Miranda L. Day v. Persels & Associates, LLC

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 12-11887
________________________
D.C. Docket No. 8:10-cv-02463-TGW
MIRANDA L. DAY,
Plaintiff - Appellee,
RAYMOND GUNN,
Interested Party - Appellant,
versus
PERSELS & ASSOCIATES, LLC,
a Maryland limited liability company,
RUTHER & ASSOCIATES, LLC,
JIMMY B. PERSELS,
ROBYN R. FREEDMAN,
CAREONE SERVICES, INC., a Maryland corporation,
f.k.a. Freedom Point,
LEGAL ADVICE LINE, LLC,
Defendants - Appellees,
3C INCORPORATED, etc., et al.,
Defendants.
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________________________
Appeal from the United States District Court
for the Middle District of Florida
________________________
(September 10, 2013)
Before PRYOR and JORDAN, Circuit Judges, and PRO, ∗ District Judge.
PRYOR, Circuit Judge:
This appeal requires that we resolve two main issues: first, whether a
magistrate judge had subject-matter jurisdiction to enter a final judgment in a class
action without first obtaining the consent of the absent members of the class; and
second, whether a judge abused his discretion when he found that seven defendants
would be financially unable to satisfy a judgment even though no evidence about
the financial position of six of the defendants had been introduced. Miranda Day
sued several debt management businesses and individual employees of those
businesses on behalf of herself and a statewide class of about 10,000 consumers.
Day and the defendants consented to allow a magistrate judge to enter a final
judgment in the class action. 28 U.S.C. § 636(c). Day and the defendants then
informed the magistrate judge that they had reached a settlement agreement, which
expanded the definition of the class to a nationwide class of 125,000 consumers
and released most of the claims of that class in exchange for no monetary relief for
∗
Honorable Philip M. Pro, United States District Judge for the District of Nevada, sitting by
designation.
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the absent class members. At a fairness hearing on the settlement agreement, Day
and the defendants argued that the defendants would be financially unable to
satisfy a judgment, but the evidence in the record supported the conclusion that
only one of the defendants, Persels & Associates, LLC, would be financially
unable to satisfy a significant judgment. The magistrate judge concluded that the
settlement agreement was fair, adequate, and reasonable even though it did not
provide any monetary relief to the absent class members because the defendants
would be unable to satisfy a significant judgment. We conclude that the magistrate
judge had subject-matter jurisdiction to enter a final judgment because absent class
members are not parties whose consent is required for a magistrate judge to enter a
final judgment under section 636(c). But we vacate that judgment because the
magistrate judge abused his discretion when he found, without adequate
evidentiary support, that the defendants could not satisfy a significant judgment,
and we remand for further proceedings.
I. BACKGROUND
CareOne Services, Inc., offered credit counseling services that purported to
allow debtors to lower their payments and pay off their debts. In November 2007,
Miranda Day enrolled in CareOne’s credit counseling services. As part of that
arrangement with CareOne, Day received and entered a retainer agreement with
Ruther & Associates, LLC, a law firm managed by Neil J. Ruther, and with
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CareOne for debt resolution services. Under the agreement, Day would make
monthly payments to Ruther & Associates and CareOne instead of paying her
creditors. Ruther & Associates and CareOne would accumulate these funds in an
escrow account. Ruther & Associates and CareOne would then negotiate on behalf
of Day with her creditors to settle her debt with payments from the escrow account.
The agreement also provided that Ruther & Associates and CareOne would deduct
a legal fee in the amount of 15 percent of Day’s debt before she entered the
agreement from her monthly payments. The agreement provided that the fees
could be higher based on the complexity of the representation. When Ruther
retired in 2008, he transferred the law firm to Jimmy B. Persels, and Persels
renamed the law firm Persels & Associates, LLC. Both law firms employed
Robyn R. Freedman, an attorney licensed in Florida, to assist in the credit
counseling services, and Freedman was assigned to represent Day.
Day paid six monthly payments of $212.39 from January to June 2008 for a
total payment of $1,274.34. None of the money that Day paid to the law firms was
disbursed to her creditors. Instead, the funds paid for fees of the law firms. As a
result of nonpayment, one of Day’s creditors sued her on April 17, 2008, and Day
tried to contact both CareOne and Ruther & Associates immediately after being
served. In response to her inquiries, Day received an email from Freedman on
April 21, 2008, that told her that Freedman had reviewed her file and would be
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working with the paralegal negotiators at CareOne to resolve her disputes with her
creditors. Day received no further assistance from CareOne or any of the attorneys
or law firms, and a default judgment was entered against her on July 10, 2008.
After the court entered a default judgment, Day received a form answer to the
complaint of her creditor that stated that it had been prepared by or with the
assistance of Legal Advice Line, LLC.
In July 2008, another creditor sued Day. She again tried to contact CareOne,
the law firms, and Freedman. A CareOne representative assured Day that CareOne
would take care of the matter, but CareOne, Freedman, and the law firms failed to
assist Day in that matter. Day filed for bankruptcy on July 15, 2008.
Day sued CareOne, Persels & Associates, Ruther & Associates, Persels,
Ruther, Freedman, several companies that had provided debt settlement services
but not legal representation to her, and one individual, who had provided debt
settlement services to her. Day sued on behalf of herself and a class of 10,000
similarly situated residents of Florida who had sought credit counseling services
from CareOne. Fed. R. Civ. P. 23(b)(3). In her complaint, Day alleged that the
debt management defendants were liable to her and the class under the Florida
Deceptive and Unfair Trade Practices Act, the Credit Repair Organizations Act,
and based on several causes of action under common law. The defendants who did
not provide legal representation, including CareOne, moved to stay the action
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against them and compel arbitration. The district court granted the motion to
compel arbitration and stayed the action against all of those defendants except
CareOne. The district court concluded that any claims against CareOne that arose
from the retainer agreement could not be stayed because that agreement did not
include an arbitration provision. Day and the legal service defendants, including
CareOne, then consented to have a magistrate judge conduct all proceedings and to
allow the magistrate judge to enter a final judgment. See 28 U.S.C. § 636(c).
Day filed an amended complaint on behalf of herself and about 10,000
similarly situated Florida residents. Fed. R. Civ. P. 23(b)(3). The amended
complaint added Legal Advice Line as a defendant. In her amended complaint,
Day alleged that the legal service defendants were liable to her and the class under
the Credit Repair Organizations Act and several causes of action under common
law.
Eighteen days after Day filed the amended complaint, Day and the legal
services defendants, including Legal Advice Line, notified the court that they had
reached an agreement in principle on the resolution of the case and that they
intended to enter a final settlement agreement in about 60 days. Day and the legal
services defendants then entered a settlement agreement. The settlement
agreement defined the class as all persons in the United States who had entered
agreements for legal advice concerning debt with the legal service defendants on or
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after April 28, 2008, except those consumers who were class members in a class
action pending in the Eastern District of Washington. The class, as defined by the
settlement agreement, included over 125,000 absent members.
The settlement agreement limited the ability of the legal service defendants
to collect fees from a client who entered a retainer agreement for debt management
services after October 1, 2010. Under the agreement, the legal service defendants
could collect fees from one of these clients only after the defendants negotiated a
settlement with that client’s creditor. The agreement also required the legal
services defendants to modify their retainer agreement to disclose the amount that
the client would pay in legal fees and to establish processes to ensure that clients
seeking the assistance of an attorney were able to communicate with the attorney
within a reasonable time. The agreement included a $100,000 cy pres payment to
the American Bar Foundation. The agreement required that the legal services
defendants pay the costs of administering the settlement and a $5,000 incentive
payment to Day. The agreement also provided that the legal services defendants
would pay attorney’s fees up to $300,000 and that the complaint would be
dismissed with prejudice. The agreement provided no monetary relief to the absent
members, but released any claims that an absent member had against the legal
services defendants.
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The magistrate judge conditionally certified the class, appointed Day’s
counsel as class counsel, scheduled a fairness hearing, approved the notice of
proposed class action, and granted preliminary approval to the settlement
agreement. The parties sent notice of the class action and the settlement to over 98
percent of the class members and the attorneys general of every state except
Washington. The notice informed class members that they could opt out of the
class and that, if they opted out of the class, the settlement would not bar them
from pursuing their individual claims against the legal service defendants. Three
hundred and twenty-five class members opted out of the class.
The notice also informed class members of the procedure to object to the
proposed settlement. The notice explained that the final approval hearing would be
“before Magistrate Judge Thomas G. Wilson,” but the notice did not inform class
members that Day had consented to have the magistrate judge enter a final
judgment or provide any other notice that the magistrate judge would enter a final
judgment.
Five class members, including Raymond Gunn, and the Attorneys General
of Connecticut, Florida, Maine, New York, and West Virginia objected to the
settlement agreement. In his objection, Gunn argued that the settlement agreement
was not fair, adequate, and reasonable because the class members received no
monetary relief in return for an overly broad release of claims that could
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potentially be valuable, that the cy pres distribution was inappropriate, that the
American Bar Foundation was an inappropriate recipient even if a cy pres
distribution were warranted, and that the attorney’s fee and incentive payment
could not be justified in the light of the result achieved for the class.
During the week before the settlement hearing, Day and the legal services
defendants filed separate motions for final approval of the settlement agreement,
and the motions explained that the settlement had been revised in response to
Gunn’s objections in two ways. First, the revised agreement did not release claims
of legal malpractice that were unrelated to the allegations in the complaint.
Second, the revised agreement changed the recipient of the cy pres payment from
the American Bar Foundation to two organizations with purposes more closely
aligned with the members of the class. Day’s motion for approval stated that
information provided during informal discovery established that the defendants
would be unable to pay a substantial settlement or judgment.
At the fairness hearing, class counsel argued that the settlement should be
approved because it held the defendants accountable for their actions and no
objector had offered a better solution. Class counsel also asserted that few of the
class members had objected or chosen to be excluded from the class and that it was
uncertain if any judgment could be collected. When the district court asked class
counsel what inquiry he made into collectability, class counsel responded that he
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had inquired about collectability and relied on the response of the legal service
defendants. Counsel for Persels & Associates also stated that the recovery of a
judgment was doubtful because Persels & Associates had suffered net losses for
two years and owed $14 million on a separate settlement agreement. Counsel for
CareOne asserted that, if the matter was not settled, adjudication against CareOne
would be delayed because it intended to appeal the denial of the motion to compel
arbitration.
Gunn argued that the court should not approve the settlement. Gunn argued
that the settlement agreement required class members to relinquish valuable rights
for no monetary compensation. He also argued that the injunctive relief failed to
compensate the class because it required only that the legal service defendants
comply with federal regulations.
After the hearing, the managing member of Persels & Associates, Ruther,
filed a declaration about the financial condition of Persels & Associates. Ruther
averred that Persels & Associates had sustained a net loss of $5,857,269 during the
calendar years of 2010 and 2011. Ruther also averred that Persel & Associates had
entered a settlement agreement in another matter in which it was required to pay
$18 million and that Persels & Associates still owed $14 million under that
agreement. Ruther averred that the amount owed under that agreement was
secured by all assets of the firm. Ruther also averred that CareOne had modified
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software at his request and that he had been told that the cost of this modification
exceeded $350,000. Ruther’s declaration included no additional information about
the financial condition of any defendant, but Ruther had averred, in a previous
declaration, that, “[t]o the best of [his] knowledge, understanding and belief,”
Ruther, Persels, and Freedman would be unable to satisfy a judgment because they
“are married and [their] assets are held jointly with their spouses and are therefore
protected from levy or execution.”
The magistrate judge certified the class and approved the settlement
agreement. The magistrate judge explained that, although the settlement
agreement provided no monetary relief, the agreement was fair, adequate, and
reasonable because of “(1) the ability of the Class members to opt out of the
settlement agreement; (2) the financial inability of the defendants to pay a
meaningful award, much less to respond to a large judgment; and (3) my complete
confidence in the ability and integrity of . . . counsel . . . .”
The magistrate judge then applied the following six factors to determine
whether the settlement was fair, adequate, and reasonable:
(1) the likelihood of success at trial; (2) the range of possible
recovery; (3) the point on or below the range of possible recovery at
which a settlement is fair, adequate and reasonable; (4) the
complexity, expense, and duration of litigation; (5) the substance and
amount of opposition to the settlement; and (6) the stage of
proceedings at which the settlement is achieved.
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The magistrate judge stated that “recovery is not certain even if the Class is
successful at trial, since they may not be able to collect on the judgment” because
“the law firm defendants [are] facing financial hardship.” The magistrate judge
then stated that the settlement agreement was fair because “the likelihood of the
Class succeeding on the merits is far from clear.” The magistrate judge explained
that the “range of actual recovery” was “from zero to a minimal recovery” because
the class members would not be able to collect a significant judgment, which
supported the conclusion that “the point at which the settlement is fair, reasonable,
and adequate includes no monetary recovery by the Class members.” The
magistrate judge also concluded that the likely complexity and expense of further
litigation supported the approval of the agreement, that the substance and amount
of opposition “d[id] not warrant disapproval” of the agreement, and that the stage
of proceedings at which the settlement had been achieved supported the approval
of the agreement. The magistrate judge certified the class, awarded class counsel
$300,000, and awarded Day $5,000.
II. STANDARDS OF REVIEW
This appeal is governed by two standards of review. We review our subject
matter jurisdiction de novo. Belleri v. United States, 712 F.3d 543, 547 (11th Cir.
2013). We review the approval of a settlement in a class action for abuse of
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discretion. Faught v. Am. Home Shield Corp., 668 F.3d 1233, 1239 (11th Cir.
2011).
III. DISCUSSION
We divide our discussion in two parts. First, we explain that the magistrate
judge had subject-matter jurisdiction to enter a final judgment. Second, we explain
that the magistrate judge abused his discretion when he found that the legal service
defendants were financially unable to satisfy a significant judgment.
A. The Magistrate Judge Had Subject-Matter Jurisdiction to Enter a Final
Judgment.
We divide our discussion of our jurisdiction in two parts. First, we explain
that the magistrate judge had statutory jurisdiction to enter a final judgment.
Second, we explain that the magistrate judge had constitutional jurisdiction to enter
the judgment.
1. The Magistrate Judge Had Jurisdiction, Under the Federal Magistrates Act, to
Enter a Final Judgment.
The Federal Magistrates Act provides that, “[u]pon the consent of the
parties,” a magistrate judge “may conduct any or all proceedings in a jury or
nonjury civil matter and order the entry of judgment in the case, when specially
designated to exercise such jurisdiction by the district court or courts he serves.”
28 U.S.C. § 636(c)(1). After the magistrate judge enters a final judgment, “an
aggrieved party may appeal directly to the appropriate United States court of
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appeals.” 28 U.S.C. § 636(c)(3). The National Association of Consumer
Advocates, as amicus curiae, argues that the magistrate judge lacked jurisdiction
because the absent class members are parties under section 636(c)(1) and never
consented to the entry of a final judgment by a magistrate judge, but we disagree.
We conclude, as have the Third and Seventh Circuits, that absent class
members are not “parties” whose consent is required for a magistrate judge to enter
a final judgment under section 636(c). See Dewey v. Volkswagen
Aktiengesellschaft, 681 F.3d 170, 181 (3d Cir. 2012); Williams v. Gen. Elec.
Capital Auto Lease, Inc., 159 F.3d 266, 269 (7th Cir. 1998); see also, William B.
Rubenstein, et al., Newberg on Class Actions § 1:1 (“Class actions are a form of
representative litigation. One or more class representatives litigate on behalf of
those class members, and those class members are bound by the outcome of the
representative’s litigation.”). Our conclusion is supported by the ordinary legal
meaning of the term “parties” in 1979, the presumption of consistent usage, and the
practical approach to interpreting the term “party” adopted by the Supreme Court
in Devlin v. Scardelletti, 536 U.S. 1, 7–14, 122 S. Ct. 2005, 2009–13 (2002).
When Congress leaves a term in a statute undefined, “we must ‘give it its
ordinary meaning,’ keeping in mind the context of the statute.” United States v.
Jimenez, 705 F.3d 1305, 1308 (11th Cir. 2013) (quoting United States v. Santos,
553 U.S. 507, 511, 128 S. Ct. 2020, 2024 (2008)). “And when the law is the
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subject, ordinary legal meaning is to be expected . . . .” Antonin Scalia & Bryan A.
Garner, Reading Law: The Interpretation of Legal Texts 73 (2012). To interpret
the term “party” in context, it “must be given the [ordinary legal] meaning [it] had
when the text was adopted.” Id. at 78.
The ordinary legal meaning of the term “party,” when Congress added the
relevant language of section 636(c)(1) in 1979, suggests that the term “parties”
excludes absent class members. See Federal Magistrate Act of 1979, Pub. L. No.
96–82, § 2, 93 Stat. 643 (1979). This conclusion is supported by the
contemporaneous version of Black’s Law Dictionary, the contemporaneous First
Restatement of Judgments, the Second Restatement of Judgments published three
years after the addition of the relevant language, and a decision of the Supreme
Court six years after the amendment to section 636(c)(1).
The fifth edition of Black’s Law Dictionary, published the same year that
Congress added the relevant language, explained that “[a] ‘party’ to an action is a
person whose name is designated on record as plaintiff or defendant.” Black’s
Law Dictionary 1010 (5th ed. 1979). Black’s Law Dictionary also made clear that
the term “party” “[i]n general, means one having the right to control proceedings,
to make defense, to adduce and cross-examine witnesses, and to appeal from
judgment,” and that “party” “refers to those by or against whom a legal suit is
brought.” Id. Absent class members are not designated on record as a plaintiff or
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defendant. Absent class members also ordinarily lack the power to control
proceedings. And a suit is not brought “by or against” absent class members.
Instead, the Federal Rules of Civil Procedure provide that “[o]ne or more members
of a class may sue or be sued as representative parties on behalf of all members”
when the requirements for a class action have been met. Fed. R. Civ. P. 23(a).
The Restatement (First) of Judgments, which was the only version available
when Congress added the relevant language, explained that “[a] class action is an
illustration of a situation where it is not feasible for all persons whose interests
may be affected by an action to be made parties to it.” Restatement (First) of
Judgments § 86 cmt. b (1942). And the Restatement (First) made clear that, as the
Seventh Circuit has noted, “[g]enerally speaking, absent class members are not
‘parties’ before the court in the sense of being able to direct the litigation,”
Williams, 159 F.3d at 269, because “the expense and difficulty of making all
persons who have interests in the proceeding parties to it outweigh the normal
desirability of not depriving persons of causes of action or of defenses without
giving them an opportunity to be heard,” Restatement (First) of Judgments § 86,
cmt. b (1942). In the absence of class members as parties, the class representative,
who is a named plaintiff, must “purport to act on behalf of all.” Id.
The Restatement (Second) of Judgments, which was published three years
after the relevant portion of section 636(c)(1) was added, adhered as follows to the
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understanding of the term “party” in a class action that had been expressed in the
Restatement (First):
A person who is not a party to an action but who is represented by a
party is bound by and entitled to the benefits of a judgment as though
he were a party. A person is represented by a party who is . . . [t]he
representative of a class of persons similarly situated, designated as
such with the approval of the court, of which the person is a member.
Restatement (Second) of Judgments § 41(1)(e) (1982). The Restatement (Second)
explained that the class representative had “the requisite authority, and generally
the exclusive authority, to participate as a party on behalf of the represented
person.” Id. § 41 cmt. a.
And the decision of the Supreme Court in Phillips Petroleum Co. v. Shutts,
472 U.S. 797, 105 S. Ct. 2965 (1985), six years after the addition of the relevant
portion of section 636(c)(1), also suggests that, at least for purposes of the
management of the litigation, an absent class member who has not intervened is
not a party. In Shutts, the Supreme Court held that a class representative may
choose to file a class action in a jurisdiction that would not otherwise have
personal jurisdiction over the absent class member so long as sufficient notice is
provided to the absent class members and they are given an opportunity to opt out.
Id. at 811–12, 105 S. Ct. at 2974–75. The Court explained that an opt-in
procedure, similar to a requirement that each absent class member consent to the
entry of a judgment by a magistrate judge, was unnecessary for a state court to
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exercise personal jurisdiction because a rule “[r]equiring a plaintiff to affirmatively
request inclusion would probably impede the prosecution of those class actions
involving an aggregation of small individual claims, where a large number of
claims are required to make it economical to bring suit.” Id. These authorities
suggest that Congress excluded absent class members when it used the term
“parties” in section 636(c)(1) because the ordinary legal meaning of “parties”
excluded absent class members. See also Pearson v. Ecological Sci. Corp., 522
F.2d 171, 176 (5th Cir. 1975) (referring to absent class members as “nonparty class
members”).
Our reading of the term “parties” in section 636(c)(1) to exclude absent
class members is also supported by the “presumption that a given term is used to
mean the same thing throughout a statute.” See Barber v. Thomas, –– U.S. ––, 130
S. Ct. 2499, 2506 (2010) (quoting Brown v. Gardner, 513 U.S. 115, 118, 115 S. Ct.
552, 555 (1994)). Section 636 uses the word “parties” in several places: subsection
(c)(1) requires the “consent of the parties” for the exercise of jurisdiction by a
magistrate judge in a civil action; subsection (c)(2) provides that, if a magistrate
judge is designated to exercise jurisdiction, “the clerk of court shall, at the time the
action is filed, notify the parties of the availability of a magistrate judge to exercise
such jurisdiction”; subsection (c)(2) also provides that, after the “decision of the
parties [has] be[en] communicated to the clerk of court[,] . . . the district court
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judge or the magistrate judge may again advise the parties of the availability of the
magistrate judge, but in so doing, shall also advise the parties that they are free to
withhold consent without adverse substantive consequences”; and subsection
(b)(1)(c) states that a magistrate judge who has been assigned to conduct
evidentiary hearings, but not to render a judgment, “shall file his proposed findings
and recommendations . . . with the court and a copy shall forthwith be mailed to all
parties.” 28 U.S.C. § 636(b), (c). If we were to interpret the word “parties” in the
consent provision to include absent class members, we would also interpret the
word “parties” in the other provisions of section 636 to include absent class
members based on the presumption that a word is used consistently throughout a
statute. But to apply that broad definition of the word “parties” throughout the
statute would greatly increase the costs of class actions and the burdens on the
courts. Under subsection (b)(1), the court would be responsible for notifying all
absent members of a class of the report and recommendations of a magistrate
judge. And if the absent class members consented to adjudication of their claims
by a magistrate judge, the clerk of the court would be required, under subsection
(c)(2), to notify those absent class members of the availability of a magistrate
judge to exercise such jurisdiction. To be sure, subsection (c)(3) instructs that “an
aggrieved party may appeal directly to the appropriate United States court of
appeals,” id. § 636(c)(3), and the Supreme Court has held that, under its
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precedents, an absent class member who unsuccessfully objects to a proposed
settlement may appeal the approval of that settlement, Devlin, 536 U.S. at 14, 122
S. Ct. at 2012. But the Supreme Court in Devlin did not purport to determine the
meaning of the term “party” in any provision of section 636. For the purpose of
the consent requirement of section 636(c), absent class members “are more
accurately regarded as having something less than full party status.” See Williams,
159 F.3d at 269.
Our decision that absent class members are not “parties” under section
636(c)(1) is also supported by the pragmatic approach to defining the term “party”
adopted by the Supreme Court in Devlin. In that decision, the Court explained
that, in a class action, “[n]onnamed class members . . . may be parties for some
purposes and not for others,” and “[t]he label ‘party’ does not indicate an absolute
characteristic, but rather a conclusion about the applicability of various procedural
rules that may differ based on context.” Devlin, 536 U.S. at 9–10, 122 S. Ct. at
2010. The Court then explained that absent class members are treated as parties
for some purposes “to simplify litigation involving a large number of class
members with similar claims.” Id. at 10, 122 S. Ct. at 2010–11. The Court also
explained that the rule that absent class members are not parties for the purpose of
diversity jurisdiction “is likewise justified by the goals of class action litigation”
because “[e]ase of administration of class actions would be compromised by
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having to consider the citizenship of all class members” and “considering all class
members for these purposes would destroy diversity in almost all class actions.”
Id., 122 S. Ct. at 2011.
The purposes of class actions support the exclusion of absent class members
from the term “parties” in section 636(c). “From a practical standpoint,” the
inclusion of absent class members as parties under section 636(c) “would virtually
eliminate § 636(c) referrals to magistrate judges in all potential class actions,
because it would de facto transform all such cases into ‘opt-in’ style actions and
fundamentally change the capacity of the judgment . . . to bind both sides in the
absence of express consents.” Williams, 159 F.3d at 269. Such a decision would
not serve the “goals of class action litigation” including “simplif[ication] [of]
litigation involving a large number of class members with similar claims” and
“[e]ase of administration.” Devlin, 536 U.S. at 10, 122 S. Ct. at 2010–11. In the
context of personal jurisdiction, the Supreme Court has explained that “[r]equiring
a plaintiff to affirmatively request inclusion would probably impede the
prosecution of those class actions involving an aggregation of small individual
claims, where a large number of claims are required to make it economical to bring
suit.” Shutts, 472 U.S. at 812–13, 105 S. Ct. at 2975. “[T]he benefit offered in
return for consent to trial before a magistrate judge is the prospect of an earlier trial
or other form of case resolution than could be arrived at by a district judge.” R.
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Lawrence Dessem, The Role of the Federal Magistrate in Civil Justice Reform, 67
St. John’s L. Rev. 799, 828 (1993). The benefit of an earlier, and potentially less
expensive, adjudication is most likely to be substantial when a class action
“involv[es] an aggregation of small individual claims, where a large number of
claims are required to make it economical to bring suit.” Shutts, 472 U.S. at 813,
105 S. Ct. at 2975.
The limitation on the holding in Devlin to “nonnamed class members . . .
who have objected . . . at the fairness hearing,” 536 U.S. at 14, 122 S. Ct. at 2013,
also supports the conclusion that, at least when the class members have not
participated in proceedings, absent class members are not parties under section
636(c). In Devlin, the Court explained that to refuse to allow a class member who
had objected to a settlement at a fairness hearing to appeal the approval of the
settlement “would deprive nonnamed class members of the power to preserve their
own interests in a settlement that will ultimately bind them, despite their expressed
objections before the trial court.” Id. at 10, 122 S. Ct. at 2011. We have
explained, “Devlin held that nonnamed members of class actions who have timely
objected to a class settlement may appeal the denial of their objections without first
moving to intervene.” AAL High Yield Bond Fund v. Deloitte & Touche LLP,
361 F.3d 1305, 1309 (11th Cir. 2004). And our sister circuits agree that Devlin is
limited to treating absent class members as parties for the purpose of appeal only
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when they objected to a settlement approved by the district court. See, e.g., Robert
F. Booth Trust v. Crowley, 687 F.3d 314, 319 (7th Cir. 2012) (“Devlin holds that a
member of a class certified under Rule 23, who asks the district court not to
approve a settlement, need not intervene in order to appeal an adverse decision.”);
Skilstaf, Inc. v. CVS Caremark Corp., 669 F.3d 1005, 1019 (9th Cir. 2012) (“In
Devlin, the Supreme Court considered whether a non-named, absent class member
who objects to a settlement, but who cannot opt out because the class action was
certified under Rule 23(b)(1), must intervene to appeal an objection overruled by
the district court.”); Abeyta v. City of Albuquerque, 664 F.3d 792, 796 (10th Cir.
2011) (“[T]he Devlin exception to the Marino rule will only apply where the
nonparty has a unique interest in the litigation and becomes involved in the
resolution of that interest in a timely fashion both at the district court level and on
appeal.”); In re Orthopedic Bone Screw Prods. Liab. Litig., 350 F.3d 360, 363 n.3
(3d Cir. 2003) (“Objectors . . . do not qualify as a party for purposes of appealing
[an] original settlement,” when they “neither objected at the fairness hearing nor
appealed the settlement, which is now final.”); In re Gen. Am. Life Ins. Co. Sales
Practices Litig., 302 F.3d 799, 800 (8th Cir. 2002) (“Devlin concerned the
appellate rights of an unnamed class member who challenged the fairness of a
settlement in a mandatory class action.”); cf. In re Lupron Mktg. & Sales Practices
Litig., 677 F.3d 21, 29–30 (1st Cir. 2012) (“The question . . . becomes whether
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Devlin, which created an exception for unnamed class members who have objected
to settlement agreements, extends to this situation in which unnamed class
members have objected to a cy pres distribution.”). No circuit court has concluded
that Devlin requires a federal court to treat a passive absent class member as a
party for any purpose. This reading of Devlin makes sense in the light of the
general rule that, when absent class members have not attempted to participate in
the litigation, those “absent class members are not ‘parties’ before the court in the
sense of being able to direct the litigation.” Williams, 159 F.3d at 269.
The consumer advocates argue that Devlin suggests that absent class
members are parties under section 636(c) because “without a right to consent
individually, absentees are bound to the named plaintiff’s relinquishment of their
rights to an adjudication before an Article III judge,” but the absent class members
in this case were not bound in the same sense that the unnamed class member in
Devlin was bound. In Devlin, the Court held “that nonnamed class members . . .
who have objected in a timely manner to approval of [a] settlement at [a] fairness
hearing have the power to bring an appeal without first intervening,” 536 U.S. at
14, 122 S. Ct. at 2013, and explained that “[w]hat is most important to this case is
that nonnamed class members are parties to the proceedings in the sense of being
bound by the settlement,” id. at 10, 122 S. Ct. at 2011. The Court observed that to
refuse to allow a class member who had objected to a settlement at a fairness
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hearing to appeal the approval of the settlement “would deprive nonnamed class
members of the power to preserve their own interests in a settlement that will
ultimately bind them, despite their expressed objections before the trial court.” Id.
The Court also explained that this result was especially necessary because the
“petitioner had no ability to opt out of the settlement.” Id. A holding that the
unnamed class member in Devlin could not appeal the approval of a settlement
even though he had objected at a fairness hearing “would [have] deprive[d]
nonnamed class members of the power to preserve their own interests,” and
removed unnamed class members’ “only means of protecting [themselves] from
being bound by a disposition of [their] rights.” 536 U.S. at 10–11, 122 S. Ct. at
2011.
Absent class members would not be deprived of the only means to protect
their interests in adjudication before an Article III judge if we were to conclude
that they are not parties within the meaning of section 636(c). Absent class
members would instead retain at least three options to protect their rights to the
adjudication of their claims by an Article III judge when a class is certified and the
named plaintiff has consented to adjudication by a magistrate judge: (1) as the
Seventh Circuit explained in Williams, absent class members could “apply to the
district court to intervene under Rule 24(a), become . . . part[ies] to the lawsuit, and
then exercise [their] right to withhold [their] consent to proceed before the
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magistrate judge,” 159 F.3d at 269; (2) unlike the absent class member in Devlin,
the absent class members in many class actions, including this one, could opt out
of a settlement and not be bound by the judgment entered by a non-Article III
judge, see Devlin, 536 U.S. at 10–11, 122 S. Ct. at 2011; and (3) “unnamed class
member[s] could try to show in a collateral attack that the decision to proceed
before a magistrate judge was a matter on which there was a potential (or, in the
light of the fully developed record, an actual) significant intra-class conflict and
that the notice the absentee[s] received was inadequate to inform [them] of the
conflict,” Williams, 159 F.3d at 269–70. As to the first option, although we have
not addressed the question, see Gen. Trading, Inc. v. Yale Materials Handling
Corp., 119 F.3d 1485, 1496 (11th Cir. 1997) (“[a]ssuming arguendo that this court
would require the consent of latecomers . . . .”), the general view of the federal
courts is that, “without the consent of . . . ‘intervenors’, the magistrate judge’s
order has the effect only of a report and recommendation to the district judge, who
upon the filing of objections must review de novo the recommendation,” N.Y.
Chinese TV Programs, Inc. v. U.E. Enters., 996 F.2d 21, 25 (2d Cir. 1993); see
also Jaliwala v. United States, 945 F.2d 221, 223 (7th Cir. 1991) (“Without consent
[from intervenors], the magistrate had no power to enter an appealable final
judgment.”); 12 Charles Alan Wright, et al., Federal Practice and Procedure §
3071.2 (2d ed. 1997) (“If consents are not obtained, these added parties, like any
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others who have not consented, retain the option of nullifying any resulting
judgment on the ground that they never consented.”). And the practice in at least
some district courts in our Circuit has been for a magistrate judge to draft a report
and recommendation for the district court when a motion to intervene is filed
because “a motion to intervene is a dispositive motion which must ultimately be
decided by an Article III judge in the absence of consent.” Newman v. Sun
Capital, Inc., No. 2:09-cv-445, 2010 WL 326069, at *1 (M.D. Fla. Jan. 21, 2010);
see also Smith v. Powder Mountain, LLC, Nos. 08-80820-civ, 08-cv-81185, 2010
WL 5483327, at *1 (S.D. Fla. Dec. 8, 2010) (“[T]he motion presently before the
Court is a motion to intervene, which, because of its dispositive nature, cannot be
decided by a magistrate judge absent the parties’ consent.”).
In contrast with the problem in Devlin, a requirement that the absent class
members individually consent to jurisdiction before a magistrate judge is not
necessary to preserve absent class members’ “only means of protecting
[themselves] from being bound by a disposition of [their] rights [they] find[]
unacceptable.” Devlin, 536 U.S. at 10–11, 122 S. Ct. at 2011. As this Court has
explained, Devlin applies to “parties who are actually bound by a judgment, not
[absent class members] who merely could have been bound by the judgment.” See
AAL High Yield Bond Fund, 361 F.3d at 1310; cf. Gautreaux v. Chi. Hous. Auth.,
475 F.3d 845, 851 (7th Cir. 2007) (“Devlin . . . reflects a concern that, without an
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opportunity to appeal, unnamed class members will have no other recourse than to
accept the terms of a settlement and to forfeit further pursuit of their claim.”);
P.A.C.E. v. Sch. Dist. of Kan. City, 312 F.3d 341, 343 (8th Cir. 2002) (“[P.A.C.E.]
relies only on Devlin, which is not on point [in a challenge to the certification of a
class] because it involved a final order approving settlement of the case.”). The
absent class members could have been bound by the named plaintiff’s consent to
the jurisdiction of a magistrate judge, but they also could have avoided that result
in the three separate ways discussed earlier.
The consumer advocates argue that we should read the term “parties” in
section 636(c) to exclude absent class members to avoid a constitutional question
about the authority of the district court to enter a judgment under Article III, but
we disagree. “Courts do not use this tool when the text of the statute is
unambiguous.” Price v. Time, Inc., 416 F.3d 1327, 1342 (11th Cir. 2005). Based
on the above authorities, the ordinary legal meaning of “parties” in 1979 is clear.
And we will explain in the following subsection that section 636(c), as we read it,
does not violate Article III of the Constitution in any event.
2. The Magistrate Judge Had Jurisdiction, Under Article III, to Enter a Final
Judgment.
Article III, Section 1, of the Constitution requires that “[t]he judicial Power
of the United States, shall be vested in one supreme Court, and in such inferior
Courts as the Congress may from time to time ordain and establish.” Judges of
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Article III courts “shall hold their Offices during good Behaviour” and “receive for
their Services . . . a Compensation[] [that] shall not be diminished.” U.S. Const.
Art. III, § 1. The Supreme Court has identified two purposes served by this
constitutional provision: first, Article III acts “to safeguard litigants’ right to have
claims decided before judges who are free from potential domination by other
branches of government,” Commodity Futures Trading Comm’n v. Schor, 478
U.S. 833, 848, 106 S. Ct. 3245, 3255 (1986) (citations and internal quotation marks
omitted); and, second, Article III “serves . . . to protect the role of the independent
judiciary within the constitutional scheme of tripartite government,” Id. (citations
and internal quotation marks omitted). We have explained that section 636(c) “is
constitutional because the act requires that the parties and the district court consent
to the transfer of the case to a magistrate and because the district court retains
sufficient control over the magistrate.” Sinclair, 814 F.2d at 1519.
We divide our discussion of jurisdiction under Article III in three parts.
First, we explain that section 636(c) is facially constitutional. Second, we explain
that section 636(c) is constitutional as applied to class actions. Third, we explain
that, because the argument about due process raised by the amicus curiae does not
involve subject-matter jurisdiction, we will not consider it.
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a. Section 636(c) Is Facially Constitutional.
The consumer advocates argue that section 636(c) facially violates Article
III, but we held otherwise in Sinclair. 814 F.2d at 1519. “[I]t is the firmly
established rule of this Circuit that each succeeding panel is bound by the holding
of the first panel to address an issue of law, unless and until that holding is
overruled en banc, or by the Supreme Court.” United States v. Joseph, 709 F.3d
1082, 1098–99 (11th Cir. 2013) (quoting United States v. Hogan, 986 F.2d 1364,
1369 (11th Cir. 1993)).
The consumer advocates suggest that the decision of the Supreme Court in
Stern v. Marshall, –– U.S. ––, 131 S. Ct. 2594 (2011), abrogated our decision in
Sinclair, but we disagree. In Stern, the Court held that, under Article III, a
“Bankruptcy Court . . . lacked the constitutional authority to enter a final judgment
on a state law counterclaim that is not resolved in the process of ruling on a
creditor’s proof of claim.” Id. at 2620. The Court explained that the entry of a
judgment is an exercise of “the essential attributes of judicial power.” Id. at 2618.
The Court rejected an argument that a bankruptcy judge could enter a judgment as
an “adjunct” of a district court and explained that a bankruptcy judge entering a
judgment subject to review by the district court only if a party appealed “can no
more be deemed a mere ‘adjunct’ of the district court than a district court can be
deemed such an ‘adjunct’ of the court of appeals.” Id. at 2619. And the Court
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explained that, when “the essential attributes of judicial power that are reserved to
Article III courts” are exercised, “it does not matter who appointed the . . . judge or
authorized the judge to render final judgments in such proceedings.” Id. (citations
and internal quotations omitted).
Stern did not abrogate our decision in Sinclair. In Sinclair, we concluded
that section 636(c) was constitutional because “[a]t least nine other circuits” had
reached that conclusion and “we f[ou]nd the reasoning of th[o]se cases
persuasive.” Sinclair, 814 F.2d at 1519. Stern suggests that some of the factors
cited in those decisions may not provide the district court sufficient control over
magistrate judges to avoid a problem under Article III when a magistrate judge
enters a judgment. For example, the decisions of our sister circuits relied on the
authority of Article III judges over the selection and retention of magistrate judges
and the ability to appeal to an Article III judge to support the constitutionality of
section 636(c). See, e.g., Pacemaker Diagnostic Clinic of Am., Inc. v.
Instromedix, Inc., 725 F.2d 537, 545–46 (9th Cir. 1984). But these decisions also
relied on other factors including the “authority to cancel an order of reference, sua
sponte or on application of the parties, in individual cases” for good cause, that the
Supreme Court did not address in Stern. Id. at 545. And, in Sinclair, we explained
that the “district court [must] consent to the transfer of the case to a magistrate”
under section 636(c). Sinclair, 814 F.2d at 1519. “[T]he doctrine of adherence to
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prior precedent . . . mandates that the intervening Supreme Court case actually
abrogate or directly conflict with, as opposed to merely weaken, the holding of the
prior panel.” United States v. Kaley, 579 F.3d 1246, 1255 (11th Cir. 2009).
Because Stern did not address many of the factors that led to our conclusion that
section 636(c) is constitutional, Stern did not abrogate our decision in Sinclair.
b. Section 636(c), As Applied to Class Actions, Does Not Violate Article III.
The consumer advocates also argue that section 636(c) as applied to class
actions violates Article III because it allows a magistrate judge to enter a judgment
without the consent of the absent class members, but we agree with the Seventh
Circuit that section 636(c) does not violate Article III as applied to class actions.
Williams, 159 F.3d at 270. We have explained that one reason that “section 636(c)
is constitutional [is] because the act requires that the parties . . . consent to the
transfer of the case to a magistrate,” Sinclair, 814 F.2d at 1519, and in a class
action, the named party “is the ‘party’ to the lawsuit who acts on behalf of the
entire class, including with regard to the decision to proceed before a magistrate
judge,” Williams, 159 F.3d at 269. Because of the representation of the named
party, absent class members do not have the same constitutional interest in the
conduct of litigation as a named party. This conclusion is consistent with the
explanation of the Supreme Court, in another context, that “the Due Process Clause
. . . does not afford [absent class members] as much protection from state-court
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jurisdiction as it does the [named party].” Shutts, 472 U.S. at 811, 105 S. Ct. at
2974.
Absent class members have sufficient tools to protect any interest that they
have in litigating before an Article III judge. As we explained in the previous
subsection, absent class members retain at least three options to protect their rights
to the adjudication of their claims by an Article III judge when a class is certified
and the named class member has consented to adjudication by a magistrate judge:
(1) absent class members can apply to intervene in the lawsuit; (2) absent class
members in many class actions can opt out of a settlement and not be bound by the
judgment entered by a non-Article III judge, see Devlin, 536 U.S. at 10–11, 122 S.
Ct. at 2011; and (3) absent class members can bring a collateral attack of the
decision of the named class member to consent to the entry of a judgment by the
magistrate judge, Williams, 159 F.3d at 269–70.
The consumer advocates argue that the magistrate judge in this case lacked
jurisdiction to enter a judgment because Day lacked authority to bind absent class
members when she consented to the jurisdiction of the magistrate judge before the
class had been certified, but we disagree. “[A] plaintiff who files a proposed class
action cannot legally bind members of the proposed class before the class is
certified.” Standard Fire Ins. Co. v. Knowles, –– U.S. ––, 133 S. Ct. 1345, 1349
(2013). The absent class members were not bound by the consent of Day. As we
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explained earlier, absent class members who objected to the jurisdiction of the
magistrate judge could have “appl[ied] to the district court to intervene under Rule
24(a), become . . . part[ies] to the lawsuit, and then exercise [their] right to
withhold [their] consent to proceed before the magistrate judge.” Williams, 159
F.3d at 269. And the practice in at least some districts in our Circuit has been for a
magistrate judge to draft a report and recommendation for the district court when a
motion to intervene is filed because “a motion to intervene is a dispositive motion
which must ultimately be decided by an Article III judge in the absence of
consent.” Newman, 2010 WL 326069, at *1; see also Smith, 2010 WL 5483327,
at *1 (“[T]he motion presently before the Court is a motion to intervene, which,
because of its dispositive nature, cannot be decided by a magistrate judge absent
the parties’ consent.”).
c. We Will Not Address the Argument of the Amicus Curiae About Due Process.
The consumer advocates argue that the notice to the absent class members
violated their right to due process because it did not provide adequate notice that a
magistrate judge would enter a final judgment, but we need not address this
argument. “This Court has repeatedly held that an issue not raised in the district
court and raised for the first time in an appeal will not be considered by this court.”
Access Now, Inc. v. Sw. Airlines Co., 385 F.3d 1324, 1331 (11th Cir. 2004)
(internal quotation marks omitted). We have explained that, if we were to address
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issues that had not been raised before the district court, “we would not only waste
our resources, but also deviate from the essential nature, purpose, and competence
of an appellate court.” Id. No party challenged in front of the magistrate judge the
adequacy of the notice to the absent class members. Because the parties did not
give the magistrate judge an opportunity to consider the adequacy of the notice, we
need not consider this argument. Moreover, we will not allow an amicus curiae
who asserts an argument on behalf of absent class members in a class action to
attempt to “control the course of th[e] litigation to the extent of requesting
individual relief not requested by anyone else.” Bing v. Roadway Express, Inc.,
485 F.2d 441, 452 (5th Cir. 1973).
The consumer advocates argue that we should address the due process
argument because “[t]he failure of notice here concerns notice to the class
members of their constitutional rights to an Article III judge, which appellees do
not (and cannot) dispute presents a ‘jurisdictional question’ that should be raised
sua sponte even when no one brings it to the court’s attention,” but we disagree.
Whether the magistrate judge had jurisdiction to enter a final judgment under
section 636(c) and Article III is a question of subject-matter jurisdiction. But the
adequacy of the notice is not a question of subject-matter jurisdiction that we must
raise sua sponte. The contents of the notice are relevant only to the question
whether, if the consents of the absent class members are necessary, they impliedly
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consented to the jurisdiction of the magistrate judge under the decision of the
Supreme Court in Roell v. Withrow, 538 U.S. 580, 123 S. Ct. 1696 (2003), which
held that the consent of a party may be inferred from conduct during litigation in
some circumstances, id. at 582, 123 S. Ct. at 1699. The contents or sufficiency of
the notice are not relevant to any question about our subject-matter jurisdiction if
absent class members were not required to consent to litigate before the magistrate
judge.
The consumer advocates argue that, even if the argument about due process
is not related to the jurisdiction of the magistrate judge under Article III and
section 636(c), “the issue would still be jurisdictional,” but this argument is based
on a misunderstanding of the distinction between personal and subject-matter
jurisdiction. Our law is clear that “objections to personal jurisdiction—unlike
subject matter jurisdiction—are waivable.” Oldfield v. Pueblo de Bahia Lora,
S.A., 558 F.3d 1210, 1218 n.21 (11th Cir. 2009). The consumer advocates cite the
decisions of the Supreme Court in Shutts, and Mullane v. Central Hanover Bank &
Trust Co., 339 U.S. 306, 70 S. Ct. 652 (1950), as support for the argument that the
sufficiency of the notice implicates a jurisdictional question that we must address,
but both of these decisions addressed personal jurisdiction, Shutts, 472 U.S. at 814,
105 S. Ct. at 2976; Mullane, 339 U.S. at 313, 70 S. Ct. at 656. The Supreme Court
has explained that, “[b]ecause the requirement of personal jurisdiction represents
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first of all an individual right, it can, like other such rights, be waived.” Ins. Corp.
of Ir., Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 703, 102 S. Ct.
2099, 2105 (1982). “[U]nlike subject-matter jurisdiction, which even an appellate
court may review sua sponte, . . . a defense of lack of jurisdiction over the person .
. . is waived if not timely raised in the answer or a responsive pleading.” Id. at
704, 102 S. Ct. at 2105 (internal quotation marks omitted). We cannot address an
argument of an amicus curiae based on a personal right of the unnamed class
members that was not presented to the district court or in the brief of the appellant.
B. The Magistrate Judge Abused His Discretion When He Approved
the Settlement Agreement.
“In order to approve the settlement agreement, the district court was
required to determine that it was fair, adequate, reasonable, and not the
product of collusion.” Leverso v. SouthTrust Bank of Ala., Nat’l Ass’n, 18
F.3d 1527, 1530 (11th Cir. 1994). The magistrate judge recognized that we
have identified the following six factors that a court should consider to
decide whether a settlement agreement in a class action is fair:
(1) the likelihood of success at trial; (2) the range of possible
recovery; (3) the point on or below the range of possible recovery at
which a settlement is fair, adequate and reasonable; (4) the
complexity, expense and duration of litigation; (5) the substance and
amount of opposition to the settlement; and (6) the stage of
proceedings at which the settlement was achieved.
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Bennett v. Behring Corp., 737 F.2d 982, 986 (11th Cir. 1984). The key factor in
this appeal is the third one: the range of possible recovery.
The magistrate judge approved a settlement that provided no monetary relief
to the absent class members because he found that the defendants were not
financially able to pay a meaningful award, but this finding is not supported by the
record. The only evidence of the ability of the defendants to satisfy a judgment
that was introduced at the fairness hearing concerned a single defendant, Persels &
Associates. The day of the fairness hearing, the legal service defendants filed an
affidavit in which Ruther averred that Persels & Associates had sustained nearly $6
million in losses during the calendar years of 2010 and 2011 and that Persels &
Associates had an outstanding debt of $14 million from a previous settlement
agreement. But this declaration establishes only that one of seven defendants
would be unable to satisfy a significant judgment. The declaration does not prove
that the other six defendants would be unable to satisfy a judgment or even address
the ability of those six defendants to satisfy a judgment. There is no support in the
record for the finding of the magistrate judge that the defendants would be unable
to satisfy a judgment, and the magistrate judge abused his discretion when he made
that finding.
This erroneous finding that the defendants would be unable to satisfy a
substantial judgment was central to the decision of the magistrate judge that the
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settlement agreement was fair, adequate, and reasonable. The magistrate judge
stated that one of three factors that persuaded him to approve the settlement
agreement even though absent class members received no monetary relief was “the
financial inability of the defendants to pay a meaningful award.” And the
magistrate judge also relied on the finding that the defendants would be unable to
satisfy a judgment to find that “the range of possible recovery,” Bennett, 737 F.2d
at 986, was “from zero to a minimal recovery,” and to conclude that “the point on
or below the range of possible recovery at which a settlement is fair, adequate and
reasonable,” id., “includes no monetary recovery by the Class members.”
The magistrate judge abused his discretion when he approved the settlement
based on a clearly erroneous factual finding. See Indigo Room, Inc. v. City of Fort
Myers, 710 F.3d 1294, 1299 (11th Cir. 2013). Although a court does not abuse its
discretion when it makes a factual finding unless that finding was clearly
erroneous, see id., a court commits a clear error when it makes a factual finding
that has no support in the record, see United States v. Newman, 614 F.3d 1232,
1238–39 (11th Cir. 2010).
CareOne argues that the record supports the finding that the other defendants
would also be unable to satisfy a judgment, but we disagree. CareOne argues that
it was unclear whether CareOne would remain a party to the litigation, the income
and assets of Ruther & Associates are irrelevant because that firm was the
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predecessor of Persels & Associates, and the three individual defendants’ assets
were protected from levy or execution because all of the individual defendants
were married and held all of their assets jointly. But no one has argued or
introduced any evidence to suggest that CareOne would be unable to satisfy a
judgment. Although CareOne stated that it would appeal the denial of its motion to
compel arbitration, at this point only speculation supports a finding that CareOne
was likely to prevail. This speculation is not sufficient to support the exclusion of
the assets of CareOne from “the range of possible recovery.” Bennett, 737 F.2d at
986. And the record does not support a finding that the three individual defendants
would be unable to satisfy a judgment. Ruther averred that the three individual
defendants could not satisfy a judgment because “all of [them] are married and
[their] assets are held jointly with their spouses and are therefore protected from
levy or execution,” but this statement was only based on his “best . . . knowledge,
understanding and belief.” The record contains no information about the financial
condition of these three defendants other than the speculation of the managing
partner of Persels & Associates. And even if we accepted CareOne’s argument as
to all of these defendants, CareOne excludes one defendant: Legal Advice Line.
Nothing in the record supports a finding that Legal Advice Line would be unable
to satisfy a judgment.
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Day argues that the magistrate judge did not abuse his discretion when he
failed to consider whether defendants other than Persels & Associates would be
able to satisfy a judgment “because all of the parties recognized that Persels &
Associates would be primarily liable for any judgment under the amended
complaint,” but we disagree. The imposition of primary liability on Persels &
Associates would not prevent the imposition of secondary liability on the other
defendants. Black’s Law Dictionary defines secondary liability as “[l]iability that
does not arise unless the primarily liable party fails to honor its obligation.”
Black’s Law Dictionary 998 (9th ed. 2009). To be sure, Florida law provides that
“[i]n a negligence action, the court shall enter judgment against each party liable
on the basis of such party’s percentage of fault.” Fla. Stat. § 768.81(3). But
Florida law would not have governed the claims of most of the nationwide class,
and the amended complaint also included federal claims. The assets and income of
the other defendants could still be used to satisfy a judgment because the
defendants would be secondarily liable. See Weingart v. Allen & O’Hara, Inc.,
654 F.2d 1096, 1106 (5th Cir. 1981).
IV. CONCLUSION
We VACATE the final judgment that approved the settlement agreement
and REMAND for further proceedings.
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PRO, District Judge, dissenting in part and concurring in part:
I concur in the judgment remanding this case to the district court, and I agree
the magistrate judge abused his discretion when he approved the Settlement
Agreement as fair, reasonable, and adequate as required by Federal Rule of Civil
Procedure 23(e)(2). I write separately, however, because I would hold that
unnamed class members become “parties” upon class certification whose consent
is required under 28 U.S.C. § 636(c)(1) for a magistrate judge to exercise
jurisdiction. As a result, I would hold this Court likewise lacks jurisdiction under
§ 636(c)(1). Accordingly, I would vacate for lack of jurisdiction the magistrate
judge’s Order approving the class action settlement and remand for further
proceedings.
I.
Among the most important requirements in federal class actions are that the
unnamed class members bound by the judgment must be properly noticed and
certified by a court of competent jurisdiction, and that any settlement be properly
approved by the court as “fair, reasonable, and adequate.” Fed. R. Civ. P. 23(e)(1)-
(2). In this case, we are asked to decide whether the magistrate judge, acting
pursuant to consent jurisdiction under § 636(c)(1), properly approved a class action
settlement agreement as fair, adequate, and reasonable. However, because our
jurisdiction to review this case is dependent on the magistrate judge’s jurisdiction,
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before we can consider whether the magistrate judge properly approved the class
action settlement in this case, we must be satisfied that the magistrate judge had
jurisdiction under § 636(c)(1) to approve the settlement.
Under § 636(c)(1), a magistrate judge may exercise jurisdiction over a case
in which a district court has jurisdiction “[u]pon the consent of the parties” and
upon special designation by the district court. In this class action, named plaintiff
Miranda Day (“Day”) brought suit on behalf of herself and a putative class of
10,000 Florida consumers who had contracted for debt settlement services with
Defendants/Appellees Ruther & Associates, Persels & Associates, Neil J. Ruther,
Jimmy B. Persels, Robyn R. Freedman (collectively, the “Law Firm Defendants”),
CareOne Services In., f/k/a FreedomPoint, Inc. (“CareOne”), and other defendants
including Ascend One Corp., 3C Inc., and Bernaldo Dancel. The district court had
jurisdiction over the case pursuant to the Class Action Fairness Act of 2005, 28
U.S.C. § 1332(d), as well as federal question jurisdiction under 28 U.S.C. § 1331.
Before class certification, named plaintiff Day and all defendants filed a
Notice, Consent, and Reference of Civil Action to a Magistrate Judge pursuant to
28 U.S.C. § 636(c)(1) in which they consented to have a United States magistrate
judge “conduct all proceedings in this case including trial, the entry of final
judgment, and all post-trial proceedings.” Plaintiff’s counsel signed the consent
form on behalf of “Miranda L. Day” only, with no indication Day claimed
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authority to act on behalf of a putative class. The district judge approved the
consent form and submitted the case to the magistrate judge.
Day subsequently filed an Amended Class Action Complaint on behalf of
herself and 10,000 Florida consumers alleging a scheme similar to that in her
original Complaint. Day asserted claims against the Law Firm Defendants,
CareOne, and Legal Advice Line, LLC (“Legal Advice Line”), which was added as
a new defendant, for violations of the Credit Repair Organizations Act and various
common law claims.
Approximately three weeks after the Amended Class Action Complaint was
filed, Day and the defendants notified the magistrate judge they had “reached an
agreement in principle regarding the settlement of this case.” Day subsequently
filed a Motion for Preliminary Approval of the Settlement Agreement. Although
Day brought the Amended Class Action Complaint on behalf of a putative class of
10,000 Florida consumers, the proposed Settlement Agreement sought certification
of a nationwide class including 125,011 consumers who contracted with Ruther &
Associates and Persels & Associates for debt settlement services on or after April
28, 2005. Day did not amend the Amended Class Action Complaint to allege it
was being brought on behalf of a nationwide class of 125,011 consumers.
The magistrate judge granted preliminary approval of the proposed
Settlement Agreement, conditionally certified the class of 125,011 consumers,
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appointed Day’s counsel as class counsel, approved the proposed Notice to class,
and set the fairness hearing. Pursuant to the approved notice plan, the settlement
administrator sent the Notice to the 125,011 class members. The settlement
administrator also sent the Notice to the Attorney General of the United States and
the Attorney General of every state and territory except Washington, where a
separate statewide class action already was pending. The Notice advised class
members they could opt out of the class, so they would not be bound by the terms
of the proposed Settlement Agreement and would not be precluded from filing or
prosecuting any claims they may have on their own behalf. The Notice also
advised class members of the procedure for objecting to the proposed Settlement
Agreement.
The Notice did not explain that plaintiffs’ class representative Day and the
defendants had consented to the magistrate judge’s jurisdiction under § 636(c)(1).
The only reference to the magistrate judge was on page six of the seven-page
Notice, where it stated “[t]he final approval hearing will be . . . before Magistrate
Judge Thomas G. Wilson, U.S. District Court for the Middle District of Florida.”
Otherwise, the Notice repeatedly referred to “the Court,” except on the final page
where it admonished class members in boldface, capitalized type not to telephone
“the judge’s chambers concerning this notice or this case.”
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Five class members, including Appellant Raymond Gunn (“Gunn”), filed
objections to the proposed Settlement Agreement. In his Objection, Gunn argued
the proposed Settlement Agreement was not fair, reasonable, and adequate as
required by Rule 23(e)(2) for a variety of reasons. The Attorneys General of
Connecticut, Florida, Maine, New York, and West Virginia also submitted an
objection letter urging the magistrate judge to reject the proposed Settlement
Agreement on the basis it was not fair, reasonable, and adequate, primarily because
of the lack of monetary relief to the class members. In their objection, the
Attorneys General noted they were speaking on behalf of over 17,000 class
members who are residents of their respective states.
After a fairness hearing, the magistrate judge granted final approval of the
Settlement Agreement. Gunn now appeals the magistrate judge’s Order granting
final approval of the Settlement Agreement, arguing the settlement was not fair,
adequate, and reasonable. Two amicus briefs were filed in support of Gunn, one
by the National Association of Consumer Advocates (“NACA”) and the other by
the States of New York, Arkansas, Florida, Hawaii, Illinois, Iowa, Kansas,
Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New
Hampshire, New Mexico, North Dakota, Ohio, Oregon, Rhode Island, South
Carolina, Tennessee, Vermont, Washington, West Virginia, and the District of
Columbia. Like Gunn, the twenty-five Amicus States and the District of Columbia
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argue the Settlement Agreement was not fair, adequate, and reasonable. For the
first time on appeal, NACA raises a new issue regarding whether the magistrate
judge had constitutional authority to approve the class action settlement.
II.
A.
In its amicus brief, NACA argues the magistrate judge lacked constitutional
authority to approve the Settlement Agreement because the unnamed class
members did not consent to the magistrate judge’s exercise of jurisdiction. NACA
further argues § 636(c) is unconstitutional as applied to this case because the
unnamed class members did not receive constitutionally adequate notice that the
named parties had consented to a magistrate judge. Finally, NACA argues
§ 636(c) is facially unconstitutional because it allows magistrate judges to exercise
powers reserved to Article III judges under the Constitution. The question of
whether the magistrate judge had jurisdiction to approve the Settlement Agreement
was not raised by Day, the defendants, or any objector either below or on appeal.
Generally, the Court will not consider issues raised in an amicus brief “that
were neither raised in the district court nor argued by appellants on appeal.”
Richardson v. Ala. State Bd. of Educ., 935 F.2d 1240, 1247 (11th Cir. 1991).
However, “every federal appellate court has a special obligation to satisfy itself not
only of its own jurisdiction, but also that of the lower courts in a cause under
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review,” regardless of whether the parties raise the issue. King v. Cessna Aircraft
Co., 505 F.3d 1160, 1170 (11th Cir. 2007) (quotation omitted).
The Court’s jurisdiction to review a final judgment entered by a magistrate
judge arises from 28 U.S.C. § 636(c)(3). McNab v. J & J Marine, Inc., 240 F.3d
1326, 1327-28 (11th Cir. 2001) (per curiam); 28 U.S.C. § 1291; 28 U.S.C.
§ 636(c)(3) (providing that when the parties properly consent to a magistrate judge,
the parties may “appeal directly to the appropriate United States court of appeals
from the judgment of the magistrate judge”). A magistrate judge may exercise
jurisdiction and enter final judgment under § 636(c)(1) “[u]pon the consent of the
parties” and upon special designation by the district court having jurisdiction over
the case. Failure of the parties to consent to the magistrate judge’s exercise of
jurisdiction deprives this Court of jurisdiction over an appeal from a final judgment
entered by a magistrate judge. McNab, 240 F.3d at 1328.
The Court always has jurisdiction to determine its own jurisdiction and that
of the lower court in cases it reviews, and “whether the parties consented to the
magistrate judge’s jurisdiction to enter final judgment” pursuant to § 636(c) is a
jurisdictional question to be considered sua sponte. McNab, 240 F.3d at 1328;
Kirkland v. Midland Mortg. Co., 243 F.3d 1277, 1279-80 (11th Cir. 2001). Here,
if the magistrate judge lacked jurisdiction because the unnamed class members are
“parties” who did not consent under § 636(c)(1), then this Court would lack
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jurisdiction under § 636(c)(3). Consequently, the Court must determine whether
the magistrate judge had jurisdiction under § 636(c)(1) even though Appellant
Gunn did not raise this issue in his objection below or on appeal.
Consent to a magistrate judge’s jurisdiction under § 636(c)(1) must be
“explicit, voluntary, clear, and unambiguous.” McNab, 240 F.3d at 1328.
However, such consent “can be inferred from a party’s conduct during litigation.”
Roell v. Withrow, 538 U.S. 580, 582 (2003). For example, a party impliedly
consents when “the litigant or counsel was made aware of the need for consent and
the right to refuse it, and still voluntarily appeared to try the case before the
Magistrate Judge.” Id. at 590; see also Chambless v. Louisiana-Pac. Corp., 481
F.3d 1345, 1350 (11th Cir. 2007).
“[P]arties added to a case after the original litigants have filed a consent
under § 636(c) must also agree to the submission of the case to the magistrate
judge; if they do not, then the case must be returned to a district judge.” Williams
v. Gen. Elec. Capital Auto Lease, Inc., 159 F.3d 266, 268-69 (7th Cir. 1998); see
also N.Y. Chinese TV Programs, Inc. v. U.E. Enters., Inc., 996 F.2d 21, 24-25 (2d
Cir. 1993) (requiring intervenors’ express consent to the magistrate judge’s
jurisdiction); Caprera v. Jacobs, 790 F.2d 442, 444-45 (5th Cir. 1986) (per curiam)
(holding that a magistrate judge did not have jurisdiction to enter the order of
dismissal because later-added defendants did not expressly consent to the
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magistrate judge’s jurisdiction); In re Litig. Relating to the Riot of Sept. 22, 1991
at the Maximum Sec. Unit of the Mont. State Prison, No. 94-35710, 1996 WL
205487, at *2 (9th Cir. Apr. 26, 1996) (unpublished) (“Once the additional
defendants were added to the action but did not expressly consent to the magistrate
judge’s jurisdiction, the magistrate judge lacked jurisdiction over the entire
action.”). Thus, if upon class certification unnamed class members become
“parties” under § 636(c), then their consent is required for the magistrate judge’s
jurisdiction over the case.
Congress did not define the term “parties” for § 636(c)(1) purposes. When
Congress leaves a term in a statute undefined, “we must give it its ordinary
meaning, keeping in mind the context of the statute.” United States v. Jimenez,
705 F.3d 1305, 1308 (11th Cir. 2013) (quotation omitted). “We assume that
Congress used the words in a statute as they are commonly and ordinarily
understood, and if the statutory language is clear, no further inquiry is
appropriate.” Fed. Reserve Bank of Atlanta v. Thomas, 220 F.3d 1235, 1239 (11th
Cir. 2000). If the statutory language is ambiguous, the Court may examine
extrinsic materials and employ canons of construction to determine Congress’s
intent. Garcia v. Vanguard Car Rental USA, Inc., 540 F.3d 1242, 1246-47 (11th
Cir. 2008) (canons of construction); Shotz v. City of Plantation, Fla., 344 F.3d
1161, 1167 (11th Cir. 2003) (extrinsic materials).
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The term “parties” in § 636(c)(1) is ambiguous because it is not clear
whether unnamed class members are included in that term once a class is certified.
I therefore turn to extrinsic sources and canons of construction to determine
whether, upon certification, unnamed class members become “parties” whose
consent is required for a magistrate judge to exercise jurisdiction under
§ 636(c)(1).
Congress added the relevant language of § 636(c)(1) in 1979. See Act of
Oct. 10, 1979, Pub. L. No. 96–82, § 2, 93 Stat. 643 (1979). Looking to extrinsic
sources of what Congress may have understood “parties” to mean in 1979, the fifth
edition of Black’s Law Dictionary, published the same year, explained that “[a]
‘party’ to an action is a person whose name is designated on record as plaintiff or
defendant.” Black’s Law Dictionary 1010 (5th ed. 1979). Black’s Law Dictionary
also states that the term party “[i]n general, means one having right to control
proceedings, to make defense, to adduce and cross-examine witnesses, and to
appeal from judgment,” and that party “refers to those by or against whom a legal
suit is brought.” Id. Although a class action is brought and controlled by the
named class representatives, unnamed class members are “those by or against
whom legal suit is brought” once a class is certified. Thus, unnamed class
members arguably would fall within Black’s Law Dictionary’s definition of
“parties.” The Restatement (First) of Judgments, however, explained that “[a]
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class action is an illustration of a situation where it is not feasible for all persons
whose interests may be affected by an action to be made parties to it,” and that the
named plaintiff must “purport to act on behalf of all,” suggesting that unnamed
class members are not “parties.” Restatement (First) of Judgments § 86, cmt. b
(1942).
Although secondary sources such as dictionaries and Restatements provide
some guidance, given the rule of statutory construction that Congress is presumed
to know the law, including judicial interpretations of that law, when it legislates,
pre-1979 cases are stronger indicia of whom or what Congress may have
considered to be a “party” in 1979. See Cannon v. Univ. of Chicago, 441 U.S.
677, 696-98 (1979). In 1974 – five years before Congress added the relevant
language to § 636(c)(1) – the Supreme Court held that unnamed class members are
“parties” in the sense that filing a lawsuit on behalf of the class tolls the statute of
limitations for their claims. Am. Pipe & Constr. Co. v. Utah, 414 U.S. 538, 550-51
(1974) (stating that unnamed class members “stood as parties to the suit” for
tolling purposes unless and until they opted out); cf. In re Cement Antitrust Litig.,
688 F.2d 1297, 1310 (9th Cir. 1982) (holding that unnamed class members are
included in the term “party” under 28 U.S.C. § 455, a judicial recusal statute
amended by Congress in 1974).
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Moreover, before the enactment of § 636(c)(1), two circuits and several
district courts concluded that unnamed class members may be subject to the
“party” discovery rules of the Federal Rules of Civil Procedure. See, e.g., Dellums
v. Powell, 566 F.2d 167, 187 (D.C. Cir. 1977) (stating “[w]hile it is true that
discovery against absentee class members under Rules 33 and 34 cannot be had as
a matter of course, the overwhelming majority of courts which have considered the
scope of discovery against absentees have concluded that such discovery is
available” under certain circumstances and listing cases); Brennan v. Midwestern
United Life Ins. Co., 450 F.2d 999, 1004-05 (7th Cir. 1971) (holding unnamed
class members are “parties” subject to the “‘party’ discovery procedures provided
by Rules 33 and 34,” although it should not be routine to subject unnamed class
members to discovery). But see Wainwright v. Kraftco Corp., 54 F.R.D. 532, 533-
34 (N.D. Ga. 1972) (holding that party discovery rules did not apply to unnamed
class members); Fischer v. Wolfinbarger, 55 F.R.D. 129, 132 (N.D. Ky. 1971)
(same). Although discovery on unnamed class members is circumscribed, it is not
because they are not “parties.” It is because unnamed class members normally
“[have] no duty to actually engage in the prosecution of the action,” and because
discovery on unnamed class members may be misused “as a tactic to take undue
advantage of the class members or as a stratagem to reduce the number of
claimants.” Brennan, 450 F.2d at 1005. Allowing unfettered discovery of
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unnamed class members also may undermine the efficiency goals of class action
litigation. If unnamed class members are not “parties,” it is unclear why courts
would apply Rules 33 and 34 when parties seek to propound discovery on
unnamed class members as opposed to applying non-party discovery rules. The
Seventh Circuit in Brennan specifically rejected the argument that “absent class
members are not ‘parties’ to a suit and consequently not subject to the ‘party’
discovery procedures provided by Rules 33 and 34.” Id. at 1004-05.
Following the enactment of § 636(c)(1) in 1979, case law building on
American Pipe also recognizes that unnamed class members “may be parties for
some purposes and not for others. The label ‘party’ does not indicate an absolute
characteristic, but rather a conclusion about the applicability of various procedural
rules that may differ based on context.” Devlin v. Scardelletti, 536 U.S. 1, 9-10
(2002). For instance, unnamed class members are “parties” in the sense that filing
an action on behalf of the class tolls statutes of limitations against the class and that
unnamed class members who have objected to approval of a class action settlement
may appeal without intervening, but unnamed class members are not “parties” for
the purpose of diversity jurisdiction. Id. at 10, 14 (citing Am. Pipe & Constr. Co.
v. Utah, 414 U.S. 538 (1974)). In Phillips Petroleum Co. v. Shutts, 472 U.S. 797,
810 (1985), the Supreme Court also indicated that unnamed class members may be
“parties” in some circumstances because it states that they “are almost never
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subject to counterclaims or cross-claims, or liability for fees or costs.” If unnamed
class members are not “parties,” it is unclear how they ever could be subject to
counterclaims, cross-claims, or liability for fees or costs. See also Crown, Cork &
Seal Co. v. Parker, 462 U.S. 345, 354 (1983) (stating that a putative unnamed class
member “clearly would have been a party in Pendleton if that suit had been
permitted to continue as a class action”). Thus, Devlin, Shutts, and Crown are
consistent with American Pipe and other pre-1979 case law holding that unnamed
class members can be “parties” in some circumstances.
Given the pre-1979 authority finding that unnamed class members may be
“parties” in various circumstances, Congress presumably was aware that the term
“parties” could include unnamed class members if left open to judicial
interpretation. Congress could have explicitly excluded unnamed class members if
that was its intent, but it did not do so.
It is “settled policy to avoid an interpretation of a federal statute that
engenders constitutional issues if a reasonable alternative interpretation poses no
constitutional question.” Gomez v. United States, 490 U.S. 858, 864 (1989); see
also Zadvydas v. Davis, 533 U.S. 678, 689 (2001) (stating “[i]t is a cardinal
principle of statutory interpretation . . . that when an Act of Congress raises a
serious doubt as to its constitutionality, this Court will first ascertain whether a
construction of the statute is fairly possible by which the question may be
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avoided.” (quotations omitted)). If unnamed class members are not “parties” with
a right to consent individually under § 636(c)(1) after certification, then they would
be bound by the named plaintiff’s relinquishment of their rights to an Article III
judge, which raises constitutional concerns regarding whether a magistrate judge
properly may exercise jurisdiction under § 636(c)(1) without the consent of the
unnamed class members. Construing the statute to find that unnamed class
members are “parties” is a reasonable alternative interpretation in light of the pre-
1979 case law, and avoids a constitutional question.
Additionally, courts construe statutory grants of power strictly. See
Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 818 (1988); Healy v.
Ratta, 292 U.S. 263, 269-70 (1934). Given the Article III concerns present here,
strict construction is particularly appropriate. In this context, the magistrate judge
is acting in essence as an Article III judge under § 636(c), not as a magistrate judge
making non-dispositive rulings or a report and recommendation concerning a
dispositive matter under § 636(b). As discussed above, whether the parties have
properly consented to a magistrate judge is a jurisdictional issue because the
parties’ consent is required to trigger a magistrate judge’s jurisdiction to finally
adjudicate a civil case in accord with § 636(c). Indeed, “[t]he unanimous and
voluntary consent of the parties is the constitutional linchpin of this power.”
Williams v. Gen. Elec. Capital Auto Lease, Inc., 159 F.3d 266, 268 (7th Cir. 1998)
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(quotation omitted). Also, it is through consent that magistrate judges derive their
statutory authority under § 636(c)(1) to dispositively adjudicate unnamed class
members’ claims. See N.Y. Chinese TV Programs, 996 F.2d at 24 (stating that
“the consent of each party is essential to the validity of the statutory system that
allows a magistrate judge to make binding adjudications”). I therefore would hold
that upon certification, unnamed class members become “parties” who must
consent to a magistrate judge’s jurisdiction under § 636(c)(1).
This construction does not preclude a district judge from referring matters to
a magistrate judge in class actions in accord with § 636(b)(1)(A)-(B). 1 Construing
the term “parties” to include unnamed class members may make it somewhat
burdensome for the court to mail a copy of proposed findings of fact and
recommendations under § 636(b)(1)(B) “to all parties” as required by
§ 636(b)(1)(C). See Barber v. Thomas, 130 S. Ct. 2499, 2506 (2010) (stating there
is a “presumption that a given term is used to mean the same thing throughout a
1
Section 636(b)(1)(A) provides “a judge may designate a magistrate judge to hear and
determine any pretrial matter pending before the court, except a motion for injunctive relief, for
judgment on the pleadings, for summary judgment, to dismiss or quash an indictment or
information made by the defendant, to suppress evidence in a criminal case, to dismiss or to
permit maintenance of a class action, to dismiss for failure to state a claim upon which relief can
be granted, and to involuntarily dismiss an action.”
Section 636(b)(1)(B) provides that “a judge may also designate a magistrate judge to
conduct hearings, including evidentiary hearings, and to submit to a judge of the court proposed
findings of fact and recommendations for the disposition, by a judge of the court, of any motion
excepted in [§ 636(b)(1)(A)], of applications for posttrial relief made by individuals convicted of
criminal offenses and of prisoner petitions challenging conditions of confinement.”
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statute”) (quotation omitted). However, the impact on the utilization of magistrate
judges will be minimal.
First, it still may be practicable for the clerk’s office to notify unnamed class
members in small class actions. Second, it is unclear whether the burden of
notifying the unnamed class members of a report and recommendation is great
enough to find Congress did not intend for unnamed class members to be “parties.”
The requirement that the court notify all unnamed class members does not apply to
non-dispositive pretrial matters decided by the magistrate judge under
§ 636(b)(1)(A). Rather, it applies only to reports and recommendations under
§ 636(b)(1)(B), which generally are case dispositive matters customarily
committed to an Article III district judge. 2
Finally, even if construing “parties” to include unnamed class members
would result in some large class actions not being referred to magistrate judges
under § 636(c), the impact on the overall utilization of magistrate judges would be
minimal. Statistics published annually by the Administrative Office of the United
States Courts show that for the twelve month period ending September 30, 2012,
magistrate judges disposed of 1,068,153 matters, including 264,981 matters in civil
2
Sections 636(c)(1)-(2) would not require notice to unnamed class members until a class
is certified, at which point unnamed class members would receive notice under Federal Rule of
Civil Procedure 23(c)(2). Thus, including unnamed class members in the term “party” would not
result in a greater burden on the courts under §§ 636(c)(1)-(2).
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cases. 3 During that period, magistrate judges concluded with finality 15,049 civil
cases pursuant to consent jurisdiction, including 360 civil jury trials and 139 civil
nonjury trials. It is not reported how many class actions were included in the total
number of civil cases concluded by magistrate judges on consent of the parties
under § 636(c), but given the relatively small number of class actions comprising
the civil caseload of the United States District Courts overall, the number
presumably is small.
To the extent this construction of “parties” burdens the court and the manner
in which magistrate judges are utilized with respect to class action cases, any such
burden must be weighed against the constitutional and statutory limits of
magistrate judges’ power to dispositively adjudicate unnamed class members’
claims. Due to the prerequisite Congress imposed to permit magistrate judges to
act as Article III judges only with the parties’ consent under § 636(c), large class
actions may not be among the types of cases which realistically may proceed
before a magistrate judge under § 636(c).
The Supreme Court has indicated that the decision whether unnamed class
members are “parties” should be made in reference to the goals of class action
litigation. See Devlin, 536 U.S. at 10. But having a magistrate judge finally
adjudicate class actions is not a goal of class action litigation. To the extent
3
U.S. Magistrate Judges, http://www.uscourts.gov/Statistics/JudicialBusiness/2012/us-
magistrate-judges.aspx (last visited September 4, 2013).
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magistrate judges’ resolution of class actions promotes efficiency, efficiency is not
the only goal of class action litigation, particularly in light of the unnamed class
members’ right to have their claims adjudicated by an Article III decision maker as
well as the court’s fiduciary responsibility to unnamed class members. See
Holmes v. Cont’l Can Co., 706 F.2d 1144, 1147 (11th Cir. 1983) (“[C]areful
scrutiny by the court is necessary to guard against settlements that may benefit the
class representatives or their attorneys at the expense of absent class members.”
(quotation omitted)); Synfuel Techs., Inc. v. DHL Express (USA), Inc., 463 F.3d
646, 652-53 (7th Cir. 2006) (stating the district court’s role in reviewing a
settlement agreement is “akin to the high duty of care that the law requires of
fiduciaries.” (quotation omitted)). When considering the scope of magistrate
judges’ power under § 636(c), practical efficiency concerns are less important than
constitutional and statutory considerations.
Moreover, what was “most important” to Devlin’s holding that unnamed
class members are “parties” for the purposes of appeal was that, without the right
to appeal approval of a class action settlement, unnamed class members would be
bound by a settlement to which they did not agree. 536 U.S. at 10-11. Here,
without the right to individually consent to a magistrate judge under § 636(c),
125,011 unnamed class members would be bound by Day’s relinquishment of their
rights to an Article III judge which they did not know about, much less expressly
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or impliedly consent to. This is particularly troubling because the Notice the
unnamed class members received did not explain that Day and the defendants had
consented to the magistrate judge’s jurisdiction under § 636(c)(1), and the only
mention of the magistrate judge was buried on page six of the seven-page Notice.
Additionally, unnamed class members would be bound by a final adjudication of
their claims by a magistrate judge without their consent.4
In holding that unnamed class members are “parties” upon certification who
must consent to a magistrate judge’s jurisdiction under § 636(c), I would depart
from the Third and Seventh Circuits. Both have held that “unnamed class
members are not ‘parties’ within the meaning of § 636(c)(1), and that their consent
is not required for the magistrate judge to exercise jurisdiction over a case.”
Dewey v. Volkswagen Aktiengesellschaft, 681 F.3d 170, 181 (3d Cir. 2012); see
also Williams, 159 F.3d at 269-70. The Third and Seventh Circuits reasoned that
the unnamed class members’ consent is not necessary under § 636(c) because
“[g]enerally speaking, absent class members are not ‘parties’ before the court in
the sense of being able to direct the litigation.” Williams, 159 F.3d at 269. Rather,
the named plaintiff “is the ‘party’ to the lawsuit who acts on behalf of the entire
4
This would include class members who were never identified as putative class members
in any operative complaint in this case. Day brought the Amended Class Action Complaint on
behalf of a putative class of 10,000 Florida consumers, and Day never amended her Amended
Class Action Complaint to include the nationwide class. Yet her pre-certification consent would
bind 115,000 consumers who technically were not even part of the putative class identified in the
original or the Amended Class Action Complaint.
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class, including with regard to the decision to proceed before a magistrate judge.
This is an inherent part of representational litigation.” Id.
The holding in Dewey and Williams that unnamed class members are not
“parties” whose consent is necessary for a magistrate judge to exercise jurisdiction
is at odds with Williams’s acknowledgement that consent is the constitutional
“linchpin” of the magistrate judge’s authority under § 636(c)(1). 159 F.3d at 268.
As discussed above, magistrate judges derive both statutory and constitutional
authority to adjudicate later-added parties’ claims only through consent. Thus, a
class representative’s pre-certification consent to a magistrate judge that purports
to bind the unnamed class members upon certification has greater import than a
tactical litigation decision that is an “inherent part of representational litigation.”
Id. at 269. Instead, consent is the constitutional and statutory source of the
magistrate judge’s power to in essence sit as an Article III judge and dispositively
adjudicate the unnamed class members’ claims.
Moreover, the options set forth in Williams and Shutts for unnamed class
members to avoid being bound by a named class representative’s pre-certification
consent to a magistrate judge are not realistic alternatives. The Seventh Circuit
suggested that if unnamed class members prefer an Article III judge, they may
move to intervene under Federal Rule of Civil Procedure 24(a) to “become a party
to the lawsuit, and then exercise her right to withhold her consent to proceed before
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the magistrate.” Williams, 159 F.3d at 269. The Seventh Circuit alternatively
suggested that “after the entry of final judgment, the unnamed class member can
raise a collateral attack based on due process against the named representative’s
decision to consent under § 636(c).” Id. Another option from Shutts is that an
unnamed class member may opt out of the settlement and not be bound by the
judgment entered by a non-Article III judge. See Shutts, 472 U.S. at 812.
However, these three options are illusory if the unnamed class members are not
aware of their right to an Article III judge. For instance, in this case, it is unclear
how the unnamed class members intelligently could have exercised their right to
opt-out because the Notice did not inform them of their right to an Article III
judge, that Day had purported to relinquish that right, and that class members could
exercise any of the three options if they wished to preserve their right to an Article
III judge.
At the time the Seventh Circuit authored Williams, it did not have the
benefit of two recent United States Supreme Court cases, Standard Fire Insurance
Company v. Knowles, 133 S. Ct. 1345 (2013), and Smith v. Bayer Corporation,
131 S. Ct. 2368 (2011). In Standard Fire, the Supreme Court held that a pre-
certification stipulation regarding the amount of damages the class would seek did
not bind members of the proposed class. 133 S. Ct. at 1348-49. “That is because a
plaintiff who files a proposed class action cannot legally bind members of the
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proposed class before the class is certified.” Id. at 1349. In Smith, the Supreme
Court held that when a party seeks class certification but fails to obtain it, an
unnamed class member from the proposed class is not precluded from seeking to
certify the class in another case, as “[n]either a proposed class action nor a rejected
class action may bind nonparties.” 131 S. Ct. at 2379-80. Although Smith
predates Dewey, the Third Circuit does not cite Smith, so it is unclear whether the
Dewey Court took Smith’s holding into account when it held that unnamed class
members’ consent is not required for the magistrate judge to exercise jurisdiction.
Regardless, neither the Third Circuit nor the Seventh Circuit had the guidance of
Standard Fire.5
Under Standard Fire and Smith, some pre-certification decisions by named
class representatives cannot bind putative unnamed class members. Given that
magistrate judges derive both constitutional and statutory authority to adjudicate
later-added parties’ claims only through consent, consent under § 636(c) is not the
type of pre-certification litigation decision named class representatives may make
that would bind unnamed class members upon certification. Rather, upon
5
The Seventh Circuit’s holding in Williams has been further eroded by Devlin because
Devlin’s holding overruled one of the cases on which Williams relies. In reasoning that “absent
class members are not ‘parties’ before the court in the sense of being able to direct the litigation,”
Williams cites In re Brand Name Prescription Drugs Antitrust Litigation, 115 F.3d 458, 458 (7th
Cir. 1997), in which the Seventh Circuit held that unnamed class members do not have a right to
appeal absent intervention. Williams, 159 F.3d at 269. Because Devlin holds that unnamed
class members who object to the proposed settlement are parties for the purpose of an appeal
without having to intervene, Devlin overrules In re Brand Name Prescription Drugs Antitrust
Litigation.
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certification, unnamed class members become later-added “parties” whose consent
is required to allow the magistrate judge to exercise jurisdiction over the
dispositive resolution of the case.
The Seventh Circuit expressed the concern that treating unnamed class
members as “parties” whose consent is required “would virtually eliminate
§ 636(c) referrals to magistrate judges in all potential class actions, because it
would de facto transform all such cases into ‘opt-in’ style actions and
fundamentally change the capacity of the judgment . . . to bind both sides in the
absence of express consents.” Williams, 159 F.3d at 269. I disagree the impact
would be so extreme. The practical effect would be that the district judge will
decide class actions unless the parties consent as required by applicable law to give
the magistrate judge jurisdiction. And, as previously discussed, holding that
unnamed class members become “parties” under § 636(c)(1) upon certification has
minimal impact on the utilization of magistrate judges. Rather than doing violence
to the utilization of magistrate judges, requiring adequate notice and the parties’
express or implied consent to a magistrate judge’s jurisdiction ensures proper
adherence to the legal requirements Congress imposed on non-Article III
magistrate judges, thereby preserving the legitimacy of the magistrate judge system
and protecting litigants’ rights and the integrity of the federal courts.
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B.
Here, Day did not have the authority to consent to a magistrate judge on
behalf of the unnamed class members before class certification. Following
conditional class certification, Day consented to the magistrate judge on her own
behalf through her litigation conduct by voluntarily appearing before the
magistrate judge at the fairness hearing. See Roell, 538 U.S. at 590. Of the
125,011 class members, Day was the only non-objecting class member to appear
personally or through counsel. However, Day’s post-certification implied consent
to the magistrate judge did not bind the unnamed class members because, upon
certification, unnamed class members become later-added “parties” whose consent
is required under § 636(c)(1).
The unnamed class members did not independently satisfy § 636(c)(1)’s
consent requirement. The unnamed class members did not expressly consent to the
magistrate judge’s jurisdiction. The unnamed class members also did not
impliedly consent to the magistrate judge’s jurisdiction through their litigation
conduct, i.e., by not objecting to the magistrate judge’s jurisdiction. The Notice
did not explain that Day and the defendants had consented to a magistrate judge to
preside over the proceedings, and the only reference to “magistrate judge” was on
the second-to-last page of the Notice, where it stated “[t]he final approval hearing
will be . . . before Magistrate Judge Thomas G. Wilson.” Otherwise, the Notice
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repeatedly referred to “the Court,” except on the final page where it admonished
class members not to telephone the judge’s chambers concerning the Notice. The
unnamed class members’ failure to object to the magistrate judge’s jurisdiction in
the face of the Notice provided is not sufficient to constitute implied consent
through litigation conduct. See Roell, 538 U.S. at 590 (stating that a party
impliedly consents to a magistrate judge when “the litigant or counsel was made
aware of the need for consent and the right to refuse it, and still voluntarily
appeared to try the case before the Magistrate Judge”). Because the unnamed class
members are later-added parties whose consent was required, and because the
unnamed class members did not consent, the magistrate judge lacked jurisdiction
to approve the class action settlement in this case.
III.
I would hold that the unnamed class members became “parties” upon
certification whose express or implied consent was required under § 636(c)(1). I
further would hold the magistrate judge lacked authority to approve the class
action settlement because Day’s post-certification implied consent to the
magistrate judge operated only on her own behalf, and the unnamed class members
did not satisfy § 636(c)(1)’s consent requirement. Because the requirements of
§ 636(c)(1) were not satisfied, this Court likewise lacks appellate jurisdiction under
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§ 636(c)(3). I concur in the judgment vacating and remanding for further
proceedings.
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