Opinion ID: 175982
Heading Depth: 4
Heading Rank: 1

Heading: Invalidation of the Opt Outs

Text: Federal Rule of Civil Procedure 23(d) gives district courts discretionary authority, within the bounds of Rule 23, to exercise control over a class action. Gulf Oil Co. v. Bernard, 452 U.S. 89, 100-01, 101 S.Ct. 2193, 68 L.Ed.2d 693 (1981); In re Victor Techs. Sec. Litig., 792 F.2d 862, 864 (9th Cir.1986) (Obviously district courts must have broad discretion, resting on the specific facts of each case, in framing procedures for class actions under Fed. R.Civ.P. 23.). In Gulf Oil, the Supreme Court reasoned that because of opportunities for abuse and management challenges in class actions, district courts have both the duty and the broad authority to exercise control over a class action and to enter appropriate orders governing the conduct of counsel and parties. 452 U.S. at 100, 101 S.Ct. 2193. In the face of evidence of coercive behavior by a party opposing a class, district courts may regulate communications with class members related to the notice and opt-out processes. In Kleiner v. First National Bank of Atlanta, 751 F.2d 1193, 1201-03 (11th Cir. 1985), which involved a massive, secret effort by the defendant to persuade class members to opt out, the Eleventh Circuit held that a district court's power to manage a class action included the power to prohibit a defendant from making unsupervised, unilateral communications with the plaintiff class. In In re School Asbestos Litigation, 842 F.2d 671, 680 (3d Cir.1988), the Third Circuit drew on Gulf Oil in holding that upon making a clear record and specific findings, a district court could control communications because [m]isleading communications to class members concerning the litigation pose a serious threat to the fairness of the litigation process, the adequacy of representation and the administration of justice generally. In In re Community Bank of Northern Virginia, 418 F.3d 277, 310-11 (3d Cir.2005), the Third Circuit discussed with approval the procedure undertaken in Georgine v. Amchem Products, Inc., 160 F.R.D. 478 (E.D.Pa.1995), in which the district court remedied misleading communications from counsel by invalidating all opt-out requests, providing curative notice, and ordering a second opt-out period. As these cases make clear, Rule 23(d) gives district courts the power to regulate the notice and opt-out processes and to impose limitations when a party engages in behavior that threatens the fairness of the litigation. A district court has especially broad discretion when, as here, notice and the opportunity to opt out are not required by Rule 23 but are ordered by the district court in the exercise of its discretion. See Dukes, 603 F.3d at 620-21; Linney v. Cellular Alaska P'ship, 151 F.3d 1234, 1242 n. 6 (9th Cir.1998). Compare Rule 23(c)(2)(A) (providing that court may direct appropriate notice to members of a Rule 23(b)(1) or (b)(2) class), with Rule 23(c)(2)(B) (providing that court must direct the best notice that is practicable under the circumstances to members of a Rule 23(b)(3) class, and enumerating seven items that must be included in such notice). As an appellate court, our task is to determine whether the district court clearly erred in concluding that CDN had in fact engaged in coercive conduct, and whether it abused its discretion in invaliding the first opt-out process on that basis. Plaintiffs submitted evidence that class representative Hui Jung Pao was terminated the day before her deposition, about four months after the lawsuit was filed, and that lead class representative Lynne Wang was terminated during the opt-out period. Plaintiffs also submitted a declaration from CDN employee Jeffrey Sun, detailing coercive techniques to which he was subject, and one from Wang, detailing anti-union and anti-lawsuit activity in close proximity to the opt-out period. (Both declarations also included hearsay materials that the district court struck, on which we do not rely.) Plaintiffs also submitted evidence  disputed by CDN  that there was a large sign over the table on which the opt-out forms were placed, proclaiming Don't Tear the Company Apart! Don't Act Against Each Other! Finally, plaintiffs submitted a declaration from the president of a class action notice company explaining that ordinarily opt-out rates do not exceed one percent. In this case, the district court found that current employees opted out at a 90 percent rate, whereas former employees opted out at a 25 percent rate. CDN responded with evidence that Wang's employment was terminated for cause, detailed an NLRB investigation that supposedly exonerated CDN, and provided more details about the union organizing activity that had taken place. It argued that the high rate of opt outs reflected a strong uncoerced desire by employees not to participate in the suit. CDN also submitted declarations from employees and supervisory personnel attesting that they were not aware of any communications from CDN to class members regarding the lawsuit. In invalidating the opt outs, the court struck several employees' declarations because they came from class members with whom CDN's counsel should not have communicated. After reviewing the evidence, the district court found that the opt out period was rife with instances of coercive conduct, including threats to employees' jobs, termination of an employee supporting the litigation, the posting of signs urging individuals not to tear the company apart, and the abnormally high rate of opt outs. Wang, 236 F.R.D. at 491. Although CDN disputes whether some of this conduct took place, the district court's factual findings were supported by the evidence before it and were not clearly erroneous. Based on these findings, the district court did not abuse its discretion in invalidating the opt outs and in restricting CDN's ability to communicate with class members.