Class members James B. Ragan and Timothy W. Monsees (the "Ragan Objectors") hereby respond to Class Counsel's unprecedented motion asking the Court to order them to post a $1 million supersedeas bond or forfeit their right to appeal. Class Counsel's motion is a blatant and unlawful attempt to prevent the Ragan Objectors' appeal from going forward. No court in U.S. history has ever required a class member to post any bond – much less a $1 million bond – to appeal a class action settlement affecting his or her rights. This Court should not be the first.
The Ragan Objectors challenged the proposed settlement in this case after
they, like other members of this class, received a notice informing them
(1) that they had allegedly been cheated out of less than $10 of interest
by their mortgage company and (2) that, as compensation, they would receive
a coupon worth $175 or more only if they purchased a new or refinanced mortgage
from the company that allegedly cheated them. They objected because they
sincerely believe that the proposed settlement does not provide them or
their fellow class members with adequate compensation. On March 4, 1998,
this Court overruled those objections and approved the proposed settlement
as fair and adequate. On April 21, 1998, the Ragan Objectors appealed. Class
Counsel have since sought – and the Ragan Objectors have not opposed
– an expedited appeal from the Seventh Circuit.
In the meantime, however, on May 19, 1998, Class Counsel filed their extraordinary
motion asking this Court to order the Ragan Objectors to post a supersedeas
bond of $1 million or forfeit their right to appeal. The intended purpose
and inevitable effect of the motion, if granted, could not be more obvious:
to prevent the Ragan Objectors from appealing. No economically rational
person, allegedly cheated out of less than $10, would agree to post (and
potentially forfeit) any significant sum -- much less $1 million -- to appeal
even the most outrageously inadequate class action settlement of his or
her claims.
On May 21, 1998, Counsel for the Ragan Objectors appeared before this Court
and argued in opposition to Class Counsel's motion. The Court indicated
that it would decide the matter within two weeks and gave Class Counsel
one week in which to complete limited discovery. See Transcript, attached
as Exhibit 1 at 22. In the interim, however, with the Court's knowledge,
Class Counsel and the Ragan Objectors entered into discussions to determine
whether (1) Class Counsel would withdraw their motion for a bond and (2)
the settlement in this case would be amended to satisfy the Ragan Objectors'
concerns. To date, those discussions have not been successful. Class Counsel
and the Ragan Objectors have agreed, however, that, because of the importance
of the issues involved, the Ragan Objectors could have through Wednesday,
June 10, 1998, to file a brief in opposition to Class Counsel's motion (and
seek a protective order from the related discovery) and Class Counsel could
have through Monday, June 15, 1998, to file a brief in reply. The Ragan
Objectors therefore, submit this brief in opposition to Class Counsel's
wholly unprecedented – and highly dangerous – motion.
To be clear, Class Counsel are asking this Court to make dramatic new law.
In addition to asking this Court to be the first in the United States to
require a class member to post a bond or forfeit his or her right to appeal,
they would also have this Court be:
o the first court in the United States to require an appellant to post a
supersedeas bond under Federal Rule 62(d) when that appellant has not filed
any motion for a stay;
o the first court in the United States to hold that an appellant who fails
to post a supersedeas bond under Rule 62(d) loses his or her right to appeal,
not just his or her right to a stay;
o the first court in the United States to require an appellant to post a
supersedeas bond under Federal Rule 62(d) where no judgment or order exists
that, but for the appeal, would require that appellant to pay any money
to anyone or to take any action; and
o the first court in the United States to attempt to prevent appellate review
of its own class action approval order by creating a new basis for financial
recovery -- unbounded by any legal rules or Due Process procedures -- against
class members who seek to appeal.
The Ragan Objectors recognize, as they must, that this Court has overruled
their objections and approved the settlement in this case as fair and reasonable.
They have filed an appeal because they sincerely believe this Court's ruling
was in error. While the Ragan Objectors' appeal is taken in good faith,
they understand that the Court of Appeals may agree with this Court and
also reject their objections. And they realize that, because Class Counsel
and the defendants agreed that either side could delay implementation of
the settlement if an appeal was taken, the class members, Class Counsel,
and the defendants are all likely to be deprived of the benefits of the
settlement during their appeal. Nevertheless, the Ragan Objectors respectfully
submit that Class Counsel's motion asks this Court to act unlawfully and
must be denied for three reasons.
First, neither the language nor the rationale of Rule 62(d) authorizes this
Court to require the Ragan Objectors to post a bond or forfeit their right
to appeal. Rule 62(d) only authorizes district courts to require appellants
who seek a stay to post a bond; the Ragan Objectors have not sought a stay.
Class Counsel contend that a bond may be required from an appellant who
has taken some action that "effectively" leads to a stay, but
they have not identified any court that has ever so held or even made such
a suggestion in dicta. The Ragan Objectors have now identified three cases
addressing this assertion and each flatly rejects it. Rule 62(d) is designed
to protect potential appellees from the risk that the entry of a stay pending
the appeal will prevent them from recovering the funds owed them by the
appellant when the appeal is over, but the Ragan Objectors do not owe any
money to the appellees. Moreover, the law is clear that, if an appellant
fails to post a bond under Rule 62(d), he or she may lose their right to
a stay, but may not be denied the right to appeal.
Second, since Rule 62(d) does not apply here, this Court has no jurisdiction
to consider – much less grant -- Class Counsel's motion. The filing
of the Ragan Objectors' notice of appeal ended this Court's jurisdiction
over this case, with limited exceptions (such as the one for Rule 62(d)
motions) that do not apply in this instance. This Court should not exceed
its jurisdiction by considering Class Counsel's request to create a new
bond requirement untethered to Rule 62(d).
Third, even if this Court had the jurisdiction to consider Class Counsel's
request, it could not and should not grant it. To do so would effectively
eliminate appellate review of most class action settlements, violate the
Rules Enabling Act, and deprive the Ragan Objectors of their right to appeal
without Due Process of law.
Finally, in addition to seeking a supersedeas bond, Class Counsel have also
asked that the Ragan Objectors be required to post a $2000 or $3000 bond
to cover the likely costs of appeal. This request should be denied because
Class Counsel have offered no good reason to believe that a cost bond is
necessary and have failed to comply with the requirements of Federal Rule
of Appellate Procedure 39.
Class Counsel base their motion for a bond on Fed. R. Civ. P. 62(d),
which states:
When an appeal is taken the appellant by giving a supersedeas bond may obtain
a stay subject to the exceptions contained in subdivision (a) of this rule.
The bond may be given at or after the time of filing the notice of appeal
or of procuring the order allowing the appeal, as the case may be. The stay
is effective when the supersedeas bond is approved by the court.
By its terms, Rule 62(d) only authorizes courts to require an appellant
to post a bond if that appellant seeks a stay pending the appeal. Under
the clear terms of the Rule, it is the appellant who initiates this process,
if the appellant seeks to obtain a stay.
The Reagan Objectors have NOT filed a motion to stay the operation of the
judgment pending the appeal. The Ragan Objectors have never asked this Court
or any other Court to hold that the settling parties could not go forward
with their settlement. The Ragan Objectors have taken no step to prevent
the settling parties from proceeding with the settlement if they choose
to do so. It is true that, if the settling parties go forward with the settlement
and then the Court of Appeals reverses this Court, the settling parties
will have gone forward at their own peril. But that is always true in any
case that is being appealed. If the parties have agreed among themselves
that they do not wish to take that risk (despite Class Counsel's protestations
that the appeal is "frivolous"), that is their decision. Appellees
cannot eliminate the potential for appellate review of any judgment in their
favor merely by refusing to go forward with the judgment on the grounds
that the risk of losing the appeal has effectively "stayed" their
hand.
In short, Rule 62(d) does not apply here. The Rule only applies where the
appellant has sought a stay, and the appellant here has not done so.
B. Contrary to What Class Counsel Claim, Rule
62(d) Does Not Authorize District Courts to Require the Posting of a Bond
if the Filing of an Appeal Would "Effectively" Lead to a Stay.
1. The Cases Cited by Class Counsel Do Not Support this Proposition In Their Holdings or In Their Dicta.
Class Counsel argue that even if an appellant does not make a motion to stay the judgment, that Rule 62(d) applies if the appellant has "effectively" taken some step that stays the judgment. Class Counsel have cited this Court to only two cases that supposedly support this proposition: Washington Metropolitan Area Transit Commission v. Holiday Tours, 559 F.2d 841 (D.C. 1977) (the "WMATC" case); and Fidelity & Deposit Co. of Maryland v. Davis., 127 F.2d 780 (4th Cir. 1942) (the "Fidelity" case). Neither case is at all factually similar to the situation posed by Class Counsel's motion here.
At the May 21st hearing, this Court asked whether the Ragan Objectors do
not "fall squarely within the language, the dicta of the cases which
talk about effectively staying a judgment." Transcript, Exh. 1 at 13.
If the Court was referring to the WMATC and Fidelity cases cited by Class
Counsel (and no other case has been cited by Class Counsel in support of
this proposition), the simple answer is that there is no dicta in either
case supporting Class Counsel's position about "effective stays."
First, WMATC is easily distinguished on its facts, as it involved a setting
where the appellant moved for a stay. The first paragraph of the case states
"[t]hen, on motion of Holiday Tours, the District Court stayed its
injunction pending appeal." 559 F.2d at 842. In addition, there is
no dicta in the case that supports Class Counsel's motion. The opinion does
not deal with the issue of whether a bond should have been required at all,
and instead involves a dispute over whether a party was entitled to have
its motion for stay granted in light of the fact that it had not shown that
it was likely to prevail on the merits. There is nothing in this opinion
that even appears to relate to Class Counsel's motion, much less any dicta
embracing their theory.
The same thing is true of Fidelity. Again, this case is easily distinguished
on its facts. The first paragraph of the 1942 opinion explains that it is
"an action on a bond given to stay proceedings pending application
to the Supreme Court of the United States for a writ of certiorari...."
127 F.2d at 781. As with WMATC, there is also no language or dicta in Fidelity
supporting Class Counsel's position. The case involved a dispute not over
whether a bond was required, but over the type of bond that was required.
While the plaintiff/appellee wanted the defendant/appellant to be liable
for a bond for the full amount of the judgment that had been entered against
the defendant/appellant, the defendant/appellant argued that it could only
be held liable for a bond in the amount of the damages that the plaintiff/appellee
might suffer as a consequence of any delay. After reviewing the facts of
the case, the Fidelity court concluded that a bond for the full amount of
the judgment was required.
While there is no language relating to Class Counsel's theory in Fidelity,
the court did use the word "effective" twice. The first time,
the Court stated that a stay of proceedings gained by posting a bond precluded
the enforcement of the judgment as effectively as if the appeal was successful.
127 F.2d at 782. The second time, the court stated that the motion for stay
had the effect of precluding the enforcement of the judgment. Id. Neither
use of the word "effective" suggested that Rule 62(d) could be
applied where there was no motion for a stay; neither use of the word "effective"
had anything to do with Class Counsel's motion here.
In short, there is no "dicta" in any of the precedents cited that
embraces Class Counsel's theory here. If this Court articulates Class Counsel's
theory in an opinion, it will be the first court to do so.
2. The Only Three Reported Decisions to Consider
a Request for a Bond on the Grounds that An Appeal Had Led to a "De
Facto" Stay Rejected that Argument and Refused to Require the Bond
Requested.
In U.S. for Use of Terry Investment Co. v. United Funding, 800 F. Supp.
879 (E.D. Cal. 1992), the trial court entered a judgment of $140,000 in
favor of the plaintiff, and the defendant appealed to the Ninth Circuit.
"Plaintiff testified that it has tried to enforce the judgment in [two
states], but has been denied certifications of the judgment for registration
because of the pending appeal in the Ninth Circuit." 800 F. Supp. At
880. Accordingly, the plaintiff moved for a bond on a theory remarkably
like that of Class Counsel here:
Plaintiff has now moved for an order requiring defendants to post a supersedeas
bond with this court. Plaintiff claims that, because of its inability to
enforce the judgment, there has been a de facto stay on the judgment meriting
the enforcement of a supersedeas bond.
Id. The defendants in Terry Investment then responded with the same argument that the Ragan Objectors have raised here: "Defendants respond that the district court does not have the power to issue a supersedeas bond, except upon motion for a stay of judgment by defendants." Id.
The Terry Investment court rejected the plaintiffs' argument and agreed
with the defendants, stating, "Rule 62(d) nowhere expressly provides
that the district court may, of its own accord or on motion from appellee,
order appellant to post a supersedeas bond." 800 F. Supp. at 881 (emphasis
added). Accordingly, the Terry Investment court denied the motion for a
bond. Id.
In Sheet Metal Workers' National Pension Fund v. Metals and Machining Fabricators,
Inc., 637 F. Supp. 50 (D.D.C. 1986), similarly, plaintiffs filed a motion
for a supersedeas bond even though "Defendant has appealed the judgment,
but has not moved for a stay as provided under Rule 62(d)." 637 F.
Supp. at 51. The plaintiffs argued that the appeal effectively stayed their
ability to enforce the judgment: "Plaintiffs claim that they are unable
to execute the judgment, despite the absence of a stay, because defendant's
assets are in the State of Washington, beyond the subpoena power of the
Court. At the same time, because an appeal is pending, the plaintiffs cannot
record the judgment in any jurisdiction under the federal registration of
judgments statute." Id. The Sheet Metal Workers court flatly rejected
the motion:
Plaintiffs have suggested a solution to this problem by requesting that
this Court require the defendant to post a supersedeas bond. Unfortunately,
they have not proferred persuasive authority for such an order.
Plaintiffs have failed to cite a single federal case, and the Court has discovered none, where a losing defendant did not request a stay pending appeal but was ordered nonetheless to post a supersedeas bond.
Id. (emphasis added.) Plaintiffs here have also cited no cases to this effect, as noted above, and this Court should follow the lead of the Sheet Metal Workers' court.
In White v. Phillips, 88 F.R.D. 263 (N.D. Ga. 1980), a plaintiff filed a
motion asking the court to require the defendant "to post a bond pending
appeal in an amount sufficient to satisfy the judgment in full." 88
F.R.D. at 264. The plaintiff argued that such a bond was required by Georgia
law, and that the court should apply Georgia law under Fed. R. Civ. P. 69(a).
The White court refused to grant the bond, however, because the defendant
– like the Ragan objectors here – had not moved for a stay. The
Court noted that "[t]here is no provision in the Federal Rules of Civil
Procedure or in the Federal Rules of Appellate Procedure which speaks to
the question of when a supersedeas bond may be required except for those
provisions which relate to stays." Id. Accordingly, the White court
denied the request in language directly applicable here:
Thus, there being no request for a stay of execution by the appellant, the
Court finds that requiring appellant to post a supersedeas bond in the instant
case would be contrary to federal practice and procedure.
88 F.R.D. at 265 (emphasis added).
Unlike the WMATC and Fidelity cases cited by Class Counsel, the Terry Investment,
White and Sheet Metal Workers cases are directly on point both on their
facts and their language. These are the only three opinions that the Ragan
Objectors have been able to identify that touches upon Class Counsel's "effective
stay" argument, and each of them flatly rejects Class Counsel's argument.
3. In Any Case, It Is Not The Ragan Objectors Who
Have
"Effectively" Stayed this Action Pending the Appeal.
At the May 21st Hearing, the Court suggested that a bond might be considered because it is the Ragan Objectors who have "effectively stayed" the settlement pending their appeal. Transcript, Exh. 1, at 13. The Ragan Objectors respectfully disagree. Counsel for the parties undoubtedly knew or should have known (as most class action practitioners do) that, in the history of class action jurisprudence, no class member who objected to the terms of a settlement has ever been required to post a bond or forfeit his right to appeal the approval of that settlement. In light of those facts, if Class Counsel or Counsel for the Defendants wanted to protect themselves or their clients from the delay created by a potential appeal, they should have negotiated that protection as part of the settlement.
Class Counsel could have, for example, negotiated an agreement that certain
aspects of the settlement would be implemented even if an appeal was taken.
Trial Lawyers for Public Justice (TLPJ), counsel for the Ragan Objectors,
negotiated precisely such a provision in the national class action settlement
agreement in Cox v. Shell Oil Co, with the defendants agreeing to replace
leaking polybutylene plumbing while any appeals were pending. Alternatively,
Class Counsel could have negotiated an agreement that, if the settlement
was approved and an appeal was taken, all class members would be given the
coupons with the understanding that, if the approval was overturned on appeal,
those who used the coupon would have the full amount of the coupon added
to their mortgages (and all their rights to sue would, of course, be reinstated).
Similarly, Class Counsel could have negotiated an agreement that, if the
settlement was appealed and then upheld, all class members who refinanced
in the meantime would have their accounts credited for the full amount of
the coupon.
Instead of taking such steps, however, Class Counsel reported to the Court
at the May 21st Hearing that they had simply negotiated an agreement that,
if any appeal was taken, either side could decide not to proceed with the
settlement. Transcript, Exh. 1, at 12. As a result, if the class is hurt
because of any delay caused by the Ragan Objectors' appeal, that is because
Class Counsel failed to protect them from that harm, knowing full well that
the law did not provide for objecting class members to have to compensate
class members for any harm caused by the delay of an appeal.
The same dynamic occurred in the Sheet Metal Workers' case discussed above.
The plaintiff there argued that the defendant's appeal of the case effectively
stayed the judgment because the defendant was in a jurisdiction where the
judgment could not be enforced while it was on appeal. The court felt the
force of the plaintiff's policy argument, but also noted that the plaintiffs
there – like the plaintiffs here – could have taken steps to solve
their own problem:
While the Court is sympathetic to plaintiffs' desire to protect [their]
judgment in the least costly way possible, the defendant quite correctly
notes that the present difficulty of executing the judgment is the result
and consequence of plaintiffs' choice of forum, a decision they made earlier
in this proceeding. . . . Without more substantial authority on which to
rest an order requiring a supersedeas bond, the Court will not rescue plaintiffs
from the problem which is largely of their own making.
637 F. Supp. at 52. These words could have been written about this case as well. Class Counsel are blaming the Ragan Objectors for a situation that they themselves created.
C. Rule 62(d) Is Designed to Protect Potential
Appellees from the Risk that the Entry of a Stay Pending Appeal Will Prevent
Them From Recovering the Funds Owed Them By the Appellant When the Appeal
is Over.
Rule 62(d) involves situations where a judgment or order has been entered against a party, and that party wishes to stay the operation of that judgment during the pendency of its appeal. The idea is that an appellee which has received a judgment or order in its favor against an appellant may go ahead and enforce the judgment during the pendency of the appeal, unless the appellant moves for a stay and posts a bond. As Class Counsel's own brief notes, Rule 62(d) provides for the imposition of a bond requirement against an appellant "against whom a judgment or order is entered...." Brief at 4.
There has been no judgment or order entered against the Ragan Objectors
within the meaning of Rule 62(d). At the May 21st hearing, Class Counsel
argued that this Court had entered an Order "overruling" the Ragan
Objectors' objections, Transcript, Exh. 1 at 9, and that is true. But this
Court's Order of March 23, 1998 in no way constituted a judgment or an order
that the Ragan Objectors owed any money to Class Counsel or anyone else.
That order placed no obligations on the Ragan Objectors, imposed no liability
upon them. The order only mentioned the Ragan Objectors in passing, and
included no operative language from which anyone could pursue a money recovery
against them.
Rule 62(d) applies only to parties who have had judgments or ordered entered
against themselves. The Ragan Objectors are not such parties. Accordingly,
one of the fundamental prerequisites of Rule 62(d) is not present here,
and the Rule does not permit the imposition of a bond requirement upon the
Ragan Objectors.
D. Rule 62(d) Only Authorizes District Courts to Punish
an Appellant's Failure to Post a Required Bond By Denying the Motion for
a Stay, Not By Forcing the Appellant to Forfeit His or Her Right to Appeal.
Class Counsel ask this Court to issue an order conditioning the Ragan Objectors' right to pursue an appeal upon the issuance of a bond. Class Counsel's request is entirely foreign to the approach and logic of Rule 62(d), however. See Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, 11 Federal Practice and Procedure § 2905, at 524-25 (1995):
In the absence of a stay obtained in accordance with Rule 62(d), the pendency
of an appeal does not prevent the judgment creditor from acting to enforce
the judgment. But a person who cannot furnish a supersedeas bond does not
lose the right to appeal, although he does assume the risk of getting his
money back again if the judgment is reversed.
(Emphasis added.) In In re Farrell Lines, Inc., 761 F.2d 796 (D.C. Cir. 1985), for example, a district court attempted to dismiss an appeal on the grounds that a bankruptcy petitioner had failed to post the required bond. The Court of Appeals reversed the district court in a unanimous per curiam opinion, finding it had erred in dismissing the appeal for failure to post bond. The D.C. Circuit quoted the language of the applicable bankruptcy rule, and then stated "Similarly, under Federal Rule of Civil Procedure 62, . . . it is well established that an appellant who fails to furnish a supersedeas bond does not thereby lose his right to appeal." 761 F.2d at 797 (emphasis added). Cf. North Carolina v. Pearce, 395 U.S. 711, 724 (1969) ("a court is without right to ... put a price on appeal."); Terry Investment, 800 F. Supp. at 880 n. 2 ("a district court may not impose a supersedeas bond where that bond would preclude defendants from pursuing an appeal.")
If a party does not post a bond, Rule 62(d) provides that the party may
lose its right to seek a stay. Rule 62(d) does not provide that a party
may lose its right to an appeal, however, and Class Counsel have cited no
authorities suggesting otherwise.
III. Since Rule 62(d) Does Not Apply, this Court
Does Not Have Jurisdiction to Require the Ragan Objectors to Pay a Bond
to Pursue Their Appeal.
Because the provisions of Rule 62(d) are inapplicable here, this Court has no jurisdiction to otherwise consider Class Counsel's request that it require the Ragan Objectors to post a bond or forfeit their right to appeal. This Court has issued a final order resolving the case on its merits, an appeal has been noted, and the Court of Appeals for the Seventh Circuit now has sole jurisdiction over the merits of the case.
Accordingly, to the extent that it is based on anything other than Rule
62(d), this Court has no jurisdiction to consider class counsel's motion.
Once a notice of appeal is filed, the district court is relieved of all
jurisdiction in the matter. See United States v. Veteto, 945 F.2d 163 (7th
Cir. 1991). As the Supreme Court has held:
The filing of a notice to appeal is an event of jurisdictional significance
- it confers jurisdiction on the court of appeals and divests the district
court of its control over those aspects of the case involved in the appeal.
Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 58 (1982) (per curiam). Rule 62(d) is one of a small number of limited exceptions to this doctrine. Where a party has not invoked Rule 62(d) by moving for a stay, however, the district court must recognize that the exclusive jurisdiction lies with the appellate court. This was exactly the reasoning of the Terry Investment case discussed above. The district court there ruled that it did not have the "authority to enforce" a supersedeas bond, because Rule 62(d) did not apply. 800 F. Supp. at 881.
IV. The Creation of a New Requirement that
Objecting Class Members Post a Bond or Forfeit their Right to Appeal Would
Effectively Eliminate Appellate Review of Most Class Action Settlements,
Violate the Rules Enabling Act, and Deprive the Ragan Objectors of their
Right to Appeal Without Due Process.
The bond requested here is completely unprecedented. Class Counsel have
not cited to a single case ever decided where objectors to a class action
settlement were required to file any kind of bond in order to appeal the
approval of a class action settlement. Accordingly, Class Counsel are effectively
asking this Court to disregard the specific limits of Rule 62(d) and create
broad new law in their favor. For this Court to do so, however, would have
disastrous policy implications (effectively eliminating appellate review
of most class action settlements); would violate the Rules Enabling Act;
and would deprive the Ragan Objectors of their right to appeal without Due
Process of law.
A. The Creation of a New Requirement that Objecting
Class Members Must Post a Bond or Forfeit their Right to Appeal Would Effectively
Eliminate Most Appellate Review of Class Action Settlements, Depriving Courts
of the Recognized Benefits of Class Action Objectors.
1. Creating a Bond Requirement Here Will Effectively
Prevent Appellate Review of This and Most Other Class Action Settlements.
Like every other person in the 350,000 member class, the Ragan Objectors
each have only a small amount of money at stake in this litigation. Class
Counsel have characterized the interest damages at issue as being in the
area of $5 per class member. The Ragan Objectors have objected and appealed
because they sincerely believe that class members should receive some portion
of that money, rather than a coupon that they will not use. But the Ragan
Objectors' financial interest in this matter is no greater than that of
any other class member. If they were required to post -- and potentially
lose --- a bond in an amount greatly exceed their personal monetary stake
in this matter, they could not reasonably be expected to pursue their appeal.
The same will be true of virtually any class member who objects to any class
action. The nature of a class action is that each class member's personal
financial interest in the litigation is only a small portion of the total
class' interest. If an individual class member seeking to appeal an order
approving a settlement can be faced with the prospect of a financial penalty
far larger than his or her personal interest in the case, no economically
rational class member would ever pursue such an appeal.
2. Many Courts and Commentators Have Recognized that
Objectors Can Bring Significant Benefits to the Process of Reviewing Class
Action Settlements.
Both courts and commentators have expressed grave concern that courts face
serious constraints in their ability to curb abusive class action settlements.
"Lacking a fully developed evidentiary record, both the trial court
and the appellate court [are] incapable of making the independent assessment
of the facts and law required in the adjudicatory context." Pettway
v. American Cast Iron Pipe Co., 576 F.2d 1157, 1169 (5th Cir.), cert. denied,
439 U.S. 1115 (1978). This absence of a full evidentiary record is due in
large part to the lack of any truly adversarial process in the context of
a class action settlement: "when a class settlement is presented to
a court for approval, there may be no ‘opposing party.' The settling
parties are aligned, and there may be no objector represented at the fairness
hearing." Susan P. Koniak, Feasting While the Widow Weeps: Georgine
v. Amchem Products, Inc., 80 Cornell L. Rev. 1045, 1126 (1995).
When class members object to a class settlement, however, the Court is no
longer faced with a one-sided presentation of the merits of a deal. Rather,
by pointing out potential flaws of a proposed settlement, objectors can
assist both the district courts and the appellate courts in assessing the
merits of a proposed settlement and protecting the rights of absent class
members, as Rule 23(e) requires. Accordingly, it should come as no surprise
that some of the most important decisions protecting class members' rights
arose from appeals by objecting class members. See, e.g., Amchem Products,
Inc. v. Windsor, 117 S.Ct. 2231 (1997); General Motors, 55 F.3d 734. In
both of these cases, the settlement was approved by the district court,
but then overturned on appeal, yielding two of the most significant class
action decisions to date. If objecting class members are largely deterred
from seeking appellate review by the threat of a bond requirement along
the lines sought here, this would damage the rights of all class members
who lack the resources to pursue an appeal.
Many of Class Counsel's arguments in support of its motion are based upon
its harsh view of the Ragan Objectors and their counsel. E.g. Transcript,
Exh. 1 at 10 (the Ragan Objectors are "supreme[ly] arrogant" people
who do not care about the interests of the class). These unwarranted personal
attacks do not bring credit to Class Counsel and cannot justify the creation
of new law to reduce the rights of class action objectors.
B. To Impose a Bond Requirement Here Would Violate
the Rules Enabling Act.
As set forth above, no judgment or order has been entered against the Ragan
Objectors. Nonetheless, Class Counsel ask this Court to enter an order that
would necessarily have the effect of imposing a substantial financial liability
upon the Ragan Objectors if they do not win their appeal to the Seventh
Circuit. In other words, while no judgment or order requiring the Ragan
Objectors to pay out money has been entered to date, Class Counsel urge
this Court to take that step at this time. See, e.g., Transcript, Exh. 1,
at 13 (comments of Mr. Reed) ("There are consequences are you're going
to have to be responsible for them.") Class Counsel are urging this
Court to impose a contingent financial liability against the Ragan Objectors
if they continue to pursue their appeal.
Class Counsel ask this Court to impose this new contingent liability under
the rubric of Rule 62(d). Rule 62(d) cannot be used for the purpose of creating
new substantive liabilities, however, just as none of the Federal Rules
of Civil Procedure can be used for that purpose. To do otherwise would violate
the Rules Enabling Act.
Pursuant to the Rules Enabling Act, 28 U.S.C. § 2072, the Federal Rules
of Civil Procedure cannot "abridge, enlarge or modify any substantive
right." The Act reflects both Article III's limitations on the judicial
branch and principles of federalism. 19 Charles A. Wright, Arthur R. Miller
& Edward H. Cooper, Federal Practice and Procedure § 4509 at 140
(1982). The Rules Enabling Act is also relevant to the interpretation of
the federal rules. As Justice Stevens has noted, if a federal rule does
not clearly create a substantive requirement, then the rule should be interpreted
consistent with the Rules Enabling Act and accorded an interpretation that
does not affect substantive rights. Daily Income Fund, Inc. v. Fox, 464
U.S. 523, 544 n.2 (1984) (Stevens, J., concurring). Simply put, Article
III courts have no authority to undertake the alteration of substantive
rights absent statutory authorization.
C. To Impose a Bond Requirement Under the Circumstances
of this Case Would Violate the Ragan Objectors' Right to Due Process.
1. This Court May Not Take Away the Ragan Objectors'
Statutory Right to An Appeal Without Explicit Authorization from An Existing
Federal Rule or Statute.
As set forth above, no rule or statute authorizes this Court to impose a bond requirement upon the Ragan Objectors as a condition of their appealing this Court's order. Class Counsel suggest that this Court may proceed without such authorization, however, on the grounds that there is no common law or federal constitutional right to bring an appeal. Brief at 3.
Even if one starts with the assumption that the right to appeal is statutory
in nature, that does not mean that this right may be taken away without
following an authorized process. The Supreme Court faced this precise question
in Logan v. Zimmerman Brush Co., 455 U.S. 420 (1982). In that case, the
plaintiff asserted that his claims under Illinois' Fair Employment Practices
Act were lost due to the failure of a state agency to take action within
the statutorily required period. The defendant argued that since the plaintiffs'
rights were created by a state statute, that the state could remove those
rights as well. The Supreme Court flatly rejected this claim. First, the
Court noted that "a cause of action is a species of property protected
by the Fourteenth Amendment's Due Process Clause." 455 U.S. at 428.
The same, of course, is true of the Ragan Objectors' right to appeal this
Court's ruling. Second, the Court held that "While the legislature
may elect not to confer a property interest, . . . it may not constitutionally
authorize the deprivation of such an interest, once conferred, without appropriate
procedural safeguards.... [T]he adequacy of statutory procedures for deprivation
of a statutorily created property interest must be analyzed in constitutional
terms." 455 U.S. at 432. Thus, even though Illinois created
the plaintiff's rights by statute, it could not take away those rights without
appropriate procedural safeguards.
The same holds true here. Even if Class Counsel are correct that the Ragan
Objectors' right to pursue an appeal is merely statutory in nature, it may
not be constitutionally withdrawn except through authorized procedures.
Since no Federal Rule or statute authorizes this Court to impose a bond
requirement in this case, it would violate the Ragan Objectors' Due Process
rights for this Court to nonetheless impose such a requirement.
2. This Court May Not Impose A Substantive Contingent
Liability Upon the Ragan Objectors, Where They Have Not Been Given the Benefit
of Full Proceedings to Contest Such a Liability.
As set forth above, Class Counsel's motion effectively amounts to a request that this Court enter a new judgment or order requiring the Ragan Objectors to pay money if they lose the appeal. This request must fail because (a) there is no cause of action present here against the Ragan Objectors; and (b) there has been no constitutional Due Process here to impose any sort of judgment or order against the Ragan Objectors.
Before a judgment or order can be entered requiring the Ragan Objectors
to be responsible to anyone for any sum of money, they must be presented
with a complaint or a counterclaim setting out some cause of action against
them and some facts fitting that cause of action. It is not enough to advance
policy arguments to the effect this Court should "hold them responsible,"
and then treat them as if they had already lost a trial.
Class Counsel have not set out the precise nature of the novel cause of
action that supposedly renders the Ragan Objectors liable for up to $1 million,
but from their description it appears to be a call that this Court should
be the first in the nation to create and recognize a cause of action for
something along the lines of "Wrongful Appeal of Class Action Objection."
No statutory or common law authority is cited to suggest that this new cause
of action should exist, and indeed it does not exist.
Class Counsel have also not set out the specific notice of the contours
of the new cause of action they seek. For example, Class Counsel have not
yet articulated the level of intent that would be required for the Ragan
Objectors to be found liable for seeking appellate review of this settlement.
A party cannot be found liable for exercising his or her right to pursue
legal redress unless it is established that the party's actions were a mere
"sham." See Eastern Railroad Presidents Conference v. Noerr Motor
Freight, Inc., 365 U.S. 127 (1961); Mine Workers v. Pennington, 381 U.S.
657 (1965). In this case, Class Counsel have not even alleged that the Ragan
Objectors' appeal is a "sham," as indeed they could not do. Thus,
even if this Court were to accept Class Counsel's suggestion and invent
a new cause of action for "Wrongful Appeal of Class Action Objection,"
it could not apply here.
In addition, the new substantive cause of action sought by Class Counsel
cannot be adjudicated at this time. Claims that some act of litigation is
wrongful cannot usually be raised until after the first action is completed.
See W. Page Keeton, et al., Prosser and Keeton on Torts § 119 at 871
(5th Ed. 1984) (discussing the tort of malicious prosecution).
Finally, Class Counsel have not taken here any of the procedural steps necessary
to pursue a substantive claim for money damages. Without having articulated
the elements of a cause of action, or having presented any sworn evidence
in support of that cause of action, or actually tried a case on that cause
of action to a jury, Class Counsel ask this Court to impose a judgment or
order to pay money against the Ragan Objectors. This "Verdict First"
approach is not allowed under our constitutional system. The Ragan Objectors
have not been given notice of any sort of claim against them; they have
not been given the opportunity to contest the supposed claim though the
normal pre-trial procedures; and they have not been given a trial.
Rule 62(d) applies to claims where a party has had a claim for relief brought
against it, lost a trial on that claim, been ordered to pay a judgment,
and seeks a stay of that order or judgment because it does not want to pay
the sum pending appeal. Rule 62(d) does not apply to claims where there
has been no action filed, no discovery, no trial, no judgment or order,
and no Due Process.
V. Class Counsel's Motion For A Cost Bond Should Be
Denied.
In addition to seeking a supersedeas bond, Class Counsel also ask this Court to require the Objectors to post a bond of $2000 or $3,000 to cover the costs on appeal pursuant to Rule 7 of the Federal Rule of Appellate Procedure. Class Counsel claim that this lump sum represents their anticipated expenses for two categories of costs--attorney travel, and preparation of briefs and papers. Class Counsel have not broken down the separate costs for each of these categories.
Rule 7 provides that the district court may require appellants to file a
bond to ensure payment of costs on appeal. Class Counsel have, however,
offered no good reason why the Ragan Objectors should be required to post
a bond to cover costs, instead of being trusted, like most litigants, to
pay appellate costs if and when payment is ordered. Class Counsel only set
forth one paragraph of assertions in support of their motion on this point,
and cite no authorities or evidence in that paragraph. In fact, the Ragan
Objectors know of no authority for requiring a class action objector to
post a cost bond prior to bringing an appeal.
In any case, several of the anticipated costs identified by Class Counsel
are not recoverable on appeal. Rule 39 of the Federal Rules of Appellate
Procedure defines the recoverable costs of appeal as the cost of printing
and producing copies of briefs, appendices and records, court reporter transcripts,
premiums paid for bonds, and the fee for filing the notice of appeal. Attorney
travel expenses are not recoverable as costs under Rule 39. These expenses
are an item of attorneys' fees, not costs. See Calderon v. Witvoet, 112
F.3d 275, 276 (7th Cir. 1997). Rule 39 "clearly does not include attorneys'
fees as a cost of appeal." Littlefield v. Mack, 134 F.R.D. 234, 235
(N.D. Ill. 1991). See also Hirschensohn v. Lawyers Title Insurance Corp.,
1997 U.S. App. LEXIS 13793, 1997 WL 307777 (3rd Cir. June 10, 1997)(same);
In Re American President Lines, Inc., 779 F.2d 714, 716 (D.C. Cir. 1985)(same);
U.S. for the Use of Terry Inv. v. United Funding, 800 F. Supp. 879, 882
(E.D. Cal. 1992)(same). Consequently, attorney travel expenses could not
be awarded even if plaintiffs were successful on appeal.
The costs of preparing briefs, appendices, and other records is a recoverable
cost under Rule 39(c). However, plaintiffs have not segregated these recoverable
costs from their asserted but unrecoverable travel expenses. This Court
has held that when recoverable and nonrecoverable costs are lumped together
improperly in a motion for a cost bond, "plaintiff should refile her
motion and specify which Rule 39 costs of appeal she needs secured by a
bond." Littlefield, 134 F.R.D. at 234. The Court should follow this
same procedure here. Plaintiffs' motion for a cost bond should therefore
be denied.
For the foregoing reasons, the Court should reject Class Counsel's motion
for a bond, and allow the appeal to proceed normally.
Respectfully submitted,
_________________________
Joseph A. Power, Jr. F. Paul Bland, Jr.
Power, Rogers & Smith, P.C. Adele Kimmel
35 West Wacker Drive Arthur H. Bryant
Suite 3700 Trial Lawyer for Public Justice, P.C.
Chicago, IL 60601 1717 Massachusetts Ave., N.W.
(312) 236-9381 Suite 800
FAX: (312) 236-0920 Washington, D.C. 20036
Local Counsel (202) 797-8600
Fed. Ct. No. 02244276 FAX: (202) 232-7203
Date: June 8, 1998 CERTIFICATE OF SERVICE
I, ________________________, hereby certify that, on this ____ day of
June, 1998, a true and correct copy of the foregoing was served by facsimile
and overnight mail on counsel for the settling parties as follows:
Charles S. Zimmerman, Esq.
Barry G. Reed, Esq.
5200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402-4123
(Class Counsel)
Robert J. Pratte, Esq.
Briggs & Morgan
80 South Eighth Street
Minneapolis, MN 55402
(Counsel for Bank United of Texas)
I declare under penalty of perjury that the foregoing is true and correct. Executed on June __, 1998.