Collateral Attacks on Class Resolutions.

Author:Burt, Frank

In 1940, Hansberry v. Lee, 311 U.S. 32 (1940), established the basic constitutional foundation for the class action device: Members of a class who are not parties to the litigation may only be bound by a judgment in the litigation "where they are in fact adequately represented" by class members who are parties to the litigation. (1) Although no court has definitively established when representation is "adequate," the U.S. Supreme Court stated that a "selection of representatives for purposes of litigation, whose substantial interests are not necessarily or even probably the same as those whom they are deemed to represent, does not afford that protection to absent parties which due process requires." (2) The Hansberry court held that class action judgments will only be valid when "the interests of those not joined are of the same class as the interests of those who are, and where it is considered that the latter fairly represent the former in the prosecution of the litigation." (3) Forty-five years later, in Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985), the Supreme Court identified three basic due process elements for use of the class device: 1) The class member "must receive notice plus an opportunity to be heard and participate in the litigation"; 2) the class member must receive "an opportunity to remove himself from the class"; and 3) the named plaintiff must "at all times adequately represent the interests of the absent class members." (4)

As the class device has evolved, courts have struggled to balance the

interests in finality of class judgments with the due process right of every putative class member to their individual day in court. After Shutts, courts have disagreed whether challenges based on the basic due process elements may be raised by collateral attack in a subsequent proceeding and, if so, how. (5) Most often arising in the settlement context, many courts have found that a judicial finding of adequate representation during a fairness hearing in the first proceeding precludes a later collateral attack on the class judgment in a second proceeding. This is consistent with the tenet that courts "do not, of course, judge the propriety of a class certification by hindsight." (6) But not all courts agree, with some allowing searching collateral attacks based on Shutts' "at all times" language, (7) unless the challenging class member had been put "on notice" of the alleged "inadequacy" during the class proceeding. (8) These courts assert that the "at all times" phrase from Shutts means that the "duty to represent absent class members adequately is a continuing one." (9) This tension in approach culminated in a series of decisions attempting to define adequate representation, the most seminal of which was the Ninth Circuit opinion (albeit divided) in Epstein v. MCA, Inc., 179 F.3d 641 (9th Cir. 1999), (10) limiting the scope of an individual class member's ability to collaterally attack a judgment.

Since Epstein, courts have issued diverging opinions on whether finality in class judgments trumps allowing class members broad latitude to collaterally attack judgments. The issue also has attracted considerable academic consideration. (11) The question is whether the collateral court is constrained to a limited review, considering only whether the class action court utilized adequate procedures to assure itself that the Shutts due process requirements had been met, or instead, whether it may engage in a broader, merits-based due process review. Although a majority of courts have answered this question by providing for limited collateral review, practitioners should take precautions to protect their clients' class action resolutions from collateral attack in the courts that allow a more probing due process review.

Adequate Representation

Adequate representation of absent class members is perhaps the most important due process requirement in Shutts. (12) Adequate representation does not exist unless there were either "special procedures to protect the nonparties' interests" or "an understanding by the concerned parties that the first suit was brought in a representative capacity." (13) To achieve representational adequacy, class representatives must fairly and adequately protect the interests of all class members, (14) including protecting their interest against the potentially competing interests of class counsel. (15) This requires that actual and potential conflicts of interest between the representative plaintiffs and unnamed class members be addressed. (16)

Of course, the larger the class, the greater the likelihood that class members will have divergent or conflicting interests that threaten adequacy. Discrete, separately represented subclasses may be used to ensure that varying groups receive the same level of adequate representation. For example, in Amchem Products, Inc. v. Windsor, 521 U.S. 591 (1997), more than half of the proposed class representatives that were included alleged they or their family members had already suffered injuries as a result of exposure to asbestos, while the remaining proposed class representatives alleged they or their family members had merely been exposed to asbestos, but had not yet suffered any asbestos-related injury. (17) The parties, with diverse or nonexistent medical conditions, attempted to represent the interests of a single, massive class, leaving a disparity of interest between class members who were currently injured and those whose injuries had not yet manifested. (18) The Amchem court explained that while members of a class are typically united in seeking the maximum possible recovery, a class judgment may fail to satisfy adequacy concerns when it makes distinctions between "how recovery is to be allocated among different kinds of plaintiffs, decisions that necessarily favor some claimants over others." (19) There, the proposed settlement recognized four categories of "compensable disease"--mesothelioma, lung cancer, certain other cancers, and nonmalignant conditions--for which specified ranges of damages were available. (20) The allocations were particularly inadequate for some of the class members whose claims received no compensation. (21)

Two years later, in Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999), the Court addressed a similar putative class that included both individuals (or their family members) who had present injuries as well as potential future claimants. (22) Relying on the then-recent Amchem decision, the Court explained that the divergent interests of the presently injured and those facing potential future injuries "require[d] division into homogeneous subclasses under Rule 23(c)(4)(B), with separate representation to eliminate conflicting interests of counsel." (23) It is important to note, however, that the Ortiz Court was confronting the certification of a Rule 23(b)(1)(B) "limited fund" class action rather than the Rule 23(a)(4) adequate representation prerequisite. (24)

While the Court in Ortiz opined that the conflict of interest "was as contrary to the equitable obligation entailed by the limited fund rationale as it was to the requirements of structural protection applicable to all class actions under Rule 23(a)(4)," (25) some courts have used this difference to distinguish Ortiz. The 11th Circuit, in Juris v. Inamed Corp., 685 F.3d 1294 (11th Cir. 2012), suggested that Amchem and Ortiz together "appear to hold that Rule 23(a)(4) calls for some type of adequate structural protection, which would include, but may not necessarily require, formally designated subclasses." (26) The court distinguished those two cases, both dealing with Rule 23 pre-certification requirements on direct appeal, from the context of the case before it, a collateral challenge based on an allegation by an absent class member that her due process rights were violated during the direct case. (27) In Juris, while there were no formally designated subclasses, the named class representatives included individuals with no manifested injury, with moderate injuries, and with severe injuries. (28) Additionally, separate counsel was specifically brought in to represent plaintiffs with only potential future injuries in order to avoid the problem encountered in Amchem. (29)

More recently, the Second Circuit reversed approval of a settlement judgment because it found the "unitary representation" of the plaintiffs was "inadequate." (30) It described the interests of the class representatives as "antagonistic" to the interests of some of the class members they purported to represent. (31) A court will examine a settlement's substance for evidence of prejudice to the interests of a subset of class members when assessing the representation's adequacy. (32) Any "benefits of litigation peace" cannot supersede class members' due process right to adequate representation. (33)

Adequate Notice

Sufficient notice is another one of the key Shutts due process requirements. (34) Rule 23(c)(2) requires that the notice of Rule 23(b)(3) class actions be the "best notice that is practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort." (35) To determine whether a notice is sufficient to confer jurisdiction by consent, class members must be able to evaluate the proceeding to which they are consenting. In determining whether notice is sufficient, courts consider both the "mode of dissemination and its content." (36)

Notice to the class need only be "reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections." (37) The notice must describe the claims asserted and contain information reasonably necessary to allow class members to decide whether to remain a class member and be bound by any final judgment. (38) In addition, the notice must be written in objective, neutral terms...

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