Source: https://casetext.com/case/diaz-v-trust-territory-of-pacific-islands
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Diaz v. Trust Territory of Pacific Islands, 876 F.2d 1401 | Casetext
Diaz v. Trust Territory of Pacific Islands
876 F.2d 1401 (9th Cir. 1989)
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Diazv.Trust Territory of Pacific Islands
United States Court of Appeals, Ninth CircuitJun 2, 1989
Mitchell Aaron and Ignatius Ken appeal the denial of their motion to intervene in this action and to vacate the dismissal of their class action claim that the Trust Territory of the Pacific Islands' ("TTPI" or "TT") government salary schedules unlawfully discriminated against TT citizens (Micronesians) and third-country nationals.
On November 14, 1985, plaintiffs' counsel filed an affidavit stating that he and TT counsel had "agreed on a partial amendment to the complaint to eliminate certain categories of plaintiffs. . . ." This amendment would "obviate the need to answer certain TT's interrogatories." The next day, November 15, 1985, the parties stipulated to dismissal of all claims relating to employment outside of the CNMI, and TT counsel withdrew all interrogatories relating to such claims.
Denial of a motion to intervene under Rule 24(a)(2), Fed.R.Civ.P., is immediately appealable. Sagebrush Rebellion, Inc. v. Watt, 713 F.2d 525, 527 (9th Cir. 1983). The motion to intervene was denied by an order entered May 2, 1988. Intervenors filed a notice of appeal 31 days later, on June 2, 1988. Under Rule 4(a), Fed.R.App.P., a notice of appeal must be filed within 30 days after entry of the order appealed, "but if the United States or an officer or agency thereof is a party, the notice of appeal may be filed by any party within 60 days after such entry."
Is the United States a Party? The United States was dismissed as a defendant on June 12, 1987. However, the United States need not be a party at the time an appeal is taken for the appeal to fit within the 60-day rule. Division of Labor Law Enforce. v. Stanley Restaurants, 228 F.2d 420, 423 (9th Cir. 1955) (United States' claims against debtor had been satisfied during course of litigation and United States was no longer an interested party at time of appeal, yet "action is one to which the United States is a party" and appeal governed by 60-day rule). It may be enough that the United States was a party at an earlier stage.
Further, as noted by intervenors, the TT government was dissolved by the Compact of Free Association Act, P.L. 99-239, 99 Stat. 1770, 1771 (1986). Under the Compact, "[i]n any claim against the Government of the TTPI, the Government of the United States shall stand in the place of the Government of the TTPI." Pub.L. 99-239, Sec. 201, [Art. VII, Sec. 174(c)], 99 Stat. at 1811. Thus, even though the United States was dismissed as a named defendant, it has assumed the role of surety for the TT for purposes of this litigation, and continues to be a party on that basis.
Is the TT an agency of the United States? Even if the United States were not a party, the TT was an agency of the United States for purposes of Rule 4(a). The TT relies on In re Hoag Ranches, 846 F.2d 1225, 1227 (9th Cir. 1988), in its argument that it is not a U.S. agency for purposes of Rule 4(a). Hoag Ranches held that the Stockton Production Credit Association was not a U.S. agency for purposes of Rule 4(a), although it was federally chartered. That case noted "the concern with routing cases through government attorneys, . . . underlies the 60-day provision in Rule 4(a)(1). . . ." Id. at 1229. Hoag Ranches listed six factors considered in making similar determinations (under 28 U.S.C. § 1345 and Fed.R.Civ.P. 12(a)):
The TT government has been considered a government agency for some purposes but not for others. Compare McComish v. Commissioner, 580 F.2d 1323 (9th Cir. 1978) (TT not an "agency" for purposes of Internal Revenue Code § 911(a)(2)) with Groves v. United States, 533 F.2d 1376 (5th Cir.) (reaching opposite conclusion), cert. denied, 429 U.S. 1000, 97 S.Ct. 529, 50 L.Ed.2d 611 (1976); see generally, People of Saipan v. United States Dept. of Interior, 502 F.2d 90, 94-95 (9th Cir. 1974), cert. denied, 420 U.S. 1003, 95 S.Ct. 1445, 43 L.Ed.2d 761 (1975); Callas v. United States, 253 F.2d 838, 839-841 (2d Cir. 1958). The TT government is a hybrid. Nevertheless, under Hoag Ranches it is surely an agency of the United States for purposes of Rule 4(a).
If the claims of the intervenors class were properly dismissed without notice, then intervenors lack any "interest" in the remaining claims and the motion to intervene was properly denied. If, on the other hand, the November 15, 1985, dismissal is vacated as improper, intervention should be allowed so that intervenors can pursue their class claims.
In order to intervene of right under Rule 24(a)(2), a party must demonstrate (1) an interest in the property or transaction which is the subject of the action, (2) impairment of that interest, and (3) inadequate representation by existing parties. Further, the motion to intervene must be timely. Fed.R.Civ.P. 24(a)(2).
1. Was the November 15, 1985 order a dismissal? The TT government relies on Payne v. Travenol Laboratories, Inc., 673 F.2d 798 (5th Cir.), cert. denied, 459 U.S. 1038, 103 S.Ct. 452, 74 L.Ed.2d 605 (1982), and Bantolina v. Aloha Motors, Inc., 75 F.R.D. 26, 31 (D.Haw. 1977), in its argument that the November 15, 1985, order was not a "dismissal or compromise" within Rule 23(e).
In Payne, a class representative plaintiff withdrew with the result that the plaintiff class was redefined to exclude black males. The court did not consider such a narrowing of a class to be dismissal under Rule 23(e). The court remarked:
Similarly, if the court determines for any reason that class certification should be denied, it can thereafter dismiss the class allegations without notice. In other words, Rule 23(e) notice is not required where the dismissal is involuntary. Roper v. Consurve, Inc., 578 F.2d 1106, 1110 (5th Cir. 1978), aff'd on other grounds sub nom Deposit Guaranty Nat'l Bank v. Roper, 445 U.S. 326, 100 S.Ct. 1166, 63 L.Ed.2d 427 (1980); Gaston v. [Calhoun] County Bd. of Ed., 88 F.R.D. 356 (N.D.Miss. 1980). As these cases demonstrate, courts have recognized numerous methods for avoiding Rule 23(e) notice. See generally Herbert Newberg, 2 Newberg on Class Actions §§ 11.63, 11.69 (Shepard's/McGraw-Hill, 2d ed. 1985) (discussing procedural steps to avoid Rule 23(e) notice requirement).
2. Does Rule 23(e) apply to pre-certification dismissals? Whether Rule 23(e) applies to pre-certification class actions — cases containing class allegations but not yet certified as class actions — has never been squarely addressed by this Circuit.
Intervenors rely on City of Inglewood v. Los Angeles, 451 F.2d 948, 951 (9th Cir. 1972), and on appeal following remand, 508 F.2d 1283, 1284 (1974), for the proposition that Rule 23(e)'s applicability to precertification class actions is beyond question. City of Inglewood cites Philadelphia Electric for the idea that in the interim between filing and certification, a complaint alleging a class claim must be treated as a class action "for purposes of dismissal or compromise under Rule 23(e)." While both City of Inglewood appeals cite this language from Philadelphia Electric, in neither appeal was applicability of Rule 23(e) an issue. The first appeal involved jurisdictional amount; the second involved standing.
One of the earliest cases interpreting Rule 23(e) held that it applied to pre-certification dismissals and required notice to the putative class. Philadelphia Electric Co. v. Anaconda American Brass Co., 42 F.R. D. 324 (E.D.Pa. 1967). The facts of Philadelphia Electric presented a strong case for requiring notice, where (1) the proposed settlement attempted to compromise the claims of the class, not just of the named plaintiffs, (2) the action had begun within a week of expiration of the limitation period, (3) approximately 100 petitions for intervention had been filed, all of which would be barred by the statute of limitations if class certification were denied. Some courts, however, read Philadelphia Electric as requiring Rule 23(e) notice before any pre-certification dismissal of a class action. See Simer v. Rios, 661 F.2d 655, 665 (7th Cir. 1981) (listing these early cases), cert. denied, 456 U.S. 917, 102 S.Ct. 1773, 72 L.Ed.2d 177 (1982).
Shelton v. Pargo, 582 F.2d 1298 (4th Cir. 1978), held that Rule 23(e) does not apply prior to class certification. Shelton took the approach that a case with class allegations should not be considered a true class action until a class has been certified. The court drew a negative inference from the Supreme Court's statement that "[o]nce a suit is certified as a class action it may not be dismissed or compromised without approval of the court. Rule 23(e)." Id. at 1303 (quoting Sosna v. Iowa, 419 U.S. 393, 399 n. 8, 95 S.Ct. 553, 557 n. 8, 42 L.Ed.2d 532 (1975)); see also Deposit Guaranty National Bank v. Roper, 445 U.S. 326, 332 n. 5, 100 S.Ct. 1166, 1171 n. 5, 63 L.Ed.2d 427 (1980) (repeating same language). Shelton assumed that before a class is certified, approval is not required pursuant to Rule 23(e). Finally, the Shelton court noted that
582 F.2d at 1303. The court concluded that prior to class certification, Rule 23(e) does not apply.
Although finding Rule 23(e) inapplicable, Shelton went on to note that the court's supervisory powers under Rule 23(d)(4) authorize it to require notice when appropriate, in order to guard against abuses by the representative plaintiffs. Notice is within the court's discretion, and "[i]f neither loss of benefits to the class nor evidence of collusive agreement is present, notice of dismissal is unnecessary." Id. at 1310, ( quoting Newberg, Class Actions § 4960 at 406 (1st ed)). In all cases, the court should hold a hearing to
Shelton seems inconsistent with American Pipe's statement that "there remain no conceptual or practical barriers in the way of holding that the filing of a timely class action complaint commences the action for all members of the class as subsequently determined. . . . A federal class action is no longer `an invitation to joinder' but a truly representative suit designed to avoid, rather than encourage, unnecessary filing of repetitious papers and motions." 414 U.S. at 550, 94 S.Ct. at 764. We also question whether the Supreme Court's language in Sosna v. Iowa and Roper can fairly be read as implying that only certification creates a "class action" for purposes of Rule 23(e).
Other circuits to consider the issue have held that Rule 23(e) applies before class certification. See Kahan v. Rosenstiel, 424 F.2d 161, 169 (3d. Cir. 1970) ("a suit brought as a class action should be treated as such for purposes of dismissal or compromise, until there is a full determination that the class action is not proper"); Glidden v. Chromalloy American Corp., 808 F.2d 621, 626-27 (7th Cir. 1986). Wright Miller also support application of Rule 23(e) to pre-certification class actions. C. Wright, A. Miller M. Kane, 7B Federal Practice and Procedure, § 1797 at 346-350 (2d ed. 1986). These courts and commentators take the basic Philadelphia Electric approach: during the interim between filing and certification, a court must assume for purposes of dismissal or compromise that an action containing class allegations is really a class action.
At such a hearing, the district court should inquire into possible prejudice from (1) class members' possible reliance on the filing of the action if they are likely to know of it either because of publicity or other circumstances, (2) lack of adequate time for class members to file other actions, because of a rapidly approaching statute of limitations, (3) any settlement or concession of class interests made by the class representative or counsel in order to further their own interests. Id.; Larkin General Hospital, Ltd. v. American Telephone and Telegraph Co., 93 F.R.D. 497 (E.D.Pa. 1982).
Notice of pre-certification dismissal has three purposes. First, the notice requirement protects a defendant by preventing a plaintiff from appending class allegations to her complaint in order to extract a more favorable settlement. "[N]o litigant should be permitted to enhance his own bargaining power by merely alleging that he is acting for a class of litigants." Philadelphia Electric, 42 F.R.D. at 328. A plaintiff is forced to consider the duties she will owe to the putative class, even if she hopes to reach an individual settlement before class certification. The notice requirement prevents plaintiffs from appending frivolous, "boiler plate" class claims or class claims they never intend to litigate. See Simer v. Rios, 661 F.2d at 665; Shelton, 582 F.2d at 1310-11; Muntz v. Ohio Screw Products, 61 F.R.D. 396, 398 (N.D.Ohio 1973); Yaffe v. Detroit Steel Corp., 50 F.R.D. 481, 483 (N.D.Ill. 1970). On the other hand, countervailing policies in favor of settlement support interpreting Rule 23(e) so as not to prevent settlement of individual claims and dismissal of class allegations without notice, so long as representative plaintiffs do not receive disproportionate recoveries and the absent class members do not suffer prejudice. Shelton, 582 F.2d at 1311; 2 Newberg on Class Actions § 11.63 at 503, n. 407 (2d ed. 1985).
In any event, other methods are available to prevent abusive class action filings, most obviously early class certification. Rule 23(c) provides that a class is to be certified "as soon as practicable after the commencement of an action brought as a class action." If courts press ahead with class certification, few problems are likely to arise. If a plaintiff appends class claims to increase leverage for an individual settlement, the defendant can draw any attempts at individual settlement to the court's attention. Such maneuvering would make the plaintiff an inadequate class representative, and a motion for denial of class certification would be in order. See Munoz v. Arizona State Univ., 80 F.R.D. 670 (D.Ariz. 1978); Lyon v. Arizona, 80 F.R.D. 665 (D.Ariz. 1978). Of course, the court has the power to sanction a plaintiff who brings frivolous class claims. Rule 11, Fed.R.Civ.P.
Second, notice protects the class from objectionable structural relief, trade-offs between compensatory and structural relief, or depletion of limited funds available to pay the class claims. Simer v. Rios, 661 F.2d at 665. Here, the non-CNMI class claims were dismissed; they were not compromised. The remaining claims were litigated; they were not settled. And there is no question of structural relief, since the TT government no longer employs the intervenor class.
The TT employees located outside the Northern Marianas Islands were transferred to other governmental entities by 1980 or 1981. These areas are now part of the Federated States of Micronesia, the Republic of the Marshall Islands, or the Republic of Palau.
In denying the motion to vacate, the district court stated that the intervenors' "procrastination or indifference" was the cause of their predicament. Yet, a class member has no duty to intervene, opt out, or take any other action regarding a class action until the class has been certified and notice of class membership sent. American Pipe, 414 U.S. at 552, 94 S.Ct. at 765. American Pipe clearly undercuts the district court's reasoning. 2 Newberg on Class Actions § 11.63 at 504-05 (2d ed. 1985). The district court erred in concluding that a lack of action by the class indicated a lack of reliance on the filing of the class action.
Intervenors allege that the TTPI violated their rights in 1978 and before by practicing discriminatory wage policies. In 1981, hundreds of similarly situated individuals filed suit alleging the same violation. See Temengil v. TTPI, Civ. No. 81-00006 (D.N.M.I. 1979)[sic]. Intervenors failed to speak up at this time. In 1984, Diaz et al. filed this suit alleging the same thing. Intervenors were never notified that they were originally parties to the suit. Yet they still never raised the issues in this or any other court that the court is aware of. On November 15, 1985, Intervenors were dismissed from the suit. On February 17, 1988, over two years after dismissal and ten years after the alleged violations, Intervenors filed this motion claiming the dismissal had prejudiced their right to redress their grievance against the government. The predicament in which Intervenors now find themselves can be attributed solely to their procrastination or indifference in raising their claims against the TTPI.
Intervenors submit that the possibility of reliance on the filing of the class action is enough to require notice. They point out that many courts have assumed the existence of reliance based upon the mere filing of the action and the possibility of publicity resulting from the filing. See, e.g., Gupta v. Penn Jersey Corp., 582 F. Supp. 1058 (E.D.Pa. 1984). The Seventh Circuit recognized the possibility of reliance in Glidden v. Chromalloy, 808 F.2d at 627, and required approval (and inquiry into possible prejudice) before a dismissal without notice would be affirmed.
Intervenors also point out that the time period from dismissal to expiration of the statute of limitations is one factor to be considered in determining prejudice. Although the running of the statute of limitations is of less concern since American Pipe, 414 U.S. 538, 94 S.Ct. 756 (holding that filing of a class action tolls the statute of limitations), it remains a factor. See e.g., Glidden v. Chromealloy, 808 F.2d at 627; 2 Newberg on Class Actions § 8.19 at 135-36 (2d ed. 1985); Wheeler, Predismissal Notice and Statutes of Limitations in Federal Class Actions After American Pipe and Const. Co. v. Utah, 48 So.Cal.L. Rev. 771 (1975). Lack of time from dismissal until expiration of the statute of limitations makes it likely the class will learn of the dismissal too late.
Very few cases involving a voluntary pre-certification dismissal have actually held notice not required. Some, such as Bantolina, 75 F.R.D. 26 (D.Haw. 1977), and Gaston, 88 F.R.D. 356 (N.D.Miss. 1980), followed determinations that the class could not be certified, and do not fall into the category of voluntary dismissals. Larkin General Hospital, 93 F.R.D. 497 (E.D.Pa. 1982), is one outright pre-certification dismissal where notice was not required. In Larkin General Hospital, however, there was no possibility of prejudice because identical class allegations had been filed in another district. There was no chance that the class would be left out of court; notice would have merely wasted money. In Larkin General Hospital, moreover, the district court held a hearing before making the studied determination that there was no possibility of prejudice.
The order denying consolidation or intervention in Temengil and dismissing those portions of the class already covered by Temengil falls into the category of dismissals where prejudice is not possible.