IN THE UNITED STATES COURT OF APPEALS
IN RE ORTHOPEDIC BONE SCREW PRODUCTS LIABILITY LITIGATION
MELISSA L. LLOYD, ANTHONY J. MAJESTRO, AND
BRIEF FOR APPELLANTS
May 1, 2001
STATEMENT OF SUBJECT MATTER
This appeal involves a post-judgment decision of the district court in MDL 1014 and, in particular, in a class action within MDL 1014 styled Fanning v. AcroMed Corp., No. 97-381 (E.D. Pa.). In Fanning, the district court purported to exercise subject matter jurisdiction on the basis of diversity of citizenship under 28 U.S.C. 1332(a). Fanning Complaint, ¶ 1.
The order on appeal holds attorneys Anthony J. Majestro and Marvin W. Masters, and their client, Melissa L. Lloyd, in contempt of MDL 1014's Pretrial Order No. 1117, which approved an alleged "limited fund" class action settlement between thousands of plaintiffs claiming injury from a medical device and AcroMed Corporation, the device's manufacturer. See Joint Appendix ("JA") 238. The district court's order also enjoined appellants from prosecuting Ms. Lloyd's pending personal-injury suit against AcroMed in the Circuit Court of Cabell County, West Virginia. The district court's decision was final with regard to AcroMed's efforts to hold appellants in contempt and to prevent them from prosecuting their West Virginia suit.
The district court's order was entered on March 26, 2001. The notice of appeal was filed on April 11, 2001. JA 245. This Court has jurisdiction under 28 U.S.C. 1291 and 1292(a)(1).
STATEMENT OF THE ISSUES
1. Did the district court err in ruling that it had personal jurisdiction over Melissa Lloyd, holding her in contempt of its prior order approving a class action settlement, and enjoining prosecution of her state-court personal-injury action that was purportedly barred by that settlement, where:
(a) the class action settlement did not permit class members to opt out and pursue their own litigation;
(b) Ms. Lloyd never received notice of the class action settlement; and
(c) the only effort to notify class members who, like Ms. Lloyd, had not yet sued AcroMed, involved a few small advertisements in national publications, none of which was seen by Ms. Lloyd in her home town of Apple Grove, West Virginia?
2. If this Court finds that the district court had jurisdiction over Ms. Lloyd, did the district court nevertheless err in holding that the class action settlement was binding on her?
.STATEMENT OF THE CASE
When the district court approved the AcroMed class action settlement in October 1997, it had not obtained personal jurisdiction over appellant Melissa L. Lloyd for two reasons: (1) the class action settlement did not allow class members to opt out, and (2) Ms. Lloyd did not have actual or constructive notice of the settlement. See In re Orthopedic Bone Screw Prods. Liab. Litig. (Alexander Sambolin, Appellant), __ F.3d __, 2001 U.S. App. Lexis 6458, *34 n.11 (3d Cir. Apr. 16, 2001) ("Sambolin") (criticizing, in dicta, the notice program at issue here). As a result, Ms. Lloyd has a right to pursue her claim in West Virginia state court, and the district court's contempt finding and injunction should be reversed. If AcroMed wants to defend Ms. Lloyd's claim on res judicata grounds, it must do so in the West Virginia court.(1)
To understand Ms. Lloyd's current predicament, it is necessary to review the course of MDL 1014. Therefore, Part I below describes MDL 1014 and, in particular, the Fanning class action settlement. Part II describes Ms. Lloyd's injuries, her West Virginia lawsuit, and the decision below.
I. The Class Action Settlement, The Notice To The Class, And The District Court's Approval Of The Settlement.
A. The Settlement.
Since 1994, the district court has presided over MDL 1014, which involves personal-injury suits against various bone screw manufacturers, including defendant-appellee AcroMed Corporation. Because AcroMed and other manufacturers marketed these bone screws for implantation in the spine, or pedicle, the product is sometimes referred to as a "pedicle screw." In late 1996, AcroMed and the Plaintiffs' Legal Committee ("PLC") agreed to a classwide settlement. Thereafter, a class action complaint was filed solely to provide a procedural mechanism for accomplishing the settlement. See Complaint in Fanning v. AcroMed Corporation, No. 97-381 (E.D. Pa.). The class purported to include all people who had been implanted with an AcroMed bone screw through December 31, 1996, but not those implanted afterwards. See In re Orthopedic Bone Screw Prod. Liab. Litig. ("Bone Screw"), 176 F.R.D. 158, 170-71 (E.D. Pa. 1997), JA 74-75. Melissa Lloyd was implanted with AcroMed's bone screws 17 days prior to the end of the class period, on December 14, 1996, JA 193, and, thus, according to AcroMed, she is a member of the class.
The settlement set aside $100 million, plus an undetermined amount in disputed AcroMed insurance proceeds, to pay for class members' personal-injury claims under a program to be run by a claims administrator. Id. at 166 & n.8, 176, JA 62, 87. Class members wanting to share in the settlement proceeds were told to register with the claims administrator by May 1, 1997, JA 23 (Pretrial Order No. 724, ¶ 12), a deadline later extended to May 15, 1997. JA 129. Of great significance to this appeal, the class members were not permitted to opt out on the theory that AcroMed constituted a "limited fund." Bone Screw, 176 F.R.D. at 180-81, JA 99-201.
The settlement also purported to release, on a non-opt-out basis, a wide range of claims against all doctors nationwide who had implanted the class members' AcroMed bone screws and all health care facilities where the surgeries had taken place, id. at 166, JA 63, such as Cabell Huntington Hospital where Ms. Lloyd's surgery was performed. These health care providers were not defendants in the class action, did not contribute financially to the settlement, and did not claim to be "limited funds."
B. The Class Action Notice.
The district court preliminarily approved the settlement and adopted a notice plan in January 1997, JA 16-24, about a month after Ms. Lloyd's surgery. The notice was directed almost exclusively at people, unlike Ms. Lloyd, who had already filed suit against AcroMed. Thus, a full notice package was sent to all settlement class members known to the PLC and all counsel of record for plaintiffs in MDL 1014. JA 30-41. That notice package included the registration form that had to be returned to the Claims Administrator's office by May 1, 1997. JA 41. AcroMed and the PLC took this very limited approach to personal notice because they believed -- wrongly, as it turned out -- that "it is reasonable to expect that the vast majority of individuals who have compensable claims against AcroMed already initiated litigation against it." PLC's Mem. in Support of Jt. Motion For Approval of the Proposed Settlement Agreement, at 33 (Mar. 31, 1997) (Docket Entry No. 5372); see also Settling Parties' Proposed Findings of Fact, at 153 (¶ 350) (filed July 3, 1997).
No effort was made to obtain the names and addresses of individual class members and send them the full notice package. Significantly, no effort was made to notify surgeons who performed operations on class members, or to notify hospitals to which ArcoMed had sold its bone screws, so as to obtain the names and addresses of class members. Nor were there any advertisements in general medical journals, or those concentrating on surgery, orthopedics, or orthopedic surgery, urging the physicians who read those journals to provide their patients who had been implanted with AcroMed bone screws with information about the settlement. See Bone Screw, 176 F.R.D. at 178, JA 95.
The only publication notice of the settlement involved short advertisements appearing twice in the national edition of USA Today, once in TV Guide, once in Parade Magazine (an insert in many Sunday newspapers), and once in a Spanish-language newspaper published in San Juan, Puerto Rico. Id., JA 95. These ads were published between late January and late February 1997. JA 25-26 (Affidavit of Mailing and Publication of Class Action Notice of Settlement). The notice provided very basic information about the class action, including the May 1, 1997, registration cut-off date, but it did not include a tear-off registration form often used in other class actions, or even state that a registration form ought to be requested. Rather, it told class members that they "may request" a Settlement Notice and provided the PLC's address if they wanted to request one through the mail. See JA 27. Other forms of publication notice routinely used in other mass tort and consumer class actions were not pursued. Thus, there was no notice provided by TV or radio ads, no public service announcements, no notice via the internet (for instance, through AOL, Netscape, or some other major service provider), and no notices in local or regional newspapers.
Providing comprehensive notice to the class members would have been important for at least two reasons. First, notice would have given affected people an opportunity to obtain materials relating to the settlement and to file objections if they thought the settlement was unfair or unlawful. Second, registration with the Claims Administrator was a prerequisite to obtaining cash settlement benefits. Therefore, it was vital that class members receive complete notice of the settlement and its procedures well prior to the May 15, 1997 registration deadline.
C. Approval of the Class Action Settlement.
After a hearing during four days in April, June, and July 1997, Bone Screw, 176 F.R.D. at 167, JA 67, on October 17, 1997, the district court approved the $100 million settlement proposed by the parties. As part of its approval, the court held that the notice to the class met the requirements of Federal Rule of Civil Procedure 23 and due process. Id. at 178-79, JA 95-96. It also certified the class on a non-opt-out basis under Rule 23(b)(1)(B), on the ground that AcroMed was a "limited fund" unable to satisfy personal-injury claims asserted against it. Id. at 180, JA 99. That finding was based in large part on the testimony and report of the PLC's expert, Harvey Rosen. Dr. Rosen valued the company at $104 million, which "reflects 'what a willing buyer would pay a willing seller for this company (the cash flows generated) without the financial constraints of the litigation costs and the uncertainty of litigation outcomes.'" Id. at 168 (relying on Rosen's testimony and quoting his expert report), JA 69. The district court specifically found that AcroMed's value was $104 million, absent the litigation (i.e., assuming the settlement were approved). Id., JA 69. Thus, to settle the class action, AcroMed was paying what the Court believed was virtually AcroMed's entire value. Id. at 170, JA 74.(2)
The court issued a judgment accompanying its opinion approving the settlement. Id. at 186-90, JA 118-27. That judgment contained an anti-suit injunction barring bone-screw related litigation against AcroMed and other "Released Parties," including the doctors who implanted AcroMed's bone screws and the hospitals at which the implant surgeries took place. Id. at 188, JA 122. This anti-suit injunction is important because, assuming that it is valid, it would bar Ms. Lloyd from suing AcroMed and Cabell Huntington hospital, the two defendants in her West Virginia suit.
II. The Facts Concerning Ms. Lloyd, Her West Virginia Lawsuit, And The District Court's Decision Enjoining That Lawsuit.
Melissa Lloyd resides in Apple Grove, West Virginia, which has a population of less than 100. Declaration of Melissa L. Lloyd, ¶ 1, JA 193. On December 14, 1996, Ms. Lloyd was implanted with AcroMed bone screws at Cabell Huntington Hospital in Huntington, West Virginia. Id. ¶ 2, JA 193; Complaint in Lloyd v. Cabell Huntington Hospital, et al., ¶ 9, JA 150. Ms. Lloyd is a class member as defined in the AcroMed settlement agreement because her surgery took place on or before December 31, 1996.
It is undisputed that Ms. Lloyd did not receive notice of the AcroMed class action settlement. Lloyd Declaration, ¶ 5, JA 150. She received nothing about the settlement in the mail, nor did her doctors or hospital inform her of the settlement. She did not read about the settlement in any of the national publications that contained an ad about the settlement. Id. Indeed, she did not hear of the class action settlement at any time prior to the filing of her West Virginia state court suit in April 1999. Id. She therefore was never informed of the May 15, 1997 registration deadline imposed by the settlement. Id. ¶¶ 2, 5-6, JA 194. Obviously, she did not appear before the district court in Fanning v. AcroMed.(3)
Subsequent to the class action notice period, Ms. Lloyd began experiencing significant back pain. In early May 1997, she underwent surgery, at which time one of the AcroMed bone screws was explanted. Lloyd Declaration, ¶ 3, JA 194. On May 26, 1998, she had additional surgery to remove the remaining bone screws and related hardware. Id., JA 194.
B. Ms. Lloyd's West Virginia Lawsuit And AcroMed's Attempts To Derail It.
Ms. Lloyd retained attorneys Masters and Majestro on June 28, 1998. Id. ¶ 4, JA 194. They filed suit on her behalf on April 19, 1999 in the Circuit Court of Cabell County, West Virginia. Ms. Lloyd alleges that her injuries are attributable to AcroMed's product, which the complaint claims was defectively designed and manufactured, unaccompanied by appropriate warnings, and improperly sold for unapproved "off-label" uses. The complaint seeks compensatory and punitive damages under West Virginia common law and the West Virginia Consumer Credit and Protection Act. Complaint in Lloyd v. Cabell Huntington Hospital, et al. ¶¶ 9-40, JA 150-56.
AcroMed removed the case to the United States District Court for the District of West Virginia. Notice of Removal, JA 161. Recognizing that the hospital, like Ms. Lloyd, was a West Virginia citizen, and that complete diversity was lacking, AcroMed argued that the case was removable on federal question grounds because its principal defense would be the district court's October 1997 approval of the AcroMed class action settlement. The West Virginia district court did not, however, reach the issue of whether that defense created a federal question. See Lloyd v. Cabell Huntington Hospital, Inc., 58 F. Supp. 2d 694, 698 n.4 (S.D. W. Va. 1999). Rather, it remanded the case to state court because the hospital had not sought removal, nor had AcroMed sought and obtained the hospital's consent to removal, as required by 28 U.S.C. 1446(b). See id. at 696-98.
On October 1, 1999, after its removal effort failed, AcroMed filed a motion to show cause in MDL 1014 why Ms. Lloyd and her lawyers should not be held in contempt for prosecuting the West Virginia state-court action. JA 141. AcroMed's motion relied on Judge Bechtle's October 17, 1997 approval of the non-opt-out "limited fund" class action settlement between AcroMed and all patients who had been implanted with AcroMed's bone screws on or before December 31, 1996, see Bone Screw, 176 F.R.D. 158, JA 59, and the anti-suit injunction accompanying it. Id. at 188, JA 123. AcroMed asserted that Ms. Lloyd and her lawyers were in contempt of that injunction. See AcroMed's Motion to Show Cause Why Melissa Lloyd and Her Counsel Should Not Be Found in Contempt of Pretrial Order No. 1117, JA 141-48.
Counsel for Messrs. Masters and Majestro appeared at an MDL 1014 status conference on November 22, 1999, maintaining that the MDL 1014 court did not have jurisdiction over Ms. Lloyd and that if AcroMed wished to assert a res judicata defense to Ms. Lloyd's claim it must do so in Ms. Lloyd's West Virginia suit. At that hearing, undersigned counsel requested permission to file a brief in opposition to the show-cause motion. 11/22/99 Tr. at 47-48. Judge Bechtle indicated that he wanted the matter briefed promptly and set a tight schedule. Id. at 52-53. In that briefing, Ms. Lloyd and her lawyers argued that, because the AcroMed settlement did not allow class members to opt out, the MDL 1014 court never obtained personal jurisdiction over Ms. Lloyd and could not now enjoin prosecution of her West Virginia suit. Ms. Lloyd relied mainly on this Court's decision in In re Real Estate Title & Settlement Services Antitrust Litigation, 869 F.2d 760 (3d Cir.), cert. denied, 493 U.S. 821 (1989), which had come to the same conclusion in a case involving an attempt to enjoin an Arizona suit based on a non-opt-out class action settlement in MDL 633. See also Ortiz v. Fibreboard Corp., 527 U.S. 815, 847-48 (1999); Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 812 (1985). They also maintained that jurisdiction was lacking because Ms. Lloyd had not been provided proper notice of the class action settlement. JA 171-76, 215-25.(4)
C. The District Court's Decision.
Although the show-cause motion was fully briefed on December 27, 1999, the district court did not rule for nearly 15 months. Meanwhile, the West Virginia court moved ahead, issuing deadlines for discovery and other pre-trial matters, and setting the case for trial on June 25, 2001. JA 226.
Finally, on March 23, 2001, the district court held Ms. Lloyd and her lawyers in contempt and enjoined further prosecution of the West Virginia action. See Memorandum and Pretrial Order No. 1978, JA 238. The district court relied on two alternative grounds. First, it said that it had personal jurisdiction over Ms. Lloyd because she did not object to the 1997 certification of the settlement class (which had occurred more than two years before she learned of the settlement), and because notice of the settlement was "reasonable and the best notice practicable." JA 241 (citing cases). The court also asserted that it had "jurisdiction over Lloyd by virtue of the limited fund nature of the AcroMed settlement," relying on its prior finding that "AcroMed constituted a limited fund." JA 240 (citing Bone Screw, 176 F.R.D. at 187).
Second, the district court held that Ms. Lloyd's appearance in opposition to the motion to show cause in November and December 1999 amounted to an implied consent to the court's jurisdiction, because Ms. Lloyd had outlined her attack on the PLC's adequacy of representation and "gone beyond a simple challenge to personal jurisdiction." JA 240. The district court did not address Ms. Lloyd's contention that her appearance before the district court in late 1999 could not have constituted consent to the district court's jurisdiction because the only relevant time frame for judging consent was before or during the proceedings culminating in approval of the Fanning class action settlement. See JA 223-24. Nor did the district court respond to the fact that Ms. Lloyd had explicitly asked the court to rule only on the question of personal jurisdiction and not on the merits of the adequacy of the PLC's representation. See also supra note 4.
On April 11, 2001, Ms. Lloyd and her counsel timely appealed from the district court's order.
STANDARD OF REVIEW
The principal issue presented -- whether the district court lacked personal jurisdiction over Ms. Lloyd -- is a question of law subject to plenary review. See In re Real Estate Title & Settlement Servs. Antitrust Litig., 869 F.2d 760 (3d Cir. 1989). The alternative question -- whether the Fanning settlement has binding effect on Ms. Lloyd in light of due process and other defects -- is also one of law subject to plenary review. See, e.g., Greenfield v. Village Indus., Inc., 483 F.2d 824 (3d Cir. 1973).
SUMMARY OF ARGUMENT
I. The district court erred in holding Ms. Lloyd in contempt and enjoining her state-court suit because, for two independent reasons, it never obtained personal jurisdiction over her. First, as this Court held in In re Real Estate Title & Settlement Services Antitrust Litigation, 869 F.2d 760 (3d Cir. 1989), a class action court that resolves substantial money damages claims, such as those foreclosed by the non-opt-out settlement in Fanning, does not obtain consent to jurisdiction over an absent class member, unless that class member is given a right to opt out. Second, Ms. Lloyd was not provided actual or constructive notice of the class action settlement, which is a constitutional prerequisite to personal jurisdiction. It is undisputed that Ms. Lloyd never received actual notice, and the notice program -- consisting solely of first-class mail notice to people who had already sued AcroMed or were otherwise known to the PLC, and a few small ads in national publications -- was far too perfunctory to meet the demands of due process.
II. The Court need not reach the question whether the Fanning settlement is binding on Ms. Lloyd because that is a question that can and should be raised, if at all, by AcroMed in defense of Ms. Lloyd's West Virginia action. If the Court does reach that question, however, it should rule that the settlement is not binding on her for several reasons. Both the non-opt-out nature of the settlement, see, e.g., Ortiz v. Fibreboard, 527 U.S. 815, 847-48 (1999); Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 812 (1985), and the inadequacy of the notice, see Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306 (1950), make the settlement non-binding on absent members of the Fanning class, at least with respect to those who, like Ms. Lloyd, did not participate in the settlement's claims process. Moreover, the settlement is non-binding because, by urging the district court to value AcroMed at $100 million for settlement purposes, when it appears that the company was worth far more, the PLC provided inadequate representation to the purported settlement class.
I. This District Court Lacked Personal Jurisdiction Over Ms. Lloyd And, Therefore, Any Assertion Concerning The Purported Res Judicata Effect Of The AcroMed Class Action Judgment May Only Be Asserted In Ms. Lloyd's West Virginia Action.
It is undisputed that Ms. Lloyd did not personally appear in MDL 1014. Nor is there any dispute that Ms. Lloyd did not receive actual notice of the AcroMed class action settlement until after she filed her state court suit in April 1999, more than two years after completion of the notice program in Fanning. As a result, the district court's decision enjoining Ms. Lloyd's suit can stand only if (1) the district court's Rule 23(b)(1)(B) non-opt-out class certification was sufficient to obtain jurisdiction over Ms. Lloyd even though she never personally appeared in MDL 1014, and (2) the Fanning notice program provided Ms. Lloyd with constitutionally adequate notice.
As explained in Part A below, the Fanning court never obtained Ms. Lloyd's "consent" to jurisdiction because the settlement did not accord class members the right to opt out, even assuming that Ms. Lloyd was provided constitutionally adequate notice of the AcroMed settlement. Second, Part B shows that the notice program was, in fact, constitutionally defective. Finally, Part C responds to the district court's alternative holding that Ms. Lloyd consented to the district court's jurisdiction in MDL 1014 when her lawyers appeared to counter AcroMed's show-cause motion, nearly three years after the notice in the Fanning class action and more than two years after the district court approved the Fanning settlement.
A. The District Court Did Not Obtain Jurisdiction Over Ms. Lloyd, A West Virginia Resident Who Never Appeared In MDL 1014, Because the Fanning Class Action Did Not Provide Class Members A Right to Opt Out.
The district court did not acquire personal jurisdiction over Ms. Lloyd in the AcroMed class action settlement or otherwise, and therefore does not have the power to enjoin her West Virginia suit. Thus, any arguments that AcroMed may wish to advance concerning the purported res judicata effect of the Fanning settlement must be made in the West Virginia action. There is no question that if AcroMed had sued Ms. Lloyd individually in federal court in Philadelphia over conduct occurring in West Virginia, the district court would not have had personal jurisdiction over her. Nor is there any question that Ms. Lloyd never voluntarily submitted herself to the jurisdiction of this Court during the Fanning class action proceeding. Nevertheless, AcroMed argues -- and the district court agreed -- that the district court's certification of a non-out-opt class in Fanning altered the ordinary rules and provided that court with personal jurisdiction over Ms. Lloyd. The district court was incorrect.
The question whether Judge Bechtle's non-opt-out certification committed Ms. Lloyd to the jurisdiction of MDL 1014 without her knowledge and consent is governed principally by this Court's decision in In re Real Estate Title & Settlement Services Antitrust Litigation, 869 F.2d 760 (3d Cir. 1989), which involved a collateral attack on a prior class action settlement. In that class action, the plaintiffs alleged that certain title companies had fixed prices in violation of the federal antitrust laws, and they sought injunctive relief and money damages. See id. at 763. As here, various cases were consolidated in a multi-district litigation -- MDL 633 -- in district court in Philadelphia. The MDL 633 court thereafter certified the class on a non-opt-out basis under Federal Rules of Civil Procedure 23(b)(1) and (2) and approved a settlement in which the defendants agreed to alter their future conduct in certain respects. This Court affirmed the settlement in an unpublished order. See In re Real Estate, 869 F.2d at 764 (describing underlying class action settlement).
Thereafter, while a petition for a writ of certiorari in MDL 633 was pending in the Supreme Court, two Arizona school districts brought suit in Arizona state court seeking money damages under Arizona state law based on the same wrongful conduct that was the subject of MDL 633. See id. at 764. The defendant title companies, like AcroMed here, then returned to the district court in Philadelphia asking it to enjoin the Arizona action on res judicata grounds, i.e., that the judgment in the MDL 633 settlement barred the Arizona action from going forward. See id.
The district court granted the injunction. Id. This Court reversed, holding that the district court in MDL 633 never obtained personal jurisdiction over the non-resident school districts even though it had certified a nationwide non-opt-out class (which, by definition, included the Arizona school districts) and approved a nationwide settlement between that class and the defendant title companies. Id. at 765. The Court noted that a mandatory certification might have been sufficient to provide personal jurisdiction over non-residents in a settlement in which purely injunctive claims were released. Id. at 768. However, where substantial monetary claims were purportedly foreclosed by the settlement, a non-opt-out class certification did not provide personal jurisdiction over the non-resident school districts. Id. at 766-68. The Court indicated that it was not finally deciding the question whether the Philadelphia settlement could properly bind the non-resident school districts and that defendants could raise their res judicata defense in the proper forum, i.e., the Arizona state court. See id. at 767.(5)
In so holding, this Court relied on the Supreme Court's decision in Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985). See In re Real Estate, 869 F.2d at 766-67. In Shutts, a Kansas state court had certified a nationwide class of plaintiffs who sought interest on gas royalties allegedly owed them by defendant Phillips Petroleum. The Supreme Court concluded that certain minimal due process protections were required before absent class members could be subject to the jurisdiction of the Kansas state court where the class members' claims were wholly or predominately for money damages. Shutts, 472 U.S. at 810-13 & n.3. Those minimal protections include, Shutts held, adequate representation by the class representatives, adequate notice, and an opportunity to opt out. Id. at 812.
Because the class members in Shutts had all been provided notice by first-class mail and an exclusion form allowing them to opt out of the class, the Court concluded that the Kansas court had personal jurisdiction over the absentees. Id. at 813. In the Court's view, because notice and an opportunity to opt out allowed class members to exclude themselves and to litigate the matter in the forum of their choice, those class members who did not opt out had provided their implied consent to the Kansas court's jurisdiction. See id. Reasoning from the Shutts analysis, In re Real Estate concluded that, where opt-out rights are not provided, a district court does not have personal jurisdiction over non-consenting non-resident class members in cases involving claims for money damages. See 869 F.2d at 767; accord Carlough v. Amchem Prods., Inc., 10 F.3d 189, 200 & n.8 (3d Cir. 1993).
Ms. Lloyd's situation is nearly indistinguishable from that in In re Real Estate. Here, as in In re Real Estate, a nationwide non-opt-out settlement purporting to resolve the class members' claims for money damages was approved by a federal district court. Thereafter, Ms. Lloyd, a non-resident purported class member, filed suit in her home state seeking money damages based on claims that were the subject of the nationwide class action, just as the school districts in In re Real Estate filed suit for antitrust damages claimed to have been extinguished in the nationwide settlement. Thus, personal jurisdiction is lacking here over Ms. Lloyd, just as it was lacking over the non-resident school districts in In re Real Estate.
We acknowledge that In re Real Estate declined to address whether its holding applied to class actions in which certification was based on a limited fund rationale, 769 F.2d at 768 n.8, the asserted basis for the Rule 23(b)(1)(B) certification in the Fanning settlement. Nonetheless, In re Real Estate applies with full force in the limited fund context for two reasons. First, the minimal due process protections set forth in Shutts apply to all attempts to bind absent plaintiffs where the claims are "wholly or predominately for money judgments." Shutts, 472 U.S. at 812 n.3. It is undisputed that the in personam personal-injury claims of the class members released in the AcroMed settlement are claims "wholly ... for money judgments," and there is no doubt that Ms. Lloyd's West Virginia claims over which AcroMed insists MDL 1014 has jurisdiction are claims "wholly... for money judgments." See JA 156-57 (Ms. Lloyd's West Virginia complaint).
Second, if there were any doubt on this score, the Supreme Court's decision in Ortiz v. Fibreboard, 527 U.S. 815 (1999), eliminates it. In Ortiz, the Court struck down a limited-fund non-opt-out asbestos personal-injury class action settlement on the ground that the class should not have been certified under Rule 23(b)(1)(B). In concluding that Rule 23(b)(1)(B) could rarely, and possibly not ever, be properly applied to aggregate individual tort claims, the Court "sound[ed] a warning of the serious constitutional concerns that come with any attempt to aggregate tort claims on a limited fund rationale." 527 U.S. at 845.
Among the constitutional concerns discussed in Ortiz was the mandatory class action's inherent conflict with the traditional Anglo-American principle that individuals are entitled to their own day in court before they can be bound to a judgment or their rights are extinguished. Id. at 846 (citing Richards v. Jefferson County, 517 U.S. 793, 798-99 (1996); Martin v. Wilks, 490 U.S. 755, 762 (1989); Hansberry v. Lee, 311 U.S. 32, 40 (1940)). In articulating that principle, Ortiz turned to a lengthy explanation of Shutts, which, Ortiz reiterated, demands notice and the opportunity to opt out, as well as adequate representation, before absent class members can be bound to a class action judgment that resolves substantial damages claims. Ortiz, 527 U.S. at 848 n.24. Ortiz's forceful reaffirmation of Shutts demonstrates that Ms. Lloyd's rights to due process would be violated if the AcroMed class action settlement were held to bar her West Virginia action for money damages. But for present purposes, the only question is whether this Court can bar the West Virginia court even from entertaining that question. In light of Ortiz, it is now beyond debate that the principles enunciated in Shutts, and which thereafter formed the basis for this Court's decision in In re Real Estate, apply with full force to limited fund certifications under Rule 23(b)(1)(B).(6)
Although this Court need go no further than the precedents discussed above to reverse the district court's decision, it bears mentioning that Ms. Lloyd's situation regarding the issue of personal jurisdiction is considerably more compelling than that presented in In re Real Estate. First, Ms. Lloyd is an individual class member for whom it would have been very inconvenient and costly to litigate in Philadelphia. By contrast, although out-of-state litigation would have been undesirable for the complaining school districts in In re Real Estate, it would have constituted a rather mundane business expense, particularly because the school districts' case was being financed by the Arizona Attorney General. See 869 F.2d at 764. Indeed, this Court acknowledged those facts in In re Real Estate, but nevertheless held that due process rights should not be accorded piecemeal, depending on the particular litigant's financial position. Id. at 767 n.7.
Second, and on a related note, the school districts in In re Real Estate had notice of the original class action and an opportunity to object to the settlement. Indeed, this Court noted that the school districts appeared in the MDL 633 proceeding in Philadelphia to request exclusion from the class, but held that such an appearance did not constitute consent to that court's jurisdiction so as to require the school districts to litigate the res judicata issue in Philadelphia. Id. at 770-71. Here, by contrast, Ms. Lloyd had no notice of the class action, Lloyd Decl., ¶¶ 2, 5, JA 193-94, and she made no appearance in MDL 1014, thus underscoring the district court's lack of personal jurisdiction over her.
For all of these reasons, the district court did not have personal jurisdiction over Ms. Lloyd. It therefore lacked power to hold Ms. Lloyd and her lawyers in contempt and to enjoin her law suit. If AcroMed wishes to argue that her suit is barred by the res judicata effect of the Fanning settlement, it must do so in the Circuit Court of Cabell County, West Virginia.
B. Because Notice Is A Constitutional Prerequisite For Personal Jurisdiction, And The Fanning Settlement Notice Was Constitutionally Defective, The District Court Never Obtained Personal Jurisdiction Over Ms. Lloyd.
If the Court does not reach the In re Real Estate question, or decides it adversely to Ms. Lloyd, the Court should still reverse the decision below because Ms. Lloyd did not have actual or constructive notice of the Fanning class action. Notice is a prerequisite for a court to obtain personal jurisdiction over a party, Peralta v. Heights Medical Center, Inc., 485 U.S. 80 (1988); Shutts, 472 U.S. at 812; C. Wright & A. Miller, 4 Federal Practice and Procedure § 1074, p. 456 (2d ed. 1987) ("The decisions of the Supreme Court make it clear that the requirement of reasonable notice must be regarded as part of the due process limitations on the jurisdiction of a court") (citing, e.g., Shutts). As explained below, because notice was lacking here, the district court did not have power to hold Ms. Lloyd and her lawyers in contempt or to enjoin them from prosecuting the West Virginia proceeding.
The Fanning notice program involved first-class mail notice to people who had already sued AcroMed (or were otherwise known to the PLC) and limited publication notice. Thus, we address two distinct, but related, issues: (1) Whether the first-class mail program was constitutionally adequate, and (2) Whether the publication notice reasonably calculated to apprise class members of the pendency of the action and its settlement. The answer to both questions is "no."
Before considering these issues, we address two overarching points. First, our discussion of the notice program in Fanning is guided by this Court's April 16, 2001 decision in Sambolin, 2001 U.S. App. Lexis 6458, which severely criticized that very program. Id. at *34 n.11. We acknowledge that Sambolin's statements concerning the due process inadequacy of the notice program were dicta, because the Court did not reach the due process issue and instead held that the district court's unyielding application of the May 15, 1997 settlement registration deadline, in the face of hundreds of "late" claims from class members who lacked notice, was an abuse of discretion. However, Sambolin's dicta were strong indeed. Judge Ambro, writing for the unanimous Sambolin panel, noted that "we would be remiss if we would not express our concerns about the notice program used in this class action[,]" id., and went on to catalogue the many failures of the notice provided and what measures should have been taken to provide adequate notice. The Court concluded that "[w]hile all of these efforts may not be required by due process, we are inclined to believe that some combination of them would help to bring the notice program closer to 'the best notice practicable,'" id., leaving little doubt that the "best notice practicable" due process requirement has not been met in this case.
Second, it is important to appreciate the magnitude of the notice program's failure, measured by the number of injured people it did not reach in a timely manner. As the Court noted in Sambolin, the Claims Administrator acknowledged rejecting the claims of 534 registrations, who had missed the May 15, 1997 deadline, but had registered with the settlement as of February 14, 1999. Id. at *13; see also Docket Entry Nos. 7516-7542, 7547, 7549-7552, 7554-7556, 7558-7559, 7561-7565, 7568, 7570-7571, 7574, 7579, 7582 (appeals of individual class members from Claims Administrator's decision denying compensation). Moreover, there are other purported class members, such as Ms. Lloyd, who were implanted with AcroMed's bone screws on or before December 31, 1996, but were not even injured at the time of the notice program, and for whom, therefore, the notice program was meaningless. Lloyd Decl., ¶ 3, JA 194; cf. Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 628 (1997) (severely questioning the constitutionality of binding "future" injury claimants to class action settlement).
Moreover, the MDL 1014 docket does not (because it cannot) reveal the full extent of the notice problem. Many class members who first learned of the settlement in the two years after the May 15, 1997 deadline simply gave up, especially if they learned that the district court was enforcing the deadline virtually without exception. See Pretrial Order No.1930, JA 229. We will never know how many potential pro se claimants were simply told by personnel in the Claims Administrator's Office after April 6, 1999 that "it's just too late," because, on that day, the district court instructed the Claims Administrator not even to accept, let alone consider, new registrations. See Pretrial Order No. 1754, JA 128-29. In addition, we will never know how many potential claimants consulted lawyers only to be told the same thing. And we will never know the number of "future" claimants, i.e. individuals implanted by December 31, 1996, but who have yet to manifest injury under state law. Suffice it to say that the hundreds of class members explicitly shut out of the settlement by the Claims Administrator and the district court likely form the tip of a sizable iceberg.(7)
Moreover, under the district court's contempt ruling below, the consequences of preclusion by the Fanning settlement are enormous. This class action is not a small-claims "coupon" case or a securities case involving a few dollars per share. Rather, this settlement purports to foreclose claims of serious personal injury, such as those suffered by Ms. Lloyd. JA 156-57 (Ms. Lloyd's allegations of injury). As the district court noted when it approved the class action settlement, of the four bone-screw cases tried to verdict against AcroMed, two resulted in plaintiffs' victories averaging $561,000, with settlements averaging about $131,000. Bone Screw, 176 F.R.D. at 169-70, JA 71-72. Nor is this case like the asbestos personal-injury class actions rejected by this Court and the Supreme Court, where the lack of notice made it impossible to object (or, in Georgine, to opt out), but the claimants' rights to obtain compensation was preserved in perpetuity. See Ortiz, 527 U.S. at 825-27; Georgine v. Amchem Prods., Inc., 83 F.3d 610, 620-21 (3d Cir. 1996) (noting settlement's waiver of time-bar for future claims), aff'd Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 628 (1997). Here, by contrast, unless reversed by this Court, the district court's injunction against prosecution of the West Virginia action cuts off all compensation for Ms. Lloyd in the courts.(8)
1. The First-Class Mail Notice Program Violated Due Process.
a. Actual Notice Was Constitutionally Required.
The principal reason that the notice was unlawful is that it did not actually reach Ms. Lloyd. She never received the notice, Lloyd Decl., ¶¶ 2,5, JA 193, 194, and she was therefore unable to object to the non-opt nature of the settlement or other potential illegalities. There are many cases holding that a class action judgment may bind an absent class member who did not have actual notice as long as the overall notice plan is deemed constitutionally adequate. In such cases, courts have held that a constitutionally adequate notice plan amounts to "constructive" notice on the class members who were not actually notified. However, in recent years, the Supreme Court's and this Court's jurisprudence has evolved considerably to the point where actual notice is required before a court may bind absent class members, at least in the personal-injury mass-tort context involved here.
This evolution began with Shutts, which, as discussed above, held that, for a class action judgment to have binding effect, absent class members must be given notice and an opportunity to opt out, at least in class actions "wholly or predominately for money judgments." 472 U.S. at 812 n.3. To be sure, Shutts did not explicitly hold that actual notice is constitutionally required to bind class members in all class actions. Because the class in Shutts was defined to exclude those class members to whom the notice could not be delivered by first-class mail, id. at 801, the only class members purportedly bound had actual notice, and the Court was not required to address the constructive notice issue. Nonetheless, Shutts did state explicitly that a person must "receive notice" before he or she may be bound, id. at 812 (emphasis added), which would, by its terms, reject any notion of constructive notice. Shutts' statement regarding notice did not appear out of nowhere, but arose from "a principle of general application in Anglo-American jurisprudence that one is not bound by a judgment in personam in a litigation in which he is not designated as a party or to which he has not been made a party by service of process," Martin v. Wilks, 490 U.S. 755, 761 (1989) (quoting Hansberry, 311 U.S. at 40), and our "deep-rooted historic tradition that everyone should have his own day in court." Id. at 762 (quotation omitted); accord Richards v. Jefferson County, 517 U.S. 793, 799-801 (1996).
Indeed, this Court appears to have read Shutts to require actual notice before absentees may be made parties to a class action settlement. In Carlough v. Amchem Prods., Inc., 10 F.3d 189, 200 (3d Cir. 1993), the Court held that a West Virginia class action filed for the purpose of disrupting the Georgine asbestos settlement could be enjoined, but only after the West Virginia class members were notified and provided an opportunity to opt out. Id. at 200, 203-04. Elaborating the notice aspects of its holding, the Court noted the "emphasis by the Supreme Court [in Shutts] on the receipt of the opt out forms") (emphasis in original). Id. at 200.
If Shutts and Carlough left any doubt on the actual notice question, it was put to rest by the Supreme Court in Ortiz. There, the Court rejected a Rule 23(b)(1)(B) non-opt-out mass-tort class action very similar to the Fanning class settlement earlier approved by the district court here, holding that the class did not meet the requirements of the Rule, Ortiz, 527 U.S. at 848-65, and expressing serious doubts as to whether any in personam mass-tort class action is permissible under Rule 23, the Rules Enabling Act, due process, or the Seventh Amendment. Id. at 832-48. In addressing the due process issue, the Court relied on Shutts and Martin v. Wilks and held that absent class members may be bound only if they "'receive notice plus an opportunity to be heard and participate in the litigation....'" Id. at 848 (quoting Shutts, 472 U.S. at 812 (1985)) (emphasis added). Thus, any argument that Ms. Lloyd had constructive notice, such as to provide the district court with personal jurisdiction over her, is irrelevant. Because Ms. Lloyd was not provided actual notice of the class action or its settlement, the district court lacked personal jurisdiction over her and was without power to enjoin prosecution of her West Virginia law suit.(9)
b. Even If Constructive Notice Is Appropriate In Some Circumstances, The First-Class Notice Program Here Did Not Meet Due Process Requirements And Thus Did Not Provide Ms. Lloyd With Constructive Notice.
The full notice package was sent to all settlement class members already known to the PLC and to all counsel for plaintiffs in individual suits in MDL 1014. No further attempt was made at first-class mail notice. As noted earlier, AcroMed and the PLC deemed this sufficient because of a basic misunderstanding: They thought that "it is reasonable to expect that the vast majority of individuals who have compensable claims against AcroMed already initiated litigation against it." PLC's Mem. in Support of Jt. Motion For Approval of the Proposed Settlement Agreement, at 33 (Mar. 31, 1997) (Docket Entry No. 5372); see Settling Parties' Proposed Findings of Fact, at 153 (¶ 350) (filed July 3, 1997). As demonstrated by the hundreds of class members denied compensation by the district court because they lacked notice, see Sambolin, 2001 U.S. App. Lexis 6458, *13, and the thousands of others who likely have still not received notice, the settling parties' views were plainly wrong.
Because publication notice is a poor substitute for individual notice, Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 315 (1950), notice by first-class mail is preferred. The applicable legal standard is straightforward:
Id. at 314. This standard means that potential claimants must be informed personally of the existence and ramifications of the action if their whereabouts can be ascertained with due diligence. Id. at 317-18; see also Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 173-75 (1974) (Rule 23(c)(2), incorporating Mullane due process standards, "leave[s] no doubt that individual notice must be provided to those class members who are identifiable through reasonable effort").
The first-class notice program here made a mockery of the "due diligence"/"reasonable effort" standard. The PLC made no effort to find its clients on an individual basis; instead, the PLC's Administrator simply sent the notice packet to individuals already known to the PLC, principally because those individuals had already filed suit. Because the PLC thought that the "vast majority" of its worthy clients had already filed suit, the class action settlement was envisioned primarily as a form of mandatory joinder as to people who already had made claims against AcroMed. But because this mandatory joinder was accomplished in the form of a non-opt-out class action, it came with the gift of res judicata for AcroMed against all other people implanted with the company's bone screws, whether or not they had notice.
As this Court explained in Sambolin, many tools were available to the settling parties that would have identified people who had not already sued AcroMed. 2001 U.S. App. Lexis 6458, *34. The most obvious was AcroMed's customer list: the hospitals and/or doctors who purchased AcroMed's bone screws and who implanted them in the class members. One of AcroMed's customers was Cabell Huntington Hospital, where Ms. Lloyd's bone screws were implanted. JA 150 (¶ 9). That hospital had a record of Ms. Lloyd's whereabouts (and the whereabouts of her doctors), as would be the case for any hospital with respect to patients who underwent major surgery there. If the notice program had required full notice packages to be sent to all of AcroMed's customers (or, at the very least, all of the hospitals at which surgeries took place), hundreds, if not thousands, more AcroMed bone screw recipients would have received notice.
Other efforts to identify class members for first-class mail notice were also readily available. One option was through the medical community. A "Dear Doctor" letter explaining the settlement and enclosing the notice packet could have been sent, at a minimum, to orthopedists and orthopedic surgeons, but perhaps also to internists who would be following AcroMed patients in the months and years after surgery. A letter of this sort would urge those physicians to provide a copy of the notice package to their potentially affected patients and would also provide an address and phone number for the class member to contact for the full notice package.
The purpose of taking these minimal steps would have been to create a database of personal information to effect first-class notice, similar to lists that are compiled in securities cases from stock transaction records. See Eisen, 417 U.S. at 166 n.5. In many of those cases, shares are held in "street name" by brokers or other financial institutions, and it is necessary to get notice to the beneficial owners of the stock whose rights are affected by the class action. In such cases, class counsel makes arrangements for the brokers to notify the class members or for the brokers to provide the names and addresses of the beneficial owners, so that class counsel can notify their clients. See Manual for Complex Litigation Third § 30.211, p. 226 (1995); see Newberg on Class Actions § 8.08, p. 8-29 (2d ed. 1992) (class counsel obtains names and addresses by subpoena if brokers are uncooperative). That is exactly the sort of arrangement that should have occurred here with the class members' health care providers. Even assuming that actual notice is not required, such efforts are "reasonably calculated" to identify class members and thus necessary to meet the bare minimum "due diligence" efforts required by Mullane. See Sambolin, 2001 U.S. App. Lexis 6458, *34 n.11.
The best evidence that these types of notification procedures are practicable, and thus required by due process, is that they are used on a regular basis in modern class action practice. As noted above, class counsel in securities cases regularly contract with third parties to develop an accurate, comprehensive class list. So too, in automotive defect cases. Although a complete list of class members is available neither to the defendant nor the plaintiffs' counsel, the settling parties or their designee investigate the records of all 50 states' motor vehicle registration departments to compile as complete a class list as possible. See In re General Motors Corp. Pickup Truck Fuel Tank Prod. Liab. Litig., 55 F.3d 768, 781 (3d Cir. 1995).
Similarly, in asbestos class actions, the settling parties undertook a campaign to enlist dozens of labor unions in identifying their members, to whom the full notice packet was sent by first-class mail. See Carlough v. Amchem Prods., Inc., 158 F.R.D. 314, 320-21 (E.D. Pa. 1993) (employing assistance of 50 national and international unions and 40 trade organizations whose current and retired members were likely to be class members, as well use of mailers to officials of union locals); see also id. at 323 (sending notification to attorneys to identify their clients); Ahearn v. Fibreboard Corp., 1995 U.S. Dist. Lexis 11532, *294 (¶ 422) (E.D. Tex. July 27, 1995) (notice to unions at the "national, regional, state, and local levels, whose memberships might include members of the Global Health Claimant Class, or whose members might be able to assist in the notification effort"); see also id. at *301 (¶ 130) (indicating that this outreach effort resulted in tens of thousands of notice packets going to potential class members, and a small notice advertisement being sent directly to 1.3 million union members).
Also illustrative of the practicability of outreach efforts that were ignored here is Bowling v. Pfizer, Inc., 143 F.R.D. 141 (S.D. Ohio 1992), and In re Telectronics Pacing Sys., Inc., 2001 U.S. Dist. Lexis 4035 (S.D. Ohio Mar. 8, 2001), which, like this case, involved class members implanted with defective medical devices (in Bowling, a mechanical heart valve, and, in Telectronics, a pacemaker lead). In Bowling, the settlement involved both domestic and foreign implantees. In terms of individual first-class mail notice to domestic and Canadian implantees, the district court directed the notice to be sent to those class members who had already filed suit or made a claim against the defendant and to other class members whose whereabouts were known to the defendant. Order Concerning Notice to the Settlement Class in Bowling v. Pfizer, No. C-1-91-256 (Docket Entry No. 44, Jan. 23, 1992), JA 291-92.(10) The actual mailed notice was far more expansive because the defendant contracted with the Medic Alert Foundation, which contacted hospitals where the defendant's product had been used. From there, a list of implantees' names and addresses was assembled and class members were notified by mail. JA 262-63 (district court order approving notice); see JA 456-60 (Affidavit of Bob Smith in Bowling v. Pfizer, No. C-1-91-256 (filed in Docket Entry No. 162, May 29, 1992)). Thus, a hospital-generated list of implantees greatly expanded the reach of the first-class notice to domestic implantees in Bowling; attempting to create such a list here was eminently practicable, but no attempt was made.
As for the foreign implantees in Bowling, because there was no analogous Medic Alert list of implantees' names and addresses, the district court required extensive mailings to all U.S. embassies abroad, JA 357-98, and all international health ministries. JA 323-24, 400-16. In addition, mailings containing the court-approved notice specifically enlisted the support of foreign hospitals and cardiologists to encourage the class members to register for the settlement's benefits. Order [Amending Prior Order Re Notice] in Bowling v. Pfizer, No. C-1-91-256 (Docket Entry No. 56, Feb. 21, 1992), JA 440 (¶ 5); see also JA 445-46 (letter to hospitals and cardiologists). Relevant trade publications and associations in the area of cardiology and cardiovascular surgery were also targeted for notice to enlist their readers in the overall effort to identify class members. JA 323-24 (court-approved letter), JA 418-37 (list of organizations and journals). Cardiologists and cardiovascular surgeons and the publications that they read were identified as people who would help locate class members in Bowling, just as orthopedists and orthopedic surgeons could have been -- but were not -- identified here.(11)
The Telectronics class action illustrates not only the inadequacies of the notice here, but, in particular, the efficacy of the additional procedures suggested by Ms. Lloyd and endorsed in dicta in Sambolin. In Sambolin, the Court rejected as "unconvincing" AcroMed's argument that doctors and hospitals should not have been used to convey individualized notice because, as potential targets of suit, their interests were adverse to the interests of their patients. 2001 U.S. App. Lexis 6458, *34 n.11. Telectronics demonstrates the accuracy of Sambolin's conclusion. In that case, an initial notice sent directly to class members resulted in a large number of "undeliverable" returned envelopes. See Eighth Report of Special Master, at 5 (filed July 17, 2000), in In re Telectronics Pacing Sys., Inc., MDL 1057, Master File No. C-1-95-87 (S.D. Ohio) (reproduced at JA 465A). The settlement's Special Master (equivalent to Mr. Welsh in this case) then contacted the patients' doctors and was able to obtain a large number of previously "missing" class members.(12)
As the poor results of the notice campaign in this case show, a far more comprehensive individualized notice was required by due process. Other steps "reasonably calculated" to reach class members were available and could have been used. See Sambolin, 2001 U.S. App. Lexis 6458, *34 n.11. In light of these failures, Ms. Lloyd was not constructively notified of the settlement, and therefore the district court lacked personal jurisdiction over her.
2. The Publication Notice Was Also Inadequate.
The publication notice was just as inadequate as the efforts at individual notice, if not more so. Although the district court trumpeted the "widespread and comprehensive notice of this settlement ... all over the country," 5/22/99 Tr. at 35, with all respect, that characterization does not square with reality. The "widespread and comprehensive" notice consisted of small advertisements of the settlement appearing twice in USA Today, once each in TV Guide and Parade Magazine, and once in a Spanish-language newspaper in San Juan, Puerto Rico. Nothing about the placement or size of these ads was likely to attract the attention of readers. To the contrary, the USA Today ad appeared in the "Marketplace" section of the paper, JA 47-48, which the reader naturally would assume contained ads for the sale of goods and services, and the one-time Puerto Rico newspaper notice appeared "in small text on page 50." See Sambolin, 2001 U.S. App. Lexis 6458, *8. And none of the ads contained a tear-off registration form that the Claims Administrator could have used to register claimants, which would have made registration far easier and may have called the notice to the attention of class members and/or their friends, family members, and doctors. Compare JA 316 (in Bowling class action settlement, newspaper notice contained simple tear-off form calling for name and address, which registered class members for share of cash settlement benefits). See Sambolin, 2001 U.S. App. Lexis 6458, *34 n.11.
Despite these minimal procedures, the district court repeatedly concluded that they were "the best notice practicable under the circumstances." JA 21 (Pretrial Order No. 724, ¶ 8(e)), JA 241 (Pretrial Order No. 1978). But those rulings are demonstrably incorrect. It was practicable to place notices in local and regional newspapers; it was practicable to place notices on the internet; it was practicable to run radio and television advertisements; and it was certainly practicable (and virtually costless) to undertake a free-media campaign involving public service announcements in the print media, radio, and/or television. And whatever one might think of the advisability of using all of these means of notification together, it certainly was inexcusable not to use some of them in addition to the minimal notice that actually took place. See Sambolin, 2001 U.S. App. Lexis 6458, *34 n.11 (suggesting practicability of various additional means of notice).
In sum, the publication notice here was a formality. The Supreme Court could have been speaking about this very case when it warned that "when notice is a person's due, process which is a mere gesture is not due process." Mullane, 339 U.S. at 315; see also Greenfield v. Village Indus., Inc., 483 F.2d 824, 830 (3d Cir. 1973) (two-time publication in Wall Street Journal and Philadelphia Evening Bulletin "was insufficient notice under any standard of fairness, justice, or due process").
The actual content of the notice was also abysmal. Although the notice did include the registration deadline, it neither warned of the consequences of that deadline nor told class members how they could obtain the Registration Form. Indeed, the notice did not even mention the existence of a Registration Form, much less how to file one. The notice described the class action and settlement in the most general terms. The advertisement's only reference to the availability of additional information was contained in tiny print at the bottom of the notice, where readers were told that, if they had not received "the AcroMed Orthopedic Bone Screw Settlement Notice, you may request one by writing to the PLC, [address stated here]." See JA 48. The notice provided no telephone number to call for more information, let alone a toll-free "800" number, which is standard operating procedure in modern class action settlement practice. See, e.g., Carlough, 158 F.R.D. at 321; Ahearn, 1995 U.S. Dist. Lexis 11532, *294 (¶ 422); Parade Magazine, Mar. 5, 2000, at 6 (class action settlement notice providing three methods for obtaining full notice packet: toll-free number, website, or writing to the settlement administrator); cf. JA 316 (publication notice providing class members with address and fax number for sending in tear-off registration form in Bowling v. Pfizer class action settlement). See Sambolin, 2001 U.S. App. Lexis 6458, *8, *34 n.11.
At first blush, it may seem incongruous to attack the content of a notice that Ms. Lloyd never received, particularly because Ms. Lloyd is pursuing a state-court lawsuit, not benefits under the settlement. However, because the settling parties claim that Ms. Lloyd received constructive notice, and thus should be bound by the settlement, this Court must ask not only whether the notice program was constitutionally adequate in its outreach to class members, but also whether, if the notice had reached Ms. Lloyd, its content was constitutionally adequate to bind her to the settlement terms (because, after all, the fiction of constructive notice rests on the assumption that she did in fact see the notice). See Twigg v. Sears, Roebuck & Co., 153 F.3d 1222, 1226-29 (11th Cir. 1998) (upholding collateral attack of class member who had not received notice on ground that content of notice was inadequate to inform that class member that his claims had been included in class action settlement); cf. Sambolin, 2001 U.S. App. Lexis 6458, *34 n.11 ("The notice also did not warn readers of the serious consequences of missing the registration deadline: losing one's right of action with no chance to share in the settlement fund").
For all of these reasons, notice was inadequate, and the district court did not have personal jurisdiction over Ms. Lloyd. It therefore lacked power to hold her in contempt and enjoin prosecution of her West Virginia suit.
3. Ms. Lloyd Did Not Consent To The District Court's Jurisdiction When Her Lawyers Appeared To Oppose AcroMed's Show-Cause Motion.
The district court justified its power to hold Ms. Lloyd in contempt and to enjoin her state-court action on the alternative ground that Ms. Lloyd consented to the district court's jurisdiction when her lawyers appeared in November 1999 to oppose AcroMed's show-cause motion. That conclusion is wrong as a matter of fact and law.
As a factual matter, neither Ms. Lloyd nor her lawyers asked for any merits relief, i.e., relief on the ground that the Fanning settlement was not binding on her. Rather, undersigned counsel explicitly made a "special appearance" at the November 22, 1999 status conference on behalf of attorneys Majestro and Masters claiming a lack of personal jurisdiction. See 11/22/99 Tr. at 47. Further, in their briefs, Majestro and Masters raised only the question of personal jurisdiction, stressing that Judge Bechtle "should go no further than the [personal jurisdiction] arguments ... and conclude that Ms. Lloyd's lawsuit may proceed in West Virginia state court, which is the proper forum in which AcroMed may raise its res judicata defense." JA 177; see supra note 4. To be sure, solely to illustrate that Ms. Lloyd's arguments regarding inadequate representation were substantial, we outlined what those arguments would be if AcroMed defended on res judicata grounds in West Virginia. We then ended our brief as follows:
JA 180. Thus, the district court's finding that Ms. Lloyd's arguments went beyond the personal jurisdiction question is wrong.
In any event, as a matter of law, Ms. Lloyd had every right to raise the merits in the district court in response to the show-cause motion. Although undersigned counsel did make a special appearance, we now acknowledge that doing so was based on analytical confusion -- the same analytical confusion that undergirds the district court's factually and legally flawed finding that we exceeded the parameters of our special appearance.
To explain: The personal jurisdiction question concerns whether the district court had authority to bind Ms. Lloyd when it entered its order certifying the mandatory class and approving the settlement in 1997, not what Ms. Lloyd did to protect her rights in response to AcroMed's show-cause motion in 1999. After all, it is this Court's approval order, not some subsequent event, that AcroMed claims binds Ms. Lloyd, and which Ms. Lloyd claims is non-binding because of the settlement's failure to provide minimal due process protections and for other reasons pertaining to the PLC's inadequate representation. Put differently, Ms. Lloyd has the right to present the merits of her constitutional claims to some court, as AcroMed appeared to acknowledge below, JA 211, and as it must ultimately concede. See In re Real Estate, 869 F.2d at 762, 767 (citing Hansberry v. Lee, 311 U.S. at 42-44). Thus, if her personal jurisdiction argument fails, she has every right to obtain an adjudication on the merits of her inadequate representation claims. See infra Part II.
In this regard, In re Real Estate could not be more on point. The objecting school boards raised the merits of their inadequate representation claim in response to a motion to enjoin their Arizona action, and this Court explained that argument in some detail. 869 F.2d at 765 & n.2. Indeed, a significant portion of the school boards' opening brief to this Court was focused on inadequate representation and resulting unfairness of the MDL 633 settlement. See Appellant's Opening Brief in In re Real Estate Title and Settlement Servs. Antitrust Litig., No. 87-1815, at 35-40 (3d Cir. Feb. 22, 1988) (reproduced at JA 283-88). If that direct attack on the merits somehow constituted consent to jurisdiction in the MDL 633 class action settlement, this Court never would have reached the personal jurisdiction question. In reality, the opposite occurred. This Court ruled in the school boards' favor on personal jurisdiction, not reaching the merits of the inadequate representation claim. Id. at 765.(13)
In sum, the district court erred in concluding that Ms. Lloyd consented to the district court's jurisdiction.
II. If The Court Chooses Not To Reach The Personal Jurisdiction Question, It Should Find That The Fanning Settlement Is Not Binding On Ms. Lloyd Or Remand That Question To The District Court For A Determination In The First Instance.
As indicated above, the sole relief requested in the district court by Ms. Lloyd was dismissal of the motion to show cause on the ground that the court did not have personal jurisdiction over her. That relief would permit Ms. Lloyd's state-court suit to proceed, and AcroMed could defend that suit on res judicata grounds based on the judgment in Fanning. However, the district court's decision is unclear as to whether it reached the merits of some of the adequacy of representation issues. For instance, the district court reiterated that the notice program was constitutionally adequate so as to have binding affect on Ms. Lloyd, and it appeared to reaffirm its finding that the settlement was a proper limited fund. JA 240. Therefore, out of an abundance of caution, we briefly raise Ms. Lloyd's attack on the PLC's adequacy.
We now turn briefly to Ms. Lloyd's merits arguments.
A. The Non-Opt Out Nature of The Settlement.
The non-opt-out nature of the Fanning class action settlement violates due process, at least in the circumstances presented here. The Ninth Circuit held in Brown v. Ticor Title Ins. Co., 982 F.2d 386, 392 (9th Cir. 1992), that class members have a constitutional right to opt out and file individual suits on all claims for money damages. That holding is the necessary implication of Shutts, which stated that the right to opt out is one of the key due process components that permits a court to give a class action money judgment binding effect. 472 U.S. at 812. Similarly, Ortiz, which relied on Shutts, strongly suggested that the purported "limited fund" settlement there could not withstand scrutiny because of its non-opt-out character. 527 U.S. at 847-48. This Court's decision in In re Real Estate is to the same effect because it relied on Shutts, which was, after all, not a collateral attack on a class action judgment, but a direct appeal challenging the binding effect (i.e., the merits) of a nationwide class certification.
Indeed, Ms. Lloyd's case is far stronger than In re Real Estate and Shutts because the size of the property interest that would be extinguished if her suit were barred dwarfs the property interest held by each class member in In re Real Estate and Shutts. Ms. Lloyd alleges that she suffers severe and permanent physical injuries attributable to AcroMed's conduct, and seeks the full array of compensatory and punitive damages, JA 157, which could easily amount to hundreds of thousands of dollars. As noted earlier, settlements and judgments in AcroMed bone screw cases have been quite large. Bone Screw, 176 F.R.D. at 169-70. By contrast, each class member's damages in In re Real Estate was the incremental price charged to that class member for title insurance because of the defendants' price fixing conduct, subject to trebling under the antitrust laws. See 869 F.2d at 760. Although not trivial, these damages are not of same magnitude as Ms. Lloyd's. Similarly, in Shutts, the damages were also of the small-claims variety, averaging only $100 per class member. Shutts, 472 U.S. at 801. In sum, because due process often balances the cost of additional process (here, the cost of providing Ms. Lloyd an opportunity to litigate her claims individually) against the consequences of not providing that process (the abrogation of Ms. Lloyd's very substantial personal-injury claims), see Connecticut v. Doehr, 501 U.S. 1, 10-11 (1991); Mathews v. Eldridge, 424 U.S. 319, 335 (1976), the magnitude of Ms. Lloyd's property interest underscores the conclusion that she has a constitutional right to proceed with her West Virginia action.
B. The Inadequacy of Notice.
Notice is not only a constitutional prerequisite for acquiring personal jurisdiction, but it is also required before a class action judgment can bind absent class members, such as Ms. Lloyd. See Shutts, 472 U.S. at 812; Mullane, 339 U.S. at 314-15. Thus, for the same reasons stated in Part I.B. supra, the notice program in Fanning was constitutionally inadequate to have binding effect.
Another aspect of notice underscores the inadequacy of representation here. Ms. Lloyd was not injured at the time of notice, and thus her due process rights as a "future" class member were violated. See, e.g., Amchem, 521 U.S. at 628. This violation is particularly egregious because, prior to the district court's settlement approval in Fanning, the Supreme Court in Amchem had warned against attempts to bind uninjured absent tort claimants through use of Rule 23, affirming the earlier warning sounded by this Court in Georgine, 83 F.3d at 633-34.
And Georgine's warning was not a new one. Applying similar principles in the bankruptcy context, this Court determined in 1985 that the "claims" of asbestos victims who were not yet injured at the time of the bankruptcy could not, as a matter of law, be discharged, i.e., adjudicated, by that proceeding. Schweitzer v. Reading Co., 758 F.2d 936 (3d Cir.), cert. denied, 474 U.S. 864 (1985). The Court strongly condemned the proposition that "a person who had no inkling that years in the future he would be killed by a product produced by the debtor would be required to file a claim in the debtor's ... bankruptcy proceedings so as to preserve any rights that he might have in a future tort suit." Id. at 943. Although Schweitzer involved an interpretation of the bankruptcy law, its fundamental concern was that the preclusion of "plaintiffs' future tort actions would raise constitutional questions" involving the adequacy of notice to the class of future claimants. Id. at 944 (citing Mullane, 339 at 318-20).(14)
C. The Purported $100 Million Limited Fund.
The PLC's representation concerning the value of AcroMed was wholly inadequate. The district court's decision approving the "limited fund" settlement of $100 million was based in substantial part on the testimony and report of the PLC's expert, Dr. Harvey Rosen. Dr. Rosen valued the company at $104 million, which, he said, "reflects 'what a willing buyer would pay a willing seller for this company (the cash flows generated) without the financial constraints of the litigation costs and the uncertainty of litigation outcomes.'" Bone Screw, 176 F.R.D. at 168 (quoting expert report). However, approximately five months after Judge Bechtle approved the settlement, DePuy, Inc. agreed to buy AcroMed for effectively four times the value on which this Court relied for its limited fund finding. See JA 183 (March 20, 1998 financial report of Janney Montgomery Scott indicating that the cost was approximately $325 million, plus assumption of the settlement liability, for an aggregate cost of approximately $425 million). This fact raises concerns not only about the limited fund finding, but about the PLC's submission that $100 million was all AcroMed could afford. Cf. Ortiz, 527 U.S. at 839, 859-60 (limited fund settlement requires relinquishment of all or substantially all of company's value).
Indeed, as noted above (at 8-9 note 2), the record is silent as to whether the sale of AcroMed was in negotiation during the Fanning settlement proceedings, whether AcroMed had been advised that its value was far greater than $100 million, and, most critically, whether the PLC, which was essentially buying the company, inquired into these matters. Without any record evidence to explain the enormous discrepancy between the value that the class members were sold and the value that AcroMed's shareholders actually received, the only reasonable conclusion is that the PLC representation regarding the amount (if not the existence) of the "limited fund" was inadequate.(15)
For the reasons stated above, the decision of the district court should be reversed with instructions that Ms. Lloyd's state-court action may proceed.
Attorneys for Appellants Majestro and Masters
Attorneys for Appellant Lloyd
May 1, 2001
CERTIFICATE OF COUNSEL
I, Brian Wolfman, counsel of record in this appeal, am a member of the bar of this Court.
May 1, 2001
CERTIFICATE OF COMPLIANCE WITH FRAP 32(a)(7)
Pursuant to Federal Rule of Appellate Procedure 32(a)(7)(C), I state that this brief complies with the type-volume limitations of Rule 32(a)(7)(B), and contains 13,860 words according to WordPerfect 7, the word-processing program used to prepare this brief.
I hereby certify that, on May 1, 2001, I caused to be served by overnight mail two copies of the foregoing brief on each of the following counsel who have entered an appearance in this appeal:
Richard I. Werder, Jr.
The above attorneys have also been served by facsimile on May 1, 2000.
1. The district court's order applies both to Ms. Lloyd and her lawyers, Messrs. Majestro and Masters. Thus, this appeal seeks reversal on behalf of Ms. Lloyd, so that she may pursue her state-court action, and on behalf of her lawyers, so that they may prosecute that action for Ms. Lloyd. However, because it is Ms. Lloyd's substantive rights that are at stake, this brief refers only to Ms. Lloyd, except where it is independently necessary to discuss the role of her lawyers.
2. 2 The $104 million "limited fund" finding was almost certainly incorrect because the company was worth far more than $100 million. Approximately five months after the district court approved the settlement, DePuy, Inc. agreed to buy AcroMed for effectively four times the value on which the district court relied for its limited fund finding. See JA 182-84 (March 20, 1998 financial report of Janney Montgomery Scott indicating that the cost of acquiring AcroMed was approximately $325 million, plus assumption of the settlement liability, for an aggregate cost of approximately $425 million). The record does not reveal whether the sale of the company was being negotiated while the proposed class action settlement was pending before the district court, whether AcroMed had contacted an investment banker or other financial consultant about the sale value of the company at that time, or whether the PLC inquired into any of these critical matters at any time.
3. Nor did she appear in any other MDL 1014 proceeding until November 22, 1999, when her lawyers were haled into court to defend AcroMed's contempt motion at issue in this appeal.
4. In their opposition to the motion to show cause, appellants stated that "[t]he only action that Ms. Lloyd seeks from [the district] Court is denial of the request for a show cause order on the ground that this Court lacks jurisdiction over her." JA 177. Appellants stressed that the district court "should go no further than the [personal jurisdiction] arguments ... and conclude that Ms. Lloyd's lawsuit may proceed in West Virginia state court, which is the proper forum in which AcroMed may raise its res judicata defense." JA 177. After making those arguments, appellants then outlined the inadequate representation arguments that they would likely raise in opposition to such a res judicata defense. JA 177-79. They also noted that, if the district court were to reject their personal jurisdiction argument, they had a right to have the federal court adjudicate their claim that the class action settlement is not binding on them on the ground that the PLC had not adequately represented Ms. Lloyd. JA 223.
5. The Ninth Circuit later held that the same non-opt-out MDL settlement did not afford consumers in Arizona and Wisconsin due process and, therefore, did not have binding effect on their claims for money damages. Brown v. Ticor Title Ins. Co., 982 F.2d 386, 392 (9th Cir. 1992), writ dismissed as improvidently granted, 511 U.S. 117 (1994), discussed infra at 52.
6. And even if that were not true, because it is quite possible that non-opt-out personal-injury class actions are impermissible under any circumstance, see Ortiz, 527 U.S. at 832-48, any exception to ordinary principles of personal jurisdiction surely may not stray beyond "the traditional varieties of representative suit encompassed by Rule 23(b)(1)(B) ... involving 'the presence of property which call[ed] for distribution or management[....]'" Id. at 834 (quoting J. Moore & J. Friedman, 2 Federal Practice 2240 (1938)); see also id. (noting that "'Classic' limited fund class actions 'include claimants to trust assets, a bank account, insurance proceeds, company assets in a liquidation sale, proceeds of a ship sale in a maritime accident suit, and others'") (quoting 1 Newberg § 4.09, p. 4-33). In sum, Ortiz underscores the holdings of Shutts and In re Real Estate that, when in personam claims for money damages are involved, consent to jurisdiction can be obtained only by providing an opt-out right.
7. We assume that the "late" registrants will now be considered for benefits as a result of this Court's decision in Sambolin. For present purposes, the large number of people deemed tardy prior to Sambolin simply illustrates the settlement's inadequate notice program.
8. After holding Ms. Lloyd in contempt and enjoining her suit, the district court suggested that Ms. Lloyd could now register with the Claims Administrator and claim benefits under the settlement by showing that her failure to meet the May 15, 1997 registration deadline was "excusable neglect." See JA 242 n.2. As explained in this brief, Ms. Lloyd believes she has a right to pursue her state-court suit and does not intend to file a claim with the Claims Administrator. In any event, the district court's suggestion that Ms. Lloyd register with the Claims Administrator is, with all respect, unfathomable. The district court's view of excusable neglect -- that the claimant's illness physically prevented the claimant from registering, -- is so cramped as to be almost meaningless. See Sambolin, 2001 U.S. App. Lexis 6458, *36-*37. Moreover, as noted earlier, on April 6, 1999, the district court expressly ordered the Claims Administrator not even to accept future registration forms, let alone consider them on their merits. See JA 129. Thus, we are at a loss to understand how, nearly two years later, the district court, in its March 23, 2001 contempt order, could have expected Ms. Lloyd to register with the Claims Administrator and collect settlement benefits.
9. 9 It is possible that in cases involving relatively small claims actual notice is not required. However, where, as here, the claims of the individual absentee plaintiffs are quite large, due process requires actual notice. Put differently, when a person's "private interest" in a personal-injury mass tort is large, the due process balance comes down on the side of actual notice. See Mathews v. Eldridge, 424 U.S. 319, 335 (1976).
10. 10 The notice orders and affidavit in Bowling are not published. The same is true for the Special Masters' reports to which we refer in Telectronics. For the Court's convenience, we have reproduced them at the end of the joint appendix.
11. 11 The Bowling court also required an extensive mailing to U.S. and Canadian medical journals and groups to help locate class members in those countries. JA 326-41. See Sambolin, 2001 U.S. App. Lexis 6458, *34 n.11.
12. As the Telectronics Special Master put it:
With the consent and approval of counsel for the parties, the Special Master has identified names and addresses of physicians serving the potential claimants who may not yet have been notified of the Class Action Settlement. The Special Master's office has sent letters to approximately 1,197 physicians requesting up-to-date address information of these potential claimants. The response from the physicians contacted has been very good. Based upon information received from approximately 400 physicians, follow up letters and Notices of the Class Action Settlement have been sent to approximately 1600 potential claimants. Of these persons notified, approximately 540 have filed claims.
Id., JA 465A; see also Special Master's Report, at 10, lines 3-12 (2/15/01 Tr.), in In re Telectronics Pacing Sys., Inc., MDL 1057, Master File No. C-1-95-87 (S.D. Ohio) (reproduced at JA 476).
13. Even if Ms. Lloyd had appeared in response to the settlement notice in MDL 1014, arguing a lack of personal jurisdiction and, alternatively, that the settlement was unlawful on its merits, she would not have consented to the jurisdiction of the MDL 1014 court. Although that position is at odds with dicta in In re Real Estate, 869 F.2d at 769, it is consistent with the Federal Rules, which permit a party to challenge personal jurisdiction under Rule 12(b)(2) at the outset of the case and also to participate fully in the merits of the litigation if the challenge to personal jurisdiction is rebuffed. See C. Wright & A. Miller, 5A Federal Practice and Procedure § 1351, p. 261 (2d ed. 1990) ("A party who has unsuccessfully raised an objection [to personal jurisdiction] under Rule 12(b)(2) may proceed to trial on the merits without waiving the challenge"). Put otherwise, modern practice eliminates the need for a "special appearance" to challenge jurisdiction. See id. § 1362, pp. 450-51. That conclusion is the necessary implication of Ortiz, in which the objectors raised a host of arguments on the merits, as well as a personal jurisdictional argument based on Shutts. See Brief for Petitioners in Ortiz v. Fibreboard Corp., No. 97-1704, at 39-42 (U.S. Aug. 6, 1998) (available in Lexis at 1997 U.S. Briefs 1704, *39-*42). The Supreme Court did not even intimate that the Shutts argument had been waived -- in fact, the Court dealt with Shutts at some length, 527 U.S. at 847-48 -- because the arguments on the merits had also been raised.
14. The PLC represented the entire class in negotiating the settlement and advocating its approval. At the very least, as a "future" claimant, Ms. Lloyd was inadequately represented because she was not provided separate, unconflicted representation. See Ortiz, 527 U.S. at 856-57; Amchem, 521 U.S. at 626-27, aff'g Georgine, 83 F.3d at 630-31.
15. The district court denied Ms. Lloyd's lawyers attempt to obtain discovery on this issue. JA 140. If, for any reason, there is a remand on the merits, that ruling should be reversed, and Ms. Lloyd should be allowed limited discovery to find out what AcroMed and the PLC knew, and when they knew it, about the value of AcroMed and the sale of the company.