Reuben J. Katz, on Behalf of Himself and All Others Similarly Situated v. Carte Blanche Corporation

SEITZ, Chief Judge

(dissenting).

The unarticulated major premise of the majority decision is a distaste for class actions, at least in the present context. I do not believe such distaste, however widely shared, justifies judicial emasculation of Rule 23.

Appealability

This appeal comes to us pursuant to 28 U.S.C. § 1292 (b) (1970). Section 1292(b) permits appeal of interlocutory orders that involve “a controlling question of law as to which there is substantial ground for difference of opinion [if] appeal from the order may materially advance the ultimate termination of the litigation . . . .” The majority correctly notes that the primary reason for allowing appeals under § 1292(b) is to avoid wasted trials and harm to the litigants. After a brief nod to the statute’s terms, the majority completes its syllogism by stating that allowing appeal of class action determination orders can avoid wasted trials, therefore this order is appealable.

In turning to the statute’s underlying policy for guidance, the majority has examined only the reason for expanding the availability of interlocutory appeals, and has ignored the countervailing considerations for allowing appeal of less than all interlocutory orders. If we take avoidance of wasted trials as our sole guide, a multitude of interlocutory orders become appealable. The draftsmen and proponents of § 1292(b), however, were of the view that it provided for review of interlocutory orders only in “exceptional” cases. See 1958 U.S.Code, Cong. & Admin.News, pp. 5255, 5259, 5260-5261. The draftsmen’s desire to limit availability of such review to exceptional eases reflected another policy consideration underlying § 1292(b): need to avoid piecemeal review and its attendant delays and waste of time. Id. at pp. 5257, 5259, 5261-5263. As was noted in the letter accompanying the Judicial Conference’s draft bill:

It has always been recognized that there are two competing considerations bearing upon appeals from interlocutory orders. On the one hand too rigid a bar against such appeals may result in injustice by preventing at an early stage the final decision of an issue which might be determinative of the case and burdening the parties with the expense of subsequent proceedings, perhaps prolonged, to no avail. On the other hand too great freedom in taking appeals from orders of the district court prior to the final judgment, “piecemeal appeals” as they are called, may make for delay and increase the expense of the litigation.

Id. at p. 5259.

Attempting to harmonize the competing considerations, the draftsmen required two courts to agree that an appeal was proper and limited the class of appealable orders to those involving questions of law, controlling the order, as to which there was substantial ground for difference of opinion. This limitation gives the chance for appeal before final judgment where a “clean” legal issue is involved, one as to which the controlling legal principles are in dispute but which does not require the appellate court to make fact determinations.

The majority takes great care in demonstrating that even orders • involving the exercise of discretion are appealable. *765 I quite agree. Yet that does not advance the majority’s argument. For no one contends that orders involving the exercise of discretion cannot be appealed under § 1292(b). What numerous courts have stated, in ruling on appeals from a variety of orders, including inter-district transfers, is that appeals cannot be maintained under § 1292(b) to test the propriety of a district judge’s exercise of discretion. E. g., United States v. Salter, 421 F.2d 1393, 1394 (1st Cir. 1970); Akers v. Norfolk & Western Railroad Co., 378 F.2d 78 , 79 (4th Cir. 1967); J. C. Trahan Drilling Contractors, Inc. v. Sterling, 335 F.2d 65 (5th Cir. 1964); Phelps v. Burnham, 327 F.2d 812, 814 (2d Cir. 1964); Standard v. Stoll Packing Corp., 315 F.2d 626 (3d Cir. 1963). Were § 1292(b) available to review simply the exercise of discretion, appellate courts, prior to final judgment, would be engaged in the time-consuming weighing of facts that the section’s drafters sought to avoid.

Yet an order involving the exercise of discretion may also involve a question of law that allows appeal under § 1292(b). Two transfer cases in the Second Circuit illustrate this point. In A. Olinick & Sons v. Dempster Bros., Inc., 365 F.2d 439 (2d Cir. 1966), the court stated that § 1292(b) was unavailable to review the district judge’s exercise of discretion in evaluating certain factors supporting his order. Id. at 442-443. Just three years later, the court declared that transfer orders were appealable under § 1292(b) where a question was raised concerning the district court’s power to transfer. Farrell v. Wyatt, 408 F.2d 662, 664-665 (2d Cir. 1969). 1

Were the order before us questioned solely on the grounds decided by the majority, that the district judge abused his discretion, it would not be appealable prior to final judgment. The order granting class status, however, involved another question: whether the Truth in Lending Act implicitly prohibits maintenance of class actions to enforce its provisions. This question is one of law, decision of which controls the order before us. I would find the order appealable on this ground.

Standard of Review

Although construction of the Truth in Lending Act presents the controlling question of law that makes the order appealable under § 1292(b), the Court of Appeals is instructed to decide the appeal, not merely the question making the order appealable. Johnson v. Alldredge, 488 F.2d 820, 822-823 (3d Cir. 1973). This approach recognizes that once an order is before the court, judicial economy mandates a complete decision of its propriety, including decision of questions that, if alone involved, would not render an order appealable. Thus, I agree with the majority that, unless the Truth in Lending Act bars any class action, we must determine whether the district judge abused his discretion in determining that this suit could be maintained as a class action.

My agreement with the majority, however, needs qualification, for the majority, while reviewing the district court’s exercise of discretion, purports not to be concerned with it. The majority first fractures the district court’s class action determination into a non-discretionary component, identification of the proper factors to be considered, and a discretionary component, evaluation of the factors; next, the majority elaborates the proper criteria and, still purporting to scrutinize the non-discretionary component of the class action determination, looks “at whether the district court *766 properly applied the relevant criteria to the facts of the case” (which appears to be an examination of precisely the matter the majority identified as within the district court’s discretion); finally, the majority reverses the district court for improperly finding a class action superi- or to other forms of proceeding, the reason for reversal being that postponement of the class action determination is deemed by the majority superior to an affirmative class action determination.

My view of the matter is somewhat simpler. Rule 23(b)(3) of the Federal Rules of Civil Procedure requires the district judge to find that questions of law or fact common to the class predominate over questions relevant only to individual class members and that the class action is the superior form for resolution of some or all of the issues. The district court must exercise its informed discretion in making these findings and can be reversed as to the propriety of these findings only for abuse of discretion. Cypress v. Newport News General & Non-Sectarian Hospital Association, 375 F.2d 648, 653 (4th Cir. 1967) (in banc). To guide the district court in making these findings, the rule provides a “non-exclusive listing” of relevant considerations. Advisory Committee’s Notes on Proposed Amendments to the Federal Rules of Civil Procedure, 39 F. R.D. 69, 103-104 (1966). These considerations, interest of class members in pursuing individual actions, extent of pending related litigation, desirability of concentrating proceedings in the forum court, and manageability of a class action, were taken into account by the district judge in his findings on superiority and predominance. Thus, according to the majority’s authority for selection of its review standard, unless the judge abused his discretion, or the Truth in Lending Act bars this class action, his order should be affirmed. J. Moore, 3B Moore’s Federal Practice, j[ 23.50 (2d ed. 1969).

Superiority

The ground relied on by the majority in reversing the district court was superiority. . I must disagree with the majority because I cannot say that the district judge abused his discretion in finding a class action superior to other means for disposing of this litigation.

The district court’s mistake, according to the majority, was its failure to perceive the benefits of postponing a class action determination until after a determination of Carte Blanche’s liability. One stumbling block to the majority’s approach is Rule 23(c)(1), which provides that “[a]s soon as practicable after the commencement of an action brought as a class action, the court shall determine by order whether it is to be so maintained.” Considering this recent provision (1966) in the light of case law developments, the majority decides that that portion of the rule no longer performs a useful function. The provision, the majority declares, was adopted to prevent “one-way intervention,” distaste for which was bottomed on the requirement of mutuality of estoppel. The majority goes on to claim that the mutuality test was interred by the Supreme Court in Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. 313 , 91 S.Ct. 1434 , 28 L.Ed.2d 788 (1971).

Passing over the fact that the quoted language of the rule remains, there is some question as to the extent to which the reason has been changed. The Supreme Court’s BIonder-Tongue decision does not appear to have killed mutuality outright, although the wound inflicted there may someday prove fatal. The Court was careful to note that BIonderTongue did not involve “offensive estoppel”, that is, use, to establish liability, of “a judgment obtained by a different plaintiff in a prior suit against the same defendant.” 402 U.S. at 329-330 , 91 S. Ct. at 1443 [footnote omitted]. The attempted use of estoppel in BIonderTongue was to prevent a patent holder *767 from suing on his patent after it had been held invalid. After identifying the narrow issue before the Court and discussing the effect of the patent law on it, the Court examined the economic consequences of requiring mutuality in patent suits where patent invalidity was asserted as the defensive estoppel. Id. at 334-348 , 91 S.Ct. 1434 . The Court’s abandonment of a mutuality requirement for the particular type of estoppel involved in Blonder-Tongue was based largely on its analysis of the cost of continued adherence to mutuality — that economic analysis makes up roughly one-half of the Court’s opinion and emphasizes that “although patent trials are only a small portion of the total amount of litigation in the federal courts, they tend to be of disproportionate length.” Id. at 348 , 91 S. Ct. at 1452 [footnote omitted].

The majority does not analyze the economic consequences of continued adherence to the mutuality requirement in cases such as the one before us, nor does the majority face the peculiar difficulties often thought to inhere in “offensive” use of estoppel. Instead, the majority simply assumes that mutuality is no longer required for assertion of an estoppel for any purpose in any case. 2 On this unsturdy foundation, the majority builds its argument that it was error for the district court to make an affirmative class action determination at this stage of the proceedings.

To reach its desired result the majority makes a number of factual assumptions without any record basis. Among these questionable assumptions are: (1) that Carte Blanche’s card holders will, no matter how clearly worded the notice, withhold payments to Carte Blanche on learning of this suit; (2) that Carte Blanche will be harmed by assertion of compulsory counterclaims; (3) that a lawyer would take a $100 case if he could get “reasonable attorney’s fees” if successful; and (4) that a lawyer of exceptional competence would be as likely to prosecute an individual action as a class action. The majority’s reliance on such factual assumptions indicates the extent to which review for abuse of discretion requires fact evaluation — these evaluations are entrusted to the district court, and courts of appeals are not supposed to substitute their judgment for the district courts’. The majority’s need to engage in fact evaluation and to rely for reversal on assumed facts, not found by the district court, also indicates why the exercise of discretion does not justify § 1292(b) review.

The end result of the majority’s assumptions, some specific to this case and some general, is that, prior to judgment on liability, no order determining that a class action may be maintained is proper where (1) the defendant objects and (2) plaintiff can, if successful, recover reasonable attorney’s fees. I do not read Rule 23 as limiting availability of class action treatment to the narrow class of cases not covered by the majority’s rule. The district court has, after evaluating the factors listed in Rule 23(b)(3), found that a class action would be superior to other forms of proceeding. Since Carte Blanche has failed to demonstate any abuse of the district court’s discretion, I would not reverse the district court’s order as based on a faulty superiority finding.

Carte Blanche does attack vigorously the district court’s conclusion, supporting its superiority finding, that this suit would be manageable as a class action. The majority does not reach the issue of manageability, at this state in the proceedings, of a class action. Carte Blanche contends that since only consumer credit, not business, uses of the company’s card can serve as the basis for a Truth in Lending suit, the district *768 court would first have to ascertain each plaintiff’s use of his card. I note that this examination of card use goes not to the legal issues connected with Katz’ allegations of liability but to each plaintiff’s entitlement to class membership.

So long as the class representative is a bona fide consumer user of the card, the use each purported class member makes of his card need not be determined before a determination on the controlling legal issues. The district court can, of course, make its class determination conditional and can modify its interim class determination at any time during the proceedings. Fed.R. Civ.P. 23(c)(1). I would, therefore, reject Carte Blanche’s argument that this suit is inherently unmanageable as a' class action.

Predominance

The district court's finding that common issues of law or fact predominate is, like its superiority finding, judged by the abuse of discretion standard. The primary argument advanced by Carte Blanche in urging that the district court abused its discretion in finding that common questions are predominant is that individual consideration of each class member’s card use is required. Rule 23(c)(4)(A) provides that “[w]hen appropriate ... an action may be brought or maintained as a class action with respect to particular issues, . . . and the provisions of this rule shall then be construed and applied accordingly.” The Rules Committee, in adding this subsection, clearly indicated that class action treatment might be appropriate for resolution of common questions even though other issues may have to be litigated individually. Advisory Committee’s Notes, supra at 106.

Since the district court may treat the basic legal issue as to liability separately from determination of each individual’s proper class membership, I would accept the district court’s finding as to predominance. 3 Having abused its discretion neither in finding that a class action is superior to other means for resolution of the case nor in finding a predominance of common questions, the district court’s order should be affirmed unless class action enforcement is forbidden by the Truth in Lending Act.

Truth in Lending

In light of my belief that the district court has not abused its discretion in its findings on predominance and superiority, I must reach Carte Blanche’s contention that Congress intended that only individual suits be allowed for enforcement of the Truth in Lending Act (hereinafter “the Act”). This was Carte Blanche’s principal argument before the panel that heard this case and also was argued on rehearing. The district court, however, did not explicitly reach this contention, and the majority declares that appellate jurisdiction cannot be exercised “over an issue not yet decided in the district court.”

The majority’s view of the scope of appellate review differs considerably from what I had thought to be the law on that subject. After making reviewable under § 1292(b) every interlocutory discretionary determination on class action status, the majority abstains from deciding an issue simply because it was not spoken to below. We review orders, rulings and judgments, not issues; any issue relevant to the order, ruling or judgment may be considered on appeal, so long as a party or the court has a right to raise it. Whether the issue was *769 decided below is immaterial, given its relevance to some judicial action properly under review. Some issues, such as subject matter jurisdiction, may be raised on appeal by the court or even by the party who invoked the lower court’s jurisdiction. See Brown Shoe Co. v. United States, 370 U.S. 294, 305-306 , 82 S.Ct. 1502 , 8 L.Ed.2d 510 (1962); American Fire & Casualty Co. v. Finn, 341 U.S. 6, 17-18 , 71 S.Ct. 534 , 95 L.Ed. 702 (1951). Other issues may be lost if not raised below, but having been raised below, the appellate court may find decision of those issues essential to disposition of the appeal, even where the lower court’s decision was on other grounds. See Helvering v. Gowran, 302 U.S. 238, 245 , 58 S.Ct. 154 , 82 L.Ed. 224 (1937). Carte Blanche in its answer to the complaint raised its contention that class action treatment here is inconsistent with the Act. Rejection of that contention is necessary for affirmance.

As the majority observes, Carte Blanche’s argument, that this case cannot, consistent with the Act, be maintained as a class action, is based in part on the erroneous assumption that Katz and other class members seek only the imposition of the $100 minimum penalty provided by the Act. The argument, however, is not defeated by that observation. The heart of Carte Blanche’s contention is that permitting class action enforcement of the Act would expose Carte Blanche, and other credit card companies, to possibly staggering judgments. The possible loss is not lessened by the fact that the class involved here seeks damages possibly in excess of the statutory minimum recovery.

Carte Blanche concedes the lack of legislative history supporting its contention, but explains that “the potentially annihilating effect” of imposing liability of at least $100 per plaintiff-card holder in a class action “was never brought to the attention of Congress at the time the Act was being considered.” In attempting to show that, nonetheless, the intent of Congress in passing the Act is inconsistent with class action enforcement, Carte Blanche relies on (1) the Act’s attorneys’ fees provision and (2) an appeal to common sense. Carte Blanche’s argument on the first point is that availability of attorneys’ fees to successful plaintiffs is a boon to individual actions and inclusion of this provision in the Act indicates an intent to promote individual, not class, enforcement. All that can be inferred from inclusion in the Act of a provision for award of fees in successful enforcement suits is that Congress desired to encourage private suits to enforce the Act; no necessary, or even probable, inference can be drawn that Congress intended to promote individual suits and prohibit class suits.

Carte Blanche’s second argument is that liability for large judgments could ruin the entire consumer credit industry, an absurd result which Congress could not have intended. Carte Blanche’s potential liability, however, would not be reduced by prohibiting class action enforcement of the Act; recovery by those injured, whom the Act sought to protect, would merely be made more difficult — a result not in harmony with any expressed Congressional intent. See 1968 U.S.Code, Cong. & Admin. News, pp. 1962-2030. Thus, I would reject Carte Blanche’s contention that class action treatment is inconsistent with the Act, and I would affirm the order of the district court.

. Another illustration of this point is provided by Johnson v. Georgia Highway Express, Inc., 417 F.2d 1122 (5th Cir. 1969). The appeal in Johnson was not simply on the ground that the district court abused its discretion in entering a class action determination order. Rather, the order appealed from in Johnson, in addition to restricting the class, in effect bolding that plaintiff was not a proper class representative, denied a motion to strike defendant’s demand for a jury trial. The availability of a jury trial was a controlling legal question allowing appeal of the order under § 1292(b).

. Professor Wright has expressed a view on this matter diametrically opposed to the position taken by the majority. He would not allow the offensive use of estoppel in class action situations even where there are no other limits on use of estoppel. O. Wright, Federal Courts 314 (2d ed. 1970).

. While the district court elected to divide the class into subclasses under 23(c)(4)(B), rather than first to divide the suit by issues under 23(c)(4)(A), the availability of 23(c)(4)(A) for use by the district court makes graphic the difficulty with holding, before final judgment, that a court abused its discretion in finding predominance. The district judge noted in his opinion that he might utilize 23(c)(4)(A) in this case. 53 F.R.D. 539, 543 (E.D.Pa.1971). I note that if liability is found, the district judge may decide that the question of individual damage, as well as individual entitlement to recover as a consumer user ‘of the card, is better left to individual proceedings.