Opinion ID: 2353188
Heading Depth: 1
Heading Rank: 6

Heading: Scope of Collateral Review

Text: It has long been established that [f]ull faith and credit `generally requires every State to give a judgment at least the res judicata effect which the judgment would be accorded in the State which rendered it.' Hospitality Management Associates, Inc. v. Shell Oil Co., 356 S.C. 644, 591 S.E.2d 611, 616, cert. denied, 543 U.S. 916, 125 S.Ct. 34, 160 L.Ed.2d 200 (2004) (quoting Durfee v. Duke, 375 U.S. 106, 109, 84 S.Ct. 242, 11 L.Ed.2d 186 (1963)); see also U.S. Const. Art. IV, § 1 ([F]ull faith and credit shall be given in each state to the    judicial Proceedings of every other state.). A class action judgment is no exception. See Matsushita Electric Industrial Co., v. Epstein, 516 U.S. 367, 374, 116 S.Ct. 873, 134 L.Ed.2d 6 (1996) ([A] judgment entered in a class action, like any other judgment entered in a state judicial proceeding, is presumptively entitled to full faith and credit   .); Cooper v. Federal Reserve Bank of Richmond, 467 U.S. 867, 874, 104 S.Ct. 2794, 81 L.Ed.2d 718 (1984) (There is of course no dispute that under elementary principles of prior adjudication a judgment in a properly entertained class action is binding on class members in any subsequent litigation.). It is equally well settled, however, that a judgment issued without proper personal jurisdiction over an absent party is not entitled to full faith and credit elsewhere and thus has no res judicata effect as to that party. Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 805, 105 S.Ct. 2965, 86 L.Ed.2d 628 (1985); see also Kremer v. Chemical Construction Corp., 456 U.S. 461, 482, 102 S.Ct. 1883, 72 L.Ed.2d 262 (1982) (A State may not grant preclusive effect in its own courts to a constitutionally infirm judgment, and other state and federal courts are not required to accord full faith and credit to such a judgment.). In other words, a party seeking to avoid the binding effect of a prior judgment is entitled to collaterally attack the judgment on the grounds that the rendering court had no personal jurisdiction over him or her at the time the judgment was rendered. Collateral attacks on class action judgments, however, present a problem distinct from attacks on other types of judgments. This is so because the process due absent members of a class action suit  necessary to bind them to the judgment  has been a somewhat elusive concept. See Hansberry v. Lee, 311 U.S. 32, 41, 61 S.Ct. 115, 85 L.Ed. 22 (1940) ([T]o an extent not precisely defined by judicial opinion, the judgment in a `class' or `representative' suit, to which some members of the class are parties, may bind members of the class or those represented who were not made parties to it.). However, in Shutts, the United States Supreme Court set forth some rather clear criteria with respect to one particular type of class action  the type at issue in this case: class actions specifically certified under Rule 23(b)(3) of the Federal Rules of Civil Procedure. [17] Shutts involved a class action brought in Kansas state court in which the plaintiff class sought to collect interest on royalty payments that they alleged had been illegally delayed by the defendant, a Delaware corporation. Shutts, 472 U.S. at 799, 105 S.Ct. 2965. The trial court entered judgment for the plaintiff class, and the Supreme Court of Kansas affirmed, casting aside the defendant's argument that the certifying state court could not adjudicate the claims of absent members of the plaintiff class because there were not sufficient minimum contacts between the state and each of those plaintiffs to meet the criteria for personal jurisdiction under International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945). The Supreme Court agreed with the Supreme Court of Kansas and held that the Due Process Clause protects an absent class plaintiff even though that plaintiff may not possess the minimum contacts with the forum which would support personal jurisdiction over a defendant. Shutts, 472 U.S. at 811, 105 S.Ct. 2965. Minimal due process, the Court held, requires that absent class plaintiffs: must receive notice plus an opportunity to be heard and participate in the litigation, whether in person or through counsel. The notice must be the best practicable, `reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.'    The notice should describe the action and the plaintiffs' rights in it. Additionally, we hold that due process requires at a minimum that an absent plaintiff be provided with an opportunity to remove himself from the class by executing and returning an `opt out' or `request for exclusion' form to the court. Finally, the Due Process Clause of course requires that the named plaintiff at all times adequately represent the interests of the absent class members. Id. at 812, 105 S.Ct. 2965. Thus, with its decision in Shutts, the Court effectively hewed a path with respect to the requirements for asserting personal jurisdiction over absent members of a class action suit certified under Rule 23(b)(3). [18] In a nutshell, once the Shutts due process requirements are met, all absent members who do not opt out are bound by the judgment in that suit. Significantly, however, the Court's holding in Shutts did not directly resolve the narrow issue presented in this case; the extent to which reviewing courts can entertain a collateral attack on a judgment on the grounds that the Shutts due process requirements were not satisfied by the certifying court in the prior class action. Although we have not tackled this question before, we note that this is a thorny issue that has pricked many a judicial finger in the past and has not resulted in a uniform disposition by the many federal and state courts that have addressed the issue of collateral review of class action judgments. On one side of the divide are the courts that agree with the decision in Epstein v. MCA, Inc., 179 F.3d 641 (9th Cir.), cert. denied, 528 U.S. 1004, 120 S.Ct. 497, 145 L.Ed.2d 384(1999)( Epstein III ), in which the Ninth Circuit held that the extent of collateral review is limited to consideration of whether the procedures in the prior litigation afforded the party against whom the earlier judgment is asserted a `full and fair opportunity' to litigate the claim or issue. Id. at 649. Citing Hansberry v. Lee, 311 U.S. 32, 61 S.Ct. 115, 85 L.Ed. 22 (1940), the Ninth Circuit rejected the notion of a broad, merit-based collateral attack and further explained its limited approach saying: Simply put, the absent class members' due process right to adequate representation is protected not by collateral review, but by the certifying court initially, and thereafter by appeal within the state system and by direct review in the United States Supreme Court. As the Court stated in Hansberry v. Lee , `there has been a failure of due process only in those cases where it cannot be said that the procedure adopted, , fairly insures the protection of the interests of absent parties who are to be bound by it. '    Due Process requires that an absent class member's right to adequate representation be protected by the adoption of the appropriate procedures by the certifying court and by the courts that review its determinations; due process does not require collateral second-guessing of those determinations and that review. Epstein III, 179 F.3d at 648. [19] Thus, in its final word on the matter, [20] the Ninth Circuit rejected the contention that Shutts and Kremer supported an unfettered right to launch a collateral challenge against class action judgments on due process grounds. Epstein III, 179 F.3d at 648 ([N]owhere in Shutts did the Court state or imply that where the certifying court makes a determination of the adequacy of representation in accord with Shutts, this determination is subject to collateral review.). Instead, the court held that only a [l]imited collateral review [is] appropriate    to consider whether the procedures in the prior litigation afforded the party against whom the earlier judgment is asserted a `full and fair opportunity' to litigate the claim or issue. Id. at 648-49 (quoting Kremer, 456 U.S. at 480, 102 S.Ct. 1883). Approximately four years after Epstein III was decided, however, the Second Circuit handed down Stephenson v. Dow Chemical Co., 273 F.3d 249 (2nd Cir.2001), which disagreed with the Epstein III reasoning and served as a clarion call for those courts that favor broad, substantive collateral review. In Stephenson, two plaintiffs (together with their respective families) sought to avoid the binding effect of a previous class action judgment on the grounds that they were not adequately represented in the previous action. The plaintiffs were two Vietnam War veterans who brought suit for injuries based on their exposure to Agent Orange during the war. However, approximately fifteen years before the litigation initiated by the plaintiffs, a class action involving identical claims had been settled. The defendants argued that the judgment in the previous class action precluded the plaintiffs' suit. The plaintiffs disagreed, however, and argued that because their injuries arose after the depletion of the settlement fund in the earlier class action, they were not adequately represented in that action, and, therefore, could not be bound by the judgment. The Second Circuit explicitly rejected the limited collateral review adopted in Epstein III, espousing a much broader scope of collateral attack on class action judgments. Interestingly, that court also cited Hansberry and Shutts as authority for the proposition that a court may properly hear and adjudicate a collateral attack on the merits of the fairness determination in a prior class action: [T]he propriety of a collateral attack such as this is amply supported by precedent. In Hansberry v. Lee, 311 U.S. 32, 61 S.Ct. 115, 85 L.Ed. 22    (1940), the Supreme Court entertained a collateral attack on an Illinois state court class action judgment that purported to bind the plaintiffs. The Court held that class action judgments can only bind absent class members where `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.' Id. at 41, 61 S.Ct. 115;   ; cf. Phillps Petroleum Co. v. Shutts, 472 U.S. 797, 805, 105 S.Ct. 2965, 86 L.Ed.2d 628    (1985) (`It is true that a court adjudicating a dispute may not be able to predetermine the res judicata effect of its own judgment.'). Stephenson, 273 F.3d at 258. Relying on its view of collateral attacks on class action judgments, the Second Circuit then undertook a substantive analysis of the merits of the Stephenson plaintiffs' inadequacy of representation challenges, holding that the plaintiffs had not been adequately represented and thus could not be bound by the settlement of the earlier case. The Supreme Court granted certiorari in Stephenson and thus seemed poised to settle the Epstein/Stephenson debate once and for all. However, the Supreme Court's decision was issued per curiam and merely vacated the Second Circuit's ruling with respect to some plaintiffs, and summarily affirmed the decision as to the others by an equally divided court. Dow Chemical Co. v. Stephenson, 539 U.S. 111, 112, 123 S.Ct. 2161, 156 L.Ed.2d 106 (2003) (Stevens, J., not participating). The issue, thus, was unresolved and remains hotly litigated. Recently, in Hospitality Management, the South Carolina Supreme Court, in a well-reasoned opinion, addressed the issue of whether only a limited collateral review is required on the Shutts due process requirements in a class action case   , or whether a broader, merits-oriented review is permitted   . Hospitality Management, 591 S.E.2d at 618. The court first considered the legal positions advanced in Stephenson and Epstein III respectively and then discussed the important policy considerations favoring each approach: In our opinion, there are important policy considerations favoring both limited and broad collateral review. Certainly, in the specialized context of class action litigation, the significant interests in efficiency and finality favor limited review. If the due process issues are fully and fairly litigated and necessarily decided by the rendering court, then the strong interest in finality militates in favor of an extremely limited collateral review. Without limited review, a nationwide class action could be vulnerable to collateral actions in the 49 other states in which it was not litigated initially. It would seem to be a waste of judicial resources to require reviewing courts to conduct an extensive substantive review when one has already been undertaken in a sister state. As the Ohio court stated in Fine v. America Online: `To allow substantive collateral attacks would be counterintuitive to [the] procedural relief that a class-action suit is intended to afford our judicial system nationwide.' 743 N.E.2d at 421-22. On the other hand, there is the fundamental interest in not allowing constitutionally infirm judgments to be enforced. It would be troublesome to enforce a class action settlement against parties over whom the rendering court did not have personal jurisdiction. Hospitality Management, 591 S.E.2d at 619. After considering the import of these competing policies, the South Carolina court concurred with Epstein III and held that second-guessing the fully litigated decisions of our sister courts would violate the spirit of full faith and credit. Id. The court noted that Epstein III envisions that direct appellate review of a class action is the appropriate vehicle to correct whatever errors may have been made at the trial court level. Id. We find the reasoning in Epstein III and Hospitality Management to be persuasive. The due process rights of absent class members are protected by the adoption of appropriate procedures by the certifying court, and, thereafter, by appellate review. Allowing broad collateral attacks on final judgments entered in class action suits would, in our view, undermine the important goals of efficiency and finality in which the class action law suit finds its genesis. See Hansberry, 311 U.S. at 41, 61 S.Ct. 115 (The class suit was an invention of equity to enable it to proceed to a decree in suits where the number of those interested in the subject of the litigation is so great that their joinder as parties in conformity to the usual rules of procedure is impracticable.). We therefore hold that when an absent class member seeks to challenge the binding effect of a class action judgment on due process grounds, the scope of our review is limited to a determination of whether appropriate procedures were adopted by the certifying court to insure that due process was afforded. 2