437 U.S. 463 (1978), 76-1836, Coopers & Lybrand v. Livesay

Docket Nº:No. 76-1836
Citation:437 U.S. 463, 98 S.Ct. 2454, 57 L.Ed.2d 351
Party Name:Coopers & Lybrand v. Livesay
Case Date:June 21, 1978
Court:United States Supreme Court
 
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Page 463

437 U.S. 463 (1978)

98 S.Ct. 2454, 57 L.Ed.2d 351

Coopers & Lybrand

v.

Livesay

No. 76-1836

United States Supreme Court

June 21, 1978

Argued March 22, 1978

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

Syllabus

Respondents, who had purchased securities in reliance on a prospectus, brought this action on behalf of themselves and a class of similarly situated purchasers, alleging that petitioner accounting firm had violated the federal securities laws. The District Court first certified the action as a class action under Fed.Rule Civ.Proc. 23, and then, after further proceedings, decertified the class. Respondents then filed a notice of appeal pursuant to 28 U.S.C. § 1291, under which courts of appeals have jurisdiction of appeals from all "final decisions" of the district courts except where a direct review may be had in the Supreme Court. After examining the amount of respondents' claims in relation to their financial resources and the probable cost of the litigation, the Court of Appeals concluded that they would not pursue their claims individually. On the basis of the "death knell" doctrine (which assumes that, without the incentive of a possible group recovery, the individual plaintiff may find it economically imprudent to pursue his lawsuit to a final judgment and then seek appellate review of an adverse class determination), the Court of Appeals held that it had jurisdiction to hear the appeal, and reversed the District Court's order decertifying the class. Respondents contend in this Court that an order denying class certification is appealable under both the "death knell" doctrine and the "collateral order" exception articulated in Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541.

Held:

1. The "collateral order" exception does not apply to a prejudgment order denying class certification because such an order is subject to revision in the District Court, Fed.Rule Civ.Proc. 23(c)(1); involves considerations that are "enmeshed in the factual and legal issues comprising the plaintiff's cause of action," Mercantile Nat. Bank v. Langdeau, 371 U.S. 555, 558; and is subject to effective review after final judgment at the behest of the named plaintiff or intervening class members. United Airlines, Inc. v. McDonald, 432 U.S. 385. Pp. 468-469.

2. Nor does the "death knell" doctrine support appellate jurisdiction of a prejudgment order denying class certification. Pp. 469-476.

(a) The formulation of an appealability rule that turns on the

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amount of the plaintiff's claim is plainly a legislative, not a judicial, function. Pp. 472-473.

(b) The alternative approach to the "death knell" rule that is based on a thorough study of the possible impact of the class order on the fate of the litigation would have a seriously debilitating effect on the administration of justice. The district court would have to take evidence, entertain argument, and make findings, which the court of appeals would have to review simply to determine whether a discretionary class determination is subject to appellate review, with the possibility of remand for further factual development. Further appeals from adverse rulings on other grounds could likewise be anticipated. Pp. 473-474.

(c) Perhaps the principal vice of the doctrine is that it authorizes indiscriminate interlocutory review of the trial judge's [98 S.Ct. 2456] decisions, circumventing restrictions imposed by the Interlocutory Appeals Act of 1958. Pp. 474-475

(d) The doctrine favors only plaintiffs, even though the class issue will often be critically important to defendants as well. P. 476.

(e) Allowing appeals as a matter of right from nonfinal orders that turn on the facts of a particular case thrusts appellate courts indiscriminately into the trial process, thus defeating a vital purpose of the final judgment rule of maintaining the appropriate relationship between the respective courts. P. 476.

550 F.2d 1106, reversed. STEVENS, J., delivered the opinion for a unanimous Court.

STEVENS, J., lead opinion

MR. JUSTICE STEVENS delivered the opinion of the Court.

The question in this case is whether a district court's determination that an action may not be maintained as a class action pursuant to Fed.Rule Civ.Proc. 23 is a "final decision"

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within the meaning of 28 U.S.C. § 1291,1 and therefore appealable as a matter of right. Because there is a conflict in the Circuits over this issue,2 we granted certiorari, and now hold that such an order is not appealable under § 1291.

Petitioner, Coopers & Lybrand, is an accounting firm that certified the financial statement in a prospectus issued in connection with a 1972 public offering of securities in Punta Gorda Isles for an aggregate price of over $18 million. Respondents purchased securities in reliance on that prospectus. In its next annual report to shareholders, Punta Gorda restated the earnings that had been reported in the prospectus for 1970 and 1971 by writing down its net income for each year by over $1 million. Thereafter, respondents sold their Punta Gorda securities and sustained a loss of $2,650 on their investment.

Respondents filed this action on behalf of themselves and a class of similarly situated purchasers. They alleged that petitioner and other defendants3 had violated various sections of

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the Securities Act of 1933 and the Securities Exchange Act of 134.4 The District Court first certified, and then, after further proceedings, decertified the class.

Respondents did not request the District Court to certify its order for interlocutory review under 28 U.S.C. § 1292(b).5 Rather, they filed a notice of appeal [98 S.Ct. 2457] pursuant to § 1291.6 The Court of Appeals regarded its appellate jurisdiction as depending on whether the decertification order had sounded the "death knell" of the action. After examining the amount of respondents' claims in relation to their financial resources and the probable cost of the litigation, the court concluded that they would not pursue their claims individually.7 The Court

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of Appeal therefore held that it had jurisdiction to hear the appeal and, on the merits, reversed the order decertifying the class. Livesay v. Punta Gorda Isles, Inc., 550 F.2d 1106.

Federal appellate jurisdiction generally depends on the existence of a decision by the District Court that "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Catlin v. United States, 324 U.S. 229, 229-233.8 An order refusing to certify, or decertifying, a class does not, of its own force, terminate the entire litigation, because the plaintiff is free to proceed on his individual claim. Such an order is appealable, therefore, only if it comes within an appropriate exception to the final judgment rule. In this

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case, respondents rely on the "collateral order" exception articulated by this Court in Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, and on the "death knell" doctrine adopted by several Circuits to determine the appealability of orders denying class certification.

I

In Cohen, the District Court refused to order the plaintiff in a stockholder's derivative action to post the security for costs required by a New Jersey statute. The defendant sought immediate review of the [98 S.Ct. 2458] question whether the state statute applied to derivative suits in federal court. This Court noted that the purpose of the finality requirement "is to combine in one review all stages of the proceeding that effectively may be reviewed and corrected if and when final judgment results." Id. at 546. Because immediate review of the District Court's order was consistent with this purpose, the Court held it appealable as a "final decision" under § 1291. The ruling had

settled conclusively the corporation's claim that it was entitled by state law to require the shareholder to post security for costs . . . [and] concerned a collateral matter that could not be reviewed effectively on appeal from the final judgment.9

To come within the "small class" of decisions excepted from the final judgment rule by Cohen, the order must conclusively determine the disputed question, resolve an important issue completely separate from the merits of the action, and be effectively unreviewable on appeal from a final judgment.10 Abney v. United States, 431 U.S. 651, 658; United States v.

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MacDonald, 435 U.S. 850, 855. An order passing on a request for class certification does not fall in that category. First, such an order is subject to revision in the District Court. Fed.Rule Civ.Proc. 23(c)(1).11 Second, the class determination generally involves considerations that are "enmeshed in the factual and legal issues comprising the plaintiff's cause of action." Mercantile Nat. Bank v. Langdeau, 371 U.S. 555, 558.12 Finally, an order denying class certification is subject to effective review after final judgment at the behest of the named plaintiff or intervening class members. United Airlines, Inc. v. McDonald, 432 U.S. 385. For these reasons, as the Courts of Appeals have consistently recognized,13 the collateral order doctrine is not applicable to the kind of order involved in this case.

II

Several Circuits, including the Court of Appeals in this case, have held that an order denying class certification is appealable if it is likely to sound the "death knell" of the litigation.14 The "death knell" doctrine assumes that, without the incentive of a possible group recovery, the individual plaintiff may find it economically imprudent to pursue his lawsuit to a final

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judgment and then seek appellate review of an adverse class determination. Without questioning this assumption, we hold that orders relating to class certification are not independently appealable under § 1291 prior to judgment.

In addressing the question whether the "death...

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