Yesterday, with little fanfare, Justice Kennedy filed an statement respecting the denial of the petition for a write of certiorari in DTD Enterprises v. Wells. It reads:
This case began with a contract action brought by DTD Enterprises, Inc. (hereinafter petitioner), a commercial dating-referral service, against respondent, one of peti-tioner’s customers. The suit alleged that respondentrefused to make payments due under a contract. Respon-dent answered by bringing a class action against petitioner. The trial court certified the class and ordered petitioner to bear all the costs of class notification, on thesole ground (or so it appears) that petitioner could affordto pay and respondent could not.
To the extent that New Jersey law allows a trial court to impose the onerous costs of class notification on a defen-dant simply because of the relative wealth of the defendant and without any consideration of the underlying merits of the suit, a serious due process question is raised. Where a court has concluded that a plaintiff lacks the means to pay for class certification, the defendant has little hope of recovering its expenditures later if the suitproves meritless; therefore, the court’s order requiring thedefendant to pay for the notification “finally destroy[s] a property interest.” Logan v. Zimmerman Brush Co., 455 U. S. 422, 433-34 (1982). The Due Process Clause requires a “‘hearing appropriate to the nature of the case.’” Boddie v. Connecticut, 401 U. S. 371, 378 (1971). And there is considerable force to the argument that a hearing in which the trial court does not consider the underlying merits ofthe class-action suit is not consistent with due process because it is not sufficient, or appropriate, to protect the property interest at stake.
I nonetheless agree with the Court’s denial of certiorari,for two reasons. First, the petition is interlocutory; thestate appellate courts denied petitioner leave to appeal the trial court’s action. Second, petitioner has filed for bankruptcy, and an automatic bankruptcy stay has issued pursuant to 11 U. S. C. §362. Respondents contend thatthe present action comes within the scope of the automatic stay. If we were to grant the petition we would be re-quired to construe New Jersey law without the aid of a reasoned state appellate court decision and to confront aprocedural obstacle unrelated to the question presented. Under these circumstances, it is best to deny the petition. It seems advisable, however, to note that the petition for certiorari does implicate issues of constitutional significance.
Of note, the Chief Justice and Justice Sotomayor joined the opinion. What does this mean about Justice Sotomayor’s view of class actions and the scope of the Due Process Clause? We’ll have to see.
Cornellian says:
Good for Justice Kennedy
October 14, 2009, 9:55 amDave N says:
I don’t practice this area of law so I am sincerely interested in this question: Does any state besides New Jersey allow a court to order a company to pay the notification costs of a class-action suit without regard to the merits of the litigation?
October 14, 2009, 10:51 amDjDiverDan says:
Ditto, Cornelian. The trial Court’s order of a Defendant to pay notification costs in a class action under ANY circumstances strikes me as an open invitation to abuse; to do so without any consideration of the merits, and without requiring the class-action plaintiff to post a significant cost bond (similar to that which can be required under Federal Rule of Civil Procedure 7) strikes me as a clear denial of due process.
October 14, 2009, 11:05 amNickM says:
The automatic stay issue is a major procedural problem, but asserting that the refusal of the NJ courts to allow an appeal constitutes a reason to deny certiorari lets a state court system insulate itself from review.
It is not worthwhile for prevailing defendants to bring appeals for the reversal of expenses already paid out when the plaintiff is impecunious, because they will be throwing good money after bad.
Nick
October 14, 2009, 11:23 amSteve says:
The automatic stay issue is a major procedural problem, but asserting that the refusal of the NJ courts to allow an appeal constitutes a reason to deny certiorari lets a state court system insulate itself from review.
In theory, I guess, but in reality there’s not much basis to think that the appellate courts are strategically denying review to prevent the Supreme Court from hearing this issue. The problem is that a typically cursory trial court decision doesn’t frame the issues well enough for the Supreme Court to render a definitive pronouncement.
October 14, 2009, 11:42 amNYTwin81 says:
Re: Jonathan’s question: It’s possible that Justice Sotomayor just thinks that this is an issue that should be decided one way or the other. She may not necessarily think that it should be decided in favor of the class action defendant.
October 14, 2009, 12:15 pmCJColucci says:
If Justice Sotomayor starts ruling “right” on certain issues, will she become a wise latina?
October 14, 2009, 12:31 pma clerk says:
Sotomayor was on the panel in In re Initial Pub. Offering Sec. Litig., 471 F.3d 24 (2d Cir. 2006), which significantly tightened certification standards in the Second Circuit.
October 14, 2009, 12:43 pmBored Lawyer says:
Putting aside the bankruptcy stay, this appears to me to be a classic example of a collateral order. It is simply not reviewable in any meaningful manner if you wait till the end of the case.
October 14, 2009, 12:46 pmSteve says:
Of course it’s reviewable, it’s just money. Win the case, and then say “this case was meritless, the costs of notice should have been assessed to the plaintiffs.”
October 14, 2009, 12:51 pmBored Lawyer says:
The whole point of the order was that the plaintiffs were impecunious and could not afford to pay, so the costs were shifted to the defendants. If they wait to appeal the case, they will never get their money back — it has been spent on the notice and there is no one to repay it. An appellate decision along the lines you suggest will have no real effect whatsoever. Furthermore, at least as described by Justice Kennedy’s statement, that this determination was completely independent of the merits. This fits the collateral order rule to a T.
October 14, 2009, 1:30 pmCalderon says:
And how is the defendant going to recover those costs? I doubt anyone (except maybe the RIAA) would be too successful in collecting X amount of dollars from thousands / hundreds of thousands / millions of class members, most of whom would not even know that they were part of a class action. The transaction costs of trying to recover from all those disparate individuals likely would be more than the costs of notice. The only other possibility is going after the plaintiffs’ law firm, but I’m skeptical they would be held legally liable for a cost that’s the responsibility of the class members and they may not have enough funds to pay the judgment either. When you layer on the high rate of settlement after class certification and before a final decision, the order becomes effectively unreviewable.
October 14, 2009, 1:40 pmDjDiverDan says:
Maybe. But then again, a stopped clock is right twice a day, and even a blind squirrel finds an acorn every once in a while.
October 14, 2009, 1:45 pmSteve says:
Furthermore, at least as described by Justice Kennedy’s statement, that this determination was completely independent of the merits. This fits the collateral order rule to a T.
That’s a bit of a dodgy statement, since the whole argument is that a court shouldn’t impose this kind of burden without at least a preliminary consideration of the merits. Assuming the argument is correct, then the issue is no longer separable from the merits.
There is a constitutional issue here, but the only thing the Supreme Court could really do is remand because the order didn’t reflect any consideration of the merits. If the trial court rehears the issue and says “fine, after preliminary consideration of the merits, I think the defendant should bear these costs,” it’s no longer an appealable order because the merits are involved. So it’s completely unsurprising that the Supreme Court of the United States isn’t interested in playing the role of an intermediate state appellate court, telling a trial judge “your order needs to be written more clearly.”
October 14, 2009, 1:47 pmBored Lawyer says:
Not quite. I think the trial court has to do more than consider the merits. The Supreme Court could determine that the Due Process Clause required some threshold showing — perhaps a showing of likelihood of success on the merits (as for a preliminary injunction). Or maybe some other threshold. The point is that the Petitioner here is claiming that some threshold must be met before a court can impose costs on it. (The trial court in effect held that NO initial showing is required whatsoever.)
Setting the Constitutional standard in a certain kind of case (here imposing notice costs in class action cases) is precisely what the Supreme Court is supposed to do. Enforcing the standard once it is set is the job of the intermediate appellate courts.
October 14, 2009, 2:06 pmJay says:
Is the collateral order doctrine even relevant to Supreme Court review of a state court decision?
October 14, 2009, 2:07 pmegd says:
Speaking as someone on the “right,” if she starts ruling “right” then I will continue to maintain that she should not have been confirmed (based on the precedent established by Sens. Biden, Kennedy, Obama, and a host of other Democrats), but that her rulings have turned into a happy accident.
And that the “wise Latina” statement is both racist and silly.
October 14, 2009, 2:10 pmBored Lawyer says:
Actually that has happened many times in history on both sides of the political spectrum. Justice Brennan was appointed by Eishenhower, and Justice White was appointed by Kennedy. In both cases the Justices turned out to have voting patterns quite different from what one would have expected based on the appointing President.
October 14, 2009, 2:12 pmSteve says:
The Supreme Court could determine that the Due Process Clause required some threshold showing — perhaps a showing of likelihood of success on the merits (as for a preliminary injunction).
Yes, they could, but a cursory trial court order provides little foundation for such a holding, which is probably why 0 justices dissented from the denial of cert. As I’m sure you know, whether an order is technically appealable is a far different question from whether the Supreme Court believes the issue is properly framed for review.
The collateral order doctrine does not identify a class of orders that the Supreme Court ought to review, but merely a class that it has the power to review if it so chooses. There is nothing about this order that is any more compelling than any other order that fits the terms of the collateral order doctrine – assuming this order fits at all.
October 14, 2009, 2:17 pmHans Bader says:
Hooray for this concurrence, which has the effect of calling into question grossly unjust family court rulings in places like California ordering the “winner” of a legal dispute — like a company subjected to unduly burdensome document demands by its employee’s ex-wife in a divorce case — to pay the “loser” of the dispute the loser’s attorneys fees just because the “loser” is poorer than the “winner.” (my company hypothetical is taken from an actual California Third District Court of Appeal case).
October 14, 2009, 4:22 pmegd says:
Yes, but those were pre-Bork and Thomas, when it was established that political ideology on one issue is sufficient to oppose a justice’s nomination.
Admittedly, there were a lot of heated arguments on nominations before Bork, but it’s only with the most recent nominees that naked political rhetoric took the place of well-reasoned smokescreens for political rhetoric.
October 14, 2009, 4:47 pmSteve says:
Yes, but those were pre-Bork and Thomas, when it was established that political ideology on one issue is sufficient to oppose a justice’s nomination.
Who knew that Bork’s ideology pertained to only one issue? You learn a lot on the VC.
October 14, 2009, 4:52 pmEvilNonGenius says:
It does not surprise me about Sotomayor. If you read her 2nd Circuit business litigation/securities cases, she is somewhat skeptical of plaintiffs in such class actions. Those who thought she would be uniformly hostile to “conservative” legal positions didn’t research her cases carefully.
October 14, 2009, 11:03 pmayzc says:
I was a co-author of the cert petition in DTD and will try to answer some of the questions above.
Several other states allow a court to allocate notice costs including California.
In regards to the collateral order issue, the Supreme Court held, in Eisen (1973) that an order allocating notice costs is a collateral order.
Please allow me to correct one minor point stated by some commenters which I think is incorrect. Justice Kennedy did not state that the action was stayed by bankruptcy. He stated that Respondents contended that the case was stayed by bankruptcy. We strongly contested that point and at worst the issue of whether it falls within the stay is a circuit split.
If anyone has any specific questions regarding the case, feel free to email me at acutler@ballonstoll.com.
October 14, 2009, 11:56 pmThursday Round-up | SCOTUSblog says:
[...] Volokh Conspiracy reports that Justice Kennedy filed a statement on Tuesday supporting the Court’s denial of cert. [...]
October 15, 2009, 10:06 amRyan Waxx says:
I doubt you learned to distort another person’s argument from VC.
October 15, 2009, 10:31 amegd says:
Presumably he learned it from law school, assuming Steve’s a lawyer.
I think the point was made and he just wanted to snark about Bork. Fine by me.
October 15, 2009, 1:53 pmVano Haroutunian says:
I am the attorney of record who petitioned the Supreme Court on this case … I think most of the comments to this Article are on point: the real issue here is whether the New Jersey Court Rule, as it currently stands, deprives the defendant of any due process before a determination is made that it should spend tens (perhaps hundreds) of thousands on notice costs for the benefit of the plaintiff and the putative class. Unfortunately for defendants, like my Client DTD, who are in this predicament, bankruptcy is often the only option. To the extent that certiorari may have been denied due to the bankruptcy filing, it only emphasizes the need for a Court, any Court, to declare this Rule unconstitutional, lest we continue to send businesses into bankruptcy simply for having the misfortune of being named in a class action suit in New Jersey.
October 18, 2009, 3:44 pm