Petition for Writ of Certiorari — Epstein v. Matsushita Electric Industrial Co.

Supreme Court, U.S.

FILED

‘te

QS 417 sep 0319

No. GFrce CE IME CLRRK

erermananeinn ie

IN THE

Supreme Court of the United States

LAWRENCE EPSTEIN, et ai.,

Petitioners,

v.

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

and MATSUSHITA HOLDING CORPORATION,

Respondents.

On PETITION FOR A Writ OF CERTIORARI TO THE

UNITED STATES CouRT OF APPEALS FOR THE NINTH CIRCUIT

PETITION FOR A WRIT OF CERTIORARI

RoGeR W. KirBy HENRY PAUL MONAGHAN

Counsel of Record HAROLD EDGAR

PETER S. LINDEN 435 West 116th Street

KirBy McINERNEY & Squire, LLP New York, New York 10027

830 Third Avenue (212) 854-2644

New York, New York 10022

(212) 371-6600

Attorneys for Petitioners

154358 @ Counse! Press LLC

FORMERLY LUTZ APPELLATE SERVICES

(800) 274-3321 + (800) 359-6859

Cs

i

QUESTIONS PRESENTED

Because the issue was “outside the scope of the question

presented” and was “not the basis for the decision below,” this

Court, in Matsushita Electric Industrial Co., Ltd. v. Epstein,

516 U.S. 367, 379 n.5 (1996), declined to consider petitioners’

objection that full faith and credit could not be given to a

Delaware class action judgment because the absent class

members had been inadequately represented in Delaware. 516

U.S. at 379 n.5. Three concurring justices twice stated that this

issue remained open on remand. 516 U.S. at 389, 399 (Ginsburg,

J.). On remand, all four circuit judges who examined the record

found inadequate representation, employing terms such as

“hostile” and “subvers[ive]” representation, and “collusion”

(App. 80a, 70a, 87a).

(1) Did a reconstituted panel majority err in concluding --

contrary to the decisions of this Court and every court of appeals

that has considered the issue, the Restatement (Second) of

Judgments, and the expressed views of three Justices in this

very litigation -- that so long as a state has the functional

equivalent of Rule 23, absent class members are bound by a

class action judgment no matter how apparent from the record

before the court that there was inadequate representation in fact?

(2) Does aclass action settlement judgment accord absent

class members due process when (a) there has been no inquiry

into or record evidence concerning the named plaintiffs and

their capacity to represent absent class members; and (b) the

burden to prove inadequate representation was placed upon

objectors, even though “suspicions [of collusion] abound” (App.

74a n. 17, 106a)?

(3) Despite this Court’s explicit refusal to consider the issue

and the separate statement by three Justices that the issue was

open on remand, did this Court nonetheless oblige the court

below to enforce a class action judgment that all members of

that court believed was based on inadequate representation?

ii

PARTIES TO THE PROCEEDING

The named plaintiffs in the federal class action, Epstein,

et al. v. MCA Inc., et al., No. 92-55675 (C.D. Cal.), are

Lawrence Epstein, John Linder, and Jane Rockford (as trustee

of the Michael J. Rockford Trust). Jane Rockford opted out

of the Delaware class action and is not affected by the

Delaware judgment, or the success or failure of this petition.

The defendants are MCA Inc., Matsushita Acquisition

Corporation, Matsushita Electric Industrial Co., Ltd.,

Matsushita Holding Corporation, Lew Wasserman, and

Sidney J. Sheinberg. All claims against MCA Inc., Lew

Wasserman, and Sidney J. Sheinberg have been dismissed

and those defendants are no longer parties to the action.

Matsushita Acquisition Corporation no longer exists by

virtue of having been merged into MCA Inc.

RULE 29.6 STATEMENT

All petitioners are individuals.

|

il

TABLE OF CONTENTS

RULE 29.6 STATEMENT .................... il

TABLE OF AUTHORITIES .................. iv

og ae l

ia hed asthe ds edness eckeces dc 2

CONSTITUTIONAL AND STATUTORY

Basle sg el aie dae 2

STATEMENT OF THE CASE ................. 2

REASONS FOR GRANTING THE WRIT ....... 8

POINT I. A CLASS JUDGMENT BASED

UPON INADEQUATE REPRESENTATION

IN FACT IS NOT ENTITLED TO FULL

oF , re 11

POINT II. THE DELAWARE CLASS

JUDGMENT PROCEEDING WAS

FUNDAMENTALLY FLAWED ......... 15

POINT III. THIS COURT HAS NOT

DIRECTED THE COURT BELOW TO

ENFORCE A CLASS ACTION JUDGMENT

SECURED BY INADEQUATE

REPRESENTATION. .................. 19

ET chi eerie oncvecki¥ess 2éceeil 23

APPENDIX (Submitted in a Separate Volume)

iv

TABLE OF AUTHORITIES

Page

CASES

In re “Agent Orange” Product Liability Litigation,

ew Bi vaty. fe a) rere 13

Amchem Products, Inc. v. Windsor,

Fae Cee CRED hci beans cceanc ivaceeeas passim

In re American Medical Systems, Inc.,

Fa ae BR ee Ua BE hn x ca dcdsnveneis 17

American Pipe and Construction Co. v. Utah,

ge errr rrr 17

Andrews v. Orr,

851 F.2d 146 (6th Cir. 1988) ................ 18

Bennett v. Spear,

ee Ch TE nko snnnteak oo ches cones 20

Cass County, Minnesota v. Leech Lake

Band of Chippewa Indians,

See Whi A on 04 hee x ooh beeen 20

Chicago Life Insurance Co. v. Cherry,

DOOR: Be CRP Eh cepedbndntiseedidees 16

Crown. Cork & Seal Co., Inc. v. Parker,

GES ULE. BER Ce oxnn 465064255000 17

v

Epstein v. MCA, Inc.,

30 F.3d 644 (9th Cir. 1993) ................ 3

Epstein v. MCA, Inc.,

126 F.3d 1235 (9th Cir. 1999) .............. passim

Epstein v. MCA, Inc.,

ATP Be O41. COO Coe, 198P i i okk ck passim

General Motors Corp. v. Tracy,

DEW Gide BORERMED 31 i ois Re 23

General Telephone Co. of Southwest v. Falcon,

BOF UD OT COPE ‘ndvn cde vs ldee ae eee 16

Gonzales v. Cassidy,

Gre BOG G7 UGC, LOT oi ess Be kd 13

Great Rivers Co-op of SE lowa

v. Farmland Industrial, Inc.,

120 F.3d 893 (8th Cir. 1997) ................ 17

Grimes v. Vitalink,

17 F.3d 1553 (3d Cir.), cert. den.,

BES Ws PCN oon kc Se sed. 14

Hansberry v. Lee,

Oe Wt CRMI OD. 6.008342 ic. s eis 9, 12, 13, 14

Holly Farms Corp. v. NLRB,

gk et Perperreeere rT eee 20

vi

Jefferson v. City of Tarrant, Ala.,

13S:3. Ce. GBS CER co cecteh tal Seabees 23

Kremer v. Chemical Construction Corp.,

456 US. 461 CR0GRD oe S Gee est edbins 10, 15, 21, 22

Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson,

508 UB, SIO CISSED 00 cadence wvecives Seaval 17

Martin v. Wilks,

ook s ®. fF). Se i ye ee 9

Matsushita Electric Industrial Co., Ltd. v. Epstein,

536 UB. DEF Cree hh edis ca ca dewssebecus passim

In re MCA, Inc. Shareholders Litigation,

598 A.2d 687 (Del. Ch. Apr. 22, 1991) ........ 2

NCAA v. Smith,

E5D DS. CR. SRO CROSS). hvves cbawewnds duscaes 20

Nottingham Partners v. Trans-Lux Corp.,

FSS Fw SO CRG, USGA) ccccccamesadicws 14

Ortiz v. Fibreboard Corp.,

RODD. GE Fie GRO ake bccccccvevacdues passim

Phillips Petroleum Co. v. Shutts,

eg § Mf) Es ea eee passim

Pounders v. Watson,

ripe Rl | a eee eee rr 23

vil

Prezant v. De Angelis,

636 A.2d 915 (Del. Supr. 1994) .............. 11

Protective Committee for Independent Stockholders

of TMT Trailer Ferry, Inc. v. Anderson,

Pe Rs SOO CHUED once ccnnccccedewsenct 17

In re Real Estate Title and Settlement Services

Antitrust Litigation,

869 F.2d 760 (3rd Cir.),

cert. den., 493 U.S. 891 (1989) .............. 13

Richards v. Jefferson County, Alabama,

Dae Cs VO CROEE a FALE ERG eb Ube peeves 9, 12, 21

Rodriguez de Quijas v. Shearson/American Express, Inc.,

GOO Ce SEP CE bree Fo cd ven eee nlee ces: 11, 20

State Tax Commission of Utah v. Van Cott,

306 U.S. 511, on remand,

98 Utah 264, 96 P.2d 40 (1939) .............. 22

Suitum v. Tahoe Regional Planning Agency,

re eee 23

STATUTES, RULES AND REGULATIONS

BS CW BI ci etineh bi entre ales owhaedcn 2

ane eee 2

Tg "ree. 2,3

U.S. Const. Amendment XIV .................. 2

vill

MISCELLANEOUS

F. James, G. Hazard, and J. Leubsdorf, Civil Procedure

eT ee ee 13

Hart & Wechsler’s,

The Federal Courts in the Federal System

Soe SE Va dws euewadsena endl sanueeees 22

Marcus and Sherman, Complex Litigation

SG CPE dc dad a cddd nan behaSediwes + awky 14

Monaghan, Antisuit Injunctions And Preclusion

Against Absent Non Precedent Class Members,

98 Colum. L. Rev. 1148 (1998) .............. 21

3 Newberg and Conte, Newberg on Class Actions,

SR EEE cS vcdagiecédncks ap wees 13

In The

Supreme Court of the United States

LAWRENCE EpsTEIN, et al.,

Petitioners,

V.

MatsusuitTa ELectric INpustriAL Co., Ltp. and

MatsusuitTa HoLpinG CorporAtION,

Respondents,

On Petition For A Writ or CERTIORARI

To Tue UnitTep States Court or

APPEALS For Tue Nintu Circuit

Lawrence Epstein, et al., respectfully petition for a writ

of certiorari to review the judgment of the United States Court

of Appeals for the Ninth Circuit in this case.

OPINIONS BELOW

The opinion of the court of appeals is printed in Appendix

A at la to 31a, and is reported at 179 F.3d 641. The court’s

earlier opinion is printed in Appendix B at 32a to 95a, and

reported at 126 F.3d 1235.

2

JURISDICTION

The court of appeals entered its judgment on June 7,

1999. This Court has jurisdiction under 28 U.S.C. § 1254(1).

CONSTITUTIONAL AND STATUTORY PROVISIONS

U.S. Const. Amendment XIV provides in relevant part:

“... nor shall any State deprive any person of life, liberty,

or property, without due process of law.”

28 USC § 1738 provides in relevant part: “Such Acts,

records and judicial proceedings . . . shall have the same full

faith and credit in every court within the United States . . . as

they have... in the courts of such State . . . from which they

are taken.”

STATEMENT OF THE CASE

1. This securities law class action arose out of

respondents’ takeover of MCA. Alleging violations of the

Exchange Act, which are within the exclusive jurisdiction

of the federal courts, 15 U.S.C. § 78aa, petitioners instituted

a proceeding in a California federal district court. Once the

federal complaint was filed, the district court was informed

that a Delaware class action asserting only state law claims

had been settled and that it purported to compromise

petitioners’ federal claims. 516 U.S. at 389-90 (Ginsburg,

J.). Rejecting the proposed settlement as “illusionary,” the

vice chancellor characterized the state law claims as “at best,

extremely weak,” and as having “little or no value.” In re

MCA, Inc. Shareholders Litig., 598 A.2d 687 at 694, 696

(Del. Ch. Apr. 22, 1991). He added that “the only claims

which have any substantial merit are the claims... in the

California federal suit that were not asserted in this Delaware

action.” Jd. at 696 (emphasis supplied).

3

The federal district court denied petitioners’ motions for

class certification and partial summary judgment and

ultimately dismissed the federal claims. After petitioners

had filed their opening brief in the Ninth Circuit, another

settlement in the then completely “dormant” (516 U.S. at

392, Ginsburg, J.) Delaware proceeding was announced.

Though stating that the benefits to the class were “meager”

and that “suspicions [of collusion] abound,” the vice

chancellor approved the settlement as an exercise of his “own

business judgment in deciding whether the settlement is

reasonable . . .” (citation omitted) (App. 102a-103a, 106a).

There was no evidence and the vice chancellor held no

hearing to determine whether, at the time they sought

certification as class representatives, the plaintiffs were even

members of the class, held any non-time-barred federal

claims, or that they otherwise adequately represented absent

class members. Similarly, there was no evidence submitted

to assure conflict-free representation by class counsel. Quite

to the contrary: “suspicions [of collusion] abound” (App.

74a n. 17, 106a). But the vice chancellor said that the three

individual objectors had not proved collusion (App. 106a).

The individual objectors were neither authorized by absent

class members, nor certified by the court, to represent the

absent class members.

In the Ninth Circuit , defendants offered the Delaware

judgment for its preclusive effect. 28 U.S.C. § 1738.

Petitioners raised three bars to preclusion: the exclusively

federal nature of the claims extinguished in the state court;

the lack of adequate representation in Delaware violated due

process; and “our federalism” prohibited such use of

moribund state litigation to preempt the class’s pending

federal appeal. In Epstein v. MCA, Inc. (“Epstein I’), 50

F.3d 644 (1993), the Ninth Circuit reversed the district court’s

dismissal on the merits, granted plaintiffs partial summary

judgment on liability, and ordered class certification. The

court addressed only the first of plaintiffs’ arguments against

4

preclusion. It refused to give the Delaware judgment full

faith and credit because that judgment compromised claims

within exclusive federal jurisdiction. So far as relevant here,

defendants petitioned for and this Court granted certiorari

limited tc the exclusive jurisdiction issue.

2. In Matsushita Industrial Electric Co., Ltd. v. Epstein,

516 U.S. 367 (1996), this Court framed the issue before it as

follows:

This case presents the 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.

516 U.S. at 369. The Court unanimously answered that

question in the negative.

Because the case was limited to that thresliold question,

the Court expressly declined to consider petitioners’ due

process objection to the preclusive effect of the Delaware

judgment based upon inadequate representation:

We need not address the due process claim,

however, because it is outside the scope of the

question presented in this Court. ... While it is

true that a respondent may defend a judgment on

alternative grounds, we generally do not address

arguments that were not the basis for the decision

below. (Citations omitted.)

Id. at 379 n.5. Once again, the Court was unanimous.' While

' Justices Stevens and Ginsburg dissented in part, on the issue

whether the Supreme Court in the first instance should have

construed the content of Delaware preclusion law.

i al

5

three concurring justices (Ginsburg and Stevens, J.J., joined

on this issue by Souter, J.) discussed the issue of adequacy

of representation at length, id. at 389-99, they too left

that issue for further consideration on remand. /d. at 399

(“. .. this is a court of final review and not first view. . .”).

3. Epstein II]. On remand, a divided panel concluded

that the Delaware judgment could not be given preclusive

effect because both Delaware law and federal constitutional

law prohibit enforcement of a judgment rendered in a class

action proceeding in which the interests of absent class

members were not adequately represented.

In an opinion for himself and Judge Wiggins, Judge

Norris concluded that the issue of adequacy of representation

by Delaware class counsel had not been “litigated” in

Delaware; that even if it had been raised by the three

appearing individual objectors, Delaware preclusion law

would permit a collateral challenge by an absent class

member; and finally, that in any event the due process clause

required inquiry into adequacy of representation before the

Delaware judgment could be given preclusive effect (App.

44-47a). Judge Norris focused at length on the inadequate

representation by Delaware class counsel: “This was not

merely ‘inadequate’ representation, it was hostile

representation that [only] served the interests of counsel in

getting a fee...” (emphasis supplied) (App. 80a). “Indeed,

Delaware counsel’s representation . . . surpassed inadequacy

and sank to the level of subversion” (emphasis supplied)

(App. 70a). In dissent, Judge O’Scannlain made no effort to

defend the conduct of class counsel in Delaware. The

Situation suggested: “... dare I say, collusive, conduct of

the Delaware class attorneys” (emphasis in the original)

(App.89a). But, he said, “regrettably” (App. 83a), the

Delaware court had resolved the issue, and its resolution

barred any further inquiry.

6

4. Epstein III. Two days after Epstein II was filed, Judge

Norris resigned. Respondents moved for rehearing, Judge

Sidney Thomas was assigned to the panel, rehearing was

granted, and the prior opinion was withdrawn on the votes

of Judges O’Scannlain and Wiggins. Both judges, in different

ways, believed that in Matsushita, despite footnote 5, this

Court implicitly directed them to enforce the Delaware

judgment. Judge Thomas dissented.

Judge O’Scannlain now concluded that although this

Court’s opinion “did not include an express statement that

the Delaware judgment in question did not violate due

process, that conclusion was logically necessary to the

Court's holding” (emphasis supplied.) (App. 10a). He said

that footnote 5 did not indicate otherwise (App. 13a-14a),

and Justice Ginsburg’s statement that the issue remained open

was dismissed as being “part of her dissent” (App. 13a).

Judge Wiggins’ concurrence emphasized that, while Judge

Norris had “convincingly” shown the existence of “hostile”

representation by Delaware class counsel (App. 20a-21a),

he now believed that this Court had sent “unmistakable

Signals” that “the Delaware courts likely had already

conclusively resolved the due process issue” (App. 21a). He

concluded that this resolution must be given full faith and

credit in federal court, “irrespective of whether we agree with

that determination” (App. 22a).

The court offered another -- and a far reaching

proposition (App. 15a-19a). So long as the state has the

functional equivalent of Rule 23, absent class members are

bound by the class action judgment no matter how inadequate

the class representation in fact:

Simply put, the absent class members’ due process

right to adequate representation is protected not

by collateral review, but by the certifying court

initially, and thereafter by appeal within the state

assem aera eres

7

system and by direct review in the United States

Supreme Court.?

(App. 16a). Since the great majority of states have copied

Rule 23 or adopted its functional equivalent, this means that

there can be no collateral challenge based upon inadequate

representation in fact.

Judge Thomas’s dissent (App. 22a-31a) said that “the

actual representation provided by Delaware class counsel was

inadequate for the reasons persuasively detailed in Judge

Norris’s opinion on remand” (App. 26a). This conclusion

encompassed the determination that Delaware counsel had

given the Delaware courts a “misleading and incorrect”

analysis of the federal litigation claims (App. 26a). But he

also focused upon the purported Delaware class

representatives. There was, he noted, no “record evidence

that the class representatives were even members of the class”

( App. 22a). Moreover, even if they were, at “the time

settlement occurred, the statute of limitations prevented the

Delaware class from litigating the federal claims in any

Court” (App. 25a). Such class representatives “had absolutely

no incentive to obtain fair valuation of the federal claims,

because of their inability to assert the claims.” Jbid. The

panel’s holding, he said, constituted a “license to those who

would run to a favorable and remote state court to obtain

settlements premised on bargain-basement valuations of

federal claims, even when those claims clearly predominate

over potential state causes of action” (App. 31a).

? Collateral review for constitutional sufficiency of a class

action judgment is limited to a consideration of “whether the

procedures in the prior litigation afforded the party against whom

the earlier judgment is asserted a ‘full and fair opportunity’ to litigate

the claim or issue,” he said (App. 17a) (emphasis added).

8

REASONS FOR GRANTING THE WRIT

The court of appeals enforced a class action judgment

against absent class members despite the published

conclusions of four circuit judges -- employing such terms

as “hostile” and “subvers[ive]” and “collusion” -- that the

class received inadequate representation. This decision

conflicts with the settled law of this Court and other courts

of appeals. Given the increasing willingness of, particularly

state, courts to settle complex national class action litigation,

and, as here, the frequent presence of competing and

overlapping class actions in different courts, with “global”

settlements available to representatives who submit the

lowest bid, appropriate determination of adequate

representation is essential. The decision below will have

exceptional influence, if not reviewed. This Court’s guidance

is needed.

I. The rule announced by the court below states an

unprecedented and wrong standard for evaluating an absent

class member’s claim that a state court judgment is not

entitled to preclusive effect because it was obtained in

proceedings where he or she was not adequately represented.

By focusing solely on the procedure available under a state

law rather than whether there was actually “adequate

representation at all times” the announced rule eviscerates

this Court’s settled class action jurisprudence. Jn the Ninth

Circuit, if the opinion below stands, adequate representation

does not mean adequate representation in fact by faithful

class representatives; it means no more than the bare

existence of adequate procedures. This is a fundamental error

in need of this Court’s correction. If absent class members

are to be bound by representation, this Court’s cases teach

that the absent class members must receive adequate

representation in fact by faithful champions, and not simply

have adequate procedures available to them. Otherwise, the

class action mechanism creates an intolerable risk of abuse.

9

(i) The conclusion reached by the court below conflicts

with a vast body of law. Since Hansberry v. Lee, 311 U.S.

32, 43 (1940), a collateral attack case, it has been clear that

absent class members are bound only if “they are in fact

adequately represented.” (Emphasis supplied). See also

Richards v. Jefferson County, Alabama, 517 U.S. 793, 800-

801 (1996), another collateral attack case, quoting from

Hansberry. Adequate representation must exist “at all times.”

Phillips Petroleum Co. v. Shutts, 472 U.S. U.S. 797, 812

(1985). See also Ortiz v. Fibreboard Corp., 119 S.Ct. 2295,

2315 n.24 (1999) (quoting Shutts “at all times” language).

As Justice Ginsburg said, 516 U.S. at 395, Shutts’s phrase

“at all times” means that “the class representative's duty to

represent absent class members adequately is a continuing

one.” From Hansberry through Ortiz, an invariable theme

runs through this Court’s cases: If absent members are to be

bound on the basis of representation, the class representatives

(plaintiffs and counsel) must in fact act as faithful champions

of the interests of class.

(ii) For the court below, class members must actively

monitor and intervene in the class proceeding to protect their

constitutional right to adequate representation. This is

directly contrary to Shutts. Shutts said that, unlike absent

defendants, absent class members are “not required to do

anything”, but could “sit back and allow the litigation to run

its course.” 472 U.S. at 810. Not so, according to the court

below. Rather, to protect their rights, absent class members

must hire counsel and actively monitor and intervene in all

class proceedings; otherwise they are bound.’ Simply put,

* Unlike non-appearing defendants who can collaterally attack

a judgment for want of in personam jurisdiction, absent class

members cannot make such an attack even though the existence of

adequate representation “at all times” is a condition necessary for

the existence of state court jurisdiction sufficient to bind absent class

members. See Martin v. Wilks, 490 U.S. 755, 765 (1989). (Generally,

the law imposes no duty to intervene in order to protect one’s rights.)

10

an absent class member is and must act like a party “at all

times.”

II. A judgment that violates due process is not entitled

to full faith and credit in “other state and federal courts.”

Kremer v. Chemical Construction Corp., 456 U.S. 461, 482

(1982); 516 U.S. at 388 (Ginsburg, J.). The Delaware

procedures were “fundamentally flawed.” 456 U.S. 480.

First, the Delaware court approved a class settlement without

making any inquiry into adequacy of representation. There

was no record evidence of any kind that, when they sought

certification as class representatives, the putative Delaware

class representatives were even members of the putative class,

or that they held any claims when they sought certification

as class representatives, that were not barred by the statute

of limitations, as Judge Thomas observed (App. 25a-27a).

Second, the vice chancellor placed the burden of proof on

the individual objectors in the Delaware proceeding to prove

inadequate representation, 516 U.S. at 399, Ginsburg, J.,

even though he recognized that “suspicions [of collusion]

abound.” Respondents conceded in this Court (App. 11 1a)

that the burden of proof on adequate representation rests upon

those who would create class certification and then a class

settlement, not upon objectors who have never been

designated class representatives. See also Amchem Products,

Inc. v. Windsor, 521 U.S. 591, 614 (1997). Moreover, the

vice chancellor confused the need for proof of actual

collusion with proof of inadequate representation.

III. Despite the Court’s explicit statement that the issue

of adequate representation would not be “address[ed]”

because it was “outside of the scope of the question

presented” and was “not the basis for the decision below,”

516 U.S. at 379 n. 5, a panel majority, for differing reasons,

believed that this language need not be taken at face value

and that certain passages in this Court’s opinion intimated

or necessarily meant that petitioners’ constitutional claims

1]

should no longer be considered. This is profoundly alarming

doctrine. Just as the lower courts must “leav[e] to this Court

the prerogative of overruling its own decisions,” Rodriguez

de Quijas v. Shearson/American Express, Inc., 490 U.S. 477,

484 (1989), so too must they leave to this Court alone the

authority to say what it has and has not decided. Retention

of this Court’s prerogative is vital if this Court’s dispositions

are to have publicly intelligible meaning, and not simply

constitute a trap for litigants who have unaddressed claims.

It is an especially vital aspect of this Court’s settled practice

of limited grants of review. And it implements this Court’s

role as a “court of final review and not first view,” 516 U.S.

at 399 (Ginsburg, J.).

POINT I. A CLASS JUDGMENT BASED UPON

INADEQUATE REPRESENTATION IN FACT IS NOT

ENTITLED TO FULL FAITH AND CREDIT

The court below formulated a proposition deeply at

variance with settled understanding: if the state court has

Rule 23 or its functional equivalent (and all do), absent class

members are conclusively bound by the judgment, no matter

how inadequate the representation in fact.‘

Simply put, the absent class members’ due process

right to adequate representation is protected not

by collateral review, but by the certifying court

* Ignoring Justice Ginsburg’s analysis of Delaware law and

respondents’ concession in this Court, referred to by Justice

Ginsburg, 516 U.S. at 399 n.11, that Delaware would entertain a

motion under Delaware Rule 60 to challenge inadequate

representation, the majority below concluded that Delaware would

not permit such a challenge (App. 15a n.6). In so holding, the court

cited Prezant v. De Angelis, 636 A.2d 915 (Del. Supr. 1994) but

ignorea Prezant’s holding that due process required record based

findings about the class representatives. 516 U.S. at 397 (Ginsburg,

J.). Prezant, in turn, influenced this Court’s holdings in Amchem

Products and Ortiz, as to the recessity for adequate class plaintiffs.

12

initially, and thereafter by appeal within the state

system and by direct review in the United States

Supreme Court.

(App. 16a). Since all states satisfy this condition, there is

no collateral review in any court based upon inadequate

representation in fact. The court's opinion is in direct conflict

with an unbroken wall of authority in this Court from

Hansberry v. Lee on down through Amchem Products and

Ortiz v. Fibreboard. These opinions make clear that the class

representatives (named plaintiffs and counsel) must be

faithful champions of the interests of the class, if absent

members are to be bound by the conduct of their

“representatives”. Insistence upon this requirement is of

overriding importance in the context of classes certified for

settlement purposes only. Amchem Products, Inc. v. Windsor,

521 U.S. 591, 621 (1997); Ortiz, 119 S.Ct. at 2316.

1. In Hansberry v. Lee, a collateral challenge decision,

the Court said that absent class members could be bound

only if they appeared or were “in fact adequately represented

...” 311 U.S. at 43 (italics added).* This was described as

“familiar doctrine.” Jd. at 42-43. In Richards v. Jefferson

County, Alabama, 517 U.S. 793, this Court began its opinion

* The court below incorrectly treats Hansberry v. Lee as having

focused only upon matters of procedure governing the certification

and conduct of class actions (App. 16a-17a). In Hansberry, nothing

wrong was with the state court class action procedures. Indeed, in

that proceeding there had been objectors who were in a position to

make all available arguments, Hansberry, 311 U.S. at 41-43, and

the collateral challenge was sustained on the substantive ground of

inadequate representation in fact, i.e., conflict of interest. See

Phillips Petroleum Co. v. Shutts, 472 U.S. at 808 n.1. (Class

representatives’ interests in Hansberry were in conflict with the

interests of parties in the second action). To the same effect are the

Court's more recent decisions in Amchem, 521 U.S. at 625-28 and

Ortiz, 119 S.Ct. at 2318-21. Both decisions focused upon inadequate

representation in fact because of intra class conflict.

13

by stating that “In Hansberry v. Lee . . ., we held that it would

violate the Due Process Clause of the Fourteenth Amendment

to bind litigants to a judgment rendered in an earlier litigation

to which they were not parties and in which they were not

adequately represented.” 517 U.S. at 794 (emphasis

supplied). Later, in the opinion, at 800-801, the Court

expressly quoted Hansberry’s “in fact” language. The class

representatives must “adequately represent” the class “at all

times.” Shutts, 472 U.S. at 812 (emphasis supplied), language

that the court below never mentions. See also Ortiz v.

Fibreboard Corp., 119 S.Ct. at 2315 n.24 (quoting the Shutts

language). In holding to the contrary, the Ninth Circuit's

opinion conflicts with the unanimous view of the lower

courts, including the courts of appeals. As Judge Becker,

for example, said in Real Estate Title,’ “it would violate due

process to bind an absent class member to a judgment from

a proceeding in which the member was not adequately

represented.” Such decisions clearly establish that the

question of adequate representation in fact, not just upon

* See, for example, Gonzales v. Cassidy, 474 F.2d 67, 75 (Sth

Cir. 1973), discussed by Justice Ginsburg, 516 U.S. at 395. See

also In re “Agent Orange” Product Liab. Litig., 996 F.2d 1425 (2nd

Cir. 1993), permitting but rejecting on the merits a due process

collateral attack on a prior opt-out settlement. /d. at 1432-1433 er

seq. The court said that it “is axiomatic that a class action binds

absent members only so long as they were adequately represented

therein.” Jd. at 1435. “[A}fter judgment has been entered and

subsequently is invoked against the class, the adequacy of

representation is open to examination.” F. James, G. Hazard, and J.

Leubsdorf, Civil Procedure 631 (4th ed. 1992) (citing Restatement

(Second) of Judgments § 42, comments e and f). See 3 Newberg

and Conte, Newberg on Class Actions, §16.25 at pp. 16-133-137

(3d ed. 1992) (collecting authorities recognizing collateral attack

from virtually every circuit).

? In re Real Estate Title and Settlement Services Antitrust

Litigation, 869 F.2d 760, 767 (3rd Cir.), cert. den., 493 U.S. 891

(1989).

14

the presence of procedures for determining adequate

representation, are a necessary and appropriate basis for

inquiry on collateral review.*®

Adequate representation means adequate representation,

not adequate procedures; it means vigorous representation

in fact by faithful champions of interests of the class, not

simply facially adequate procedures. Otherwise, the class

action mechanism then becomes a license for grave abuse.

As Judge Norris, citing Hansberry, said, “No procedure can

reliably protect an absent plaintiff who does not in fact have

an adequate representative in court championing his cause”

(emphasis supplied) (App. 56a).

2. The court below eviscerates Shutts in a second way.

The effect of its holding is that, to protect their constitutional

right to adequate representation “at all times”, absent class

members must actively monitor and indeed intervene in the

class proceeding, otherwise they are bound however

inadequate the representative in fact. Absent class members

must, in short, retain counsel and monitor and intervene in

every class action affecting their interests. This conclusion

* The court refers to opinions from the First and Third Circuits.

Nothing in their holdings or reasoning supports his far reaching

proposition. In Nottingham Partners v. Trans-Lux Corp., 925 F.2d

29 (ist Cir. 1991) federal plaintiffs, upon commencement of a

subsequent state action, intervened in the state action and litigated

these claims all the way to the Delaware Supreme Court. They were

properly barred by preclusion principles from relitigating those

issues in the pending federal proceeding. Hansberry v. Lee, supra.

In the Third Circuit’s divided holding in Grimes v. Vitalink, 17 F.3d

1553 (3d Cir.), cert. den. 513 U.S. 986 (1994), a majority there said,

id. at 1558, that the federal litigants conceded that they had, in fact,

previously appeared and litigated the very issue in Delaware (in

which case, of course, there would be preclusion). Grimes at the

very least “leav[es] open whether one who did not object in state

court could do so in federal court.” Marcus and Sherman, Complex

Litigation, p. 103 (Supp. 1997).

15

directly contradicts Shutts. There, rejecting attempts to

analogize absent class members to defendants for purposes of

establishing in personam jurisdiction, this Court said that, unlike

a defendant, an absent class plaintiff “is not required to do

anything.” 472 U.S. at 810. For the court below, however, if an

absent class member does not “do anything” before the class

action judgment is entered, he is forever barred from challenging

it. Absent class members are, therefore, in a position worse than

defendants who, if they do not appear, can make a collateral

challenge to the existence of in personam jurisdiction.

POINT Ii. THE DELAWARE CLASS JUDGMENT

PROCEEDING WAS FUNDAMENTALLY FLAWED

A judgment that violates due process is not entitled to full

faith and credit “‘in other state and federal courts.” Kremer v.

Chemical Construction Co., 456 U.S. at 482; see also 516 U.S.

at 388 (Ginsburg, J.). Here, the procedures were “fundamentally

flawed.” 456 U.S. at 480. While the vice chancellor’s order

recited that there was adequate representation, the class notice

had not listed this as an issue; and there was no evidence with

respect to the adequacy of representation by class counsel or

the named plaintiffs. In particular, there was no record evidence

that, at the time they sought certification as class representatives,

the piaintiffs were even members of the class, or that they held

any federal claims that were not barred by the statute of

limitations. There must be evidence of some kind in the record,

Ortiz 119 S.Ct. at 2316, of the existence of those conditions

that are indispensable to representative status. Moreover, the

vice chancellor placed the burden of proof on “collusion” on

the objectors, not on the proponents of class certification. The

“finding” or recital of adequate representation cannot overcome

the glaring evidentiary defects.°

° “[I}t must be taken to be established that a court cannot

conclude all persons interested by its mere assertion of its own power

(Cont'd)

16

1. Much of the various opinions below focused upon

the conduct of Delaware class counsel. The judges below

condemned it. But, as Judge Thomas recognized, Amchem

Products once again makes clear that the class representatives

also must be adequate (App.24a-25a). This is a

“constitutional fact” the existence of which is necessary if

absent class members are to be bound on the basis of

representation alone. No court can enforce class action

judgment without making a threshold due process inquiry

into what the record shows with respect to the purported class

representatives. This inquiry is especially crucial when the

representatives have been certified for settkement purposes

only. Amchem Products, 521 U.S. at 621; Ortiz, 119 S.Ct. at

2316. The panel majority, over Judge Thomas’ dissent,

declined to make that inquiry. Had it done so, it would see

that there is not even ascintilla of evidence that would permit

an inference that, at the time they sought certification as class

representatives, the putative class representatives were

adequate.

(i) As Judge Thomas said, nothing in the record before

the Delaware court showed that the purported Delaware

representatives were even members of the class at the time

they sought certification as class representatives (App. 22a).

The Delaware judgment thus squarely conflicts with this

Court’s precedents, which state categorically that “a class

representative must be part of the class.” Amchem Products

v. Windsor, 521 U.S. at 625-26; General Telephone Co. of

Southwest v. Falcon, 457 U.S. 147, 156 (1982).'°

(Cont’d)

... even where its power depends upon a fact and it finds the fact.”

Chicago Life Ins. Co. v. Cherry, 244 U.S. 25, 29 (1917).

0 “TA]ctual, not presumed, conformance with Rule 23(a)

remains, however, indispensable.” General Telephone Co. of

Southwest v. Falcon, 457 U.S. at 160. This means that, “[a] class is

(Cont’d)

Adal ak lhe Sati Se vim A es ao aa si

si Sic A et

Hist ony

17

(ii) Even if the Delaware representatives had been shown

to be class members, it is indisputable, as Judge Thomas

also noted (App. 25a), that all their individual federal claims

were barred by the statute of limitations. At the point at

which these Delaware class “representatives” sought

certification as class representatives, they had no claims that

they could litigate -- state or federal -- in any court.'' The

Ninth Circuit decision conflicts with Great Rivers Co-op of

SE Iowa v. Farmland Indus., Inc. 120 F.3d 893, 899 (8th Cir.

1997), which held that class members with time barred claims

could not represent the class.'* More importantly, the

(Cont’d)

not maintainable as a class action by virtue of its designation as

such in the pleadings.” Jn re American Medical Systems, Inc., 75

F.3d 1069, 1079 (6th Cir. 1996). “To make an informed and

independent judgment,. . . the court needs facts, not allegations.”

Protective Committee for Independent Stockholders of TMT Trailer

Ferry, Inc. v. Anderson, 390 U.S. 414, 437 (1968). Even if allegations

in the complaint alone sufficed, the allegations of the Delaware

complaints are insufficient. They are unverified. Moreover, the

complaint alleges that the putative class representatives owned MCA

shares at some point during the class period, not that they tendered

their shares and, thus, potentially had rights under federal law.

'' Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501

U.S. 350 (1991), holds that 1934 Act claims must be brought within

one year of discovery. Under American Pipe and Constr. Co. v.

Utah, 414 U.S. 538 (1974) and Crown, Cork & Seal Co., Inc. v.

Parker, 462 U.S. 345 (1983), the statute is tolled once the complaint

is filed only until the district court denies certification. The district

court did so in April of 1991 and again on September 6, 1991. When

the settlement was announced in October 1992, the statute had run

even if September 6, the second Epstein certification denial, is

viewed as the trigger date.

'? Moreover, even if the Delaware plaintiffs could have asserted

individual federal claims, any class action at this point in time would

have been barred by limitations. Tolling does not extend to new class

(Cont'd)

18

certification of a class represented by representatives and

counsel without any litigitable claims — state or federal —

“did not support the essential premises” required for

certification. Ortiz, 119 S.Ct. at 2316. The Delaware

certification order thus conflicts with this Court’s decisions

in Amchem Products and Ortiz, both of which require that

the putative class representatives must have litigable claims,

and that class counsel’s relationship to the claims not be

conflicted.

We submit that inadequate representation exists as a

matter of law when a class representative seeks certification

for the purpose of releasing claims that “the representative”

has no power to assert in any court, and when the

representative thus sits at the bargaining table only because

defendants have for their own purposes refrained from filing

a dispositive motion. As Judge Thomas observed, such

“[c]lass representatives ha[ve] absolutely no incentive to

obtain fair valuation of the federal claims... .” (App.25a).

2. The vice chancellor not only made no inquiry into

adequacy of representation; instead, he placed the burden of

proof on the objectors to prove inadequate representation.

516 U.S. 399 (Ginsburg, J.). They, of course, were not

appointed to represent the absent class members and make

no commitment to undertake the fiduciary duties associated

with that representation. In this Court respondents conceded

that the burden of proof ‘s on those who propose class

certification and settlement, not those who oppose it (App.

11la). Allocation of burden of proof surely matters where

“suspicions [of collusion] abound.” Respondents made no

(Cont'd)

action claims. See Andrews v. Orr, 851 F.2d 146, 149 (6th Cir. 1988):

“The courts of appeals that have dealt with the issue appear to be in

unanimous agreement that the pendency of a previously filed class

action does not toll the limitations period for additional class actions

by putative members of the original asserted class.”

oe

Aah Bi Nn EATER tect RE Poe OeaA

ak aeAD a Chia ih OA neal dO LAN AR a Sikes pe alt ena as shiva vidi Nu, Gl Madernhicd abet SoA -

aids Dawa»

19

effort — none — to assuage the vice chancellor’s concerns. It

is, accordingly, irrational for respondents to argue that they

discharged their burden when “suspicions [of collusion]”

went unaddressed. Moreover, the vice chancellor employed

the wrong constitutional standard. He confused proof of

adequate representation with proof of collusion. Only the

former is constitutionally relevant; and, quite clearly, that

can be demonstrated without proving actual collusion

between the class representatives and the defendants.

POINT III. THIS COURT HAS NOT DIRECTED

THE COURT BELOW TO ENFORCE A CLASS

ACTION JUDGMENT SECURED BY INADEQUATE

REPRESENTATION.

At oral argument, petitioners sought to demonstrate

inadequacy of representation, but this Court admonished

counsel not to argue “on some peripheral issues that aren’t

here” (App. 113a). After that interchange, it was not

surprising that the Court’s opinion refused to address the

issue of adequacy of representation because it was “outside

the scope of the question presented” and was “not the basis

for the decision below.” 516 U.S. at 379 n.5. Nonetheless

the panel majority believed that footnote 5 need not be taken

at face value. Judge Wiggins believed that this Court sent

“unmistakable signals” to enforce the Delaware judgment,

and Judge O’Scannlain said that it was a “logically

necessary” premise of this Court’s disposition in Matsushita.

These opinions empty footnote 5 of any meaning. Far more

important, they compromise the public meaning of this

Court’s dispositions by setting traps for litigants as to what

has and what has not been decided, sub silentio, despite this

Court’s explicit reservation of the very issue; they improperly

impinge upon this Court’s power to make limited grants of

review. And they undercut this Court’s role as a court of

final review, not first view, which generally means that the

20

Court does “not decide in the first instance issues not decided

below.” NCAA v. Smith, 119 S.Ct. 924, 930 (1999).

Footnote 5 is a holding of this Court, one that was

necessary for the full disposition of the petition since, in

principle, a respondent may defend the judgment of the court

below on any ground consistent with the record. E.g., Bennett

v. Spear, 520 U.S. 154, 166 (1997) (citing Matsushita for

this proposition and the discretionary nature of the Court’s

authority in this respect). Just as the lower courts must

“leav[e] to this Court the prerogative of overruling its own

decisions.” Shearson/American Express, 490 U.S. at 484,

so too they must leave to this Court alone the authority to

say what it has decided and what it has not. This Court has

repeatedly relied upon Matsushita for the “we do not decide”

proposition. '*

1. Judge Wiggins apparently believed that this Court had

held that the Delaware chancery court had resolved

conclusively the issue of adequate representation and that

was binding. This is wrong factually and constitutionally.

First, this Court did not make such a determination. As Judge

Thomas (App. 28a-30a), echoing Judge Norris’s earlier

exposition (App. 42a-44a), showed, the Delaware court had

not resolved the issue. Moreover, the conduct of the

Delaware objectors could not conclusively bind absent class

members. “Objectors are objectors, not class representatives”

(App. 45a). As Judge Thomas noted, “The individual

objectors who voluntarily appeared at the fairness hearing

were not authorized by the absent class members to represent

'3 E.g., Holly Farms Corp. v. NLRB, 517 U.S. 392, 400 n.7

(1996). In Cass County, Minnesota v. Leech Lake Band of Chippewa

Indians, 524 U.S. 103, 1911 n.5 (1998), the Court expressly relied

upon footnote 5 to justify the Court’s refusal to decide an issue

outside the scope of the question presented and that had not been

addressed by the court below.

Ce eT ee ee eee

CN ont ae ae ne Se ae

Ti tea

21

their interests, nor were they certified by the state to do so”

(emphasis added) (App. 30a). This fact alone is fatal to

attaching conclusive legal significance to the conduct of the

Deiaware objectors. Richards v. Jefferson County, Alabama,

517 U.S. at 801 (1996) (noting that plaintiffs in prior proceedings

had not been designated as class representatives and thus could

not bind absent class members). Additionally, if an objector

could conclusively bind all other class members, “surely no

objector could accomplish what a class member could not:

binding a class without Satisfying due process requirements.”'4

2. Abandoning his first opinion, Judge O’Scannlain said

that this Court itself had itself resolved the due process issue.

The “conclusion [that the Delaware judgment satisfied due

process], was logically necessary to the Court’s holding” (App.

10a). This is a striking analysis; if the Court had decided the

due process issue implicitly, the explicit reservation in footnote

5 is meaningless. It is, however, his logic, not this Court’s

perception, that is flawed. There is no inconsistency in this

Court having said: Respondents in Matsushita advanced two

reasons for not enforcing the judgment. The first reason (here,

State court release of federal claims within the exclusive

jurisdiction of the federal courts) is not valid. But we do not

address the question whether the second reason (inadequate

representation) justifies not giving full faith and credit to that

judgment. We are a court of last resort. The second issue is

outside the question presented, and, it was not the basis of the

decision below."

'* Monaghan, Antisuit Injunctions And Preclusion Against

Absent Non Precedent Class Members, 98 Colum. L. Rev. 1148,

1199 (1998). “The Epstein plaintiffs were not adequately represented

in the Delaware state court proceedings by either the class

representatives or the objectors . . .” (App. 31a) (Thomas, J.).

'S Judge O’Scannlain’s brief reliance upon Kremer v. Chemical

Construction Corp., 456 U.S. 461 (1982) (App. 10a, 17a), to support

(Cont'd)

22

Judge O’Scannlain also insists that “if the Epstein

appellants’ contention that the Delaware judgment is

constitutionally infirm were true, Matsushita would be an

advisory opinion” (App. 12a). This is plainly wrong. As Judge

Thomas noted (App. 30a n.3), this Court conclusively resolved

the statutory issue upon which it granted review. Nothing more

is required to satisfy Article III. Otherwise, this Court’s practice

of limited grants of certiorari, as well as remands for further

proceedings, are unconstitutional. The order entered by the

Court, remanding for proceedings “consistent [or not

inconsistent] with this opinion,” 516 U.S. at 387, is fully

consistent with this reasoning, and it is a recurring one. See

Hart & Wechsler’s, The Federal Courts in the Federal System,

507-508 (4th ed. 1996). That mandate leaves the court below

entirely free to pass on any undetermined questions, and this

frequently happens because limited grants by this Court are a

commonplace. /d. at 487-89. That, on remand, the final

judgment below might remain unaffected is quite common and

always has been. See, for example, State Tax Commission of

Utah v. Van Cott, 306 U.S. 511 on remand, 98 Utah 264, 96

P.2d 40 (1939).'°

(Cont'd)

his “logically necessary” holding is mystifying. In Kremer, so far as

relevant here, a federal court litigant challenged enforcement of a prior

State court judgment because relevant state procedural law was, he

alleged, “fundamentally flawed.” Jd. at 480. Noting that a

constitutionally infirm judgment cannot be given full faith and credit,

id. at 482, this Court entertained tae challenge; held that the state

procedures did satisfy due process; and accordingly, it accorded full

faith and credit to the state court judgment. 456 U.S. at 483-85. The

challenge is to the class representative’s failure to provide adequate

representation “at all times”. Shutts, supra. If that condition does not

exist, the state court class action judgment violates due process and

cannot be accorded full faith and credit. 516 U.S. at 388, Ginsburg, J.

'© Later in his opinion, Judge O’Scannlain says, “We further note

that where the Court leaves an issue open on remand, it often expressly

(Cont'd)

a

eee ee ee

Zz , Sell v

nah OOO. tail NS Vat che cc

23

CONCLUSION

The petition for a writ of certiorari should be granted.

Respectfully submitted,

Roger W. Kirby Henry Paul Monaghan

Counsel of Record Harold Edgar

Peter S. Linden 435 West 116th Street

KIRBY McINERNEY New York, New York 10027

& SQUIRE, LLP (212) 854-2644

830 Third Avenue, 10th Floor

New York, New York 10022

(212) 371-6600

Attorneys for Petitioners

Dated: September 3, 1999

(Cont'd)

States that it is done so” (App. 14a). This is an obvious makeweight.

“Often” is the key word here, otherwise the court has fashioned a novel

clear statement rule: Unless magic words are used, this Court will be

deemed to have set a trap for the unwary. Many decisions do not use

these talismanic words, but it is apparent that issues remain open on

remand. E.g. Jefferson v. City of Tarrant, Ala., 118 S.Ct. 481, 483

(1997); Pounders v. Watson, 521 U.S. 982, 989-990 (1997); Suiturn v.

Tahoe Regional Planning Agency, 520 U.S. 725, 728-29 (1997); General

Motors Corp. v. Tracy, 519 U.S. 278, 305 n. 13 (1991). Moreover,

insistence upon a magic words approach completely empties footnote

5 of any meaning.