Hotel Telephone Charges, In re

• Citation: 500 F.2d 86
• Decision Date: 19 June 1974
• Docket Number: No. 73-1107,73-1107
• Parties: 1974-2 Trade Cases 75,145 In re HOTEL TELEPHONE CHARGES.*
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 86

500 F.2d 86

1974-2 Trade Cases 75,145

In re HOTEL TELEPHONE CHARGES.*

No. 73-1107.

United States Court of Appeals, Ninth Circuit.

June 19, 1974.

E.Judge Elderkin (argued), of Brobeck, Phleger & Harrison, San Francisco, Cal., for appellants.

Joseph W. Cotchett (argued), of Cotchett & Hutchinson, San Mateo, Cal., for appellee.

OPINION

Before ELY, TRASK, and WALLACE, Circuit Judges.

ELY, Circuit Judge:

This appeal is from an Order allowing the appellees' consolidated actions to be maintained as a class action under Rule 23, Federal Rules of Civil Procedure. Permission to appeal the interlocutory Order was granted pursuant to 28 U.S.C. 1292(b).

The first action in this case was filed in the Central District of California, and shortly thereafter, ten similar actions were filed in nine other districts. The Judicial Panel on Multi-District Litigation ordered the consolidation of all the actions in the Central District of California. The complaints allege a nationwide conspiracy among forty-seven hotel chains and approximately six hundred individual hotels to increase room rates in violation of federal antitrust laws and state laws. The appellants allegedly acted in concert to add a surcharge for telephone services to the quoted room rate. The appellees further alleged that such a charge, generally amounting from one to three percent of the quoted room rate, was labeled a tax or otherwise confusingly mislabeled. ¹ On the basis of these allegations, the appellees seek recovery for themselves and for all other hotel guests similarly surcharged, a class consisting of an estimated forty million persons. The parties agree that the claim of the average class member would be about $2.20 per person in the event of recovery. Settlements on behalf of the class have been reached with a few of the defendants, and settlement orders setting out the terms of the agreements and providing for their submission to the class have been entered in the Northern District of Illinois.

Here, the controlling issue is whether the District Court correctly applied Rule 23(b)(3) in determining that the actions were appropriate for class action treatment. Rule 23(b)(3) requires that common questions of law or fact predominate over any individual questions, and that a class action be superior to other available methods for the fair and efficient adjudication of the controversy. While these two requirements are to some extent interrelated, they are not co-extensive and each requirement must be met. See LaMar v. H. & B. Novelty Loan Co., 489 F.2d 461 (9th Cir., 1973). We are firmly convinced that, in these cases, the appellees did not make an adequate showing of proof as to either element of Rule 23(b)(3).

I. Common Questions Do Not Predominate Over Individual Questions

Two types of claims have been brought by the appellees: (1) claims that the appellants conspired to violate the federal antitrust laws; (2) pendent state claims primarily based on statutory or common law fraud.

The state fraud claims raise individual issues as to whether each of the six hundred hotels falsely represented or concealed the nature of the charge, as to individual reliance on any alleged misrepresentation, and as to the specific amount of damage suffered by each member of the class as the result of the alleged misrepresentation. The appellees argue that these individual questions can be conveniently dealt with by allowing them to recover if it is proved that the appellants did participate in a 'fraudulent scheme,' thereby fusing the separate elements of a fraud action into a single conspiracy issue. That same argument was made in Cotchett v. Avis Rent-A-Car System, Inc., 56 F.R.D. 549 (S.D.N.Y.1972), a case which also involved an alleged conspiracy fraudulently to impose a surcharge on customers. In Cotchett the court wrote:

'. . . The second, third, and fourth stated claims . . . allege active concealment, failure to disclose, fraud, and reliance . . .. These allegations raise such individualized questions of law and of fact as to overwhelm whatever kernel of common issues might be involved; with 500,000 to 1,500,000 plaintiffs and over 100 (not all as yet identified) defendants, involving individual dealings, the questions of knowledge of the surcharge, reliance on the alleged misrepresentation, methods of concealment, and failure to disclose to each plaintiff, and adjudication of the 'common' question of conspiracy would not advance matters very far at all.' Id. at 552.

Our case involves millions more plaintiffs, hundreds more defendants, and an even greater variety of alleged misrepresentations and surcharge amounts than Cotchett, supra. Without eliminating or eroding the traditional or statutory elements of a fraud action, there is no possibility that common questions can predominate over individual ones in these claims. See Advisory Committee's Note, Proposed Rules of Civil Procedure, 39 F.R.D. 69, 103 (1966), wherein the Committee noted that a class action treatment may be unsuitable in a fraud case if there are material variations in the representations made or in the kinds or degrees of reliance by the plaintiffs. See also Simon, Class Actions-- Useful Tool or Engine of Destruction, 55 F.R.D. 375 (1972).

The appellees' Sherman Act claims, while charging hundreds of hotels with similar conduct, nonetheless raise individual questions that could require decades of litigation. The appellees' allegation that a conspiracy existed to violate the antitrust laws does not insure that common questions will predominate. Advisory Committee's Note, supra at 103. In order substantially to establish each hotel's involvement in a conspiracy to violate the antitrust laws, each hotel's knowing participation would be a requisite element of proof. Furthermore, since the surcharges varied from hotel to hotel, the amount of each defendant's surcharge would necessarily require individual treatment, as would the period in which each hotel's surcharge was in effect. And while the amount of each hotel's surcharge might constitute prima facie evidence of the amount of damage, the appellants might rebut that evidence by showing that the cost of each hotel's telephone service charge would have been in a competitive market. See Pollack, The 'Injury' and 'Causation' Elements Of a Treble Damage Antitrust Action, 57 Nw.L.Rev. 691, 692 (1963); Timberlake, The Legal Injury Requirements And Proof of Damages In Treble Damage Actions Under The Antitrust Laws, 30 Geo.Wash.l.Rev. 231 (1961-62). For a discussion of the statutory limitations within which plaintiffs must establish their damages, see Malina, Fluid Class Recovery As a Consumer Remedy In Antitrust Cases, 47 N.Y.L.Rev. 477, 492 (1972). After the basis for computing damages had been individually determined for each defendant, each member of the class seeking recovery would then be required to prove that he patronized the hotel while the surcharge was in effect and that he absorbed the cost of the surcharge. Furthermore, it would then be necessary to compute the amount of damages due the class member. In a class of forty million, assuming only ten percent of these unknown class members came forward with claims, and assuming the proof of each claim required only ten minutes, approximately one hundred years would yet be required to adjucicate the claims. Unless the court is to allow the procedural device of the class action to wear away the substantive requirements to maintain a private antitrust cause of action, this suit raises far too many individual questions to qualify for class action treatment.

The appellees have argued that many of the individual questions arising from the damage claims can be solved by allowing damages in the form of fluid recovery, relying on Bebchick v. Public Utilities Commission, 115 U.S.App.D.C. 216, 318 F.2d 187 (1963), cert. denied 373 U.S. 913, 83 S.Ct. 1304, 10 L.Ed.2d 414 (1963); In Re Antibiotics Antitrust Actions, 333 F.Supp. 278 (S.D.N.Y.1971); and Daar v. Yellow Cab Co., 67 Cal.2d 695, 63 Cal.Rptr. 724, 433 P.2d 732 (1967). Both Bebchick and Daar are inapposite, as neither case involved a statutory basis for recovery as do the federal antitrust laws. Furthermore, Bebchick was not even brought as a class action, and Daar arose under a state class action statute with requirements that differ from Rule 23. As for In Re Antibiotic Antitrust Actions, that case involved the approval and administration of a settlement by the District Court, rather than the actual recovery of gross damages for the class as a whole. We agree with the decision reached in Eisen v. Carlisle & Jacquelin, 479 F.2d 1005 (2d Cir. 1973), that allowing gross damages by treating unsubstantiated claims of class members collectively significantly alters substantive rights under the antitrust statutes. Such enlargement or modification of substantive statutory rights by procedural devices is clearly prohibited by the Enabling Act that authorizes the Supreme Court to promulgate the Federal Rules of Civil Procedure.

The District Court in this case has relied on the 'imagination' of appellees' counsel to provide solutions that will, at some point in the future, prevent these individual issues from splintering the action into thousands of individual trials requiring years to litigate. Thus far the appellees have not been able to demonstrate to our satisfaction that the individual questions will not overwhelm the common questions, unless some of the required elements or allowed defenses is respect to the alleged claims are eliminated or impaired. The issues raised by the apparent existence of numerous individual questions must be resolved before a class is certified, even if certification is conditional. Conditional certification is not a means whereby the District Court can avoid deciding whether, at that time, the requirements of the Rule have been substantially met. The purpose of conditional certification is to...