On Appeal from the United States District Court for the Eastern District of Pennsylvania (C.A. No. 83-2194).
Adams and Weis, Circuit Judges, and Harris, District Judge*fn* .
The proper elements of notice to class members are a concern in almost every class action; consequently, the interrelated notice requirements of due process and Fed. R. Civ. P. Rule 23 have been frequently litigated. This case, however, raises the question of the adequacy of class notice in a novel context. Zimmer Paper Products, Incorporated, a member of the plaintiff class in an antitrust action, has sued its own class counsel for a breach of fiduciary duty and negligence in failing to provide to it sufficient notice of the settlement of the action. Zimmer asserts that because it never received notice of the settlement, it failed to file a claim for its share, thereby losing approximately $250,000. In seeking to recover this amount, plus interest and attorney's fees, it advances two contentions: (1) that class counsel breached its fiduciary duty by not suggesting or undertaking more thorough notice procedures than the court ordered; and (2) that class counsel negligently carried out the notice procedure that was ordered.
Attorneys for the class provided notice of the settlement and of the necessity to file a claim in a traditional court-approved manner: by both first-class mail and publication in the Wall Street Journal. The district court in this action determined that compliance with these approved notice procedures did not constitute a breach of fiduciary duty and further concluded [concluded] that plaintiff had made no showing of negligence in class counsel's execution of the notice. Accordingly, the district court granted defendants summary judgment. Because we agree that no negligence was shown, and because we are reluctant to find a breach of fiduciary duty on the basis of a violation of notice requirements that would effectively be imposed retroactively, we will affirm the judgment of the district court.
Defendants were class counsel in a antitrust class action. Glassine and Greaseproof Paper Antitrust Litigation. Plaintiff, Zimmer Paper Products, was one of more than 1500 plaintiff class members in the litigation. When the lawsuit was settled, Zimmer did not file a claim for its share of the settlement proceeds. It alleges that it failed to assert such a claim because class counsel did not provide adequate notice.
Two separate notices were sent to class members in the course of the antitrust litigation, one in June and the other in November of 1981. Both notices were carried out in the same court-approved manner. On April 10, 1981, after proposed settlements had been reached with three defendants, the court ordered that "Notice of Class Action and Proposed Partial Settlement" be mailed to all plaintiff class members by June 1, 1981, and be published in all regional editions of The Wall Street Journal.*fn1 Zimmer admits to receiving six copies of the June 1 notice.
The second notice, mailed November 10, 1981, and also published in the Wall Street Journal, informed class members of proposed additional settlements and, most importantly, of a plan for distribution of the settlement fund. Zimmer asserts that it did not receive any of the November 10 notices mailed to it, and although it did receive the Wall Street Journal, the notice that was contained in it apparently did not come to its attention.
Both sets of notices were approved by the court, and were carried out in the same manner -- by individual first-class mail and publication. Class counsel retained experienced, professional firms to prepare and mail the notices, as is customarily done. A list of potential class members was supplied to Provcor Services, Inc., a company that regularly engages in class action notice preparation. The list included Zimmer. Provcor placed the class members' names and addresses, and the deviations therefrom,*fn2 on a computer list. Its list also included Zimmer.
Provcor then verified the accuracy of the list, and printed gum-backed mailing labels. VPI Reproduction Center, Inc., and its subcontractor, Fischler's Printing & Office Products, printed the notices and prepared them for mailing. VPI, Fischler, and Provcor worked together, through Bartholomew Milano, a VPI employee, to ensure that the notices were properly printed, folded, addressed, and mailed. VPI made photocopies of the mailing labels. The photocopies show that seven labels were addressed to Zimmer for each mailing. Provcor then mailed the notices by first-class mail.*fn3
Zimmer admits to receiving six of the seven June 1, 1981, notices, which were mailed according to the above-described procedure. When this same procedure was followed on November 10, 1981, Zimmer insists that it received none of the seven notices. Since other plaintiff cases members responded by filing claims, it is apparent that at the very least many of the notices were received. Indeed, defendants point out that both Zenith Specialty Bag Co. (whose mailing label appeared on the page preceding Zimmer's), and Zorn Packaging, Inc. (whose mailing label was on the same page as Zimmer's) received the November 10 notice and filed claims.
On August 20, 1982, after the district court had approved the claims filed by class members, the settlement fund was fully distributed, on a pro rata basis. Approximately nine months later, in May, 1983, Zimmer filed this action, charging defendants with a breach of their fiduciary duties and with negligence in failing to assure that Zimmer was notified. Zimmer argued before the district court that the notice should have been conducted by certified mail, return receipt requested, rather than first-class mail; that class counsel had a duty to conduct some follow-up procedures upon learning of the 12% response rate to have created a reserve contingency fund for late claims; and that class counsel negligently carried out the mailing.
Defendants moved for summary judgment, and on August 2, 1983, the district court granted partial summary judgment. The court held that the defendants had no duty to send notices by certified or registered mail, to employ follow-up procedures, or to establish a reserve contingency fund for late claims.*fn4 It further held that "first class mailing is sufficient to satisfy the notice requirements of Federal Rule of Civil Procedure 23(a); moreover, first class mailing comported with the court's order as to the mode of notice to be utilized." App. at 372.
The district court did not dismiss the entire case at that time, but allowed plaintiff to go forward in order to determine through discovery whether the mailing procedure itself was negligently administered. After extensive discovery, the district court awarded defendants summary judgment on the remaining issue, concluding that Zimmer had produced no evidence that would support a finding of negligence. This appeal followed.
Zimmer advances two principal contentions on appeal. First, it contends that, given the particular circumstances of this case, class counsel breached its fiduciary duty in suggesting and conducting a court-approved notice procedure that utilized only first-class mail and publication. Second, it maintains that even if the court-ordered notice is legally sufficient to meet counsel's fiduciary obligations, there are material issues of fact regarding negligence in the execution of the notice procedure that preclude summary judgment. We address these arguments in order.
It is well settled that in the usual situation first-class mail and publication fully satisfy the notice requirements of both Fed. R. Civ. P. 23 and the due process clause. See Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 173-77, 40 L. Ed. 2d 732, 94 S. Ct. 2140 (1974); Walsh v. Great Atlantic & Pacific Tea Co., 726 F.2d 956, 962-64 (3d Cir. 1983); Cayuga Indian National v. Carey, 89 F.R.D. 627, 632-33 (N.D.N.Y. 1981). rule 23, which effectively incorporated the due process standards suggested by the Supreme Court in Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314, 318, 94 L. Ed. 865, 70 S. Ct. 652 (1950), establishes varying notice requirements, depending on the nature of the class action and the content of the notice. See Fed. R. Civ. P. 23 Advisory Committee Notes to 1966 Amendment ("mandatory notice pursuant to subdivision (c)(2), together with any discretionary notice which the court may find it advisable to give under subdivision (d)(2), is designed to fulfill requirements of due process"). This rule is in keeping with Mullane's directive that notice "must be such as is reasonably calculated to reach interested parties" and "apprise [them] of the pendency of the action." Mullane, 339 U.S. at 314, 318. Rule 23(d)(2) governs most notices during the pendency of a class action and confides the manner of notice to the district court's discretion, subject to due process requirements. Rule 23(e), which also commits the form of the notice to the court's discretion, mandates notice in it, such as the November 10 notice at issue here. A higher ...