Opinion ID: 1487782
Heading Depth: 1
Heading Rank: 3

Heading: 23(b (2)/Due Process Requirements

Text: If a class action is certified pursuant to Rule 23(b)(3), there is a requirement that class members be given actual notice and the right to opt out of the class. Ch. Ct.R. 23(c)(2). There is not a corresponding mandatory provision in Rule 23 for a class member to opt out of a Rule 23(b)(2) proceeding. Certification of a class pursuant to Rule 23(b)(2) makes the giving of notice and the opportunity to opt out discretionary. Ch.Ct.R. 23(d)(2). [17] Nottingham's next argument is that even if the Dana action was appropriately categorized within the framework of Rule 23(b), the procedure which was followed by the Court of Chancery prior to certifying the Dana action as a Rule 23(b)(2) class, was unconstitutional. Nottingham argues that the due process clause of the federal Constitution requires that an absent class member, with a money damage claim, be afforded an opportunity to opt out. In support of its position, Nottingham relies upon a decision by the United States Supreme Court which considered the due process rights of absent class members, in situations where state courts seek to impose binding class judgments. Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 105 S.Ct. 2965, 86 L.Ed.2d 628 (1985). Shutts held: If the forum State wishes to bind an absent plaintiff concerning a claim for money damages or similar relief at law, it must provide minimal procedural due process protection. The plaintiff must receive notice plus an opportunity to be heard and participate in the litigation, whether in person or through counsel.... 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. Id. at 811-12, 105 S.Ct. at 2974-75 (footnotes and citations omitted). [18] Nottingham argues that it was denied the due process protections set forth in Shutts, when it was not given an opportunity to opt out of the Dana class action. [19] In addressing Nottingham's argument, we must consider the implications of the fact that the Supreme Court limited its holding in Shutts to those class actions which seek to bind known plaintiffs concerning claims wholly or predominantly for money judgments. Id. at 811, n. 3, 105 S.Ct. at 2974, n. 3. In particular, the Supreme Court stated [w]e intimate no view concerning other types of class actions, such as those seeking equitable relief. Id. The footnote in Shutts represents at least the second time that the Supreme Court has expressly declined to extend a due process analysis to class actions for injunctive or declaratory relief maintained under subdivision (b)(2). The first instance involved a requirement for individual notice in (b)(3) class actions. Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 176-77 & n. 14, 94 S.Ct. 2140, 2151-52 & n. 14, 40 L.Ed.2d 732 (1974). [20] Therefore, in addressing whether or not federal due process mandates a right to opt out of a Rule 23(b)(2) class, we must focus upon a question that has thus far been left unresolved by the United States Supreme Court. Cf. Sternberg v. O'Neil, Del.Supr., 550 A.2d 1105 (1988). In doing so we look for guidance in prior decisions by the United States Supreme Court, various federal courts and legal scholars. [21] Several years ago, the United States Supreme Court noted that `[d]ue process, unlike some legal rules, is not a technical conception with a fixed content unrelated to time, place and circumstances.' Mathews v. Eldridge, 424 U.S. 319, 334, 96 S.Ct. 893, 902, 47 L.Ed.2d 18 (1976) (quoting Cafeteria Workers v. McElroy, 367 U.S. 886, 895, 81 S.Ct. 1743, 1748, 6 L.Ed.2d 1230 (1961), reh'g denied, 368 U.S. 869, 82 S.Ct. 22, 7 L.Ed.2d 70 (1961)). `[D]ue process is flexible and calls for such procedural protections as the particular situation demands.' Id. (quoting Morrissey v. Brewer, 408 U.S. 471, 481, 92 S.Ct. 2593, 2600, 33 L.Ed.2d 484 (1972)). [22] The ability of the judiciary to effectively address evolving due process concerns has been particularly evident in Rule 23(b)(2) class action proceedings. Prior to Shutts, the Third Circuit Court of Appeals concluded that due process did not require notice and the opt-out opportunity for a (b)(2) class member because, by definition, the claims and interests of all class members were homogenous. Wetzel v. Liberty Mutual Ins. Co., 508 F.2d 239, 255-57 (3d Cir.), cert. denied, 421 U.S. 1011, 95 S.Ct. 2415, 44 L.Ed.2d 679 (1975). [23] However, it has subsequently been noted that this type of due process analysis, to the extent it depended upon homogeneity, began to break down with the advent of the `hybrid' Rule 23(b)(2) class action in which individual monetary relief for class members, typically back pay, [was] sought in addition to classwide [primary] injunctive or declaratory relief. Penson v. Terminal Transport Co., 634 F.2d 989, 994 (5th Cir.1981), cert. denied, 479 U.S. 883, 107 S.Ct. 274, 93 L.Ed.2d 250 (1986) (emphasis added). Penson noted that these hybrid Rule 23(b)(2) actions start to resemble a 23(b)(3) action. Id. Therefore, to protect the due process rights of individual class members, Penson held that where monetary relief is sought and is made available in a Rule 23(b)(2) class action, [some form of] notice [of the pending action or judgment] is no longer discretionary but is required at some stage in the proceedings. Id. [24] (citing Johnson v. General Motors Corp., 598 F.2d 432, 438 (5th Cir.), reh'g denied, 605 F.2d 554 (1979)). Nevertheless, Penson also concluded that a member of a Rule 23(b)(2) class action has no absolute [due process] right to opt out of the class, even where monetary relief has been sought and is made available. Id. In an opinion that was released almost simultaneously with Penson, the Fifth Circuit held that the right to opt out, which is denied when a Rule 23(b)(2) case is tried, also need not be provided when such a case is settled. Kincade v. General Tire & Rubber Co., 635 F.2d 501, 507 (5th Cir. 1981). That case is particularly instructive in evaluating Nottingham's appeal, since it also involved the settlement of a 23(b)(2) class action. Kincade held: The due process clause of the Constitution is satisfied when a Rule 23(b)(2) class action is settled without providing objectors a means of opting out because the objectors are (1) adequately represented by the named plaintiffs, (2) represented by an attorney who is qualified, [25] (3) provided with notice of the proposed settlement, [26] (4) given an opportunity to object to the settlement, and (5) assured that the settlement will not take effect unless the trial judge-after analyzing the facts and law of the case and considering all objections to the proposed settlement-determines it to be fair, adequate, and reasonable. Id. at 507-508. The United States Supreme Court has said that [t]he fundamental requirement of due process is the opportunity to be heard `at a meaningful time and in a meaningful manner.' Mathews v. Eldridge, 424 U.S. at 333, 96 S.Ct. at 902 (quoting Armstrong v. Manzo, 380 U.S. 545, 552, 85 S.Ct. 1187, 1191, 14 L.Ed.2d 62 (1965)). It has also stated that [t]he judicial model of an evidentiary hearing is neither a required, nor even the most effective method of decision making in all circumstances. Id., 424 U.S. at 348, 96 S.Ct. at 909. Due process is satisfied if the procedures which are followed are tailored, in light of the decision to be made, to `the capacities and circumstances of those who are to be heard,' to insure that they are given a meaningful opportunity to present their case. Id. at 349, 96 S.Ct. at 909 (quoting Goldberg v. Kelly, 397 U.S. 254, 268-69, 90 S.Ct. 1011, 1020-21, 25 L.Ed.2d 287 (1970). [27] See, e.g., In re A.H. Robins Co. Inc., 880 F.2d 709, 745-746 (4th Cir.1989); Williams v. Burlington Northern, Inc., 832 F.2d 100, 104 (7th Cir.1987), cert. denied, ___ U.S. ___, 108 S.Ct. 1298, 99 L.Ed.2d 508 (1988). We are of the view that in the context of a class action settlement, the due process analysis of Rule 23(b)(2) set forth in the Fifth Circuit line of cases is consistent with and survives the United States Supreme Court holding in Shutts. In this case, the Court of Chancery afforded Nottingham all of the due process rights enunciated in Kincade. In addition, Nottingham was able to challenge each of the Court of Chancery's rulings in this Court. See King v. South Cent. Bell Tel. & Tel. Co., 790 F.2d 524, 530 (6th Cir.1986). We conclude that Nottingham's right to due process was not violated when it was precluded from opting out of the Rule 23(b)(2) Dana class action Settlement. Kincade v. General Tire & Rubber Co., 635 F.2d 501 (1981). See also Williams v. Burlington Northern, Inc., 832 F.2d at 104. We have concluded that when a portion of the relief which is sought is monetary, a member of a class certified under Rule 23(b)(2) has a Constitutional due process right to notification [28] but not a right to opt out of the class. Penson v. Terminal Transp. Co., 634 F.2d at 994; Johnson v. General Motors Corp., 598 F.2d at 438. Cf. Alexander v. Aero Lodge No. 735, Intern. Ass'n, 565 F.2d 1364, 1372-74 (6th Cir.1977), cert. denied, 436 U.S. 946, 98 S.Ct. 2849, 56 L.Ed.2d 787 (1978). Nevertheless, the Court of Chancery has discretionary power, under its Rule 23(d)(2) to provide for an opt out right and to require that notice thereof be given, if it believes that an opt out right is necessary to protect the interest of absent class members. Penson v. Terminal Transp. Co., 634 F.2d at 993-94. In exercising its discretion, before deciding whether or not to extend an opt out privilege as part of a subsection (b)(2) certification, the Court of Chancery must balance the equities of the defendants' desire to resolve all claims in a single proceeding against the individuals' interest in having their own day in Court. [29] The ability to opt out of the class always involves the potential for a multiplicity of lawsuits and variations in adjudication which class actions are intended to prevent. [30] A decision by the Court of Chancery, to afford or deny an opt out right to a member of a class certified under a Rule 23(b)(2), under circumstances like the ones presented in this case, is a discretionary one. Such a decision will be reversed by this Court only if it constitutes an abuse of discretion under the facts and circumstances which are presented. Penson v. Terminal Transport Co., 634 F.2d at 994. In this case, we find no abuse of discretion in the Court of Chancery's decision not to afford Nottingham the right to opt out of the Dana class action, when it was certified under subsection (b)(2) of Rule 23.