Opinion ID: 622593
Heading Depth: 5
Heading Rank: 2

Heading: Federal Requirements

Text: To receive full faith and credit, a state-court judgment also must satisfy the minimum procedural requirements of the Fourteenth Amendment's Due Process Clause. Kremer, 456 U.S. at 481, 102 S.Ct. 1883. Gooch argues that the notice to Runyan class members and the class counsel's representation were constitutionally infirm. We disagree.
Life Investors argues that we are not empowered to decide whether the class action settlement in Runyan comported with due process. The company reasons that the state circuit court order that approved the settlement stated that the settlement complied with constitutional due process requirements. [T]he scope of collateral due process review has become part of an `open, and hotly litigated question' among courts and scholars. Hege v. Aegon USA, LLC, 780 F.Supp.2d 416, 426 (D.S.C.2011) (quoting Hospitality Mgmt. Assocs., Inc. v. Shell Oil Co., 356 S.C. 644, 591 S.E.2d 611, 618-19 nn. 11-12 (2004)). The question is whether the collateral court is constrained to a limited review, considering only whether the class action settlement court utilized adequate procedures to assure itself that the Shutts due process requirements were met, or, instead, may engage in a broader, merits-based due process review. Id. The Sixth Circuit has not addressed the issue. [10] We conclude that, in deciding whether to afford the Runyan settlement full faith and credit, we may review the substance of whether that settlement complied with the Due Process Clause. Our prior precedent makes clear that class members may indirectly challenge the validity of a judgment in a class action by mounting a collateral attack on the adequacy of the class representation. Shults v. Champion Int'l Corp., 35 F.3d 1056, 1058 (6th Cir.1994), abrogated on other grounds by Devlin v. Scardelletti, 536 U.S. 1, 6, 122 S.Ct. 2005, 153 L.Ed.2d 27 (2002). That holding flows from the Supreme Court's observation that a court adjudicating a dispute may not be able to predetermine the res judicata effect of its own judgment. Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 805, 105 S.Ct. 2965, 86 L.Ed.2d 628 (1985); see also Herbert Newberg & Alba Conte, Newberg on Class Actions, § 16:24 (4th ed. 2002) (hereinafter Newberg on Class Actions) ([T]he potential impact of a class court judgment is not a matter for determination by the deciding court. The res judicata effect of a class judgment can only be determined by a later court in light of a specific controversy.). The propriety of collateral attack in this context has a long history in Supreme Court jurisprudence: State courts are free to attach such descriptive labels to litigations before them as they may choose and to attribute to them such consequences as they think appropriate under state constitutions and laws, subject only to the requirements of the Constitution of the United States. But when the judgment of a state court, ascribing to the judgment of another court the binding force and effect of res judicata, is challenged for want of due process it becomes the duty of this Court to examine the course of procedure in both litigations to ascertain whether the litigant whose rights have thus been adjudicated has been afforded such notice and opportunity to be heard as are requisite to the due process which the Constitution prescribes. Hansberry v. Lee, 311 U.S. 32, 40, 61 S.Ct. 115, 85 L.Ed. 22 (1940). It is incumbent upon us to apply the same scrutiny to state-court judgments that the Supreme Court would apply. Even though reconsidering whether the class judgment complied with the due process clause may not promote judicial efficiency or protect the finality of the original judgment, Gough v. Transam. Life Ins. Co., 781 F.Supp.2d 498, 505 (W.D.Ky.2011), it is a due-process imperative that we are not free to ignore. This approach, exemplified in Shults, is consistent with most circuit courts' views. See Stephenson v. Dow Chem. Co., 273 F.3d 249, 257-59 (2d Cir.2001) (citing consistent holdings from the Fifth, Seventh, and Eleventh Circuits), aff'd in relevant part by an equally divided court, 539 U.S. 111, 123 S.Ct. 2161, 156 L.Ed.2d 106 (2003). We are not persuaded by the divided decision by a panel of the Ninth Circuit in Epstein v. MCA, Inc., 179 F.3d 641 (9th Cir.1999). Epstein interpreted Matsushita as implicitly holding that, when a state court says that its decision is entitled to res judicata, the state decision conclusively satisfied federal due process. Matsushita says nothing to this effect because the issue that Matsushita considered was narrower. The Supreme Court began its opinion by stating that [t]his case presents a question whether a federal court may withhold full faith and credit from a state-court judgment approving a class-action settlement simply because the settlement releases claims within the exclusive jurisdiction of the federal courts. Matsushita, 516 U.S. at 369, 116 S.Ct. 873. Because the issue of compliance with due process was not before the Supreme Court, general statements about the parties being bound by the judgment did not reflect any consideration of collateral due-process challenges. Justice Ginsburg's partial concurrence removed all doubt on this front, explaining that the due process check on the full faith and credit obligation... remains open for consideration on remand. Matsushita, 516 U.S. at 389, 116 S.Ct. 873. Matsushita did not alter the long line of authority holding that, when we are asked to give full faith and credit to a state-court judgment, we retain the power to decide whether the judgment was consistent with the Due Process Clause. See 18A Wright & Miller, supra, § 4455 (explaining that a prior, vacated decision in Epstein was a strong statement of the traditional viewthat a person can be deprived of an individual day in court ... only with great care and only within narrow limitswhile the final Epstein opinion is a new vision that must confront many problems). We also find inapplicable the Third Circuit's decision in In re Diet Drugs (Phentermine/Fenfluramine/Dexfenfluramine) Prods. Liab. Litig., 431 F.3d 141 (3d Cir. 2005). The holding in that case was limited to circumstances in which the adequacy of the representation of th[e absent] class member was litigate[d] and determine[d]. Id. at 146. The passing rubber-stamp reference in the opinion of the Arkansas circuit courtand the silence by the Arkansas Supreme Courthardly meets this standard. Finally, Life Investors contends that Gooch lacks standing to raise due-process challenges to the Runyan settlement. However, Life Investors is confusing standing with the requirements of Rule 23. Once [a plaintiff's individual] standing has been established, whether a plaintiff will be able to represent the putative class, including absent class members, depends solely on whether he is able to meet the additional criteria encompassed in Rule 23 of the Federal Rules of Civil Procedure. Fallick v. Nationwide Mut. Ins. Co., 162 F.3d 410, 423 (6th Cir.1998); see also Newberg on Class Actions, supra, § 1:2 ([T]he Supreme Court requires that a class representative must have individual standing to establish a case or controversy with defendants, and then the plaintiff can represent a class under procedural Rule 23 if the plaintiff can show that his or her individual claims raise issues that are common to a class, and thus the plaintiff's claims are typical of the class.). Life Investors does not contest that Gooch generally has standing to establish a case or controversy with Life Investors regarding the correct interpretation of actual charges. Rather, the present dispute among the parties is whether Gooch can satisfy the requirements for class certification pursuant to Rule 23 in relation to that controversy. Because Life Investors raises the issue of the preclusive effect of the settlement as a bar to class certification, Gooch, as the individual asserting the capacity to represent the interests of the proposed class, is most certainly properly situated to wage a defense by asserting that the settlement notice violated due process. [11] Consequently, we consider the merits of this question.
The notice that Runyan class members received complies with federal constitutional requirements. The Due Process Clause ... gives unnamed class members the right to notice of the settlement of a class action. To comport with the requirements of due process, notice must be `reasonably calculated to reach interested parties.' [12] Fidel v. Farley, 534 F.3d 508, 513-14 (6th Cir.2008) (quoting Karkoukli's Inc. v. Dohany, 409 F.3d 279, 283 (6th Cir.2005)). The notice should describe the action and the plaintiffs' rights in it. Shutts, 472 U.S. at 812, 105 S.Ct. 2965. Due process does not require the notice to set forth every ground on which class members might object to the settlement. [13] Int'l Union, UAW v. Gen. Motors Corp., 497 F.3d 615, 630 (6th Cir. 2007). All that the notice must do is `fairly apprise ... prospective members of the class of the terms of the proposed settlement' so that class members may come to their own conclusions about whether the settlement serves their interests. Id. (quoting Grunin v. Int'l House of Pancakes, 513 F.2d 114, 122 (8th Cir. 1975)); accord Adams v. S. Farm Bureau Life Ins. Co., 493 F.3d 1276, 1286 (11th Cir.2007) ([T]he class members' substantive claims must be adequately described and the notice must also contain information reasonably necessary to make a decision to remain a class member and be bound by the final judgment. (alteration omitted) (internal quotation marks omitted)). When a class has settled its claims, [t]he contents of a ... notice are sufficient if they inform the class members of the nature of the pending action, the general terms of the settlement, that complete and detailed information is available from the court files, ... that any class member may appear and be heard at the hearing, Newberg on Class Actions, supra, § 8:32, and information [about] the class members' right to exclude themselves and the results of failure to do so, id. § 8:33. A proposed notice that is incomplete or erroneous or that fails to apprise the absent class members of their rights will be rejected as it would be ineffective to ensure due process. 7B Wright & Miller, supra, § 1797.6. Gooch contends that the settlement notice given by Life Investors was misleading. The relevant section of the notice states as follows: The Company will be required to pay all claims for Actual Charges Benefits consistent with the definition of actual charges as the amount legally owed to the provider, which is consistent with the current definition of actual charges in Section 38-71-42(A) of the South Carolina Code and similar laws in Oklahoma, Georgia, and Texas. The parties expect this to confer a substantial benefit on the Class by lessening the amount and frequency of future premium increases. R. 437-13 (5/14/09 Runyan Notice at 7). Gooch points out that the notice omits the fact that, before the notice was mailed, at least one court had held that the South Carolina statute did not retroactively apply to policies that had been issued before the statute's effective dateJune 4, 2008. See Ward v. Dixie Nat'l Life Ins. Co ., No. 3:03-3239-JFA, slip. op. at 7 (D.S.C. Aug. 12, 2008), aff'd, 595 F.3d 164 (4th Cir.2010). We acknowledge that the omission of this fact might influence a person's decision about whether to opt out of the class. [14] Hege, 780 F.Supp.2d at 429-31 (holding that the Runyan notice violated the Due Process Clause because it was materially misleading). In our view, however, the notice was not so misleading that it failed to apprise potential class members of their rights and deprived them of minimal procedural due process protection. Shutts, 472 U.S. at 811, 105 S.Ct. 2965. The fact that some states did not have statutes favoring Life Investors in place at the relevant time does not compel the conclusion that Gooch's interpretation would have prevailed in each suit. Ultimately, even if statutes were not controlling, in at least some cases the fate of claims was in the unpredictable hands of a jury. See Guidry v. Am. Pub. Life Ins. Co., 512 F.3d 177 (5th Cir.2007) (remanding for jury trial after determining the term actual charges to be ambiguous). Pursuit of litigation thus entailed significant risk and expense, and it is these considerations that led the parties to settle. That class members might succeed on the merits of their claims was not a misleading omission that made the notice inadequate. R. 437-13 (5/14/09 Runyan Notice at 6). The notice gave potential class members an address, phone number, and website with which to obtain[ ] more information about the proposed settlement. Id. at 12. For these reasons, the notice met the due-process baseline.