City of Fort Smith v. Merriott

2020 Ark. 94

593 S.W.3d 481

CITY OF FORT SMITH, Arkansas, Appellant

v.Jennifer MERRIOTT, Individually and on Behalf of Those Similarly Situated, Appellee

No. CV-19-255

Supreme Court of Arkansas.

Opinion Delivered: February 27, 2020

Daily & Woods, PLLC, Fort Smith, by: Jerry L. Canfield, Colby T. Roe, and Michael A. LaFreniere, for appellant.

Monzer Mansour, Springdale; and King Law Group, Fort Smith, by: W. Whitfield Hyman, for appellee.

SHAWN A. WOMACK, Associate Justice

In this case, we consider a narrow question of procedure involving the notice requirement in Arkansas Rule of Civil Procedure 23(c). We must decide whether a defendant waives the right to compel class notice by moving for summary judgment prior to notice, even if the motion is denied and no decision on the merits has been rendered. Under such circumstances, we conclude that the defendant does not waive the right to compel pretrial notice. The circuit court’s order is reversed and remanded for proceedings consistent with this opinion.

I.

Jennifer Merriott filed the underlying class action against the City of Fort Smith to recover allegedly misused public funds from the City’s curbside residential recycling program. The lawsuit was premised on claims of illegal exaction and unjust enrichment. Merriott sought a full refund of all monies illegally exacted and, for the unjust enrichment claim, she sought equitable disgorgement and restitution.

The controlling complaint was filed on September 8, 2017. Twelve days later, Merriott moved for class certification. In October 2017, the City responded to the motion for class certification and separately moved for summary judgment. In January 2018, the circuit court certified the same class for both claims: All Fort Smith, Arkansas, residential sanitation fee customers who paid any residential sanitation fees to the City of Fort Smith between October 1, 2014, and May 1, 2017. Three months later, the circuit court denied the City’s motion for summary judgment.

In October 2018, the City moved to compel class notice on both the illegal exaction and unjust enrichment claims.¹ It argued that notice was required under Rule 23(c) and due process. Merriott contended, and the circuit court agreed, that the City waived notice by moving for summary judgment prior to class certification and notice. This conclusion was based on National Enterprises, Inc. v. Kessler , 363 Ark. 167, 213 S.W.3d 597 (2005). The court held that under Kessler , the timing of the City’s motion for summary judgment waived notice even though the motion was ultimately unsuccessful. This appeal followed.

The City invoked our jurisdiction under Rule 2(a)(9), which permits review of an "order granting or denying a motion to certify a case as a class action." Ark. R. App. P.–Civ. 2(a)(9) (2018). Merriott moved to dismiss the appeal, arguing that the order denying the City’s motion to compel notice did not fall within the scope of Rule 2(a)(9). However, we have explained that "an order prescribing notice of the class action is fundamental to the further conduct of the case and is appealable." Seeco, Inc. v. Hales , 334 Ark. 307, 311–12, 973 S.W.2d 818, 820 (1998) (quoting Union Nat'l Bank v. Barnhart , 308 Ark. 190, 198–99, 823 S.W.2d 878, 882 (1992) (internal quotation marks omitted)). And thus, a majority of the court voted to deny the motion to dismiss. We now proceed to the merits of the appeal.

II.

For its sole point on appeal, the City challenges the circuit court’s denial of its motion to compel notice. The City contends that the circuit court’s decision was premised on an erroneous interpretation of this court’s decision in Kessler . The City further argues that Rule 23(c) and due process mandate pretrial class notice. Conversely, Merriott maintains that the timing of the City’s motion, and not the outcome, constituted waiver under Kessler . With respect to the City’s due process claims, Merriott argues that the City lacks standing to raise due process claims on behalf of the absent class members.

We have not previously articulated our standard of review for orders denying a motion to compel class notice. The parties appear to agree that the proper standard of review is abuse of discretion. Indeed, this is the level of review given to orders prescribing class notice. See Seeco , 334 Ark. at 312, 973 S.W.2d at 820-21. Given that an order denying a motion to compel notice effectively prescribes class notice, the same standard of review applies. The mechanics of class notice is left to the circuit court’s discretion and is subject only to the reasonableness standard of due process. Id. On appeal, we consider whether the order meets the requirements of Rule 23 and due process. Id. However, questions of law and the interpretation of court rules will be reviewed de novo. See Kesai v. Almand , 2011 Ark. 207, at 3-4, 382 S.W.3d 669, 671.

Class notice is required under Rule 23(c) and as a matter of due process. See Phillips Petroleum Co. v. Shutts , 472 U.S. 797, 811-12, 105 S.Ct. 2965, 86 L.Ed.2d 628 (1985) ; Ark. R. Civ. P. 23, Addition to Reporter’s Notes (1990). Rule 23(c)(1) provides that "[i]n any class action in which monetary relief is sought, ... the court shall direct to the members of the class the best notice practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort." Ark. R. Civ. P. 23(c)(1) (2018) (emphasis added). The language of Rule 23(c)(1) is absolute: notice "shall" be given. Id. ; see Smith v. Fox , 358 Ark. 388, 393, 193 S.W.3d 238, 242 (2004) ("The word ‘shall’ is mandatory."). The notice must clearly inform class members of, among other things, the class claims, the opportunity to opt out, and each member’s right to "enter an appearance and participate" in the class action suit. See Ark. R. Civ. P. 23(c)(2).

The United States Supreme Court has made clear that unnamed class members have a due process right to these procedural protections. See Shutts , 472 U.S. at 811-12, 105 S.Ct. 2965 ; see also Eisen v. Carlisle & Jacquelin , 417 U.S. 156, 176, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974) ("individual notice to identifiable class members is not a discretionary consideration to be waived in a particular case"). Class members "must receive notice plus an opportunity to be heard and participate in the litigation[.]" Id. Otherwise, notice does not satisfy due process. Id. After all, parties are not bound to class action judgments unless given a full and fair opportunity to litigate. See Richards v. Jefferson County, Ala. , 517 U.S. 793, 797 n.4, 116 S.Ct. 1761, 135 L.Ed.2d 76 (1996). Once adequate notice is provided, however, its binding effect protects the defendant from a multiplicity of suits from individual class members. See Kessler , 363 Ark. at 174, 213 S.W.3d at 603 ; see also Barnhart , 308 Ark. at 198–99, 823 S.W.2d at 882.

Despite the mandatory nature of the notice requirement, the defendant may waive the right to compel class notice in certain circumstances. The general rule provides that when the defendant moves for and obtains summary judgment before the class has been notified, the defendant waives the right to class notice, and the circuit court’s decision binds only the named plaintiffs. See, e.g. , Faber v. Ciox Health , 944 F.3d 593, 602–03 (6th Cir. 2019) (collecting cases). In such a situation, defendants "assume the risk that a judgment in their favor will not protect them from subsequent suits by other potential class members, for only the slender reed of stare decisis stands between them and the prospective onrush of litigants." Schwarzschild v. Tse , 69 F.3d 293, 297 (9th Cir. 1995) (quoting Postow v. OBA Fed. Sav. & Loan Ass'n , 627 F.2d 1370, 1382 (D.C. Cir. 1980) ).

This brings us to Kessler , the case at the center of the parties’ dispute. In Kessler , we cited Schwarzschild and Postow to conclude that the defendant’s decision to move for summary judgment prior to notice waived the right to contest the failure to give notice. Kessler , 363 Ark. at 174-75, 213 S.W.3d at 603. After the circuit court denied the defendant’s motion, it granted the plaintiffs’ counter motion for summary judgment. Id. But we did "not view the fact that [the defendant] was unsuccessful in its summary-judgment motion as decisive." Id. at 175, 213 S.W.3d 597. Rather, we stated it "would make little sense for a defendant to move for summary judgment on liability issues before notice, lose on that motion, and then argue that the court’s judgment violated notice requirements." Id. Accordingly, we held the pre-notice motion for summary judgment waived the mandate that notice be given under Rule 23(c). Id.

The circuit court below concluded that under Kessler , "it is the filing of a summary judgment motion, whether or not the opposing party was successful in its own efforts to secure summary judgment, that constitutes waiver of notice." This broad approach far exceeds the scope of Kessler and misapprehends the authorities relied upon in that opinion.

Unlike here (and Kessler ), the Schwarzschild defendants obtained summary judgment prior to notice. Schwarzschild , 69 F.3d at 297. The defendants subsequently sought to compel notice so to obtain a judgment that was binding upon the class. Id. The Ninth Circuit held that when defendants obtain summary judgment before class certification or notice, "they effectively waive their right to have notice circulated to the class" and the decision binds only the named plaintiffs. Id. Given that the City was not granted summary judgment, this case does not fall within the general rule announced in Schwarzschild .

Merriott suggests that post-judgment notice would be acceptable in this case. In Postow , the court held post-judgment notice is permitted "in appropriate circumstances" where "equitable reasons" demand binding the class. Postow , 627 F.2d at 1382-84. There, the court concluded it was not an abuse of discretion to order post-judgment...