on the other side of the coin there, Mr. Roberts, at least in Newsom v. Smyth which you cite, and other cases, I think the practice of the Court has been to DIG, to D-I... dismiss as improvidently granted rather than to dismiss for want of jurisdiction when this problem arises.
Justice Roberts: --Yes.
I don't think the Court precisely distinguishes, for example, when it denies certiorari whether it's doing so--
Unknown Speaker: Correct.
It could do it on jurisdictional or other grounds, but at least they have... that practice has left open the possibility that we might have jurisdiction.
Justice Roberts: --And it is... and it was expressly recognized as an open issue.
Unknown Speaker: Yes.
Justice Roberts: --whether it was jurisdictional or prudential.
Unknown Speaker: Correct.
Justice Roberts: My point is simply that one, we think it's jurisdictional for the... at least for the reasons given by Justice Story, and if not, the prudential reasons cut strongly against deciding a Federal Constitution, particularly concerning the validity of State court rules, when the State supreme court has not had an opportunity to address that question.
Turning to the merits, petitioners' property interest, their choses in action, typically may be resolved in an individual lawsuit brought at a time and place of the plaintiff's own choosing, but nothing in the Federal Constitution prevents a State for good and sufficient reasons from providing that in certain circumstances they must be resolved in a different manner through another remedial mechanism.
And when the State does that, the question is whether the procedural protections provided in that different mechanism comport with due process, not whether the petitioners, the prospective plaintiffs, have some overriding right to avoid the chosen procedure and opt for an individual lawsuit instead.
Unknown Speaker: Mr. Roberts, if that's what Alabama had done... and it sounds to me like things States do all the time.
They take away tort remedies and give you Workers Compensation instead.
But that's not what Alabama did.
Alabama said, Edith McAllister, you get a thousand dollars in your pocket and a million in compensatory, and there are 30 other suits like that.
Indeed, this class counsel brought two such suits.
So that seems to me very odd that Alabama should say, we need to have everybody treated alike in this pot, but not those 30 suits, including two that class counsel filed for straight money.
That's what mixes me up about this.
How can Alabama say it must be a unitary thing, and yet the Alabama supreme court very shortly before it decided this case affirmed that award?
Justice Roberts: The procedure, the mandatory class action, depends upon a representative plaintiff coming in and invoking it.
In Mrs. McAllister's case, that was prior to the institution of this class action.
Unknown Speaker: Well, at least the two that were begun the day before this complaint was filed, shouldn't they have... shouldn't Alabama have said, okay, now we have... we have a representative action going.
We ought to dismiss all those individual actions.
Justice Roberts: Well, that's in fact what happened with those suits.
They were dismissed so that the plaintiffs in those suits became members of the class.
Unknown Speaker: So there are no individual suits going forward now?
Justice Roberts: There... none going forward now.
There was one, the Peel suit, where the plaintiff refused to have the suit dismissed and the counsel disassociated himself from carrying that forward.
The class action mechanism, once it's invoked it doesn't go back and say, now, last year one of these claims was raised, and start at the beginning, but it says from now on we're going to resolve... the claims that have not already started, haven't already left the gate, we're going to resolve them in one proceeding.
Unknown Speaker: Now, I can understand saying that, but it does seem to me that class counsel would be taking inconsistent positions if at the same time that he's putting people, even people who don't want to be in this pot, there and saying, but I have my private clients and I'm taking care of them.
Justice Roberts: The concern in each of those cases was that... the particular members in the two suits that you're referring to were former officers of Liberty National.
There was a concern that they may not fit the definition of the class, and the individual suits were filed.
When it became clear that they would be covered by the class as certified, the cases were dismissed and they recovered as members of the class and no more.
Now, once Alabama says that from now on, prior cases... the issue hadn't come up, but now it's come up we're going to resolve your claims in the procedural device of a mandatory class action, the question is are the procedural protections in that mandatory class action sufficient to satisfy due process, not whether there's an overriding right to file an individual lawsuit, and here there plainly were in two complementary and overlapping respects.
Individual class members received written notice and an opportunity to be heard before their choses in action were resolved.
That was individual written notice.
The opportunity to be heard was in court before a judge, with counsel, including the right to examine witnesses, present expert witnesses, and other evidence.
It was a right that the petitioners fully availed themselves of in this case.
They had their own day in court.
It was January 20, 21, and 24, 1994.
Unknown Speaker: Mr. Roberts, I don't think anybody is questioning that there was notice and there was an opportunity to come in, but what does seem strange is a person who says, I've got this insurance policy that I acquired because the company was fraudulent.
I don't want to have anything to do with that company.
I want to take my money and buy another policy.
And then in this class suit this person is being told, you're going to get a better policy from the same company and you must stay with them.
There's something unseemly about that, isn't there?
Justice Roberts: Well, I can certainly understand that reaction, but the question is not whether any individual class member had that reaction, but what was appropriate relief for the class as a whole.
The district court, the trial court found that the policy that was given in the settlement was not available anywhere else in the market.
Unknown Speaker: So we have a new rule now of Federal... well, this is State procedure... the greatest good for the greatest number, and the fact that some people who would have had perfectly good individual money claims, that's too bad.
Justice Roberts: No.
To deal with the last part of your question first, they did not have perfectly good money claims.
The trial court found that these claims for higher premiums were largely speculative because the policies that they received by and large with rare exceptions provided more total benefits.
They looked at the McAllister case.
The evidence developed in this case demonstrated that for the vast majority of insureds the new policies were better.
Unknown Speaker: But Mr. Roberts, the trial court did not have the Alabama supreme court's affirmance in the McAllister case, and that's--
Justice Roberts: It did not.
Unknown Speaker: --Now, at that point, Liberty National has been found fraudulent.
That issue was raised, litigated, and decided in the McAllister case.
Wouldn't that be preclusive against Liberty Mutual?
Let's forget about this class action going on.
Fraud in a classic action at law, raised, litigated, and decided, the insurance company loses.
Isn't policyholder number 2 and number 3 entitled to use issue preclusion offensively so that--
Justice Roberts: No, not in this instance, because--
Unknown Speaker: --Why not?
Justice Roberts: --The evidentiary record that was developed in the subsequent case was quite different, and the allegations were broader in the second case.
Unknown Speaker: I'm not talking about your case.
I'm talking about, just look at what Edith McAllister won, a thousand dollars compensatory, a million punitive.
That was based on the litigated determination of fraud.
Now, couldn't person number 2 say, I like that.
In fact, I don't even need the punitives.
Just give me the thousand dollars.
Justice Roberts: No.
The evidence of record on which Mrs. McAllister relied involved specific interactions with the agent, and the evidentiary record that came in a later case was the broader question of the policy program that the agents were operating under, and it was a different evidentiary record.
It demonstrated... the trial court was aware of the McAllister verdict.
It... and the supreme court of Alabama was aware of its affirmance in McAllister when it decided this case, and the evidence demonstrated that in the vast majority of cases the higher premiums were justified because there were more benefits.
Unknown Speaker: But each individual in this $400,000 class didn't have the opportunity that Edith McAllister had to show what their situation was, what the agent said to them.
Justice Roberts: No, and they never would.
There's no way that the 400,00 of them are all going to get a million dollars in punitive damages.
That's the justification, one of the justifications--
Unknown Speaker: My hypothetical was, they're modest people.
They just want a thousand dollars.
Justice Roberts: --The question, when you're trying to decide whether the relief under the class that the class is given is equitable and monetary is, what is the appropriate relief for the class as a whole?
The reason these people took out cancer insurance policies was not to get a thousand dollars, it was to get coverage, and the way you get coverage is to reform the policies to give them what they say they should have, the benefits under the old policy, and to compensate further, give them also the new benefits under the new policies.
They got, as it was said, the best of both worlds, something they couldn't get anywhere else.
That's the most appropriate relief, because the complaint is, you took away our coverage.
The answer is, give it back.
Not, here's a thousand dollars.
That doesn't give them the coverage they wanted.
That's why I think it was appropriate--
Unknown Speaker: So it is the idea of the greatest good for the greatest number.
Now, I understand when there's a finite sum and that's all that there is, and you have to find some way of equitably distributing it.
I also understand when somebody has to conduct themselves in a certain way, and it's got to be one way and it can't be two ways.
But this one can be... it could be everybody just sues for damages.
Justice Roberts: --Oh, well, with respect, the circuit court decided that it couldn't be.
If everybody just sued for damages the court found that what you would have is a race to the courthouse among 400,000 people with essentially similar claims, a lucky few would get the punitive damages windfalls, the vast majority would be left with nothing.
Unknown Speaker: So what else is new?
That often happens.
Justice Roberts: --Well, that doesn't mean it's the most--
Unknown Speaker: That most often happened under common law.
Justice Roberts: --And the State of Alabama can decide that we think it would be better to bring everybody together in one proceeding and--
Unknown Speaker: Well, that's exactly the issue, whether it can.
Justice Roberts: --and the question... this is a due process claim, not whether the settlement was fair, although we think it was fair, but the question is, were petitioners afforded due process before their claims were resolved in this manner.
Unknown Speaker: Well, may I ask in that connection, going back to Justice Ginsburg's conclusion that it's the greatest good for greatest number analysis, what would have happened if Edith McAllister had not sued first and had in fact objected to a class certification covering her?
What would the result have been?
Justice Roberts: Her objection that she had received individual notice of the proposed settlement--
Unknown Speaker: Could she have gotten out of the class?
Justice Roberts: --No.
There... it's a mandatory class and no opt-out.
Unknown Speaker: So that despite the peculiarity of her facts, which I thought you were telling us justified the special or the separate treatment, if her timing had been different she would have been in the same boat with everybody else and those special facts, in fact, would not have justified anything but the greatest good for the greatest number.
Justice Roberts: --They were covered by the release in the settlement.
I don't think that necessarily--
Unknown Speaker: No, but if she didn't... that's the... yes, but--
--She gave away something that other people didn't have to give away.
Justice Roberts: --No--
Unknown Speaker: And doesn't this go to the accuracy of the definition of the class?
If there are people like McAllister who have peculiar claims, can you chuck them in with everybody else and say, you know--
Justice Roberts: --I didn't mean to suggest--
Unknown Speaker: --we're treating you all alike?
Justice Roberts: --I didn't mean to suggest that they were peculiar claims.
They were the claims of the class, but the evidentiary record focused on her particular interaction and therefore would not, I think, be a basis for preclusive effects--
Unknown Speaker: I see.
Justice Roberts: --on the class claims.
The point is not--
Unknown Speaker: But the ultimate fraud and the ultimate damages, those were common.
McAllister in those respects were in the... was in the same boat?
Justice Roberts: --Absolutely.
I wanted... I didn't mean to seem to agree that it's a question of the greatest good for the greatest number.
It's a much more multifaceted inquiry into the fairness of the settlement.
Here, what the settlement did, for example--
Unknown Speaker: The fairness of the settlement really hasn't been raised by these petitioners, has it?
Justice Roberts: --No, but it is... their attack on its fairness seems to be the main basis on which their claiming a due process violation, and again, I agree--
Unknown Speaker: I thought that the main basis, and Mr. Waldrop confirmed this, was that they can't be made to relinquish a claim for money damages without an opportunity to opt out.
Justice Roberts: --If... that is their claim, and it has no basis.
Claims for money damages are frequently resolved in some fashion other than an individual lawsuit.
Your Honor mentioned Worker's Compensation, a good example.
You may have a chose in action against someone.
If they declare bankruptcy you don't get an individual lawsuit, and what Alabama has done here, along with 39 other States and the Federal system, is say one situation in which your chose in action, normally resolvable in an individual lawsuit, may be resolved in some other manner is when the prerequisites for a mandatory class--
Unknown Speaker: That may be different in Alabama, because this is all rules, and the Worker's Compensation and the other things we've been talking about, bankruptcy, these are highly statutory.
Alabama does copy to considerable extent Federal Rule 23, and one thing we know about the Federal rules is that the Federal courts are not authorized to write statutes.
They can write rules of procedure.
So when I brought up the Worker's Compensation model I had that in mind, that that's a substantive legislative judgment, and I think there would be a serious question if you would interpret a Federal rule to take away from somebody a good damage action.
Justice Roberts: --The issue is whether the procedure that they've been provided under these rules comports with due process.
There's no overriding right to assert under the Federal Constitution that your chose in action must be resolved in State court.
Unknown Speaker: Would your answer be different if we were talking just about the Rules Enabling Act?
Let's just switch for a moment, because Alabama does seem to think it's instructive, to the Federal rule, and the Federal rule says that... the Rules Enabling Act says that such rules, rules of procedure, shall not abridge and... or modify any substantive right.
Justice Roberts: I don't think this is abridging or modifying a substantive right.
It's setting forth another procedural mechanism to resolve the chose in action.
Unknown Speaker: What if the State of Alabama had simply removed... had eliminated the action for fraud against insurance companies?
Could it have done that?
Justice Roberts: Yes.
Unknown Speaker: So if it can do that, a fortiori it can do this?
Justice Roberts: --I don't want to make a bitter-with-the-sweet argument because that doesn't work in procedural due process, so I don't think that that lesser--
Unknown Speaker: Well, it would really convert this into something other than a procedural due process case.
Justice Roberts: --Yes, and the point I want to emphasize is that here, as far as procedural due process goes they had notice and opportunity to be heard, and the complementary protections of the class action rules.
Unknown Speaker: And you would say, Mr. Roberts, that the State could abolish that cause of action for fraud not only by legislation but by judicial decision if it chooses to operate that way, and that that wouldn't violate due process.
Justice Roberts: Certainly it would not violate due process.
Unknown Speaker: Well, certainly there's nothing in the Federal Constitution that requires Alabama to distribute the powers of government the same way that the Federal Government does.
The, you know, judiciary, legislative--
Justice Roberts: Separation of powers rules don't apply to the--
Unknown Speaker: --Yes.
The only point was that Alabama, since it seems to try to follow Federal Rule 23, might be influenced by how the Federal development went.
There would be a problem.
Justice Roberts: --I think your question highlights again a reason that... a prudential reason the Court shouldn't reach out and decide the issue, because we don't know how they would have addressed it in this instance because it wasn't presented to them.
There were two different regimes at issue here.
Petitioner's view, even though its choses in action were shared by 400,000 other people, that each one has a right to an individual lawsuit even though the courts found it would lead to a race of the courthouse, windfalls for a few, and nothing for the vast majority, or the rule that Alabama has adopted, which is when the two requisites for mandatory treatment are met we're going to bring everybody together, we're going to resolve all the claims in this one instance, and give the people who... the class members individual notice and opportunity to object, and only have this issue come up after we've determined that they're adequately represented in a class action.
I think it's the former system that is subject to a serious due process challenge, not the latter one that Alabama adopted and that the Alabama supreme court affirmed in this case.
Unknown Speaker: Thank you, Mr. Roberts.
Mr. Waldrop, you have 2 minutes remaining.
Mr. Waldrop: Well, we believe that a cause of action, a fraud cause of action, this Court had already said in Mullane v. Central Hanover Bank back in 1950 that a cause of action is a constitutionally protected right.
In... so in this case, once... and under Alabama law once you have... a cause of action for fraud is vested, it cannot be taken away.
Secondly, this settlement perpetuated the fraud, because the various class members had to continue to pay premiums if they were to get any benefit out of the settlement at all.
Lastly, in regard to Shutts, we believe that if Shutts in fact was only a territorial jurisdictional case, which we believe that it was not, we believe that fundamentally it should apply across the board for two reasons.
One, there's no fundamental difference between a nonresident and a resident.
If you're going to put them together for money damages on the front end for certification... that is, they have the same unity, cohesiveness, typicality, and commonality on the front end... then on the back end you can't make a difference as to whether they should have a right to opt out or not, because that would be arbitrary if you're going to put them together on the front end in regard to money damages.
Secondly, in regard to Rule (c)(2) of the Federal rules as well as the Alabama rules, in regard to (b)(3) actions, which are normal money damages, it is a mandatory notice that the... that you have notice and opportunity to be heard and the right to opt out.
The advisory comments to the Federal rule says that that has constitutional underpinnings.
In its cites... Mullane, and it cites Hansberry v. Lee.
In fact, this Court in 1974, in the Eisen case, cited those advisory comments with approval, so we think that if Shutts was only a territorial jurisdictional case, which we don't believe that it was, because when the court in footnote number 3 in Shutts said that we're going to limit our holding--
Chief Justice Rehnquist: Thank you, Mr. Waldrop.
The case is submitted.
Mr. Waldrop: --Thank you.
Unknown Speaker: The honorable court is now adjourned until tomorrow at ten o'clock.