Court Opinion

ID: 8929863
Source: CourtListenerOpinion
Date Created: 2022-11-27 07:00:06.777352+00
Date Added: 2024-06-11T17:09:29.466087
License: Public Domain

WEIS, Circuit Judge,
dissenting.
For present purposes, I am willing to .accept the majority’s position that class counsel followed customary procedures in proposing a first class mailing of the November notice. However, I do not agree that as a matter of law the defendants’ fiduciary duties required no further action in the face of an obviously low reply rate. When the initial effort to provide notice elicited a response from only 12% of the class, counsel may have owed their clients the obligation to do more.
The November notice stated that approximately 20 million dollars less counsel fees of about 4 million dollars would be available for distribution. Despite the likelihood that filing a proof of claim would lead to a share of the fund, only 187 of a class of approximately 1550 business enterprises responded, 12% of those who had been identified as being eligible for payment in some amount. Counsel made no further effort to contact the absentee members of the class, but simply applied for court approval to distribute the fund pro rata to those who had filed claims.
It was not until after distribution of the fund that plaintiff first learned of the final settlement1 and the requirement of filing a proof of claim. One of its officers contacted defendants about participating in the fund, but class counsel rejected the claim as untimely, and plaintiff filed this suit.
The district court dismissed the complaint in a series of orders. In rejecting the plaintiff's contention that defendants should have taken additional steps to notify *95members of the class, the court stated there was “no such duty.” The district judge had no doubt that the mailing comported with the notice requirements of Fed. R.Civ.P. 23(e), as well as the court’s order directing the use of first class mail.
The court cited no authority for its conclusion that counsel did not have a duty to follow-up. Having determined that there had been compliance with the notice requirements of Fed.R.Civ.P. 23(e) and the mailing order, the court apparently concluded that the fiduciary obligation counsel owed to the absentee members of the class had been fulfilled as well.
The inquiry into counsels’ duty toward their clients should not have ended at that point. The fiduciary obligation of class counsel may go beyond the notice requirements of Rule 23(e). If the notice procedure is ineffective then there should be an exploration of the availability and feasibility of other steps together with a determination of whether it is reasonable to require counsel to implement them. .
To illustrate the point, as an extreme example, one can hypothesize a situation in which none of the absentee class members responds to a settlement notice. In that situation, where adequate funds are available for distribution and reimbursement of expenses, surely counsel is not free to disburse the entire fund to the class representatives and then collect the legal fees without further efforts to contact the absentees. Obviously, the point at which the response level gives reasonable assurance of adequate notice must depend on the circumstances.
It is important to recognize the procedural posture of the case at hand. Insofar as the “follow through” count was concerned, the district court was confronted with what was essentially a motion to dismiss for failure to state a claim. See Fed.R.Civ.P. 12(b)(6). The affidavits which defendants filed to support their motion for summary judgment were directed to other issues and other counts.
In response to the defendants’ motion, plaintiff contended that counsel owed a fiduciary duty to their client, a class member, to exercise reasonable care to see that it received notice of the settlement. Plaintiff argued the inferences to be drawn from the pleaded facts established that counsel did not act reasonably in failing to take additional measures when it was obvious the mailing had not yielded the expected results. According to plaintiff, class counsel could not simply walk away from the scene, having made no other attempt to notify the beneficiaries.
On the other hand, defendants characterized the case as one sounding in malpractice. They cited Lentino v. Fringe Benefit Employee Plans, Inc., 611 F.2d 474 (3d Cir.1979), as holding that expert testimony is required to establish the appropriate standard and whether defendants complied with it. In the absence of expert evidence, defendants contended that the plaintiff’s ease could not survive summary judgment. They also argued that on the basis of statistics culled from NEWBERG ON CLASS ACTIONS § 2695, February 1984. Current Supp., Table I at CS7-57 to CS7-62, that a 12% return rate was consistent with that in similar settlements.2
Lentino, however, is a case which sets out the requirements for proof at trial. It is not applicable when, as here, defendants move to dismiss the complaint for failure to state a claim. Having chosen that course, they must assume that the allegations in the complaint are true. Plaintiff need not prove its facts in response to the motion nor must it present testimony, expert or otherwise.
The complaint sets out some of the pertinent facts and charges that defendants were guilty of a breach of their duty to *96exercise reasonable care. If the court found that the plaintiffs allegations were inadequate, then an opportunity to amend should have been provided.
If the defendants’ aim was to force plaintiff to present an expert’s affidavit or sworn testimony, then the burden initially was on them to file their own expert’s affidavit as part of their motion for summary judgment. Plaintiff would then be required to respond in appropriate fashion, either controverting the defendants’ material or establishing its inapplicability.
If the motion here is construed as one for summary judgment, it fails to meet the requirements of Fed.R.Civ.P. 56. Defendants references to statistics in the NEW-BERG commentary are neither sworn testimony nor affidavits. They are not facts which can support summary judgment nor do they require a response under oath. It follows, therefore, that on this record regardless of whether defendants’ submission is characterized as a motion to dismiss or for summary judgment, the district judge erred in granting it.
In considering a motion for summary judgment, a court must recognize that where there is a disagreement about proper inferences to be drawn from the facts, a trial is required to resolve the conflicting versions of the parties. Peterson v. Le-high Valley District Council, 676 F.2d 81 (3d Cir.1982). Any reasonable inferences from the facts must be resolved in favor of the party against whom judgment is entered. Betts Laboratories, Inc. v. Hines, 647 F.2d 402, 404 (3d Cir.1981).
As we noted in Lentino, the standard of care is a “question of fact that is best left to the presentation of evidence with the opportunity for cross-examination and rebuttal.” Id. at 481. Plaintiff should have been given the opportunity to prove at trial that class counsel breached their fiduciary duty in failing to follow up.
Moreover, I do not find the commentary excerpts on which defendants relied to be persuasive in the circumstances here. As Herbert B. Newberg . candidly writes, “There are few reported opinions that furnish any detailed information about proof of claim response rates, so that any statistics must generally be gleaned from unreported documents filed of record or unreported opinions____ [T]he claim response level will tend to vary with the circumstances, types of class notices employed, and size of individual claims involved in each case.”' NEWBERG ON CLASS ACTIONS § 2695.
This court has had occasion to comment on the pertinent factors bearing on notice response in Kyriazi v. Western Elec. Co., 647 F.2d 388, 395 (3d Cir.1981). There we said, “Passivity among absent members is less likely to be a problem where liability is already established, the time of actual recovery is less remote, and the incentive for participation thus enhanced.” Those factors are all present in the case at hand.
The appropriate standards for evaluating class counsels’ duties to provide notice has seldom been discussed in case law. However, in Greenfield v. Villager Industries, Inc., 483 F.2d 824, 832 (3d Cir.1973), we said
“... in addition to the normal obligations of an officer of the court, and as counsel to parties to the litigation, class action counsel possess, in a very real sense, fiduciary obligations to those not before the court____ Not the least important of the fiduciary duties shared by counsel and the court is their duty to ensure that absentee class members have knowledge of proceedings in which a final judgment may directly affect their interest.”
Although not often subject to judicial review, circumstances similar to those presented here are not completely unknown to decisional law. In Boeing Co. v. Van Gemert, 444 U.S. 472, 100 S.Ct. 745, 62 L.Ed.2d 676 (1980), the Supreme Court noted the difficulties of notifying absentee class members in a case where the settlement amount and attorneys fees were substantially less, and the number of absentee class members greater, than in the case at hand. In Boeing, the Court observed that a master undertook extensive efforts to *97locate absentee class members, including the employment of a professional search firm.
In Entin v. Barg, 412 F.Supp. 508 (E.D. Pa.1976), the court discussed the engagement of a finding service to develop current addresses for potential class members whose initial notices were returned by the postal service as undeliverable. See also Duban v. Diversified Mortgage Investors, 87 F.R.D. 33, 43 (S.D.N.Y.1980). In addition to these references in case law, the follow-up activities of corporations soliciting proxies after an initial first class mailing are matters of common knowledge.
Depriving plaintiff of the opportunity to participate in the distribution is particularly unfortunate here because Zimmer’s losses contributed to increasing the amount of the settlement achieved. In arriving at a suitable settlement, counsel no doubt accumulated the losses suffered by each member of the class as a beginning point and then applied the various factors which go into the determination of a fair and reasonable compromise of that total figure.
The settlement amount, therefore, took into account damages sustained by plaintiff, but, in distribution, its share was given pro rata to other members of the class. Those parties received not only the amount due them but the plaintiff’s portion as well. To that extent, the recipients were overcompensated and plaintiff short changed. Cf. Beecher v. Able, 575 F.2d 1010 (2d Cir.1978).
Similarly, the fees which class counsel received were determined by a process in which the size of the settlement was a factor. In this respect, the losses sustained by plaintiff played a part in augmenting counsels’ fee. Viewed in this light, it is apparent that counsel were not only fiduciaries, but well compensated ones as well.
In view of these considerations and given the limited response to the November 1981 mailing, I believe that plaintiff has presented sufficient facts to question the reasonableness of the defendants’ failure to take follow-up action.
As the majority indicates, there are other matters bearing on ultimate liability, such as the possible duty of plaintiff itself to have followed up on the litigation. But that is a matter of defense not at issue here. Other factors as well might have had some effect on the outcome. For example, the relatively modest time and expenditure which would have been required to provide for another first class or certified mailing to those who did not respond to the initial notice would be a consideration. In view of the large settlement fund and money available for expenses, measures considered unreasonable in other circumstances may have been required here. These and other concerns were for a jury to weigh.
I would vacate the entry of summary judgment and remand for further proceedings.

. Although defendants are openly skeptical of the plaintiff's assertion that it did not receive notice, in the current posture of the litigation, the allegation must be accepted as true.

. If defendants are correct in this assertion, then they have raised a very serious question about the legitimacy of class action damage suits under Rule 23(b)(3). If, on the average only 12% of those who have sustained damages are interested in recovery, one may question the propriety of submitting claims on behalf of a class for verdicts or settlements based on 100% of the losses.