Fourth Circuit Court of Appeals Denies Benefit of Default Judgment to Uncertified Class

In an earlier securities suit, alleging the mishandling of funds in trust, default judgment was entered into against Charterhouse on behalf of the appellant "and the class of similarly situated persons."  Months later, in reconsidering individual defendants' summary judgment motions, the court retrospectively ruled against class certification.  In a second action, appellant and the putative class sought recovery as judgment creditors against Charterhouse's insurers.  The district court dismissed the claim because the appellant lacked subject matter jurisdiction and the claim was unenforceable because it awarded damages to an uncertified class. 

This court held that the district court erred in finding the default judgment void, because the appellant had subject matter jurisdiction, and while the judgement was unenforceable with respect to the class members, the appelllant himself had an enforceable judgment.  2006 U.S. App. Lexis 7793.  In regards to the rights of the putative class, this court held that the court may only adjudicate the rights of putative class members upon certification of the class under Rule 23.  Therefore in the absence of formal class certification or in certain cases where the record shows that the "parties and the court acted at all times as though a class existed," the court cannot adjudicate the rights of an alleged class.  Although the language of the judgment may have implicitly suggested that damages were awarded to the class as a whole, "the fourth circuit has never allowed the rigorous Rule 23 analysis to be accomplished implicitly."  As such, this court affirmed that the default judgment was uneforceable with respect to the class. - J.J.

Ninth Circuit Affirms Holding that Class Members' Claims Were Released by Settlement

Plaintiffs argued that defendants violated antitrust law by engaging in price fixing.  The District Court held that the plaintiffs were barred from litigating the claims because they were already settled in a separate case in which plaintiffs were class members.  In re Visa Check/Mastermoney Antitrust Litig., 297 F. Supp. 2d 503 (E.D.N.Y. 2003).  The Ninth Circuit affirmed, holding that issue preclusion applied because: 1) the issues plaintiffs raised all related to the earlier settlement, its scope, and its substantive and procedural fairness; 2) a settlement is a final judgment on the merits; and 3) plaintiffs did not opt out of the earlier class and their counsel appeared at the final settlement hearing, thus they were parties to the original judgment.  Judge Carlos T. Bea also held that even if issue preclusion did not apply, plaintiffs' claims were extinguished by the settlement because the two actions shared an identical price-fixing predicate.  Reyn's Pasta Bella, LLC v. Visa USA, Inc., 2006 U.S. App. LEXIS 7455 (Mar. 27, 2006). - L.C.

Second Circuit Rules Suit Relying on New York Law Precluded by California Class Action Settlement

On February 24, 2006, the U.S. Court of Appeals for the Second Circuit affirmed the lower court’s ruling that a California class action settlement precluded the plaintiff’s claim that a mortgage with the defendant was unenforceable.  Wolfert v. Transamerica Home First, Inc., 2006 U.S. App. LEXIS 4536.  The court found that precluding the absent plaintiff’s claim did not violate due process.  The court reasoned that New York’s mortgage laws did not provide the plaintiff with significantly more legal protection than did California’s, and therefore, the plaintiff was adequately represented in the class action.  Additionally, the court rejected the plaintiff’s claim that the settlement notice violated due process. - A.L.

Plaintiff here attempted to escape a class action judgment on the grounds that she was not adequately represented, despite the fact that the class court had ruled that the class was adequately represented.  The case thus confronts the issue not decided by the Supreme Court in Stephenson, 539 U.S. 111 (2003) - namely, how much preclusive effect a second court will give to a class action court's findings concerning adequacy of representation.  The Second Circuit answers that question by reference to the degree of adversarial conflict in the initial proceeding stating that:  "if the class action court ruled only in general terms that representation was adequate, without any adversarial consideration of the claim now advanced by Mrs. Wolfert . . . it would be manifestly unfair to preclude her collateral attack. On the other hand, if, in the class action, a defendant opposing class certification or an objector to the settlement had made a serious argument that a sub-class was required because of claims substantially similar to hers, and that argument had been considered and rejected by the class action court, it would not be unfair to preclude collateral review of that ruling and relegate Mrs. Wolfert to her direct review remedies."  This appears a reasonable approach, emphasizing adversarial-ness as the touchstone for preclusion. Of course, since most issues in most class action settlements are not adversarially tested, it also leaves open a lot of room for collateral attack.  -W.B.R.