Conning the IADC Newsletters.

Recognizing that a wide range of practical and helpful material appears in the newsletters prepared by committees of the International Association of Defense Counsel, this department highlights interesting topics covered in recent newsletters and presents excerpts from them.

Appealing Class Certification: Traps for the Unwary

Writing in the May issue of the newsletter of the Class Action and Multiparty Litigation Committee, Bruce R. Parker of Baltimore's Goodell, DeVries, Leech & Gray explains when time may be of the essence:

Until recently, class action litigation in U.S. federal courts by and large was resolved with the district court's determination whether to certify the class. When class certification is denied, the litigation often becomes economically impracticable to continue as individual cases. Conversely, when class certification is granted, many corporate defendants opt to settle the litigation even when the case has little or no legal merit in order to avoid potential catastrophic losses.

The significance of the class certification decision and the unlikelihood of having the decision reviewed by an appellate court as part of a final judgment necessitate having an effective mechanism for appellate interlocutory review of the decision.

Interlocutory review

Limited interlocutory review of district court class certification decisions is available under 28 U.S.C. [sections] 1292(b) if the foundational prerequisites are met. These prerequisites include demonstrating that a controlling question of law exists for which there is a substantial difference of opinion and that an immediate appeal may materially advance the ultimate determination of the litigation. Because these preconditions are not easily met, effective review of the class certification decision is often not available.

In 1992, Congress gave the U.S. Supreme Court authority under 28 U.S.C. [sections] 1292(e) to expand the scope of interlocutory appeals. The Court did not use its expanded jurisdictional authority until it added Rule 23(f) to the Federal Rules of Civil Procedure.

Effective on December 1, 1998, the rule allows a litigant to bypass the district court and directly petition the courts of appeals for a review of a district court's order granting or denying class certification. The court of appeals, according to the Advisory Committee note, "is given unfettered discretion whether to permit the appeal, akin to the discretion exercised by the Supreme Court in acting of a petition for certiorari." The petition must be filed within 10 days after entry of the class certification order, and it does not stay the underlying action unless a stay is ordered by either the district court or the court of appeals.

Watch for traps

The interplay between Section 1292(b) and Rule 23(f) creates a number of potential traps. Defense counsel need to be aware of these traps if they are to avoid the embarrassment of having an appeal under Rule 23(f) and/or Section 1292(b) denied because it was pursued under the wrong authority and/or was untimely.

The first appellate decision to interpret Rule 23(f) was Blair v. Equifax Services Inc., 181 F.3d 832 (7th Cir. 1999). Blair was an appeal of two parallel class action proceedings against Equifax arising from its check verification services offered to merchants. The district court certified a class on February 25, 1999. On March 8, the defendant filed a motion for reconsideration, which was denied on March 11. The defendant did not file its Rule 23(f) petition until March 22.

The Seventh Circuit held that the appeal was timely. Although Federal Rule of Appellate Procedure 4(a)(4) is not applicable since the appeal was not from a final judgment, the court held that rule simply restates "an accepted rule of practice." The "accepted practice" is that a motion for reconsideration tolls the time for appeal. The court reasoned that district judges should have the same opportunity as appellate judges to reconsider their orders before forcing litigants to petition for an appeal under Rule 23(f). Therefore, the court held that a motion for reconsideration filed within 10 days of the class certification order tolls the period for filing an appeal until the motion for reconsideration is resolved.

Three categories of appeals

The next issue the court addressed was whether the appeal was one that ought to be permitted under Rule 23(f). The court refused to define rigidly the factors that to be met before an appeal may be taken under Rule 23(f). Rather, it chose to identify three masons underlying the need for Rule 23(f). Appeals that fall into one of the three categories are appropriate under Rule 23(f).

The first category is cases in which a denial of class action status will effectively end the litigation. Thus, Rule 23(f) appeals should be granted in "death knell" cases. Second, granting class certifications in some cases can create such enormous economic pressure on a defendant that it must settle the case despite having a strong defense to the claims. Thus, when the "stakes are large," the court should be more willing to accept an appeal under Rule 23(f). The third situation is cases in which an appeal can "facilitate the development of the law".

Blair involved overlapping class actions. Procedures for dealing with this situation are poorly developed and need development. Therefore, the appeal was appropriate under Rule 23(f).

While the Blair opinion bodes well for an expansive interpretation of Rule 23(f), it is nevertheless an ominous precedent in another respect. Ordinarily, a party petitioning an appellate court to accept an appeal would not feel it necessary, or even productive, to brief the merits of the appeal fully. Parties may have to consider doing so if the approach of the Seventh Circuit in Blair is followed by other circuits. On accepting the appeal, the Seventh Circuit proceeded to decide the appeal on the merits because "both sides favored us with their view of the merits of the appeal." One is left to speculate how extensively either party had briefed the merits of the appeal in their petition.

Another appeal rejected

A few months after Blair, the Seventh Circuit returned to Rule 23(f) to address time calculations. In Gary v. Sheahan, 188 F.3d 891 (7th Cir. 1999), the district court granted class certification in an action brought against a county sheriff on behalf of female inmates. The order granting class certification was issued on April 10, 1997. The defendant waited until August 1998 to move that the class be decertified. This motion was denied on March 31, 1999, and a petition for appeal was filed within the 10 days of the order.

The Seventh Circuit rejected the appeal, finding that it was not timely under Rule 23(f). It held that the defendant's motion to decertify the class was simply a motion for reconsideration. Since the motion for reconsideration was filed more than 10 days after the order granting certification, an appeal could not be taken under Rule 23(f). A motion for reconsideration filed more than 10 days after the certification order does not "restart the clock for appellate review." The only exception to this rule is when the motion is granted in part or in whole. The party that is aggrieved by the reconsideration may appeal within 10 days of that order.

Inexcusable delay

The next case to consider Rule 23(f) occurred in the U.S. District Court for the Northern District of Illinois in Panache Broadcasting of Pennsylvania Inc. v. Richardson Electronics Ltd., 1999 WL 1024560 (N.D. Ill. 1999). On May 13, 1999, the court issued an order certifying a class action in an antitrust case. The defendant waited until July 26 to file a motion for interlocutory appeal under 28 U.S.C. [sections] 1292. The plaintiff argued that the appeal could not be pursued under Section 1292(b) and that the appeal was time barred under Rule 23(f). The plaintiff's argument, in effect, asserted that Rule 23(f) superseded Section 1292(b).

The district court was persuaded by the defendant's argument that Rule 23(f) was not intended to supercede Section 1292(b). Each contemplates a different approach to an interlocutory appeal after satisfying different conditions. Under Section 1292(b), a petitioner needs permission from the district court to obtain an interlocutory appeal but is not under a specific time limitation in which to file the petition. District court permission is not required under Rule 23(f), but the appeal must be brought within 10 days of the certification order.

The district court noted that there was no "bright-line time period" in which to seek an interlocutory appeal under Section 1292(b). However, the Seventh Circuit had previously held that appeals should not be permitted under Section 1292(b) when the petition is delayed without valid reason. The district court permitted the appeal after accepting the defendant's explanation that the delay was caused by having to get back up to speed after the case had been dormant for months while the litigants waited for the district court's decision on class certification.

The Seventh Circuit was not as understanding. It concluded that the delay was inexcusable and therefore an appeal would not be permitted under Section 1292(b). 202 F.3d 957 (7th Cir. 2000).

Despite finding the appeal late, the Seventh Circuit nevertheless reviewed whether the appeal was proper under either Section 1292(b) or Rule 23(f). The "controlling question" that the district court had concluded justified an interlocutory appeal under Section 1292(b) was whether the legal and factual questions common to the class dominated over the individual questions. The Seventh Circuit held that this issue was too "fact specific" for a Section 1292(b) appeal. In dicta, the court noted that if an order is arguably a "candidate" for Rule 23(f) appeal, the order may not be appealed pursuant to Section 1292(b), especially when that route chosen is to circumvent the 10-day time limitation...