Waste Mgt. Holdings Inc. v. Mowbray, No. 99-8015

CourtUnited States Courts of Appeals. United States Court of Appeals (1st Circuit)
Writing for the CourtBefore Selya, Stahl and Lipez; SELYA
Citation208 F.3d 288
Parties(1st Cir. 2000) WASTE MANAGEMENT HOLDINGS, INC., Petitioner, v. ROBERT MOWBRAY, ON HIS OWN BEHALF AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, Respondent. Heard
Decision Date10 February 2000
Docket NumberNo. 99-8015

Page 288

208 F.3d 288 (1st Cir. 2000)
WASTE MANAGEMENT HOLDINGS, INC., Petitioner,
v.
ROBERT MOWBRAY, ON HIS OWN BEHALF AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, Respondent.
No. 99-8015
United States Court of Appeals for the First Circuit
Heard February 10, 2000
Decided March 31, 2000

Page 289

Copyrighted Material Omitted

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James R. Carroll, with whom William P. Frank, Mark L. Keene, and Skadden, Arps, Slate, Meagher & Flom LLP were on brief, for petitioner.

Edward F. Haber, with whom Michelle H. Blauner, Christine E. Morin, and Shapiro, Haber & Urmy LLP were on brief, for respondent.

Before Selya, Stahl and Lipez, Circuit Judges.

SELYA, Circuit Judge.

This is a petition for leave to appeal from a class certification order. It provides us with our first real opportunity to delineate the circumstances in which a court of appeals should exercise its discretion to allow an interlocutory appeal under Fed. R. Civ. P. 23(f). Seizing that opportunity, we offer some general guidance and limn three types of cases in which we will be inclined to grant such applications.

We then move from the general to the particular. While the petition at hand does not present an especially compelling case for interlocutory review, we nonetheless grant it (largely because the merits already have been fully briefed by able counsel, pursuant to our express direction). Having thus drilled down to the core issues that underlie the petition, we affirm the district court's class certification order.

I. BACKGROUND

The facts relevant to this proceeding are uncontroversial. On July 31, 1992, Robert Mowbray sold his business to a predecessor of Waste Management Holdings, Inc. (WMH), in exchange for shares of WMH's common stock. The asset sale agreement, which stipulated that Illinois law was to govern any disputes arising thereunder, contained two provisions that have particular pertinence here. The first listed several securities filings that had been furnished to Mowbray. These filings contained audited financial statements for the years 1989, 1990, and 1991, and an unaudited statement for the first quarter of 1992. The second provision warranted that these filings "did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading," and that the audited financial statements "have been prepared in accordance with generally accepted accounting principles applied on a consistent basis . . . and fairly present the financial position of [WMH] as at the dates thereof and the results of its operations and changes in financial position for the periods then ended."

Several years later, the bubble burst. On February 24, 1998, WMH announced that its earnings for the previous eight years had been grossly overstated. The company's press release explained that certain expense items (principally related to vehicle, equipment, and container depreciation) had been incorrectly reported.

It is said that every action produces an equal and opposite reaction, and this revelation engendered severe repercussions. On July 31, 1998, Mowbray filed a diversity suit in the United States District Court for the District of Massachusetts, alleging breach of a contractual warranty and purposing to sue on behalf of a class composed of all persons who lately had sold assets to WMH in exchange for shares of WMH's common stock. For reasons that are not immediately apparent, the presiding judge suggested at a status conference that Mowbray could move for partial summary judgment prior to a judicial determination on the class certification issue. Mowbray took the hint and moved for summary judgment as to liability. WMH countered on three allied fronts: it opposed Mowbray's motion, sought to defer any adjudication pending the completion of discovery, see Fed. R. Civ. P. 56(f), and moved to dismiss Mowbray's complaint.

In due season, the district court denied both of WMH's motions, overrode its opposition to Mowbray's motion, and granted

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partial summary judgment in Mowbray's favor. See Mowbray v. WMH, 45 F. Supp. 2d 132 (D. Mass. 1999) (Mowbray I). In the court's view, the "determinative issue" was that Illinois law did not require reliance on an express warranty in order to recover for its breach. Id. at 134. Thus, WMH's recasting of its financial statements constituted an admission that it had breached its express warranty to Mowbray, and further discovery would serve no useful purpose. See id. at 139-43.

Invoking Fed. R. Civ. P. 23(b)(3), Mowbray then moved for certification of a class consisting of all persons who, during the period January 1, 1990 to February 24, 1998, had sold assets to WMH in exchange for shares of WMH's common stock.1 The record reflects that the proposed class comprised 324 sellers in 119 transactions; that the transactions were governed variously by the laws of twenty states and three Canadian provinces; that thirty-two of the transactions involved sales agreements in which WMH had expressly warranted the accuracy of its financial statements; and that these thirty-two transactions involved eighty-one potential class members (the Warranty Group).

WMH opposed class certification, arguing, inter alia, that the application of the laws of multiple jurisdictions to individual questions of reliance, waiver, and prescription predominated over any common questions. The district court agreed that individual questions predominated over common questions with respect to the potential class members who had sold assets pursuant to contracts that did not contain express warranties and therefore denied class certification as to this subset of individuals, but reached the opposite conclusion with respect to the Warranty Group. See Mowbray v. WMH, 189 F.R.D. 194, 197-202 (D. Mass. 1999) (Mowbray II).

Pursuant to Fed. R. Civ. P. 23(f), WMH timely petitioned this court for permission to appeal the class certification order. Mowbray opposed the application. Spurred in part by the lack of precedent in this newly constructed corner of the law, we set an expedited briefing schedule and instructed the parties to address not only the standards for granting leave to appeal, but also the merits of the class certification decision. In the meantime, proceedings continue in the district court.

II. LEAVE TO APPEAL

Rule 23(f), which took effect on December 1, 1998, provides that:

A court of appeals may in its discretion permit an appeal from an order of a district court granting or denying class action certification under this rule if application is made to it within ten days after entry of the order. An appeal does not stay proceedings in the district court unless the district judge or the court of appeals so orders.

This is the first Rule 23(f) application in this circuit to reach the briefing stage (and, insofar as we can tell, among the first in the nation).

The threshold question before us involves the criteria that should guide an appellate court's exercise of discretion in passing upon applications under this neoteric rule. The parties offer divergent answers to this question. WMH takes an expansive view, suggesting that appellate review is proper whenever the court of appeals suspects that the trial court may have committed an error of law, or whenever the class action determination hinges upon a question of law that has not been definitively resolved in this circuit. In contrast, Mowbray asserts more grudgingly that a Rule 23(f) application should be granted only if the applicant makes out a compelling case that the district court committed a clear and dispositive error of law or otherwise manifestly abused its discretion.

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Using the underlying purposes of the new rule as a beacon, we chart a middling course.

The advisory committee's note accompanying Rule 23(f) underscores that "[t]he court of appeals is given unfettered discretion whether to permit the appeal," likening this to the Supreme Court's authority in granting or denying certiorari.2 In the same breath, however, the advisory committee predicts that "[p]ermission is most likely to be granted when the certification decision turns on a novel or unsettled question of law, or when, as a practical matter, the decision on certification is likely dispositive of the litigation." Id. The advisory committee explains:

[M]any suits with class-action allegations present familiar and almost routine issues that are no more worthy of immediate appeal than many other interlocutory rulings. Yet several concerns justify expansion of present opportunities to appeal. An order denying certification may confront the plaintiff with a situation in which the only sure path to appellate review is by proceeding to final judgment on the merits of an individual claim that, standing alone, is far smaller than the costs of litigation. An order granting certification, on the other hand, may force a defendant to settle rather than incur the costs of defending a class action and run the risk of potentially ruinous liability.

Id. The raison d'etre for Rule 23(f), then, is twofold. First, the rule provides a mechanism through which appellate courts, in the interests of fairness, can restore equilibrium when a doubtful class certification ruling would virtually compel a party to abandon a potentially meritorious claim or defense before trial. Second, the rule furnishes an avenue, if the need is sufficiently acute, whereby the court of appeals can take earlier-than-usual cognizance of important, unsettled legal questions, thus contributing to both the orderly progress of complex litigation and the orderly development of the law.

The seminal opinion dealing with the standards applicable to Rule 23(f) applications is Blair v. Equifax Check Services, Inc., 181 F.3d 832 (7th Cir. 1999)...

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