69 F.R.D. 481 | S.D.N.Y. | 1975
OPINION
This action originally was instituted by six named plaintiffs,
All plaintiffs were represented by the same attorneys. Upon plaintiffs’ motion for class action treatment, the defendants opposed, raising among other objections that the plaintiffs’ claims had been solicited by the attorneys. Since the court found that “[t]his aspect of defendants’ challenge to plaintiffs as adequate representatives of the proposed class bristles with disputed fact issues as to the circumstances under which the attorneys were retained,” the matter was referred to a magistrate to hear and report on the solicitation issue. During the course of the reference, three of the named plaintiffs moved for voluntary dismissal of their claims, which motions were granted.
The hearings before the magistrate extended over a considerable period with hundreds of pages of testimony recorded. Before completion of the reference, plaintiffs’ attorneys, who at all times denied the charge of solicitation, moved to withdraw and for leave to plaintiffs to substitute other attorneys. They stated that the collateral inquiry on the solicitation issue had resulted in inordinate delay and were of the view that their withdrawal would permit the case to go forward for a determination upon the merits. The magistrate held that the withdrawal of the attorneys and substitution of new counsel for plaintiffs would moot the issue of solicitation and obviate the need for further hearings thereon. The defendants contended otherwise, upon the ground that the three remaining plaintiffs themselves were disqualified and sought to continue the inquiry into that subject. Upon defendants’ motion to review the magistrate’s determination on the solicitation issue, the court granted the motion for substitution of plaintiffs’ attorneys upon a finding that new counsel were well qualified to represent the plaintiffs in this class action litigation.
We consider the plaintiffs’ original motion to maintain this action as a class suit pursuant to Rule 23(b)(3) of the Federal Rules of Civil Procedure which defendants continued to oppose on various grounds. Preliminarily, defendants contend that the three remaining plain
The charge of solicitation, as already noted, was denied by the former attorneys, but the issue was not resolved in view of their withdrawal. Assuming arguendo that plaintiffs were solicited, there has been no showing of improper conduct on their part or that they knowingly acted in concert with their former attorneys in violating the canons of ethics. The original claims of the plaintiffs continue to exist. They are not destroyed by the alleged conduct of the attorneys; nor does this circumstance by itself impair or taint plaintiffs’ capacity to represent the class, if otherwise they are found to be adequate representatives of the class they seek to represent.
Upon the withdrawal of their former counsel, the three remaining plaintiffs independently engaged their present counsel to advance their claims. These plaintiffs to date have shown a resolute purpose to obtain a determination upon the merits. They have not been deterred by the extensive, if not extraordinary, pretrial discovery conducted by defendants upon the single item of solicitation, with the inevitable inconvenience and disruption of their normal business activities and are now ready to face the prospect of renewed discovery as to other issues in the case. They have already advanced substantial sums for disbursements and are prepared to incur liability for additional disbursements to bring the case to trial.
The former attorneys have waived fees for services rendered by them to date; they are to receive no fees in this matter; they have no interest in the outcome of this case. Their withdrawal has, as the Court of Appeals observed in a somewhat related situation, “drastically” altered the nature of the case; the original issue of disqualification of attorneys, which so far has stymied trial progress is “entirely out of the case.”
Before considering whether this action meets the other requirements for class action status under Rule 28, it is desirable first to pass upon the defendants’ challenge to plaintiffs’ standing to sue on behalf of Centrex customers who dealt with operating companies other than those which serviced plaintiffs. Plaintiffs received Centrex service from only two of the defendant operating companies. Defendants contend that plaintiffs may not represent those who obtained service from the twenty-one other operating companies who are defendants.
In all, eight separate counts are alleged. The odd numbered counts, I, III and V, are based upon the same theory that the defendants’ failure to separate Centrex charges constituted a breach of duty under federal statutes and principles of equity and common law and was the proximate cause of the alleged tax overpayments. The even numbered counts, II, IV and VI, are based upon the same allegations as those set forth in the odd numbered counts, with the additional claim that the charges for Centrex services were sufficiently segregated in defendants’ books and records to satisfy the requirements for an exemption under the Excise Tax Reduction Act of 1965.
The eight causes of action have been grouped together as follows: Counts I and II are brought solely against AT&T on behalf of all Centrex users between January 1, 1966 and December 31, 1972; it is estimated that the class is slightly in excess of 1000 members. Counts III and IV are brought against AT&T and New York Telephone Company on behalf of all Centrex customers of New York Telephone Company between January 1, 1966 and August 1, 1972, when New York Telephone made the requisite separations. This class, already included in the nationwide class, is estimated to number 378 members. Counts V and VI are brought against AT&T and all other defendants (the twenty-three associated Bell System operating telephone companies) which are subsidiaries and licensees of AT&T, upon a claim that by failing to make the requisite separation of charges they wrongfully collected excessive excise taxes from the nationwide class described in counts I and II. Counts VII and VIII are the antitrust counts and are brought on behalf of the same nationwide class described in counts I, II, V and VI. These antitrust counts in effect encompass all other counts based upon additional allegations that the breach of statutory and common law obligations owing to plaintiffs alleged therein also constituted violation of sections 1 and 2 of the Sherman Act. In sum, under the eight counts, two classes are described, one, the nationwide Centrex customers, and two (already included in the former) the customers of New York Telephone Company. As to the latter there can be no serious dispute that plaintiffs, as customers of New York Telephone, have standing to assert the claims against it on behalf of the estimated other 378 New York Telephone customers under counts III and IV. Plaintiffs have also named AT&T as defendant under these and all other counts of the complaint.
Plaintiffs contend that AT&T, as parent company and licensor of defendant operating companies, including New York Telephone Company, directed these companies’ management policies, and in particular played a significant role in their separation of charges policy. In essence, however phrased, the claim is that AT&T dominated, aided and abetted the defendant operating companies, including New York Telephone Company, in breaching their statutory and fiduciary . duties allegedly owed to plaintiffs. This claim is sufficient to sustain plaintiffs’ standing to represent the
The defendants press, however, that plaintiffs have no standing to sue on behalf of those Centrex customers who dealt with operating companies other than the New York Telephone Company and who are included in the nationwide class described in the other counts of the complaint. But plaintiffs in effect allege a conspiracy among AT&T and the various other defendants to deprive plaintiffs and all Centrex users, similarly situated, and no matter by which operating company they were serviced, of their right to a tax exemption by their deliberate and calculated policy not to implement separation of charges within a reasonable time after the passage of the federal Excise Tax Reduction Act.
This court is not required to and, of course, does not at this time pass upon the merits of plaintiffs’ antitrust cause of action or any of their other claims,
Further, since the respective claims derive from the same federal tax statute which is uniformly applicable to all Centrex users and the alleged fiduciary duty also presents an issue which does not vary from one customer to another, the court finds that questions of law affecting plaintiffs, as Centrex customers, predominate over any question of law affecting an individual customer. Similarly, the same basic questions of law exist regardless of the particular defendant from whom plaintiffs seek recovery of the excise taxes. The defendants’ contention that the named plaintiffs lack standing to assert state law claims on behalf of Centrex customers in any of the forty-five states in which the named plaintiffs do not have Centrex service, does not take into account the plaintiffs’ allegations under their complaint, which essentially predicate all claims upon a tax exemption permitted under the federal statute. The fact that Centrex is, as defendants contend, a local telephone exchange service, subject to the jurisdiction of state and local regulatory authorities, does not diminish the right of Centrex customers to the claimed exemption and no state regulatory body may override the federal statute which permits the exemption. Further, even if plaintiffs assert alternative pendent claims under state law, this does not foreclose class action certification where other requirements of the Rule
Finally, common questions of fact predominate over individual ones, especially since plaintiffs charge concert of action among the defendants. The fact that different damages may have resulted to each member does not detract from the class action nature of this suit.
The Rule further requires that the class action be found “superior to other available methods for the fair and efficient adjudication of the controversy.” The parties in support of and in opposition to the motion for class action determination have submitted memoranda totalling more than 500 pages. Whether or not such an outpouring of legal learning was in fact necessary on a motion of this type, it does demonstrate that the parties themselves consider plaintiffs’ claims to present issues that are complex and involved; also, it shows that the defendant AT&T, a corporate giant with vast resources, intends to resist the claims advanced, as indeed is not only its right but its duty to its stockholders. The experience to date with pretrial discovery on the single issue of the alleged solicitation by plaintiffs’ former attorneys warrants the observation that this action, instead of following the course of normal litigation, appears to have embroiled the parties in a war of attrition.
This observation is pertinent to the response by newly retained counsel for plaintiffs to the court’s inquiry why Monsanto, itself no corporate pigmy, would not, without class action determination, prosecute its claim, which amounts to $130,000. Counsel’s reply was that, while Monsanto was willing to continue to pay disbursements which, to date, have been substantial, the time-cost factor of legal fees in view of the vigor of defendants’ opposition, made it uneconomical to proceed with the suit on an individual basis even assuming an ultimate recovery—in fact, Monsanto would, if required to proceed on an individual basis, forego its claim. Recent experience with legal charges and their computation suggests that counsel’s statement was not exaggerated.
Such a prospect requires consideration of the claims of others in the class. It is estimated, as previously noted, that there are approximately 1000 nationwide Centrex users in plaintiffs’ class. Many of these claims are for substantially lesser amounts than those asserted by the three named plaintiffs. It has been stated that a significant number are considerably below $10,000 each. For those potential plaintiffs, denial of class action would be tantamount to a denial of their day in court, since any attempt to litigate their individual claims would mean taking on a powerful opponent ready to bring into play its full strength and unlimited resources to resist the suits. The sheer disparity of economic forces suggests the death knell of those claims if individual actions are required. Thus, even if the named plaintiffs were to accept the risks and burdens of this action as individuals, the denial of class action would as a realistic
Thus, in State of Minnesota v. United States Steel Corporation, the court realized “[w]hile claims held by steel purchasers would undoubtedly normally be larger than those brought in the Eisen case, nevertheless, it is extremely difficult to bring an antitrust action against six major steel fabricators without the financial aid made possible by the class action device.”
But of greater significance than the numerosity of claims, the smallness of .many of them and the disparity in economic forces, is that the case, whether maintained individually or as a class action, is fraught with difficult questions of law and fact, which makes the class action a superior method of resolving the issues. The mere statement of plaintiffs’ claims, the concepts relied upon to support them, and the nature of the various defenses leaves no doubt that the ease presents novel issues which are, in defendants’ own words, both
“Subdivision (b) (3) encompasses those cases in which a class action would achieve economies of time, effort, and expense, and promote uniformity of decision as to persons similarly situated, without sacrificing procedural fairness or bringing about other undesirable results.”
The factors of judicial efficiency, economy and uniformity are prevalent in the instant case, which involved over 1000 potential individual claims, and questions of the interpretation to be given a federal tax statute.
Finally, this court finds the class action to be “manageable” under section (b) (3) of Rule 23. Certainly any difficulties in handling this suit as a class action are far surpassed by the difficulties, in terms of judicial economy of administration, which would be involved in litigating these claims as individual actions.
For all of the above reasons, the court is satisfied that a class action is “superior” under the Rule, and further that all of the other prerequisites to class action treatment have been met.
. duPont Glore Forgan, Inc., Swift & Company, The Home Insurance Company, Monsanto Company, Reynolds Securities, Inc. and Schenley Industries, Inc.
. AT&T owns from 18% to 100% of the capital stock of the defendant operating companies. Sixteen of these companies are wholly owned by AT&T. Of the remaining seven, AT&T’s interest in five of the defendants is at least 85% and it owns 27% and 18% of the remaining two. In addition, AT&T has license agreements with each of the defendant operating telephone companies.
. 26 U.S.C. § 4252(d).
15 U.S.C. §§ 1, 2.
. duPont Glore Forgan, Inc., Swift & Company and The Home Insurance Company.
. Defendants rely on Carlisle v. LTV Electrosystems, Inc., 54 F.R.D. 237, 240 (N.D.Tex.1972), and Simon v. Merrill Lynch, Pierce, Fenner and Smith, Inc., 16 Fed. Rules Serv.2d 1021, 1022 (N.D.Tex.1972), aff’d, 482 F.2d 880, 882-83 (5th Cir. 1972), to support their argument that such solicitation automatically compels denial of class action treatment. However, in both cases, the court’s decision against class action was primarily grounded on plaintiff’s clear failure to meet the express requirements of Rule 23. Also, the attorneys responsible for the solicitation misconduct had remained in the case.
. Korn v. Franchard Corp., 456 F.2d 1206, 1208 (2d Cir. 1972).
. Defendants rely on O’Shea v. Littleton, 414 U.S. 488, 94 S.Ct. 669, 675, 38 L.Ed.2d 674, 494 (1974), in which the Supreme Court held that “if none of the named plaintiffs purporting to represent a class establishes the requisite of a case or controversy with the defendants, none may seek relief on behalf of himself or any other membér of the class.” This decision followed a long line of eases in the lower courts which had established that a “plaintiff who is unable to secure standing for himself is certainly not in
. 26 U.S.C. § 4252(d).
. Cf. Jackson v. Smith, 254 U.S. 586, 589, 41 S.Ct. 200, 65 L.Ed. 418 (1921) ; Bankers Life & Cas. Co. v. Kirtley, 338 F.2d 1006, 1013 (8th Cir. 1964) ; Sexton v. Sword S. S. Line, Inc., 118 F.2d 708, 711 (2d Cir. 1941) ; Irving Trust Co. v. Deutsch, 73 F.2d 121, 125 (2d Cir. 1934), cert. denied, 294 U.S. 708-709, 55 S.Ct. 405, 79 L.Ed. 1243 (1935) ; Oil & Gas Ventures-First 1958 Fund, Ltd. v. Kung, 250 F.Supp. 744 (S.D.N.Y.1966) ; Industrial Waxes, Inc. v. International Ry., 193 F.Supp. 783, 786 (S.D.N.Y.1961) ; Austrian v. Williams, 103 F.Supp. 64, 76 (S.D.N.Y.), rev’d on other grounds, 198 F.2d 697 (2d Cir.), cert. denied, 344 U.S. 909, 73 S.Ct. 328, 97 L.Ed. 701 (1952) ; Broadcast Music, Inc. v. Taylor, 10 Misc.2d 9, 55 N.Y.S.2d 94, 103 (Sup.Ct.1945) ; Wendt v. Fischer, 243 N.Y. 439, 154 N.E. 303 (1926).
. Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 177-78, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974).
. Professional Adjusting Systems of America, Inc. v. General Adjustment Bureau, Inc., D.C., 64 F.R.D. 35, 38-39 (1974).
. Cf. Haas v. Pittsburgh Nat’l Bank, 60 F.R.D. 604, 606-07 (W.D.Pa.1973).
. Eisen v. Carlisle & Jacquelin, 391 F.2d 555, 566 (2d Cir. 1969) ; Kronenberg v. Hotel Governor Clinton, Inc., 41 F.R.D. 42, 45 (S.D.N.Y.1966).
. Blank v. Talley Industries, Inc., 390 F.Supp. 1, 4 (S.D.N.Y.1975).
. In addition to the instant action, four other individual suits have been brought on similar grounds against the Bell System. In this district, Exxon Corporation filed an action against AT&T and three operating companies, New York Telephone Company, Southwestern Bell and South Central Bell Telephone Company. Exxon Corp. v. AT&T, et al,, S.D.N.Y., 74 Civ. 1488 (April 1, 1974). In the District of Connecticut two actions were commenced, one by United Aircraft Corporation against AT&T and Southern New England Telephone Company, United Aircraft Corp. v. AT&T, et al., D.Conn., Civil Action No. H-296 (1973), and one by Hartford National Bank against AT&T and Southern New England Telephone Company, Hartford National Bank v. AT&T, et al., D. Conn., Civil Action No. H-270 (1973). The fourth action was instituted in the Connecticut Superior Court by Travelers Insurance Co. against Southern New England Telephone Company, The Travelers Ins. Co. v. The Southern New England Telephone Co., Conn.Super.Ct., Hartford County, No. 18229 (May 18, 1973). The damages alleged in Exxon are approximately $500,000. The amounts involved in the Hartford National Bank, Travelers and United Aircraft eases are approximately $49,000, $162,000 and $232,000, respectively. Thus, the fact that these claims are pending does not resolve the problem of the smaller claims.
. 55 F.R.D. 26, 30 (S.D.N.Y.1972).
. 44 F.R.D. 559, 572 (D.Minn.1968).
. Id.
. Id.
. Memorandum of Law in Opposition to Plaintiffs’ Motion for Class Action Treatment, p. 18 n.*.
. Eisen v. Carlisle & Jacquelin, 391 F.2d 555, 560 (2d Cir. 1968).
. Advisory Committee Report, Proposed Rules of Civil Procedure, 39 F.R.D. 69, 102-03 (1966).
. The court rejects defendants’ contention that the claim for overcollection of federal excise taxes stated in counts II, IV and VI of the complaint is not amenable to class action certification. In this instance, once again, the pleadings control. The suit here is not against the government; it is against private corporations which allegedly violated the rights of the plaintiff by making an overcollection of their federal communication excise taxes. Whether a cause of action for such overcollection may be brought against a private party is, of course, not an issue presently before the court.