Case Name: Richard C. BECHERER, et al., individually and on behalf of all others similarly situated, Plaintiffs, J. Don Adams; Kay A. Arceneaux, as Executrix for the Donald J. Arceneaux, Sr. Estate; Edward R. Bassine; Anne T. Bassine; Thomas H. Blundell; Jan L. Blundell; James A. Campbell; Darrell R. Caudill; William A. Cherry; Catherine Crebbs, as General Partner of CCT & Co. as Administratrix of Estate of Robert W. Crebbs; Michael S. Dwyer; Dick Dykes; L. Joe Edmonson; Francis C. Elkin; Richard G. Fadal; Lee Feinberg; Madeline Feinberg; Alan S. Fogg; Jean M. Fogg; Mary Lou Frazier; Rudolph M. Gaedke, Independent Administrator for the Estate of Mary Gaedke; Francisco M. Gonzalez; Terry W. Grenat; Edith A. Grenat; Mr. & Mrs. Hem C. Gupta; Paul D. Hansen; Judith A. Hansen; Keith Harvie; Betty Lee Harvie; Robert Hawley; Robin Dale Hawley; Charles L. Henritzy; Georgiann Henritzy; Curtis B. Herbert, Jr.; Weldon Hiddleston; Dorothy M. Hiddleston; Hurrelbring Advertising, Inc.; Bobby G. Lamb; Hazeltine Lamb; D. Rod; Ann H. Lee; Law Offices of Pat Maloney, P.C.; Dan E. Martens; Susan J. Martens; Phillip W. McCollum; Marjorie K. McCollum; Earl McGavran; Edith E. McGavran; Alice S. McTurk; Kyriakos Michaelides; Margaret Michaelides; Donald R. Mitchell; Fred Morgan; Christine Motler, as Executrix for the Estate of Jay Motler; Harold Mueller; Claude Nabers; Leon Neiman; Judith A. Neiman; Daniel N. Payton, III; Jane H. Payton; Jean A. Pitts; Gary L. Platner; Alvin L. Prichard, Jr.; Marilyn M. David, formerly known as Marilyn M. Prichard; Suraj P. Sancheti; Lee Maria; Lula Santa Maria; Mabel Schenk, as Executrix for the Estate of Samuel Schenk; Arch H. Schrom; Shirley A. Schrom; Thomas Q. Schultz; Ruth R. Schultz; Robert Stern; Roxanne Stern; Gordon G. Stillwell; Therral Story; Kathy Story; Wellington K. Stretton; Mary Ann Kozlowski; Joshua M. Tharp, Jr.; Mary Sue Tharp; Ronalt T. Ullenberg; Sheila Ann Ullenberg; Robert J. Wilder; Butz S. Wilder; Paul A. Williams; Stephen F. Wood, Intervenors-Appellants, v. MERRILL LYNCH, PIERCE, FENNER AND SMITH, INC.; Can-American Corporation; Can-American Realty Corporation; Shelter Seagate Corporation; Garrett G. Carlson; Graham C. Count; Arni Thorsteinson; Martin Cicco; Laventhol & Horwath; M.A. Mortenson Co.; Winsor/Faricy Architects, Inc.; Trustbank Mortgage Center, Incorporated; Midwest Title Guarantee Company of Florida; Frank Lavin
Court: United States Court of Appeals for the Sixth Circuit
Jurisdiction: United States
Decision Date: 1999-09-30
Citations: 193 F.3d 415
Docket Number: No. 96-1673
Parties: Richard C. BECHERER, et al., individually and on behalf of all others similarly situated, Plaintiffs, J. Don Adams; Kay A. Arceneaux, as Executrix for the Donald J. Arceneaux, Sr. Estate; Edward R. Bassine; Anne T. Bassine; Thomas H. Blundell; Jan L. Blundell; James A. Campbell; Darrell R. Caudill; William A. Cherry; Catherine Crebbs, as General Partner of CCT & Co. as Administratrix of Estate of Robert W. Crebbs; Michael S. Dwyer; Dick Dykes; L. Joe Edmonson; Francis C. Elkin; Richard G. Fadal; Lee Feinberg; Madeline Feinberg; Alan S. Fogg; Jean M. Fogg; Mary Lou Frazier; Rudolph M. Gaedke, Independent Administrator for the Estate of Mary Gaedke; Francisco M. Gonzalez; Terry W. Grenat; Edith A. Grenat; Mr. & Mrs. Hem C. Gupta; Paul D. Hansen; Judith A. Hansen; Keith Harvie; Betty Lee Harvie; Robert Hawley; Robin Dale Hawley; Charles L. Henritzy; Georgiann Henritzy; Curtis B. Herbert, Jr.; Weldon Hiddleston; Dorothy M. Hiddleston; Hurrelbring Advertising, Inc.; Bobby G. Lamb; Hazeltine Lamb; D. Rod; Ann H. Lee; Law Offices of Pat Maloney, P.C.; Dan E. Martens; Susan J. Martens; Phillip W. McCollum; Marjorie K. McCollum; Earl McGavran; Edith E. McGavran; Alice S. McTurk; Kyriakos Michaelides; Margaret Michaelides; Donald R. Mitchell; Fred Morgan; Christine Motler, as Executrix for the Estate of Jay Motler; Harold Mueller; Claude Nabers; Leon Neiman; Judith A. Neiman; Daniel N. Payton, III; Jane H. Payton; Jean A. Pitts; Gary L. Platner; Alvin L. Prichard, Jr.; Marilyn M. David, formerly known as Marilyn M. Prichard; Suraj P. Sancheti; Lee Maria; Lula Santa Maria; Mabel Schenk, as Executrix for the Estate of Samuel Schenk; Arch H. Schrom; Shirley A. Schrom; Thomas Q. Schultz; Ruth R. Schultz; Robert Stern; Roxanne Stern; Gordon G. Stillwell; Therral Story; Kathy Story; Wellington K. Stretton; Mary Ann Kozlowski; Joshua M. Tharp, Jr.; Mary Sue Tharp; Ronalt T. Ullenberg; Sheila Ann Ullenberg; Robert J. Wilder; Butz S. Wilder; Paul A. Williams; Stephen F. Wood, Intervenors-Appellants, v. MERRILL LYNCH, PIERCE, FENNER AND SMITH, INC.; Can-American Corporation; Can-American Realty Corporation; Shelter Seagate Corporation; Garrett G. Carlson; Graham C. Count; Arni Thorsteinson; Martin Cicco; Laventhol & Horwath; M.A. Mortenson Co.; Winsor/Faricy Architects, Inc.; Trustbank Mortgage Center, Incorporated; Midwest Title Guarantee Company of Florida; Frank Lavin,
Judges: Before: MARTIN, Chief Judge; MERRITT, KENNEDY, NELSON, RYAN, BOGGS, NORRIS, SURHEINRICH, SILER, BATCHELDER, DAUGHTREY, MOORE, COLE, CLAY, and GILMAN, Circuit Judges.
Reporter: Federal Reporter 3d Series
Volume: 193
Pages: 415–444

Head Matter:
Richard C. BECHERER, et al., individually and on behalf of all others similarly situated, Plaintiffs, J. Don Adams; Kay A. Arceneaux, as Executrix for the Donald J. Arceneaux, Sr. Estate; Edward R. Bassine; Anne T. Bassine; Thomas H. Blundell; Jan L. Blundell; James A. Campbell; Darrell R. Caudill; William A. Cherry; Catherine Crebbs, as General Partner of CCT & Co. as Administratrix of Estate of Robert W. Crebbs; Michael S. Dwyer; Dick Dykes; L. Joe Edmonson; Francis C. Elkin; Richard G. Fadal; Lee Feinberg; Madeline Feinberg; Alan S. Fogg; Jean M. Fogg; Mary Lou Frazier; Rudolph M. Gaedke, Independent Administrator for the Estate of Mary Gaedke; Francisco M. Gonzalez; Terry W. Grenat; Edith A. Grenat; Mr. & Mrs. Hem C. Gupta; Paul D. Hansen; Judith A. Hansen; Keith Harvie; Betty Lee Harvie; Robert Hawley; Robin Dale Hawley; Charles L. Henritzy; Georgiann Henritzy; Curtis B. Herbert, Jr.; Weldon Hiddleston; Dorothy M. Hiddleston; Hurrelbring Advertising, Inc.; Bobby G. Lamb; Hazeltine Lamb; D. Rod; Ann H. Lee; Law Offices of Pat Maloney, P.C.; Dan E. Martens; Susan J. Martens; Phillip W. McCollum; Marjorie K. McCollum; Earl McGavran; Edith E. McGavran; Alice S. McTurk; Kyriakos Michaelides; Margaret Michaelides; Donald R. Mitchell; Fred Morgan; Christine Motler, as Executrix for the Estate of Jay Motler; Harold Mueller; Claude Nabers; Leon Neiman; Judith A. Neiman; Daniel N. Payton, III; Jane H. Payton; Jean A. Pitts; Gary L. Platner; Alvin L. Prichard, Jr.; Marilyn M. David, formerly known as Marilyn M. Prichard; Suraj P. Sancheti; Lee Maria; Lula Santa Maria; Mabel Schenk, as Executrix for the Estate of Samuel Schenk; Arch H. Schrom; Shirley A. Schrom; Thomas Q. Schultz; Ruth R. Schultz; Robert Stern; Roxanne Stern; Gordon G. Stillwell; Therral Story; Kathy Story; Wellington K. Stretton; Mary Ann Kozlowski; Joshua M. Tharp, Jr.; Mary Sue Tharp; Ronalt T. Ullenberg; Sheila Ann Ullenberg; Robert J. Wilder; Butz S. Wilder; Paul A. Williams; Stephen F. Wood, Intervenors-Appellants, v. MERRILL LYNCH, PIERCE, FENNER AND SMITH, INC.; Can-American Corporation; Can-American Realty Corporation; Shelter Seagate Corporation; Garrett G. Carlson; Graham C. Count; Arni Thorsteinson; Martin Cicco; Laventhol & Horwath; M.A. Mortenson Co.; Winsor/Faricy Architects, Inc.; Trustbank Mortgage Center, Incorporated; Midwest Title Guarantee Company of Florida; Frank Lavin,
No. 96-1673.
United States Court of Appeals, Sixth Circuit.
Argued June 17, 1998.
Decided Sept. 30, 1999.
Bruce E. Gerstein, Garwin, Bronzaft, Gerstein & Fisher, New York, NY; Elwood S. Simon, John P. Zuccarini, Elwood S. Simon & Associates, Birmingham, MI, for Plaintiff.
Monique K. Cirelli, Barris, Sott, Denn & Driker, Detroit, MI; Thomas R. Grady (argued and briefed), Grady and Associates, Naples, FL, for Intervenors-Appel-lants.
David C. Andrew, Baker, Donelson, Bearman & Caldwell, Memphis, TN; Shel don H. Klein (briefed), Butzel Long, Detroit, MI; Barbara L. McQuade, Office of the U.S. Attorney, Detroit, MI; Dennis K. Egan (argued and briefed), Egan & Maz-zara, Detroit, MI, for Defendants-Appel-lees Merrill Lynch, Fenner & Smith, Inc. and Martin Cicco.
Jon B. Gandelot, Grosse Pointe Woods, MI; Steve W. Gaskins, Cosgrove, Flynn, Minneapolis, MN, for Defendants-Appel-lees Can-American Corp., Can-American Realty Corp., Garrett G. Carlson, Graham C. Count and Arni Thorsteinson
Stephen F. Wasinger, Wasinger, Kick-ham & Kohls, Royal Oak, MI, for Defendant-Appellee Laventhol & Horwath.
Lawrence G. Campbell, Dickinson, Wright, Moon, Van Dusen & Freeman, Detroit, MI; Robert P. Hurlbert, Dickinson, Wright, Moon, Van Dusen & Freeman, Chicago, IL, for Defendant-Appellee M.A. Mortenson Co.
James R. Case, Kerr, Russell & Weber, Detroit, MI; Melissa M. Horne, Winograd, Shine, Providence, RI, for Defendant-Ap-pellee Winsor/Faricy Architects, Inc.
Jonathan T. Walton, Jr., Laura S. Stafford, Detroit, MI, for Defendant-Appellee Trustbank Mortgage Center, Inc.
Frank W. Brochert, Plunkett & Cooney, Detroit, MI; Lawrence G. Campbell, Dickinson, Wright, Moon, Van Dusen & Freeman, Detroit, MI; Timothy D. Wittlinger, Clark Hill, Detroit, MI, for Defendant-Appellee Midwest Title Guarantee Co. of Florida.
Sheldon H. Klein (briefed), Detroit, MI; Barbara L. McQuade, Office of the U.S. Attorney, Detroit, MI; Dennis K. Egan (argued and briefed), Egan & Mazzara, Detroit, MI, for Defendant-Appellee Frank Lavin.
Before: MARTIN, Chief Judge; MERRITT, KENNEDY, NELSON, RYAN, BOGGS, NORRIS, SURHEINRICH, SILER, BATCHELDER, DAUGHTREY, MOORE, COLE, CLAY, and GILMAN, Circuit Judges.

Opinion:
RYAN, J., delivered the opinion of the court, in which MERRITT, NELSON, NORRIS, SUHRHEINRICH, SILER, BATCHELDER, COLE, CLAY, and GILMAN, JJ" joined. MOORE, J. (pp. 429-37), delivered a separate opinion concurring in the judgment, in which DAUGHTREY, J., joined. KENNEDY, J. (pp. 437-42), delivered a separate dissenting opinion in which MARTIN, C. J., and BOGGS, J., joined, with MARTIN, C.J., (pp. 442-44), also delivering a separate dissenting opinion.
RYAN, Circuit Judge.
We granted en banc review in this case to decide whether the district court erred in holding that the doctrine of res judicata binds the intervenors-appellants, hereinafter the "Florida plaintiffs," to the district court's judgment on certain non-class claims in litigation filed by the above-named plaintiffs, hereinafter the "Becherer plaintiffs," thereby precluding the Florida plaintiffs from prosecuting an action against the defendants in this case in Florida state court. We hold that the Florida plaintiffs are bound by the district court's judgment only to the extent they were included in the Fed.R.Civ.P. 23(b)(3) class certified in the original action in March 1991, and then only to the extent of the issues that were adjudicated as to that certified class.
I.
The Becherer plaintiffs and the Florida plaintiffs are investors in a Florida condominium/hotel development. The Becherer plaintiffs filed suit in August 1989 in the United States District Court for the Eastern District of Michigan alleging fraud, securities violations, breach of contract, and other claims against the hotel's developers, the securities broker, the escrow agent, and the financial institution involved in the financing of the project. See Becherer v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 799 F.Supp. 755, 762 (E.D.Mich.1992) ("Becherer I"). The Becherer plaintiffs requested class certification under Fed.R.Civ.P. 23(b)(3) in November'1989. The Florida plaintiffs were originally putative class members in the Becherer suit.
In March 1991, the district court certified a class consisting of both the Becherer plaintiffs and the Florida plaintiffs, but only as to two contract claims against the developer/construction company defendants, Shelter Seagate Corporation and its affiliates, or SSG. See Becherer I, 799 F.Supp. at 761-62, 784. The class prevailed in this action: The district court granted summary judgment in the class's favor and awarded $6.7 million in damages on one of the contract claims in May 1991. See id. at 761, 785. As to the other contract claim, after a bench trial, the district court found a breach by the relevant defendants, but no damages resulting therefrom. See id. at 767.
In February 1992, the district court certified another class, once again consisting of both groups of plaintiffs, for the purpose of ratifying a proposed settlement of all remaining claims of the investors against the remaining defendants. Becherer v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 809 F.Supp. 1259, 1263 (E.D.Mich.1992) ("Becherer II"). Because this class was also certified under Fed.R.Civ.P. 23(b)(3), the court gave all putative class members until April 3, 1992, to object to the proposed settlement. See id. at 1278. On April 3, 1992, 44 plaintiffs, including many of the Florida plaintiffs, did object. Additionally, the law firm representing these objectors reserved the right to add to the list of plaintiffs who were objecting, as the court had extended the time for doing so until April 14. Under the terms of the proposed settlement, the number of investors electing to opt out "was sufficient to scuttle the agreement" and vitiate the class certification. Id. at 1264. Significantly, all of the Florida plaintiffs either opted out of the proposed settlement class, or reserved their right to object to the proposed settlement.
The Florida plaintiffs then filed fraud claims in a Florida state court practically identical to those filed in the federal district court by the Becherer plaintiffs; and it is this filing that gives rise to the issue before us today. None of the named Becherer plaintiffs participated in the Florida case.
In August 1992, after the collapse of the proposed settlement and settlement class, and after the filing in the state court by the Florida plaintiffs, the district court dismissed on summary judgment all of the Becherer plaintiffs' remaining claims against the other defendants. See id.; Becherer I, 799 F.Supp. at 767-75. Subsequently, the district court in Michigan enjoined the Florida plaintiffs from pursuing their claims in the Florida state court, pursuant to the relitigation exception found in the Anti-Injunction Act, 28 U.S.C. § 2283. See Becherer II, 809 F.Supp. at 1269, 1271, 1276. The district court held that because both groups' interests were identical and they had a "sufficiently close" relationship, the Florida plaintiffs were bound, under the principles of res judicata and collateral estoppel, by the summary judgment against the Becherer plaintiffs. Id. at 1267-68.
On appeal, we reversed in part, holding, in an opinion by Judge Cornelia Kennedy, that the theory of claim preclusion relied on by the district court was "impermissibly broad." Becherer v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 43 F.3d 1054, 1070-71 (6th Cir.1995) ("Becherer III"). We determined that the district court erred in finding "virtual representation" based solely on identity of interests and a close relationship, because this form of claim preclusion requires, among other things, " 'an express or implied legal relationship in which parties to the first suit are accountable to non-parties who file a subsequent suit raising identical issues.' " Id. at 1070 (citation omitted). We acknowledged "that courts will refuse to ap ply virtual representation simply to preclude a nonparty from relitigating issues that have been lost after vigorous advocacy by a party who seems to hold an interest identical to the interests of the nonparty." Id. Thus, we recognized "the need to keep the doctrine [of virtual representation] within strict confines," id., and we remanded for a determination whether a legal relationship existed between the Becherer plaintiffs and the Florida plaintiffs such that the former group was accountable to or controlled by the latter group, see id. at 1071. In dicta, however, we intimated that if the Florida plaintiffs, acting through the Association of Unit Owners, or AUO, of which all plaintiffs in both groups were members, "authorized, financed, and controlled the investigation and prosecution of the Becherer plaintiffs' suit, including hiring an attorney and arranging to pay him a combination retainer and contingency fee," then collateral estoppel would probably bar the Florida plaintiffs' claims. Id. (emphasis added).
On remand, the district court made 67 findings of fact as to the collateral estoppel issue. Becherer v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 920 F.Supp. 1345, 1357-67 (E.D.Mich.1996) ("Becherer IV"). The district court also dismissed the Bech-erer plaintiffs' Land Sales Act claims against Merrill Lynch and SSG, and we affirmed that decision on the Becherer plaintiffs' appeal. Becherer v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 127 F.3d 478, 479-80 (6th Cir.1997) ("Becherer V'). With respect to the res judicata issues, the district court found that the AUO was the real party in interest in the Becherer case, and that "the AUO authorized, financed, and controlled the investigation and prosecution of the Becherer plaintiffs' suit." Becherer IV, 920 F.Supp. at 1367 (emphasis added). Importantly, however, the district court made no explicit finding as to whether the Florida plaintiffs authorized, financed, and controlled the-AUO to prosecute the Becherer suit, other than that "[e]ach Florida plaintiff is or has been associated with the AUO as a unit owner or through a limited partnership." Id. at 1357. The Florida plaintiffs point out, and the district court acknowledged, that membership in the AUO was mandatory for all investors in the hotel. See id. The only other findings made by the district court which may be said to establish any of the virtual representation factors connecting the Florida plaintiffs and the Becherer plaintiffs, through the AUO, are the following, which we have paraphrased:
1. Florida plaintiffs' counsel, Thomas Grady, told a Florida court in 1990 that the resolution of the Becherer case in the Eastern District of Michigan would determine the rights of his clients in the Florida case.
2. All unit owners, including the Florida plaintiffs, had access to the Becherer plaintiffs' counsel, Elwood S. Simon, and had access to information about the litigation, and Simon sought their input so that he could represent their interests. The unit owners as a group had "many opportunities" to object to the AUO's litigation efforts, but instead gave a positive "overall response." (We note, however, that the record indicates the Florida plaintiffs own approximately 60 of the 474 total hotel units. Thus, they quite obviously would not control a majority vote in the AUO.)
3. At least four Florida plaintiffs retained Simon to represent them.
4. Approximately 29 Florida plaintiffs contributed $14,500 out of the total $58,-500 received by the class-action expense fund.
5. In 1992, 22 Florida plaintiffs signed affidavits requested by Simon opposing defendants' motions for summary judgment.
6. Florida plaintiffs' counsel, Grady, and the Becherer plaintiffs' counsel, Simon, "worked closely together at the time that litigation strategies were being formulated." Grady and Simon "worked as a team to further their mutual interests."
7. Grady had a "working relationship" with the AUO Board and with some of the Becherer plaintiffs.
8. The Becherer plaintiffs claimed to adequately represent the Florida plaintiffs' interests.
9. Grady acknowledged that the Florida plaintiffs' interests were congruent to those of the AUO.
10. Grady believed that the Florida plaintiffs' interests were being adequately represented by Simon and the Bech-erer plaintiffs.
11. Grady recognized a possibility that his clients would be bound by the Bech-erer decisions, even in the absence of class certification, and so advised his clients.
12. The Florida plaintiffs decided to forego individual claims against the defendants so they could "wait and see" if the class action furthered their objectives.
See id. at 1357-70. Based upon these findings, the district court held that the Florida plaintiffs and the Becherer plaintiffs were in privity, as that term is understood in the context of the law of res judicata, and thus, under the doctrine of virtual representation, the Florida plaintiffs were barred from further litigating this matter. Id. at 1367.
In ruling that its findings of fact mandated barring the Florida plaintiffs because they had been virtually represented, the district court first established that the AUO controlled the Becherer litigation. See id. at 1368. The court relied on the facts that the AUO hired and paid Simon, and directed his investigation and prosecution of the putative class action. In finding that the Florida plaintiffs in turn controlled or could hold accountable the AUO, the court opined that the AUO had a fiduciary relationship to all its investor-members, including the Florida plaintiffs. The court acknowledged that (1) the AUO must have acted in its capacity as fiduciary in prosecuting the Becherer suit in order to have represented all the unit owners, (2) the AUO did not formally file the Becherer case, and (3) it may not have had authority to do so. Nevertheless, the court concluded that the AUO represented the Florida plaintiffs because those plaintiffs took that position "when it . served their interests." Id. The court did not explain how the plaintiffs' taking a particular position could establish a fiduciary relationship.
Next, according to the district court, the Florida plaintiffs improperly maneuvered in order to avoid the potential effects of res judicata. See id. The court observed that the Florida plaintiffs' counsel contemporaneously argued to two different Florida courts both that the Becherer action would, and that it would not, resolve the issues in the Florida case, depending on which position was most advantageous in the particular courtroom. See id. However, the Florida plaintiffs point out that the initial representation was made in 1990 before the settlement was even proposed, while the latter statement was made in 1995, well after the proposed settlement had collapsed. The district court's findings do not contradict the Florida plaintiffs' explanation in this regard.
Proceeding down the list of factors set out in Becherer III, the district court then found that the Florida plaintiffs were active in the Becherer litigation, either by supplying money and affidavits, or by "acquiesc[ing]" in the actions taken by the AUO. Id. at 1369. The court supported this last contention by stating that unit owners had many opportunities to object to the AUO's handling of the case and that "the overall response to the AUO's efforts was positive." Id. The court also found, in this regard, that the parties' attorneys, Grady and Simon, worked closely together and that this fact establishes the Florida plaintiffs' active participation. Id. However, the court did not distinguish between cooperation before, and after, the proposed settlement.
Finally, the district court implied that Simon was accountable to Grady "[i]n the sense that Simon risked losing the support of his teammates if he rebuffed their concerns in conducting the Becherer litigation." Id. at 1370. Notably, this is the only reference in the district court's discussion of accountability and control which addresses the Florida plaintiffs' connection with the Becherer plaintiffs, as opposed to the connection between the AUO and the Becherer plaintiffs, or between the Becherer plaintiffs and the unit ovmers at large. Again, this finding also apparently references conduct before the proposed settlement. On the basis of these findings, the district court found that the Florida plaintiffs were barred by res judicata from litigating their claims in Florida state court.
This appeal followed, and a panel of this court issued an opinion reversing the district court's judgment, holding that the district court erred in its application of the law of virtual representation insofar as it "relied on events . that were largely irrelevant in establishing whether the Florida plaintiffs controlled, could hold legally accountable, or acquiesced in being represented by the Becherer plaintiffs" and "failed to make findings sufficient to demonstrate that the Florida plaintiffs controlled, held accountable, or acquiesced after the class settlement was proposed in 1992." Becherer v. Merrill Lynch, Pierce, Fenner & Smith, Inc., No. 96-1673, 1997 WL 741361, at *12 (6th Cir. Dec.3, 1997) ("Becherer VI") (withdrawn for en banc review). Subsequently, we granted en banc review and vacated the panel opinion. Becherer v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 131 F.3d 593 (6th Cir.1998). For the reasons that follow, we now reverse the district court's decision and vacate its injunction.
II.
This court reviews a district court's findings of fact for clear error, and its conclusions of law de novo. Kildea v. Electro-Wire Products, Inc., 144 F.3d 400, 404 (6th Cir.1998).
III.
Our en banc review of this case requires us to decide whether and to what extent legal principles of res judicata preclude the Florida plaintiffs from pursuing their fraud claims after the federal court's judgment in the Becherer litigation. We hold that the Florida plaintiffs are precluded from asserting only such claims as were adjudicated by the court on behalf of the class of which the Florida plaintiffs were members. Specifically, the Florida plaintiffs are barred from relitigating only the certified class claims against SSG adjudicated by the district court on May 7, 1991 and August 7, 1992, which are referenced in Becherer I, 799 F.Supp. at 761, 766-67, 785-90.
Res judicata bars a subsequent action "if the following elements are present: (1) a final decision on the merits by a court of competent jurisdiction; (2) a subsequent action between the same parties or their 'privies'; (3) an issue in the subsequent action which was litigated or which should have been litigated in the prior action; and (4) an identity of the causes of action." Bittinger v. Tecumseh Prods. Co., 123 F.3d 877, 880 (6th Cir.1997) (emphasis omitted). In this case, the first, thud, and fourth elements have been established and are not in dispute.
The second element, the concept of privity, has been divided into three categories. First, those who are successors in interest to a party will be bound by a judgment against that party. Second, a nonparty who controlled the original suit will be bound by the resulting judgment. Third, a nonparty who is adequately represented by a party will also be precluded from relitigating the same issues. Becherer III, 43 F.3d at 1070 (citing Southwest Airlines Co. v. Texas Int'l Airlines, Inc., 546 F.2d 84, 95 (5th Cir.1977)).
This case does not involve the first category. The second and third categories— control and adequate representation — are distinct theories on which to base a finding of privity. As to the second category— control — we agree that " '[t]o have control of litigation requires that a person have effective choice as to the legal theories and proofs to be advanced in behalf of the party to the action. He must also have control over the opportunity to obtain review.'" Benson and Ford, Inc. v. Wanda Petroleum Co., 833 F.2d 1172, 1174 (5th Cir.1987) (citation omitted). The third privity category — adequate or "virtual" representation — requires " 'an express or implied legal relationship in which parties to the first suit are accountable to non-parties who file a subsequent suit raising identical issues.' " Id. at 1175 (emphasis added) (citation omitted). This third category may also be established by a nonparty's express agreement to be bound by or acquiescence to a party's representation. See, e.g., Restatement (Seoond) of Judgments § 40 (1980). However, absent an express agreement to be bound, an agreement should not be inferred " 'except upon the plainest circumstances.'" Bittinger, 123 F.3d at 882 (emphasis in original) (quoting Restatement (second) of Judgments § 40 cmt. b). This case does not involve an express agreement to be bound. In the class action setting, as detailed below, logic dictates, and our precedent requires, that the issue of acquiescence be determined in light of Fed.R.Civ.P. 23.
The district court employed a hybrid analysis of the "control" and "adequate representation" aspects of privity in ruling that res judicata barred the Florida plaintiffs' action. See Becherer IV, 920 F.Supp. at 1367. Whatever analysis a court applies, however, minimum standards of due process require that, in order to be claim precluded, a nonparty must (A) have actual control over the first litigation, (B) be able to hold the first party or its attorney legally accountable for the result in the first action, or (C) be able to rescind its express or implied consent to being represented by the first party if it deems its interests diverge sufficiently early in the litigation.
A.
We address the control category first. The Benson and Ford court found that "control" required a relationship akin to that between a president/sole shareholder and his or her company, a parent corporation and its subsidiary, an indemnitor and its indemnitee, or a liability insurer and an insured. See 833 F.2d at 1174. Thus, in that case, supplying an attorney, helping to finance the litigation, testifying as a witness, participating in consolidated pretrial proceedings, and even making limited presentations to the court in the first action, constituted insufficient "control" to be precluded in a subsequent action asserting the same facts and legal theories. Id.
The Florida plaintiffs did not control the Becherer plaintiffs. There is no evidence that the Florida plaintiffs' — cumulatively as individuals, or collectively as a group — chose Simon as counsel in the Becherer suit, or that they in any way dictated or even influenced the bringing of the suit, the conditions of the proposed settlement, or the arguments made in opposition to summary judgment in the Becherer action. While a handful of the Florida plaintiffs may have individually retained Simon, signed affidavits, contributed money to the first case, and communicated regarding the progress of the case, there is no evidence that these few could have exercised any authority over the Becherer action which could reasonably be called "control." As in Benson and Ford, the actions of the Florida plaintiffs were insufficient to establish preclusive control. Moreover, if the Florida plaintiffs' actions are indicia of control, there is no evidence whatsoever that any of them were taken after the settlement was proposed in 1992. In fact, had the Florida plaintiffs controlled the negotiation of the proposed settlement, there would have been no reason to opt out of the conditional class in the federal district court and file a separate suit in Florida.
B.
Next, we examine "adequate" or "virtual" representation. "Adequate representation" denotes " 'an express or implied legal relationship in which parties to the first suit are accountable to non-parties who file a subsequent suit raising identical issues.'" Benson and Ford, 833 F.2d at 1175 (emphasis added) (citation omitted); see also Becherer III, 43 F.3d at 1070. Thus, after a car crash in which a father was injured and his daughter killed, the father was not precluded from bringing a wrongful death action on behalf of his family after he had already lost a suit against the same defendant for his own injuries. Benson and Ford, 833 F.2d at 1175 (citing Freeman v. Lester Coggins Trucking, Inc., 771 F.2d 860 (5th Cir.1985)). Despite the fact that the same attorney was used, the same accident was at issue, and the same negligence was alleged, the family's claims were not precluded because they "had their own personal claims . and were due their day in court." Id. There existed no legal relationship, express or implied, between the father and the other members of his family by which the latter could hold the former legally responsible for the outcome of the first litigation, if, for example, the father or his attorney had been negligent in the prosecution of the first case.
Similarly, there is no evidence that the Florida plaintiffs here could have held the Becherer plaintiffs, the AUO, or Simon legally accountable for the result of the Becherer litigation. First, although the AUO may have held a fiduciary relationship vis — vis all unit owners, the AUO's responsibilities were to run the hotel. The district court made no findings which indicate that the AUO was authorized to bring a lawsuit on behalf of its members. To the contrary, the AUO Board of Directors disclaimed authority to bring such an action.
Second, the only factual finding which supports accountability is that three Florida plaintiffs retained Simon to represent them. Plaintiff Spencer, purported by the district court to be a Florida plaintiff who retained Simon, see Becherer IV, 920 F.Supp. at 1361, is not listed as one. Even if not clearly erroneous, the district court's finding of retainer by the other three establishes only that these three plaintiffs could hold him accountable; there is no evidence that the remainder of the plaintiffs before us had any legal relationship of accountability with the Becherer plaintiffs, the AUO, or Simon.
In its findings, the district court relied on retainer agreements addressed to Simon and his former firm, signed between June 6 and June 12, 1989, by Florida plaintiffs Mary Lou Frazier, Phillip W. McCollum, and Robert Hawley. However, these plaintiffs note that (1) Simon himself has denied that he represented them individually, and the retainer agreements in question were apparently sent to him without his request or assent; (2) Grady has testified that none of his clients considered himself represented by Simon in any capacity other than the class action against SSG; and (3) none of the retainer agreements referenced by the district court in making its findings was signed by any law firm.
If the district court's finding that at least three Florida plaintiffs were represented by Simon is not clearly erroneous, that finding does not establish that he represented them after the SSG victory. Although the retainer agreements themselves do not limit Simon's representation temporally, or to the SSG defendants in particular, there is no evidence that Simon did, in fact, continue as counsel for these individuals after the SSG litigation. We have been provided no evidence demonstrating payments by these plaintiffs to Simon, or the assertion of privilege on their behalf, or any legal communications between Simon and these plaintiffs after the SSG verdict. Moreover, Simon's rep resentation of these plaintiffs surely terminated upon their retention of Grady. See Stroud v. Ward, 169 Mich.App. 1, 425 N.W.2d 490, 493 (1988). Thus, the record is insufficient to find that Frazier, McCollum, Hawley, or any of the other Florida plaintiffs could hold Simon legally accountable for his actions in the post-SSG Becherer litigation.
C.
Finally, we turn to the issue of acquiescence. There is substantial evidence that the Florida plaintiffs acquiesced to representation by the Becherer plaintiffs before the class settlement was proposed. However, this is not enough to hold the Florida plaintiffs to the judgment rendered after they opted out of the class, the settlement collapsed, and they filed suit in Florida court.
"Acquiescence" means "[p]assive compliance or satisfaction," Black's Law Dictionary 24 (6th ed.1990), or "the act or condition of . giving tacit assent." Random House Compact Unabridged Dictionary 18 (Spec.2d ed.1996). In this setting, Fed.R.Civ.P. 23 subsumes the inquiry into representation by acquiescence. See Bittinger, 123 F.3d at 882. More specifically, Rule 23 encourages putative class members to "acquiesce" in the representation of the named plaintiffs, but elsewhere mandates that these putative plaintiffs be allowed, before a court-imposed date, to expressly exclude themselves or "opt out" of the class. Binding the Florida plaintiffs to the Becherer judgment would surely defeat the purposes, if not the letter, of Rule 23.
The plaintiffs sought class certification under Rule 23(b)(3), which provides:
An action may be maintained as a class action if the prerequisites of subdivision (a) are satisfied, and in addition:
(3) the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. The matters pertinent to the findings include: (A) the interest of members of the class in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; (D) the difficulties likely to be encountered in the management of a class action.
Fed.R.Civ.P. 23(b)(3). Rule 23(c)(1) provides that the court's determination as to whether an action will be maintained as a class action shall be made "[a]s soon as practicable after the commencement of an action brought as a class action." Fed.R.Civ.P. 23(c)(1). In appropriate circumstances, the district court may, as in the instant case, certify a class only as to particular issues. Fed.R.Civ.P. 23(c)(4)(a).
Rule 23(c)(2) requires that the court, in any class action maintained under subrule (b)(3), provide notice to the individual class members in the best manner available to ensure class members receive notice. Such notice must advise potential class members that
(A) the court will exclude the member from the class if the member so requests by a specified date; (B) the judgment, whether favorable or not, will include all members who do not request exclusion; and (C) any member who does not request exclusion may, if the member desires, enter an appearance through counsel.
Fed.R.Civ.P. 23(c)(2) (emphasis added). Due process concerns mandate the opt-out mechanism. See Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 812, 105 S.Ct. 2965, 86 L.Ed.2d 628 (1985). Thus, the minimum requirements of due process inform both res judicata and class-action doc trines, and as such, both must be considered here.
In Crown, Cork & Seal Co. v. Parker, 462 U.S. 345, 103 S.Ct. 2392, 76 L.Ed.2d 628 (1983), a putative class member failed to comply with a statute of limitations in filing his independent claim, although the class action had been timely filed. The Court held that the statute was to be tolled for all purported members of the class until the class action had run its course. Otherwise, the purposes of Rule 23 would be thwarted: There would be needless duplicity of claims as potential class members each filed separately in order to preserve their rights and comply with the limitations period; furthermore, putative plaintiffs would lose their right to opt out if the limitations period were allowed to expire while the class was being formed. Id. at 351, 103 S.Ct. 2392. The Court noted:
There are many reasons why a class member, after the denial of class certification, might prefer to bring an individual suit rather than intervene. The forum in which the class action is pending might be an inconvenient one, for example, or the class member might not wish to share control over the litigation with other plaintiffs once the economies of a class action were no longer available.
Id. at 350, 103 S.Ct. 2392.
When a class is certified, Rule 23 implicitly discourages members from filing separate claims, by allowing those dissatisfied with the representation of the named plaintiffs to opt out before a specified date. In other words, despite the identity of interests, facts, and legal theories that make a class possible in the first place, a plaintiff has the right to pursue his or her separate action. This right remains intact even after a plaintiff initially acquiesces in representation by others. As long as effected before the cutoff date promulgated by the court, opt out is available to class members even though they may have ben-efitted from the economies of scale inherent in the representation up to that point by class counsel. As a result, it would defeat the clear purposes of Rule 23 to bar a group of plaintiffs, who were putative members of a class but either opted out or retained their right to opt out, from litigating separately.
The only arguable evidence that any Florida plaintiffs acquiesced to the representation by the Becherer plaintiffs after February 1992 is 22 affidavits signed by Florida plaintiffs in opposition to summary judgment in the Becherer case. However, weighed against this tenuous indication of acquiescence by mere testimony are the substantial facts that these plaintiffs either opted out or reserved their right to opt out of the class within the time allowed by the district court, and that they each filed suit separately in Florida state court before the Becherer litigation had concluded. If they were subsequently held to the judgment against the Becherer plaintiffs, their due process-based right to timely opt out of the settlement under the rule and their timely reservation of that right would be meaningless. Indeed, contrary to the rule's opt-out provision, the Florida plaintiffs would be held hostage to litigation that they could not control.
The Florida plaintiffs also cannot be held to have acquiesced in the AUO's representation because membership in the AUO is required of all investors. Only by divesting their interest in the hotel could the Florida plaintiffs have disassociated themselves from the AUO. Such extraordinary action is not required to demonstrate an intention not to be bound by the AUO's actions, especially in light of the more reasonable and precise rule-based steps that these plaintiffs did take — opting out and filing an independent claim. Moreover, a conclusion that the Florida plaintiffs' opportunity to participate in the litigation with the AUO through their "seat at the table" is sufficient to show adequate representation and defeat the requirements of Rule 23 and ignore the due process concerns on which the opt-out provision is based would deny these plaintiffs any meaningful opportunity to timely rescind consent.
Rule 23(c)(2) provides the legal basis for a finding, when necessitated by subsequent litigation by class members, that those class members who do not request exclusion from membership are bound by the court's adjudication of class issues. "[I]n drafting the rule every attempt was made to maximize the likelihood that a court would decide that the judgment would be binding on all members of the class." 7B Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 1789, at 246 (2d ed.1986). "However, if an action is not properly certified, then any judgment that is entered will not be a class judgment and it will not bind persons who are not named parties to the dispute." Id. at 243 (emphasis added); see also id. at n. 12 (Supp.1999) (citing Bittinger, 123 F.3d 877). Thus, although Rule 23 cannot operate as a rule of claim preclusion, because it is well-settled that a judgment's preclusive effect may be "tested only in a subsequent suit," id. at 245, Rule 23(b)(3), with subrule (c)(2), absent control or a legal relationship of accountability, provides the best, if not the only, indication of a class member's consent, tacit or otherwise, to class representation by another. We acknowledged as much in Bittinger, which intervened between the district court's decision in Bech-erer TV and this appeal.
In Bittinger, we recognized that the Supreme Court's decision in Richards v. Jefferson County, 517 U.S. 793, 116 S.Ct. 1761, 135 L.Ed.2d 76 (1996), which, like Bittinger, was decided subsequent to Becherer III and Becherer IV, "requires a more limited analysis [of privity than the virtual representation analysis in Becherer III] subject to the rules articulated in the [Restatement (seoond) of Judgments] and Rule 23." Bittinger, 123 F.3d at 882. Thus, we rejected application of the doctrine of virtual representation in a class action case because it was an "unruly standard" that would effect "an end run around the limitations of Rule 23." Id. We refused to hold the Bittinger class bound to earlier attempted class action litigation by different named plaintiffs where the district court dismissed the case on a motion for summary judgment, never reaching the class certification issue. See id. In reaching that conclusion, in lieu of principles of virtual representation, we relied on section 41 of the Restatement (second) of Judgments as more consistent with the requirements of Rule 23 and the governing Supreme Court precedent. The Restatement provides:
Person Represented by a Party
(1) A person who is not a party to an action but who is represented by a party is bound by and entitled to the benefits of a judgment as though he were a party. ' A person is represented by a party who is:
(a) The trustee of an estate or interest of which the person is a beneficiary; or
(b) Invested by the person with authority to represent him in an action; or
(c) The executor, administrator, guardian, conservator, or similar fiduciary manager of an interest of which the person is a beneficiary; or
(d) An official or agency invested by law with authority to represent the person's interest; or
(e) The representative of a class of persons similarly situated, designated as such with the approval of the court, of which the person is a member.
Restatement (Second) of Judgments § 41(1) (1980). In adopting this Restatement section, we specifically rejected application of the doctrine of virtual representation in the context of former class action litigation where "the plaintiff was not a class member bound by a previous adjudication and [did] not fit any other category of persons 'represented' by a party in the previous action." Bittinger, 123 F.3d at 880. We explained, in examining our decision in Becherer III, that "Rich ards binds us to a rule of res judicata limited to parties and their 'privities' " which "may not be extended, as . under a broad 'virtual representation' doctrine, to a class never certified." Id. at 882. Bittinger did not expressly hold that res judicata could not bind a nonparty by a showing of privity through control or a legal relationship of accountability. In essence, Bittinger held that acquiescence cannot be shown in a class action case where the nonparties opt out of the class and there is no other court approval of representation by a party. See id. at 880, 882.
Moreover, in Bittinger, both sets of plaintiffs were selected by a common voluntary association formed exclusively for a litigation purpose; and, the association hired the attorney for both suits, authorized both suits, and bore the costs of both suits. See id. at 885-86 (Ryan, J., dissenting). Bittinger himself had been advised by counsel not to file independently while the first suit was in progress because his interests were being represented there. See id. at 886. There can be no doubt, in light of the Bittinger holding, that members of an mvoluntary association formed for a TOTfiitigation purpose cannot be held to a judgment against other members of the association, or against the association itself, when the second group takes concrete steps to protect its autonomy by hiring and paying for separate counsel, opting out of a proposed settlement class, and filing an independent action.
Here, the district court reached the class certification question with respect to the contract issues, but not the remaining claims, whereas the district court in the previous litigation relevant to Bittinger dismissed the case without reaching the certification question. See id. at 879. However, although the district court here rendered a decision on the remaining claims after the settlement and settlement class collapsed, the court never addressed the certification question as to the claims adjudicated after the Florida plaintiffs opted out. When the district court issued its opinion adjudicating the fraud claims in the Becherer litigation, the Florida plaintiffs had already filed an action, in state court. By failing to address the issue of class certification as it related to the remaining non-contract claims adjudicated in its August 1992 opinion and order, the district court failed to provide the Florida plaintiffs notice that these issues would be adjudicated on behalf of any class in which they were included or an opportunity to exclude themselves from any potential class. The court did not otherwise approve designation of the Becherer plaintiffs as representatives of the Florida plaintiffs with respect to those claims.
The only acceptable indicator of the Florida plaintiffs' acquiescence or lack thereof lies in their decision to opt out and file a case in state court. Under these circumstances, as in Bittinger, "the plaintiff was not a class member bound by a previous adjudication and does not fit any other category of persons 'represented' by a party in the previous action," Id. at 880. Thus, as in Bittinger, "the plaintiffs in the instant case are not precluded from pursuing their claims. Section 41 clearly requires 'approval of the court' for a representative of a class to 'represent,' for privity purposes, later plaintiffs." Id. at 882 (citation omitted).
As Judge Karen Nelson Moore's opinion observes, "By failing to rule on class certification with respect to the remaining claims, the district court rendered judgments with uncertain preclusive effect. The result has been six years of additional litigation." Opn. at 430. Although we decline, in light of Bittinger, to adopt Judge Moore's discussion of virtual representation, we otherwise concur with her thoughtful discussion of Rule 23(b)(3), and her conclusion that "the Florida plaintiffs are not precluded from pursuing their fraud claims by the Becherer judgment." Opn. at 433.
IV.
We hold that res judicata only precludes the Florida plaintiffs from relitigating the contract claims against SSG that were adjudicated by the district court in May 1991 and August 1992, and for which the district court certified a class that included the Florida plaintiffs. The Florida plaintiffs did not have actual control over the first action, were not able to hold the Becherer plaintiffs or Simon legally accountable for the result in the first action, and timely exercised their right to opt out of the settlement class or timely reserved that right. Because the district court never provided the Florida plaintiffs notice and an opportunity to opt out of any class certified with respect to the remaining claims, the Florida plaintiffs are not precluded from pursuing their remaining claims against the remaining defendants independently of the Becherer plaintiffs in state court.
We REVERSE the decision of the district court, and we VACATE its injunction.