United States: Collateral Attacks On Class Resolutions

Last Updated: June 29 2017
Article by Frank G. Burt, Brian P. Perryman and Thaddeus Ewald

In 1940, Hansberry u. 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.l 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."2The 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. maybe 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.8These courts assert that the "at all times" phrase from Shutts means that the "duty to represent absent class members adequately is a continuing one."9This 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),10limiting 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. 11The 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 non parties' 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 counse1.15This 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. u. 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." 19There, 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.20The 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) "limitedfund" 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 u. 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.31A 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


1 Hansberry, 311 U.S. at 41, 42-44 (emphasis added). The rationale usually given for "adequate representation" is that typical class representatives, by pursuing their own interests, will litigate common questions. 2 Arsa CoNTE, ET AL.~ NEWBERG orr Cress AcTioNs §4.47 (4th ed. 2002).

2 Hansberry, 311 U.S. at 45.

3 Id. at 41.

4 Shutts, 472 U.S. at 811-12; see also Ortiz v. Fibreboard Corp., 527 U.S. 815, 848, n.24 (1999). The protections are specific to Rule 23(b)(3) classes. See Shutts, 472 U.S. at 812, n.3 ("Our holding today is limited to those class actions which seek to bind known plaintiffs concerning claims wholly or predominately for money judgments. We intimate no view concerning other types of class actions, such as those seeking equitable relief."). Rule 23(b)(2) class members do not have the ability to opt out. Additionally, the Shutts court made clear that personal jurisdiction over absent class members without minimum contacts with the forum is based on consent, which is evidenced by plaintiffs being provided with notice and an opportunity to request exclusion within a reasonable period of time. Id. at 814.

5 Shutts left unresolved the scope of any collateral review for satisfaction of due process requirements, and in Matsushita Electric Industrial Co. v. Epstein, 516 U.S. 367 (1996), the Supreme Court avoided expressly defining the scope of collateral review for Shutts due process compliance. 6 Gen. Tel. Co. of the Sw. v. Falcon, 457 U.S. 147, 160 (1982).

7 Shutts, 472 U.S. at 812; see also note 4 and accompanying text.

8 While U.S. CorrsT. art. IV, and the Full Faith and Credit Act, 28 U.S.C. §1738, require courts to give full faith and credit to state courts' judgments, it is settled law that a "constitutionally infirm judgment" is not entitled to full faith and credit. See, e.g., Kremer v. Chem. Constr. Corp., 456 U.S. 461, 482 (1982); State u. Homeside Lending, Inc., 826 A.2d 997, 1005 (Vt. 2003). For the class judgment to acquire the presumption of full faith and credit, the court entering the judgment must have complied with the due process clause. See 7}uigg v. Sears, Roebuck & Co., 153 F.3d 1222, 1226 (11th Cir. 1998) ("Before the bar of claim preclusion may be applied to the claim of an absent class member, it must be demonstrated that invocation of the bar is consistent with due process, and an absent class member may collaterally attack the prior judgment on the ground that to apply claim preclusion would deny him due process.") (citations omitted).

9 Matsushita, 516 U S. at 395 (Ginsburg, J., concurring in part, dissenting in part); see also Gonzales v. Cassidy, 474 F.2d 67, 75 (5th Cir.1973) (failure to pursue appeal rendered initially adequate class representationinadequate, such that judgment did not bind the class); Wolfert ex rel. Estate of Wolfert u. Transamerica Home First, Inc., 439 F.3d 165, 173 (2d Cir. 2006) ("Of course, not every variation between the interests of an absent class member and those of the class generally will render the class representatives inadequate. The adequacy-of-representation determination turns on whether the interests of the class were `compatible' with those of the party attempting to attack the class action judgment collaterally.").

10 See also note 5 (explaining the Matsushita court's analysis did not entail a consideration of Shutts due process compliance).

11 See, e.g., Patrick Woolley, CollateralAttack and the Role ofAdequate Representation in Class Suits for Money Damages, 58 U. Knty. L. REv. 917 (2010); see also id. at 917-18, n. 3-6 (collecting scholarly works on the topic).

12 Shutts, 472 U.S at 812.

13 Taylor v. Sturgell, 553 U.S. 880, 897 (2008) (citing Richards u. Jefferson Cty., 517 U.S. 793, 801-802 (1996)).

14 See, e.g., Maywalt v. Parker &Parsley Petroleum Co., 67 F.3d 1072, 1077-78 (2d Cir. 1995); Kamilezicz v. Bank of Bos. Corp., 100 F.3d 1348, 1350 (7th Cir. 1996) (Easterbrook, J., dissenting); Broussard v. Meineke Disc. Muffler Shops, Inc., 155 F.3d 331, 338 (4th Cir. 1998) (basic due process requires that class representatives "possess undivided loyalties to absent class members"). Class counsel have duties of loyalty to each member of the class, and must not act based on interests antagonistic to any of them. See Amchem Prods., Inc. u. Windsor, 521 U.S. 591, 626 n.20 (1997) ("The adequacy heading also factors in competency and conflicts of class counsel.").

15 See Ortiz v. Fibreboard Corp., 527 U.S. 815, 852-53 (1999) ("Class counsel thus had great incentive to reach any agreement in the global settlement negotiations that they thought might survive a Rule 23(e) fairness hearing, rather than the best possible arrangement for the substantially unidentified global settlement class.").

16  Amchem, 521 U.S. at 594-95, 626-28.

17 Id. at 603.

18 See id. at 626.

19 Id. at 610.

20 Id. at 603. The stipulation did recognize another category, "exceptional" medical claims, for which the settlement did not otherwise provide recovery; however, the settlement did cap the number of those types of claims it would cover as well as the dollar amount of recovery. ld. at 603-04.

21 Id. at 604 (mentioning claims cognizable under applicable state law that still received no compensation, such as loss of consortium by family members and increased risk of cancer or other asbestosrelated injury by asbestos-exposed individuals).

22 See Ortiz, 527 U.S. at 854 ("[T]he class includes those with present claims never filed, present claims withdrawn without prejudice, and future claimants.").

23 Id. at S56 (citingAmchem, 521 U.S. at 627).

24 S ee id. at 856-57; see also Juris u. Inamed Corp., 685 F.3d 1294, 1323 (11th Cir. 2012) (distinguishing Ortiz because it "involved Rule 23(b)(1)(B) certification requirements, as opposed to Rule 23(a) (4)").

25 Ortiz, 527 U.S. at 856-57.

26 Juris, 685 F.3d at 1323.

27 Id. at 1323-24.

28 Id. at 1324.

29 Id.

30 In re Payment Card Interchange Fee & Merch. Disc. Antitrust Litig., 827 F.3d 223, 233 (2d Cir. 2016) (hereinafter Payment Card).

31 Id.( "The [s]ettlement [a]greement does manifest tension on an `essential allocation decision': [M]erchants in the (b)(3) class would share in up to $725 billion of damages, while merchants in the (b)(2) class would enjoy the benefit of some temporary changes to the defendants' network rules. The same counsel represented both the (b)(3) and the (b)(2) classes. The class counsel and class representatives who negotiated and entered into the [s]ettlement [a]greement were in the position to trade diminution of (b)(2) relief for increase of (b)(3) relief.").

32 In re Literary Works in Elec. Databases Copyright Litig. , 654 F.3d 242, 252 (2d Cir. 2011).

33 payment Card, 827 F.3d at 236, 240.

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