Susman v. Lincoln American Corp.

• Decision Date: 05 December 1978
• Docket Number: 78-1310,Nos. 78-1293,s. 78-1293
• Citation: 587 F.2d 866
• Parties: Michael SUSMAN, Plaintiff-Appellant, v. LINCOLN AMERICAN CORP. et al., Defendants-Appellees. Ann FLAMM and Arnold FLAMM, Plaintiffs-Appellants, v. Rudolph EBERSTADT, Jr. and MICRODOT, INC., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 866

587 F.2d 866

Michael SUSMAN, Plaintiff-Appellant, v. LINCOLN AMERICAN CORP. et al., Defendants-Appellees.

Ann FLAMM and Arnold FLAMM, Plaintiffs-Appellants, v. Rudolph EBERSTADT, Jr. and MICRODOT, INC., Defendants-Appellees.

Nos. 78-1293, 78-1310.

United States Court of Appeals Seventh Circuit.

Argued Sept. 14, 1978.

Decided Oct. 23, 1978.

As Amended Nov. 20, 1978.

Rehearing and Rehearing In Banc Denied Dec. 5, 1978.

A. Bradley Eben, Chicago, Ill., for plaintiffs-appellants.

Andrew R. Laidlaw, Randall L. Mitchell, Chicago, Ill., for defendants-appellees.

Before FAIRCHILD, Chief Judge, and CUMMINGS and WOOD, Circuit Judges.

FAIRCHILD, Chief Judge.

This is the consolidated appeal from the dismissals of two class action complaints. The district court, relying on this court's decision in Winokur v. Bell Federal Savings and Loan, 560 F.2d 271 (7th Cir. 1977), dismissed both actions as moot after the defendants tendered to the named plaintiffs their full monetary damages. We limit the Winokur language relied on by the district court and reverse its decision in both cases. We remand for determination of the motions for class certification that were pending at the time of the dismissal. In the Susman case, the district court also dismissed the plaintiff's derivative claims. We affirm that decision in part and reverse it in part.

In these cases, unlike Winokur, an appeal from the denial of class certification was effected under 28 U.S.C. § 1292(b). The facts of both cases were discussed in our decision in that appeal on the issue of whether plaintiffs' counsel could fairly and adequately represent the classes sought to be certified. Susman v. Lincoln American Corp., 561 F.2d 86 (7th Cir. 1977). The facts will not be repeated here. In the prior decision we affirmed the district court's denials of class certification on the grounds that the relationship between the named plaintiffs and their counsel could lead to a conflict of interest and noted

"(P)laintiffs are free to seek different counsel and thereby dispel any possibility of a conflict of interest. In lieu of a change in counsel which might result in a certification of the class actions, plaintiffs are not barred from continuing the lawsuits on their own behalf." 561 F.2d 96.

Clearly we recognized potential further consideration of representation of the interests of class members by the named plaintiffs.

The plaintiffs in both cases sought and obtained new counsel. Renewed motions for class certification were then filed. While the renewed motions were pending the defendants tendered to the plaintiffs the amount of money they claimed to have lost as a result of the defendants' actions plus properly chargeable costs. The offers, which were made without admissions of liability by the defendants, and which were clearly made in an attempt to render the cases moot, were refused by the plaintiffs. Nevertheless, the district court held that the defendants' offers extinguished the controversies between the parties and that as a result the court no longer had jurisdiction to decide the motions for class certification. In the Susman case, the district court also dismissed the plaintiff's derivative claims.

THE CLASS ACTION

The Article III requirement that the federal courts decide only issues where there is an actual case or controversy between the parties is fundamental to our judicial system. North Carolina v. Rice, 404 U.S. 244, 246, 92 S.Ct. 402, 30 L.Ed.2d 413 (1971). The jurisdictional ban on making any decisions in moot cases (or, for that matter, in reviewing decisions already made) arises from this constitutional requirement. Liner v. Jafco, Inc.,375 U.S. 301, 306 n. 3, 84 S.Ct. 391, 11 L.Ed.2d 347 (1964); Powell v. McCormack, 395 U.S. 486, 496 n. 7, 89 S.Ct. 1944, 23 L.Ed.2d 491 (1969). Yet a number of cases have been decided on the merits despite assertions that the original wrong complained of had been corrected, that the original plaintiff would no longer be affected by the outcome In Winokur we were directly concerned with the question whether the right to appellate review of a denial of class certification could survive the death of the controversy. We held it could not. Our present case is different, and does not present that question. In Winokur, however, we set forth several generalizations, including

                of the lawsuit, or that other changes in the underlying factual situation rendered the case moot.  See, e. g., United States v. W. T. Grant Co., 345 U.S. 629, 73 S.Ct. 894, 97 L.Ed. 1503 (1953) (corporate director resigned from interlocking directorates which were subject of the complaint); Carroll v. President and Comm'rs of Princess Anne, 393 U.S. 175, 89 S.Ct. 347, 21 L.Ed.2d 325 (1968) (ten day injunction complained of had expired two years previously); Southern Pacific Terminal Co. v. I.C.C., 219 U.S. 498, 31 S.Ct. 279, 55 L.Ed. 310 (1911) (ICC order under attack had expired by its own terms); Sosna v. Iowa, 419 U.S. 393, 95 S.Ct. 553, 42 L.Ed.2d 532 (1975) (plaintiff had obtained the divorce she was seeking in another state).  It is not necessary in this decision to discuss the variety of exceptions to the mootness doctrine that may be available in various cases.  1  What are important, here, however, as in Winokur are those cases which involve class action complaints
                

2. When there is no determination that an action be maintained as a class action and the controversy between the named party in his own interest and his opponent dies, court adjudication is not appropriate because there is no controversy between parties who are present or represented before the court in the action. 560 F.2d 277.

This generalization literally applies to our instant case because at the critical moment there had been no determination that the action be maintained as a class action. We think, however, that our instant case differs significantly from Winokur and from Board of School Comm'rs v. Jacobs, 420 U.S. 129, 95 S.Ct. 848, 43 L.Ed.2d 74 (1975), on which we relied in Winokur. Here, at the critical moment, the question of maintaining the class action had been freshly raised, consistently with the suggestion of the appellate court that it could be reopened after a change in counsel.

We consider the motion for certification, while pending, as sufficiently, though provisionally, bringing the interests of class members before the court so that the apparent conflict between their interests and those of the defendant will avoid a mootness artificially created by the defendant by making the named plaintiff whole. We limit the language of generalization No. 2 in Winokur accordingly. ²

Courts have consistently recognized that unnamed class members have an interest in a lawsuit even before a Rule 23 determination is made that a class action may be maintained on their behalf. Thus, potential class members are given the opportunity to support or oppose class certification or to challenge the adequacy of representation by the named plaintiff. Knuth v. Erie-Crawford Dairy Coop. Ass'n, 395 F.2d 420 (3rd Cir. 1968). The statute of limitations on their individual causes of action may be tolled from the date of filing of the class action complaint. American Pipe & Construction Co. v. Utah, 414 U.S. 538, 94 S.Ct. 756, 38 L.Ed.2d 713 (1974). They may also have a right to be informed of, or even included in, a settlement that occurs prior to class certification. Kahan v. Rosensteil, 424 F.2d 161, 169 (3rd Cir.), Cert. denied, 398 U.S. 950, 90 S.Ct. 1870, 25 L.Ed.2d 290 (1970). Thus, at least in a limited sense, the interests of the unnamed class members are before the court during the pendency of a motion for class certification.

Normally, however, a class action must be certified as such in order for it to escape dismissal once the claims of the named plaintiff become moot. Franks v. Bowman Transportation, 424 U.S. 747, 96 S.Ct. 1251, 47 L.Ed.2d 444 (1976); Sosna v. Iowa, 419 U.S. 393, 402, 95 S.Ct. 553, 42 L.Ed.2d 532 (1975). But the courts have recognized that an absolute requirement would prevent some otherwise justiciable claims from ever being subject to judicial review. Thus, in Sosna, the Supreme Court said

"There may be cases in which the controversy involving the named plaintiffs is such that it becomes moot as to them before the district court can reasonably be expected to rule on a certification motion. In such instances, whether the certification can be said to 'relate back' to the filing of the complaint may depend upon the circumstances of the particular case and especially the reality of the claim that otherwise the issue would evade review." 419 U.S. 393, 402 n. 11, 95 S.Ct. at 559.

Clearly the Court had in mind situations where the nature of the complaint was such that the mere passage of time would usually make the individual plaintiff's complaint moot before a court could reasonably be expected to rule on a certification motion. And in practice that is how the "relation back" doctrine has been applied. Gerstein v. Pugh, 420 U.S. 103, 95 S.Ct. 854, 43 L.Ed.2d 54 (1975). We do not have such a situation here. But, just as necessity required the development of the relation back doctrine in cases where the underlying factual situation naturally changes so rapidly that the courts cannot keep up, so necessity compels a similar result here. If the class action device is to work, the courts must have a reasonable opportunity to consider and decide a motion for certification. If a tender made to the individual plaintiff while the motion for certification is pending could prevent the courts from ever reaching the class action issues, that opportunity is at the mercy of a defendant, even in cases where a class action would be most clearly appropriate.

We hold, therefore, that when a motion for class certification has been pursued with reasonable diligence and is then pending before the district court, a case does not become moot merely because of the...