582 F.2d 1298 (4th Cir. 1978), 77-1125, Shelton v. Pargo, Inc.

Docket Nº:77-1125.
Citation:582 F.2d 1298
Party Name:Dec. P 8548 Ruthie M. SHELTON, Individually and on behalf of all others similarly situated, and James F. Williams, Intervenor, Appellees, v. PARGO, INC., a corporation, Appellant.
Case Date:August 18, 1978
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit

Page 1298

582 F.2d 1298 (4th Cir. 1978)

Dec. P 8548

Ruthie M. SHELTON, Individually and on behalf of all others

similarly situated, and James F. Williams,

Intervenor, Appellees,


PARGO, INC., a corporation, Appellant.

No. 77-1125.

United States Court of Appeals, Fourth Circuit

August 18, 1978

Argued Feb. 10, 1978.

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[Copyrighted Material Omitted]

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Michael A. Almond, Charlotte, N. C. (John R. Wester, Fleming, Robinson & Bradshaw, Charlotte, N. C., on brief), for appellant.

Michael A. Sheely (Shelley, Blum, Blum & Sheely, Charlotte, N. C., on brief), for appellees.

Before HAYNSWORTH, Chief Judge, BRYAN, Senior Circuit Judge, and RUSSELL, Circuit Judge.

DONALD RUSSELL, Circuit Judge:

This appeal presents for decision the procedure to be followed by a district court in passing upon a voluntary motion to dismiss an action, filed both as an individual and as a class action, when the individual action has been settled without court approval in advance of any certification of the action as a class action under Rule 23(c)(1), Fed.R.Civ.P. 1

The question arises in a suit filed the last of February, 1976, by the appellee Shelton "on behalf of herself and all others similarly situated" charging racial discrimination violative of Title VII on the part of the appellant-employer. The appellee sought both injunctive relief and "monetary damages." After the action was begun, the appellee Williams intervened, also asserting racial discrimination in his employment by the appellant. The appellant accompanied its answer to the complaint with a motion to eliminate all allegations regarding a class action. The appellees (including now both Shelton and Williams) countered with a motion to certify a class and to permit the

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cause to proceed both as an individual and as a class action under Rule 23. In support of that motion, they alleged that between July 1, 1972 and June 30, 1973, 42 blacks had been included in the appellant's work force of approximately one hundred, seventy-three and that such a number satisfied the numerosity requirement under Rule 23. 2

While these two motions relative to the class action aspect of the case were pending undecided, counsel for the appellee wrote the appellant, setting forth his calculation of his clients' individual damages, suggesting that the clients were "open to a reasonable offer," and inviting a proffer of settlement by the appellant.

In his calculation of appellee Shelton's pay loss (I. e., $1,166.00), counsel for appellee-Shelton adopted the formula employed by the EEOC in computing the claim, when the claim was under consideration by the EEOC. Using the same formula, counsel stated the pay loss of appellee-Williams as $3,356.00. He arrived at his fee on the basis of 43.8 hours of time devoted to the case, compensable at the rate of $50 per hour, or $2,190.00. Court costs were $19.20. The total amount thus claimed by the appellees, on the basis of which they offered almost at the outset of the case to settle their individual claims with attorney's fees, was $6,731.20.

On June 25, 1976, after some negotiation, the parties agreed upon a cash settlement of the Individual claims of the appellees (including attorneys fees) in the amount of $2,519.20. Four days after this settlement of the individual claims was agreed upon, the District Court entered its order denying both the appellant's motion to strike the allegations relating to a class action and the motion of the appellees to certify as premature. Following the completion of the settlement and the execution of releases by them, the appellees filed under Rule 41(a)(1), Fed.R.Civ.P. a "Stipulation of Dismissal."

The District Court approved the dismissal as requested by the appellees, but with qualifications. Preliminary to stating the qualifications, the District Court recited anew its earlier action denying class certification as premature. 3 It then added that the claims of the appellees, including their attorney's fees, had been settled, but with "no relief for the potential class members" provided. It found that, since only individual claims were being settled, "potential members of the uncertified class in this case (would) not be bound by the settlement." Despite this, it concluded, citing Muntz v. Ohio Screw Products (N.D.Ohio 1973) 61 F.R.D. 396, that "Rule 23(e) of the Federal Rules of Civil Procedure nevertheless requires that notice of the proposed settlement be given to all the class members, even though the dismissal occurs without any class ever being certified." This is so, it declared, because putative class members "may (have been) relying on plaintiffs to prosecute their claims, and are (therefore) entitled to notice so that they can take appropriate action to protect their own rights." It accordingly directed the parties to the action to submit an appropriate notice to be given absentees but provided that, after notice in conformity with its order had been given, "a final order of dismissal will then be entered" which "will be without prejudice to the rights and

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claims of the unnamed class members." 4 In the approved notice, the court adds that the proposed order of dismissal "does not foreclose your asserting any claim that you may have against" the appellant and "you should decide whether, with or without a lawyer, to pursue that claim yourself."

In charging error in the District Court's ruling that Rule 23(e) mandated notice of the stipulated dismissal, the appellant urges (1) that Rule 23(e) is inapplicable to the settlement of an action which, though filed as a class action, has not been certificated under (c)(1), (2) as such, that the settlement of such uncertificated action, commenced as a class action, is no more than the settlement of an individual action, and, finally, (3) that settlements of such cases are to be encouraged, not inhibited, by constraints such as the qualification which the District Court imposed on the settlement and dismissal in this case, particularly since the District Court in effect found that the settlements in this case would not prejudice absentee potential class members. It does concede that there is a line of authority, with which it seems not to agree, to the effect that notice to absentee potential class members, prior to approval of a settlement and dismissal before certification of an action, commenced as a class action, is justified under the spirit and purpose of 23(e) but it contends that all of these cases, including the Muntz Case which the District Court cites in support of its ruling, condition the requirement of notice on a prior holding that the action is one proper for certification under (c)(1). Assuming Arguendo that such authorities establish the correct rule, the appellant would fault the District Court for failure to hold "in abeyance" any requirement of notice to absent putative class members "until and unless" class certification has been found proper under (c)(1). 5 It goes further and argues that, if the District Court had applied the procedure of Muntz, it would have been compelled to find, as did the court in Muntz, that class certification was not warranted in this case, 6 and should, having made that finding, have approved the settlements of the appellees' individual cases and the dismissal of the action. Accordingly, whether the procedure approved in Muntz or that, which, in the absence of prejudice to the absentees, would freely permit the voluntary dismissal before certification of an action begun as a class action, the appellant contends that the District Court must be found to have committed error in requiring notice to absentee potential class members prior to any class having been certificated as a condition to approval of a voluntary dismissal in this case.

It is obvious that the centerpiece in the District Court's reasoning that notice to absentee putative class members was required

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before it could approve the proposed settlement was its assumption that the notice requirement of Rule 23(e) applies absolutely to any action commenced as a class action, even though the action has not been certificated as a class action under (c)(1). However, Rule 23(e) does not apply to any action simply because it was begun as a class action. By its explicit language, Rule 23(e) is confined in operation to the settlement and dismissal of a "class action." This is the view expressed in the exhaustive Note on Developments Class Actions in 89 Harv.L.Rev. 1318 at 1542, n. 32 (1976). 7 There, the editors put it that "rule 23(e) is applicable only upon dismissal of a 'class action' * * *." This tracks the earlier language of Judge Friendly in Weight Watchers of Phila. v. Weight Watchers Int. (2d Cir. 1972) 455 F.2d 770, 773 to the effect that, "it is only the settlement of the class action itself without court approval that F.R.Civ.P. 23(e) prohibits." This construction of 23(e) is also implicit in Professor Moore's conclusion that "(c)ourt approval of dismissal (under 23(e)) will normally not be obtainable prior to the 23(c)(1) determination since the members of the class to whom notice must be sent will not yet have been determined," I. e., until the case has been certificated as a class action and the class or classes have been identified. 8 It is a construction, too, which follows inescapably from the language of the Supreme Court in Sosna v. Iowa (1975) 419 U.S. 393, 399, n. 8, 95 S.Ct. 553, 557, 42 L.Ed.2d 532:

" * * * Once the suit is certified as a class action, it may not be settled or dismissed without the approval of the court. Rule 23(e)."

We made substantially the same observation earlier in Roman v. ESB, Inc., supra, 550 F.2d at 1348, where we declared that the "definition of the class (something which only occurs as the result of a...

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