EXHIBIT B to Testimony of Brian Wolfman, January 22, 2002
November 20, 2000
Peter G. McCabe, Secretary
Committee on Rules of Practice and Procedure
Thurgood Marshall Federal Judiciary Building
Washington, D.C. 20544
Re: Proposed Rule 23(g)
Dear Mr. McCabe:
In April 1995, this office sent the Committee a detailed letter proposing a change to Rule 23 clarifying that absent class members can appeal from judgments approving class action settlements without first having been allowed to intervene. We are therefore very pleased that the Advisory Committee on Civil Rules would eliminate any question as to the rights of absent class members to appeal such judgments. See Proposed Fed. R. Civ. P. 23(g)(1).
Our office often represents objectors to class action settlements, and we strongly endorse the Committee's proposal for the reasons stated in the proposed Committee Note. I note that our April 1995 proposal does not appear on the Advisory Committees' Agenda Docketing with respect to this issue. Therefore, I am attaching a copy of our April 1995 proposal because it provides additional support for proposed Rule 23(g).
In addition to our April 1995 comments, we ask the Committee to consider the following four points.
1. Since April 1995, the confusion among the circuit courts about whether absent class members must intervene before they may appeal the approval of a class action settlement has only gotten worse. The Ninth Circuit, for instance, which previously had been thought to be in the no-intervention camp, see Marshall v. Holiday Magic, Inc., 550 F.2d 1173, 1176 (9th Cir. 1977), recently implied that, although an absent class member need not be an intervenor to appeal an award of attorney's fees to class counsel, the result might be different if the class member were attempting to appeal the merits of the settlement. See Powers v. Eichen, ___ F.3d ___, 2000 U.S. App. Lexis 26057 (9th Cir. Oct. 20, 2000).
Moreover, beginning in 1997, the Seventh Circuit abandoned its own non-intervention precedents and held that intervention was necessary to promote efficient class action administration. See Felzen v. Andreas, 134 F.3d 873 (7th Cir. 1998) (overruling four Seventh Circuit precedents), aff'd by equally divided Court sub nom. California Public Employees' Retirement Sys. v. Felzen, 119 S. Ct. 720 (1999); In re Brand Name Prescription Drugs Antitrust Litig., 115 F.3d 456 (7th Cir. 1997). But shortly thereafter, the same court held that intervention should be granted to any class member who timely objects to a settlement, thus making the need to intervene no more than a useless paperwork requirement and certainly not a rule of judicial efficiency. See Crawford v. Equifax Payment Services, 201 F.3d 877, 881 (7th Cir. 2000). In short, the proposed Rule 23(g) is not only the right thing to do for absent class members, it would also eliminate enormous confusion in the courts.
2. We believe that proposed Rule 23(g) should be titled "Right to Appeal," rather than "Appeal Standing." To be sure, some courts have erroneously referred to the issue as whether an absent class member has "standing" to appeal without having intervened. However, because absent class members' claims are necessarily affected by a class action settlement, there is no question that the class members' have "standing" with respect to those claims in the Article III sense. For instance, no one disputes that these same class members are entitled to participate in district court "fairness hearings" regarding class action settlements without moving to intervene, precisely because their legal interests are at stake. See Manual for Complex Litigation Third § 30.41, at 237 (Federal Judicial Center 1995). Indeed, the first court to have enunciated the intervention requirement noted that class members have alternative avenues for relief, including potential collateral attacks on the settlement, see Guthrie v. Evans, 815 F.2d 626, 628 (11th Cir. 1987), thus underscoring that they have "standing" to adjudicate their claims. For these reasons, the Committee should affirm the class members' "right to appeal," but not describe it in terms of "standing."
3. We agree that it is appropriate for the Committee to address the right to appeal under Rule 23 without considering whether that right also exists under Rule 23.1. However, under the proposed Committee Note, litigants and courts may infer that intervention is required for appeal in Rule 23.1 cases. We agree with the Committee that "absent" shareholders are not technically parties in derivative cases and that a Rule 23.1 judgment does not preclude such a shareholder from bringing a case as a shareholder. However, we think it very likely that a judgment in a derivative suit does preclude another shareholder from bringing a suit in the name of the corporation, and in that sense the absent shareholder is bound. That being the case, there are very strong policy justifications for allowing shareholders the right to appeal a settlement approval in a Rule 23.1 action, without intervention, just as there are in a Rule 23 action. Again, although we commend the Committee for addressing the Rule 23 question first, we urge the Committee to make clear that it is expressing no opinion on the Rule 23.1 question, rather than emphasizing the differences between the two Rules.
4. Proposed Rule 23(g)(2) raises issues not raised by proposed Rule 23(g)(1). In our judgment, an appeal by a class member of "a judgment that is not appealed by a class representative" (Rule 23(g)(2)) should be viewed differently from an appeal by absent class member of a judgment approving a settlement (Rule 23(g)(1)) for two related reasons. First, in matters that are litigated to judgment by class representatives (e.g., the issue of class certification or the result of a trial on the merits), there is no reason to be concerned that the class representatives (and their lawyers) have failed to champion the cause of the class, or worse, "sold out" for fees, as there may be in the case of a settlement. Second, in matters litigated to judgment, both sides presumably have contested the issues, such as class certification, thus assuring that the relevant facts and law have been brought to the court's attention, which, in the settlement context, usually does not occur. Although defendants and absentees have different interests, the adversary process in a litigated case enhances the court's ability to understand what is at stake.
That being the case, it could be argued that intervention should be required before class members may appeal judgments other than those under Rule 23(e). However, on balance, we believe that Rule 23(g)(2) is appropriate for the following reasons. With respect to permissive appeal of interlocutory orders, the court's decision whether to allow an appeal should take into account the fact that the proposed appellant is an absent class member. Thus, if an absentee wishes to appeal an order denying class certification, the court of appeals, in exercising its discretion whether to allow an appeal under Federal Rule of Civil Procedure 23(f), certainly can consider whether the appellant's status as an absentee counsels against appeal. Similarly, both the district court and the court of appeals can consider the putative appellant's status as an absentee in deciding whether to allow an appeal on particular issues in the litigation under 28 U.S.C. 1292(b). In such circumstances, the district court's decision as to whether the putative appellant may intervene for appeal purposes would not, in our view, add anything to the analysis.
Final judgments that are not appealed by class representatives (such as a judgment after summary judgment or a trial on the merits) are different from interlocutory judgments of the kind discussed above because they are appealable as of right, but only within 30 days in most cases. Even there, however, we do not believe that intervention should be required for two reasons. First, if an absentee seeks intervention and it is denied, the absentee will surely appeal the denial of intervention and the merits, which will simply bring the entire case to the court of appeals in any event. Second, even with respect to final judgments, we think it likely that the court of appeals may often be able to factor in the appellant's absentee status in resolving the merits, particularly if the issues on appeal are matters of discretion rather than of law (e.g., whether the amount awarded by the court was within the range of reasonableness, whether the class representatives were adequate representatives of the class).
Moreover, requiring intervention on matters other than settlement approval would lead to potentially serious timing and jurisdiction problems. Absentees do not generally learn of final orders on the merits in class actions, if at all, until well after they have occurred. Those who do learn of them have been trying to monitor the litigation, but are still not likely to be informed of final orders until some time after the named parties have been informed and the time to appeal is ticking away. At that point, if intervention is required to appeal, the absentee would have to seek intervention and ask that the court rule on the request before the time to appeal expires. If the court does not rule on intervention, and the final day to appeal arrives, the prudent absentee would file a notice of appeal, which arguably divests the district court of jurisdiction even to rule on the intervention request. The putative appellant could seek an extension of time to appeal for "good cause" under Fed. R. App. P. 4(a)(5)(ii), but that would be a risky avenue to take in lieu of filing a notice of appeal.
Having said all this, if the Committee has serious concerns about whether, and how, to deal with the issues raised by proposed Rule 23(g)(2), we urge the Committee simply to promulgate what is now Rule 23(g)(1), leaving Rule 23(g)(2) for further study. After all, the principal, if not exclusive, problem raised by the recent case law is answered by proposed Rule 23(g)(1) and the solution it proposes is easy and fair. It should not be delayed by the concededly more difficult issues raised by proposed Rule 23(g)(2).
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Thank you for considering our comments on this important matter.
cc: Honorable David F. Levi
Honorable Lee H. Rosenthal
Professor Edward H. Cooper