Opinion ID: 171193
Heading Depth: 1
Heading Rank: 9

Heading: Application to Sakezzie and Jim

Text: The district court's determination that Beneficiaries were not adequately represented by the Sakezzie and Jim plaintiffs focused on the fact that, despite Utah's failure to provide an accounting as ordered, both cases were dismissed by the court for failure to prosecute after an order to show cause had been issued. Based on the record before us, we are compelled to agree that the Sakezzie and Jim plaintiffs failed to vigorously pursue and protect the Beneficiaries' interests. We assume for present purposes that the minimum requirements for adequate representation set forth in Taylor, alignment of interests and steps taken by the courts to protect non-party interests, have been met. While it is not clear whether Sakezzie was a true or hybrid class action, it is clear that it was not spurious, thus binding class members, and Jim was certified as a class action pursuant to Rule 23(b)(2). A determination that the minimum requirements for adequate representation have been met does not necessarily end the inquiry, however, and our analysis turns on whether binding Beneficiaries would violate due process, that is, whether Beneficiaries were in fact adequately represented in Sakezzie or Jim. After the initial Sakezzie complaint was filed, Utah provided answers to interrogatories containing what Utah characterized as accounting information. This information was summary in nature and included no supporting documentation. When the district court concluded that these answers to interrogatories mooted the accounting claim, the plaintiffs did not object, and the court subsequently entered an order stating that Utah had fully informed the plaintiffs of receipts and expenditures from the Fund. Sakezzie I, 198 F.Supp. 218, 222 (D.Utah 1961). Plaintiffs did not appeal from this order. The Sakezzie plaintiffs then filed a second petition alleging that Utah was not complying with the district court's order and seeking monthly accounting reports for the Fund. Ultimately, the second petition resulted in Sakezzie II, where the district court specifically ordered Utah to make monthly accounting reports. Despite the strongly-worded order of the district court, Utah again failed to comply with the monthly reporting requirement, and the Sakezzie plaintiffs filed a third petition. After more than a year, the case was dismissed by the court for failure to prosecute after an order to show cause had been issued. Although the district court granted leave to file an amended petition, the plaintiffs took no action. Similarly, the Jim plaintiffs successfully obtained an order directing Utah to file monthly accounting reports, not only for the period involved in that lawsuit, but for the period previously ordered in Sakezzie. On remand from the Supreme Court, the district court held that the accounting ordered in its 1972 Interlocutory Decree and Order had not been done and that the Jim plaintiffs were entitled to an accounting. The court again ordered Utah to file a complete and comprehensive accounting. Thereafter, when plaintiffs confirmed that an accounting had yet to be completed, the court emphasized that the accounting was the most important part of the lawsuit, really, noting that it had not been accomplished as late as May 25, 1976. Notwithstanding the district court's edict, no further action was taken in the Jim case until more than two years later, in December 1978, when the court issued an order to show cause why the case should not be dismissed for failure to prosecute. As noted above, the case was dismissed, with prejudice. Neither case scenario depicts a situation in which Beneficiaries' interests were vigorously pursued and protected by the class representatives. The class representatives in both cases successfully obtained orders directing Utah to provide accountings. After two class actions spanning almost seventeen years, however, Utah had yet to provide an accounting to either the Sakezzie or Jim plaintiffs and, remarkably, both class actions were dismissed for failure to prosecute after an order to show cause had been issued by the respective courts. Nevertheless, Utah asks us to reverse the district court's conclusion that Beneficiaries were not adequately represented in Sakezzie or Jim. Utah contends that vigorous pursuit and protection of absent class members' interests depends on an identity of interests between the named plaintiffs and the absent class members. Thus, Utah argues, the district court erroneously conducted a qualitative evaluation of class counsel's performance by second-guessing actual trial strategy in Sakezzie and Jim because the only relevant consideration is identity of interests between prior and current plaintiffs. Instead, Utah asserts, this Court should focus on the incentive to litigate created by the close alignment of the interests at issue. We disagree. While it is true that the parties' interests in the Fund are the same, shared interests do not alone ensure adequate protection. Once the case proceeds to final judgment and is asserted as part of a claim preclusion defense, the question shifts from incentive to litigate to whether the absent parties' interests were in fact vigorously pursued and protected. See Hansberry v. Lee, 311 U.S. 32, 42-43, 61 S.Ct. 115, 118-119, 120, 85 L.Ed. 22 (1940); Gonzales v. Cassidy, 474 F.2d 67, 75 (5th Cir.1973); 18A Wright & Miller, supra, § 4455 (in the context of preclusion, even if there is no divergence of interests, the representatives must provide representation that is in fact adequate). Moreover, the adequacy determination following final judgment necessarily requires a hindsight approach to the issue of adequate representation, ... Gonzales, 474 F.2d at 73 n. 11. Utah erroneously argues that this focus is limited to the conduct of the class representative, rather than class counsel. Instead, the question of adequate representation for purposes of res judicata is whether the class representative, through qualified counsel, vigorously pursued and protected the interests of the class. Id. at 75; accord Garcia v. Bd. of Edu., 573 F.2d 676, 680 (10th Cir.1978). Realistically, for purposes of determining adequate representation, the performance of class counsel is intertwined with that of the class representative. As the Seventh Circuit explained, [e]xperience teaches that it is counsel for the class representative and not the named parties, who direct and manage these actions. Every experienced federal judge knows that any statements to the contrary is [sic] sheer sophistry. Culver v. City of Milwaukee, 277 F.3d 908, 913 (7th Cir.2002) (quoting Greenfield v. Villager Indus., Inc., 483 F.2d 824, 832 n. 9 (3d Cir.1973)). This necessarily entails consideration of the actual conduct of the litigation in determining whether the absent class members were in fact adequately represented. Contrary to Utah's assertions, we need not second guess class counsel's litigation strategy or tactics in Sakezzie or Jim in order to determine that the class representatives, through counsel, failed to follow through or take action on the accounting issues, which ultimately resulted in no accountings and the dismissal of both cases for failure to prosecute. Utah counters that even a class representative's decision to abandon a claim is not per se inconsistent with adequate representation. Utah is correct that in the context of settlement, abandonment of claims can be a reasonable litigation tactic that does not necessarily support a finding of inadequate representation, citing Wal-Mart Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d 96, 109-113 (2d Cir.2005). The Wal-Mart case was a Rule 23(b)(3) case, however, and plaintiffs were given notice and the opportunity to object to the proposed settlement. Id. at 102-103. Plaintiffs' claim of inadequate representation was rejected by the Second Circuit as akin to a challenge to the adequacy of the settlement, rather than due process. Id. at 112. By contrast, the Sakezzie and Jim accounting claims were not abandoned in the context of settlement, but rather, were simply dismissed for failure to prosecute. Unlike class members in a settlement, the plaintiffs received nothing in exchange for abandonment of those claims. Finally, in declining to give preclusive effect to the judgment entered in Jim, the district court noted the Jim court's failure to provide formal notice to the class members and stated that the record did not support a finding that the Jim case's notoriety generated the kind of notice necessary to protect the rights of absent class members. Utah argues that because the manner in which the Jim class was certified was constitutionally adequate, the district court erred by holding the Jim class certification to a higher standard than required by Rule 23. The Jim class action was maintained under Rule 23(b)(2), which provides an action may be maintained as a class action when the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole. The fact that the Jim class members did not receive formal notice is not dispositive of the issue of claim preclusion. Due process does not require notice for absent class members in all actions under Rule 23(b)(2), as long as the class members were adequately represented. Alexander v. Aero Lodge No. 735, Int'l Assn. of Machinists & Aerospace Workers, AFL-CIO, 565 F.2d 1364, 1374 (6th Cir.1977), cert. denied, 436 U.S. 946, 98 S.Ct. 2849, 56 L.Ed.2d 787 (1978). Stated another way, the fact that notice was adequate does not necessarily cure inadequate representation. Thus, the district court's comments about lack of notice, while inaccurate, do not alter or affect our conclusion that the Jim plaintiffs failed to vigorously pursue and protect the absent class member's interests. In so ruling, we recognize the importance of finality of judgments and do not read the adequacy of representation inquiry as requiring second-guessing of every litigation decision. As one court succinctly stated, [d]ue process entitles class members to notice and to adequate representation. It does not entitle them to continue to challenge the defendant's conduct until they are ultimately successful. Quigley v. Braniff Airways, Inc., 85 F.R.D. 74, 77 (N.D.Tex.1979). This is not such a case. The unique factual situation of Sakezzie and Jim leads us to conclude that the interests of the Beneficiaries were not adequately represented. Accordingly, the district court was correct in its application of res judicata and Beneficiaries are not bound by the judgments in the previous class actions.
Likewise, it is clear from the record that preclusion cannot be justified on the grounds that Beneficiaries were adequately represented in Bigman. As previously discussed, the Supreme Court has established that in addition to alignment of interests, representation is adequate for purposes of nonparty preclusion only if, at a minimum, special procedures were taken in the first case to protect the interest of absent parties or the parties to the first litigation understood their suit to be in a representative capacity. Taylor, 128 S.Ct. at 2176. Nothing in the record indicates that the Bigman plaintiffs understood that they were suing on Beneficiaries' behalf; indeed, it is undisputed that the decision not to pursue a class action was intentional and precipitated by tensions between the original and new beneficiaries. The Bigman complaint did not purport to bring the action on behalf of the Fund beneficiaries. There is no evidence that plaintiffs and their counsel were working on anyone's behalf other than their own. Although there is evidence that the lawsuit was discussed at several Navajo chapter meetings, there is nothing in the record that the Utah district court took special care to protect Beneficiaries' interests. Thus, extending the adequate protection exception to nonparty exclusion to Bigman would constitute the very type of common-law class action rejected by Taylor. Id.
Utah originally argued on appeal that privity is established under the doctrine of virtual representation because the Beneficiaries' legal interests in the Fund are identical to those of the Bigman plaintiffs and because the instant case is in the nature of an action to vindicate a public right. Because all plaintiffs, past and present, are co-beneficiaries of the Fund, and because their interest in the Fund is common rather than personal, Utah argued that litigation relating to the Fund necessarily decides every beneficiary's rights. Thus, Utah argued, the district court's finding that there was no evidence of any legal relationship or form of accountability overlooks the reality of the interest at issue in Bigman.  In support of its argument, Utah relied on the Eighth Circuit's decision in Tyus v. Schoemehl, 93 F.3d 449 (8th Cir.1996), which established a seven-factor test for virtual representation, including identity of interests, a close relationship between the parties, adequate representation by the prior party, incentive to litigate, and a suit raising a public rather than private law issue. Id. at 454-56. Utah's argument is no longer viable in light of Taylor, which not only rejected the theory of virtual representation, but also rebuffed the argument that a broader reading of nonparty preclusion is appropriate in public law litigation. Taylor, 128 S.Ct. at 2177. Taylor explained that in its decision in Richards, it observed that when a taxpayer challenges an alleged misuse of public funds or other public action, the suit has only an indirect impact on [the plaintiff's] interests. Id. (quoting Richards v. Jefferson County, Ala., 517 U.S. 793, 803, 116 S.Ct. 1761, 1768, 135 L.Ed.2d 76 (1996)). In actions of this character, the Court said, we may assume that the States have wide latitude to establish procedures ... to limit the number of judicial proceedings that may be entertained. Id. Utah stopped short of contending that all of the actions brought by beneficiaries of the Fund fall within the category described in Richards, arguing instead that the claims related to the Fund are in the nature of a taxpayer suit. Although the beneficiaries of the Fund share a common interest in the Fund, it does not appear that this interest is shared in common with the public or indeed, even with the Navajo Nation Tribe. Even if this case were construed as a public right action, however, the Taylor Court clarified that Richards merely stated that, for the type of public-law there envisioned, States are free to adopt procedures limiting repetitive litigation. Taylor, 128 S.Ct. at 2177 (citing Richards, 517 U.S. at 803, 116 S.Ct. at 1768). Thus, the Court declined to impose judicial constraint through the application of the common law of claim preclusion. Id. Any risk of vexatious repetitive lawsuits does not justify departing from the established rules of nonparty preclusion. Id. at 2178. Recognizing the futility of its virtual representation argument, Utah recasts its claim that nonparty preclusion is justified under the pre-existing substantive legal relationship exception. The district court considered a similar question in addressing the whether an express or legal relationship was a prerequisite to a virtual representation claim. Qualifying relationships include, but are not limited to, preceding and succeeding owners of property, bailee and bailor, assignee and assignor, guardian and ward and trustee and beneficiary. Richards, 517 U.S. at 798, 116 S.Ct. at 1766; Restatement (Second) of Judgments §§ 43-44, 52, 55. These exceptions originated `as much from the needs of property law as from the values of preclusion by judgment.' Taylor, 128 S.Ct. at 2172 (quoting 18A Wright & Miller, Federal Practice and Procedure § 4448 (2d ed.2002)). Utah contends that the substantive legal relationship at issue in this case is that of co-beneficiaries of the Fund. We disagree with Utah's characterization of the Fund beneficiaries' relationship. As recognized by the district court, a substantive legal relationship as contemplated by the exception is one in which the parties to the first suit are somehow accountable to nonparties who file a subsequent suit raising identical issues. Utah has never alleged a fiduciary, contractual or property relationship between current and prior litigants. Indeed, Utah continues to argue, as it did in support of its theory of virtual representation that the beneficiaries of the Fund do not hold individual or collective property rights; instead, they share an indivisible, collective interest in the trust corpus, and any obtainable remedy benefits all beneficiary class members. Such concurrent property relationships do not justify nonparty preclusion. See 18A Wright & Miller, supra § 4461 (explaining the general rule that such concurrent relationships do not justify nonparty preclusion, but are likely to provide better justification for a virtual representation analysis than most other circumstances). There is nothing in the record to support a finding that any Fund beneficiary was authorized to bring suit or was in any way accountable to any other co-beneficiary, except as representatives within the context of the class actions. Instead, it appears that the Bigman plaintiffs were mere self-appointed volunteers without authority to bind any other beneficiaries by litigation. Such an elastic concept of privity violates due process of law. Richards, 517 U.S. at 804-05, 116 S.Ct. 1761.