Roper v. Consurve, Inc.

• Decision Date: 24 August 1978
• Docket Number: No. 76-3600,76-3600
• Citation: 578 F.2d 1106
• Parties: Robert L. ROPER et al., Plaintiffs-Appellants, v. CONSURVE, INC., d/b/a BankAmericard Center, and Deposit Guaranty National Bank, Jackson, Mississippi, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1106

578 F.2d 1106

Robert L. ROPER et al., Plaintiffs-Appellants, v. CONSURVE, INC., d/b/a BankAmericard Center, and Deposit

Guaranty National Bank, Jackson, Mississippi,

Defendants-Appellees.

No. 76-3600.

United States Court of Appeals,

Fifth Circuit.

Aug. 24, 1978.

Wm. Roberts Wilson, Jr., Pascagoula, Miss., Toxey Hall Smith, Jr., Ocean Springs, Miss., Frederick G. Helmsing, Champ Lyons, Jr., Mobile, Ala., for plaintiffs-appellants.

Vardaman S. Dunn, Jackson, Miss., for defendants-appellees.

Appeal from the United States District Court for the Southern District of Mississippi.

Before WISDOM, THORNBERRY, and RUBIN, Circuit Judges.

RUBIN, Circuit Judge:

This case presents two class action questions: whether the class action claim and, indeed, the entire controversy became moot when, after the trial court denied certification following an evidentiary hearing, the defendant bank tendered to the two class representatives payment in full of the amount each individually claimed and judgment was entered on their behalf; and, if not, whether a class action is superior to other available means for the fair and efficient adjudication of a claim for usurious charges on behalf of a class potentially comprising 90,000 holders of credit cards issued by a national bank. Having concluded that the defendants cannot moot the class claim by attempting to pay off the class representatives, we decide also that a class action is not only superior to other methods but singularly appropriate for the adjudication of this controversy, and, therefore, remand the case for further proceedings.

I. Facts

Two holders of credit cards issued on the "BankAmericard" plan sued the national bank that had issued the cards under the National Bank Act, 12 U.S.C. §§ 85 and 86, ¹ contending that the charges made were usurious on behalf of themselves and all other Mississippi holders of the same cards issued by the defendant that the charges were usurious. ² Under the plan, card holders can buy merchandise or services from third persons who have contracts with the bank or other member banks, and charge their purchases. The merchants then sell the credit instruments to the bank at a discount. The bank bills the card holder; if the payment is not made within a certain time, it charges interest on the unpaid balance. During the suit period, there were 90,000 to 100,000 individual card holders.

The trial court declined to certify the action as a class action. The bank then made an offer of judgment to each of the two individual plaintiffs, without admitting liability, and tendered to each the maximum amount that each could have recovered ($889.42 and $423.54, respectively) by depositing this sum in the registry of the court. The two named plaintiffs have never accepted the tender, but judgment based on defendant's offer of judgment was entered over plaintiffs' objection.

The credit card system, as the experienced trial judge correctly stated, is made possible by the use of computers. The computer charges each transaction to the card holder's account. If the credit instrument is placed by the merchant with some other bank, it is transmitted through normal banking channels to the defendant and appropriate funds or credits are transferred to the transmitting bank.

For the bank's convenience, the accounts are divided into ten separate groups, called cycles. The credit card accounts are posted on ten days a month; the charges for holders whose names are in each cycle are posted in one day. The computer is programmed so that, on the billing date, it adds charges, subtracts credits, adds any finance charge due under the BankAmericard plan and prepares a statement reflecting each transaction. The statement is then mailed to the customer.

The data in the computer are stored on magnetic tapes. These are updated from period to period. Transaction data are not retained permanently on the tapes, however. Data are printed (on "printouts"), and the printouts are retained. A microfilm record is made of all charge tickets, credit transactions and statements.

During the period in question, the bank made a monthly service charge of 11/2% on the unpaid balance of each account. However, each customer was allowed 30 days within which to pay his account without any service charge; if payment was not received within that time, the computer added to the customer's next bill 11/2% of the unpaid portion of the prior bill, which was shown as the new balance. This is the charge contended to be usurious. Thus, if a customer bought merchandise and the charge slip for this was received by the bank the day after a monthly bill had been mailed to him, he would not be billed for the new charge for almost 30 days, and would then have 30 more days within which to make payment in full without incurring the service charge. On the other hand, an item might be received by the bank on the day before the new statement was prepared, yet the service charge for it would be computed on the same basis as if it were received at the beginning of the month. (When he received his bill, the customer might also elect to pay it in installments; in that case, the service charge was made only on unpaid installments.)

About 35% of the bank's customers did not incur a service charge. For the 65% who did the rate was always 11/2% on the unpaid balance; if the effective rate were computed based on the number of days from the date the bank received each charge until it was paid, that effective rate would vary for each customer each month. There was evidence that both the finance fees Charged to each card holder and the fees each Actually paid during the suit period can be tabulated, although this requires clerical assistance in addition to the use of the computer. The plaintiffs' expert witness testified that the total cost of such preparation, including computation of the refund due each class member if the action were successful, would be $45,575.

It is also possible to reconstruct every account in full by again processing the transactions. The plaintiffs' expert estimated the cost of this, if it were required by the court, to be $125,000. He testified that there are contractors available to perform such services. The defendant's expert testified that, if it were necessary to reconstruct every individual account, the cost might range from $367,700 to $3,432,000.

The computer could, of course, easily be used to give notice to members of the class and sort out persons who are not class members (for example, because they opened accounts after the class was certified).

II. Mootness

The notion that a defendant may short-circuit a class action by paying off the class representatives either with their acquiescence or, as here, against their will, deserves short shrift. Indeed, were it so easy to end class actions, few would survive. One well-publicized danger in the class action is the possibility that it will be used to collect quick, undeserved damages; this type of effort to establish a quick coup has been called a "strike suit." We have held that prior to certification a class action cannot be dismissed merely because the representatives are satisfied, unless there is notice to the putative class of the proposed dismissal and a determination by the court that the dismissal is proper, as required by Rule 23(e), F.R.C.P. Pearson v. Ecological Science Corp., 5 Cir. 1975, 522 F.2d 171, 177, Cert. denied, 425 U.S. 912, 96 S.Ct. 1508, 47 L.Ed.2d 762, and cases cited therein. Where, as here, there is a Rule 23(c)(1) determination that the class action is not maintainable, the notice requirements of Rule 23(e) do not apply if "dismissal and settlement of the action do not directly affect adversely the rights of individuals not before the court." Id. By the very act of filing a class action, the class representatives assume responsibilities to members of the class. They may not terminate their duties by taking satisfaction; a cease-fire may not be pressed upon them by paying their claims. The court itself has special responsibilities to ensure that the dismissal does not prejudice putative members.

Even if the court should have permitted the bank to pay off the named plaintiffs, either with their acquiescence or over their objection, this satisfaction of their claims could not preclude them from appealing the denial of certification, nor would it excuse them from their duty of doing so absent express approval by the trial court. See generally Miller, An Overview of Federal Class Actions: Past, Present and Future (Federal Judicial Center, 1977) at 57-63. A member of the putative class may appeal the denial of certification, even though it has been decided that the claims of the named plaintiffs lack merit. United Airlines, Inc. v. McDonald, 1977, 432 U.S. 385, 97 S.Ct. 2464, 53 L.Ed.2d 423. An individual plaintiff who has already prevailed in the trial court may appeal the denial of class certification. Gelman v. Westinghouse Electric Corp., 3 Cir. 1977, 556 F.2d 699, 701-702, and cases cited therein; Esplin v. Hirschi, 10 Cir. 1968, 402 F.2d 94, Cert. denied, 1969, 394 U.S. 928, 89 S.Ct. 1194, 22 L.Ed.2d 459. An individual plaintiff who loses on the merits may also appeal a denial of certification. Horn v. Associated Wholesale Grocers, Inc., 10 Cir. 1977, 555 F.2d 270, 276-277; Donaldson v. Pillsbury Co., 8 Cir. 1977, 554 F.2d 825, 831 n. 5, Cert. denied, 1977, 434 U.S. 856, 98 S.Ct. 177, 54 L.Ed.2d 128, and cases cited therein. There is no reason why an individual plaintiff to whom payment of his claim has been tendered should have less standing in the light of the judicial responsibility to ensure that class representatives adequately represent the interests of the class and do not settle either their claims or the class action without court approval.

In Satterwhite v. City of Greenville, 5 Cir. 1978, 578 F.2d 987, 995 n. 10, we noted that, if the representative's claim became moot prior to...