September 4th, 1998

Precedential

96-3749

                                                                                [PUBLISH]

                        IN THE UNITED STATES COURT OF APPEALS

                                 FOR THE ELEVENTH CIRCUIT
                                  ________________________

                                    Nos. 96-3749 and 98-2259
                                                                           FILED
                                   ________________________U.S. COURT OF APPEALS
                                                             ELEVENTH CIRCUIT
                        D. C. Docket No. 95-1261-CIV-T-24A        09/04/98
                                                              THOMAS K. KAHN
KEVIN TWIGG, individually and on behalf of                         CLERK
all others similarly situated,

                                                                            Plaintiff-Appellant,

                                              versus

SEARS, ROEBUCK & CO.,

                                                                           Defendant-Appellee.

                                   ________________________

                            Appeal from the United States District Court
                                for the Middle District of Florida
                                 _________________________
                                       (September 4, 1998)

Before TJOFLAT, COX and HULL, Circuit Judges.

COX, Circuit Judge:
       Kevin Twigg appeals the district court’s grant of summary judgment in favor of Sears,

Roebuck & Company on the ground that Twigg’s claims were precluded by a judgment in an

earlier class action against Sears. We reverse and remand.

                         I. FACTS AND PROCEDURAL HISTORY

       A.      Twigg’s Suit

       Twigg filed a complaint in the Middle District of Florida that asserts claims arising out of

his purchase of four new tires from a Sears automotive center in Sarasota, Florida on September

26, 1991. The complaint alleges that Twigg had Sears install the new tires on his car and

purchased, on Sears’s recommendation, the “AccuBalance” service, in which a machine “test[s]

a rim-mounted tire and, if the testing indicates it is necessary, the machine shaves rubber from

parts of the tire thereby making the tire/rim unit round.” (R.1-11 at ¶ 12.) Twigg alleges that

Sears did not perform the AccuBalance service on his tires, and that Sears in fact performed the

service less than 50% of the time that it was sold to customers. Twigg filed the instant action as

a class action, defining the class as “all Sears customers who paid Sears for the AccuBalance

service with new tires purchased during the period of May 1989 and [sic] June 1994.” (R.1-11 at

¶ 55.) He asserts three claims: federal civil RICO, common-law fraud, and conversion.

       Sears moved to dismiss the action, asserting: (1) that Twigg did not allege a sufficient

injury to support standing; (2) that Twigg did not allege an injury sufficient to pass Florida’s

“economic loss” rule; (3) that Twigg failed to state a claim for a RICO violation or for

conversion; and (4) that the settlement, release, and final judgment in a 1992 consumer class

action against Sears barred Twigg’s claims. In his opposition to the motion, Twigg contested

Sears’s arguments, and argued additionally that notice in the earlier action was insufficient to


                                                -1-
apprise him as to his rights, and therefore to bar his suit would deny him due process. (See R.5-

111 at 17-19 (opposition to motion for summary judgment).) The district court dismissed

Twigg’s conversion claim for failure to state a claim, but concluded that he alleged an injury

sufficient both to support standing and to pass the economic loss rule, and that he sufficiently

pleaded a civil RICO claim. As for Sears’s argument that Twigg’s claims were precluded by the

judgment and release in the prior class action, the district court converted that portion of Sears’s

12(b)(6) motion into a motion for summary judgment, granting limited discovery on the issue of

claim preclusion.

       B.      The 1992 National Class Action

       Before discussing the district court’s resolution of the claim preclusion issue, it is useful

to set out the underlying facts of the prior class action. In 1992 the California Department of

Consumer Affairs, Bureau of Auto Repair (“BAR”) released the results of an eighteen-month

investigation into the practices of Sears Tire and Auto Centers. BAR concluded in the report

that Sears Tire and Auto Centers habitually overcharged customers for auto repairs,

recommended unnecessary repairs, and charged for repairs that were never in fact completed.

The heavily publicized results of BAR’s investigation prompted the filing of a number of class

actions against Sears both in California and in other states, alleging various consumer fraud and

deceptive trade practice claims. These cases ultimately were consolidated into a single class

action (the “1992 National Class Action”) in the United States District Court for the Northern

District of California styled In re Sears Automotive Center Consumer Litigation, No. C-92-2227-

RHS. The suit focused on Sears’s compensation policy, which based employees’ compensation

on the number of auto services they completed within a given period and set quotas for certain


                                                 -2-
high-profit-margin automotive repairs. The complaint alleged that the commission-and-quota

compensation system encouraged Sears personnel to recommend and perform unnecessary

services, to perform services in a hasty, slipshod manner, or to charge for services that were

never in fact performed. (See R.1-16 Ex. 2-A (Second Amended Class Complaint - 1992

National Class Action).)

          The parties reached a settlement, and in September 1992 the district court provisionally

certified a mandatory settlement class under FED. R. CIV. P. 23(b)(1) and 23(b)(2) and appointed

settlement class representatives and counsel. The court also granted preliminary approval of the

proposed settlement pending a final settlement approval hearing, and approved dissemination of

a Notice of Proposed Settlement by publication in newspapers nationwide. The district court

held a final settlement approval hearing, and in October 1992 entered an order finally certifying

the class as an “opt-out” class under FED. R. CIV. P. 23(b)(3) and approving a settlement in the

action.

          The settlement provided compensatory relief in the form of $50 coupons issued by Sears

to class members who purchased and had installed at a Sears Auto Center a pair of brake

calipers, a pair of coil springs, a pair of shock absorbers, a master cylinder, or an idler arm. (See

R.1-16, Ex. 3-A, Settlement Agreement at 9-10.) The settlement also contractually obligated

Sears, pursuant to its “Satisfaction Guaranteed or Your Money Back” policy, to “review any

complaints or concerns that any customer presents to it that unnecessary service was performed,

or that services were incorrectly performed, by a Sears Auto Center,” and to “take corrective

action for members of the Plaintiff Settlement Class consistent with the policy” if appropriate.

(Id. at 8-9.) Sears also agreed to “re-communicate to all service employees in its Auto Centers


                                                 -3-
its firm policy” that none of its employees should recommend unnecessary auto repairs. (Id. at

7.) Class counsel received $3,000,000 in fees and costs, plus interest. (See id. at 16-17.)

       The parties formulated a plan of distribution by which a final notice of settlement,1

including a proviso that settlement class members could opt out of the settlement if they wished,

would be published nationwide in major newspapers and posted in Sears stores. The district

court approved the parties’ plan.

       C.      The District Court’s Ruling on Sears’s Motion for Summary Judgment

       In determining whether the 1992 National Class Action barred Twigg’s claims, the

district court started from the well-established proposition that there are four elements to claim

preclusion: (1) a final judgment on the merits; (2) rendered by a court of competent jurisdiction;

(3) identity of parties; and (4) identity of causes of action. See, e.g., Kemp v. Birmingham News

Co., 

608 F.2d 1049

, 1052 (5th Cir. 1979). The parties did not dispute that a court of competent

jurisdiction had rendered a final judgment in the 1992 National Class Action, which left only

identity of parties and identity of causes of action to be adjudicated. With respect to identity of

parties, the central point of contention was the meaning of “automobile repairs” as used in the

Northern District of California’s order defining the class as “persons or entities who purchased

any automobile repairs (including both the parts and the labor) from any Sears Auto Center from

June 10, 1988 through September 2, 1992.” (R.1-16, Ex. 3-A at 3.) Twigg argued that the

AccuBalance service does not constitute “automobile repairs,” and thus he was not a member of

the class in the 1992 action. The district court observed that the settlement agreement was



       1
      Both the preliminary and final notices are included in their entirety as
appendices to this opinion.
                                                 -4-
governed by California law, and turned to a California regulatory statute defining “repair of

motor vehicles.” Based on its reading of that statute, the district court concluded that the

AccuBalance service constitutes “automobile repairs,” and that Twigg was a class member in the

earlier action.

        In determining whether the causes of action were identical, the district court turned to our

decision in Manning v. City of Auburn, 

953 F.2d 1355

 (11th Cir. 1992), which held that a

“determination of whether the causes of action in two proceedings are the same is governed by

whether the primary right and duty are the same,” and that claim preclusion applies “not only to

the precise legal theory presented in the previous litigation, but to all legal theories and claims

arising out of the same operative nucleus of fact.” 

Id. at 1358

 (quotations omitted). In support of

its contention that Twigg’s claims arose out of the same operative nucleus of fact, Sears pointed

to two items: (1) the complaint in the 1992 National Class Action, which alleged, inter alia, that

Sears charged for services that were never performed; and (2) the BAR investigation, which

included the investigation of tire services and precipitated the 1992 National Class Action. The

district court, finding these contentions persuasive, concluded that Twigg’s claims arose from the

same operative nucleus of fact as the claims in the 1992 National Class Action for purposes of

claim preclusion. Having found the elements of claim preclusion to be present, the district court

granted Sears’s motion for summary judgment on claim preclusion grounds; the court did not

explicitly address Twigg’s due process arguments. Twigg appeals.

        After the summary judgment ruling, Sears entered into an agreement to settle a suit

brought by the Attorney General of Florida concerning Sears’s nonperformance of AccuBalance

services in Florida between 1989 and 1993. Twigg learned of this settlement, and filed a Rule


                                                 -5-
60(b) motion for relief from judgment on the ground of newly discovered evidence, arguing that

Sears’s settlement of claims for the nonperformance of AccuBalance services from 1989 to 1993

constituted newly discovered evidence that the 1992 National Class Action did not encompass

AccuBalance services. The district court denied this motion on the ground that the 1997

settlement could not be newly discovered evidence sufficient to justify modification of the

judgment under FED. R. CIV. P. 60(b), as it was not in existence at the time of the summary

judgment order. Twigg appeals this ruling as well; the appeal was consolidated with his appeal

of the summary judgment order, and the two are now before us.

                                II. STANDARD OF REVIEW

       We review the district court’s grant of summary judgment de novo. See Hale v.

Tallapoosa County, 

50 F.3d 1579

, 1581 (11th Cir. 1995).

                          III. CONTENTIONS OF THE PARTIES

       The parties present numerous issues on appeal, but we will discuss only the issues

pertaining to claim preclusion.2 Twigg contends that he is not a member of the settlement class


       2
        The parties raise numerous other issues on appeal. Twigg argues: (1) that the
district court erred in concluding that no material issues of fact remained as to the
issue of claim preclusion; (2) that the district court erred in allowing Sears to raise
certain issues and file additional materials in its reply to Twigg’s opposition to the
motion for summary judgment; (3) that the district court erroneously refused to allow
Twigg to conduct additional discovery after Sears filed its reply to Twigg’s opposition
to the motion for summary judgment; (4) that the district court lacked jurisdiction
because the Northern District of California had reserved jurisdiction over the 1992
National Class Action for the purposes of administering the settlement agreement; and
(5) that the district court erred in concluding that Sears’s 1997 settlement of
AccuBalance claims with the Florida Attorney General was not newly discovered
evidence meriting relief under Rule 60(b). Sears advances the arguments it raised in
                                                                         (continued...)
                                               -6-
and that his claims are not identical to those raised in the 1992 National Class Action, and

therefore that the earlier action cannot bar his suit.3 Furthermore, he contends, even if claim

preclusion were applicable, barring his claims would deny him due process because: (1) he did

not receive notice of the 1992 National Class Action; and (2) even if he had, the published

notices to class members were insufficient to notify him that AccuBalance claims like his were

included in the 1992 action. Sears argues that Twigg was a member of the settlement class, that

claims like Twigg’s were litigated in the prior action, and that his claim therefore should be

barred. Additionally, Sears contends that both the content of the notices and the manner in

which notices were given were fully consistent with due process.

                                       IV. DISCUSSION

       Generally, principles of res judicata, or claim preclusion, apply to judgments in class

actions as in other cases. See Kemp v. Birmingham News Co., 

608 F.2d 1049

, 1054 (5th Cir.

1979). Yet class actions, as other cases, are subject to the requirements of due process: “Many

controversies have raged about the cryptic and abstract words of the Due Process Clause but

there can be no doubt that at a minimum they require that deprivation of life, liberty or property

by adjudication be preceded by notice and opportunity for hearing appropriate to the nature of

the case.” Mullane v. Central Hanover Bank & Trust Co., 

339 U.S. 306

, 313, 

70 S. Ct. 652

, 656-


       2
       (...continued)
support of its motion to dismiss as alternative grounds on which to affirm the district
court and additionally argues that even if the judgment in the 1992 National Class
Action does not preclude Twigg’s suit, it is precluded by the release executed in that
action. These arguments do not warrant discussion. See 11TH CIR. R. 36-1.
       3
       The district court did not certify Twigg’s proposed class, and therefore we
address the issues in this case only as they pertain to Twigg’s individual claims.
                                                -7-
57 (1950). Before the bar of claim preclusion may be applied to the claim of an absent class

member, it must be demonstrated that invocation of the bar is consistent with due process, see,

e.g., Johnson v. General Motors Corp., 

598 F.2d 432

, 435, 437 (5th Cir. 1979), and an absent

class member may collaterally attack the prior judgment on the ground that to apply claim

preclusion would deny him due process, see, e.g., Silber v. Mahon, 

957 F.2d 697

, 699-700 (9th

Cir. 1991); Gonzales v. Cassidy, 

474 F.2d 67

, 74-75 (5th Cir. 1973); see generally Note,

Collateral Attack on the Binding Effect of Class Action Judgments, 87 HARV. L. REV. 589

(1974). Sears does not contend that Twigg participated in the 1992 National Class Action or had

any source of information to inform him as to whether claims like his were litigated in that action

except for the published and posted notices. Thus, in determining whether notice of the 1992

National Class Action was sufficient to afford the process due, we look solely to the language of

the notices and the manner of their distribution. Cf. Bogard v. Cook, 

586 F.2d 399

, 408-09 (5th

Cir. 1978) (even though prisoner was putative member of prior class action seeking injunctive

and declaratory relief, court looked to notice to determine whether prisoner was properly

informed that claims for monetary damages could have been raised in prior litigation); King v.

South Cent. Bell Tel. & Tel. Co., 

790 F.2d 524

, 527 (6th Cir. 1985) (notice of proposed

settlement was ambiguous and plaintiff was uncertain as to full scope of prior class action, but

plaintiff received individual notice by mail and filed objection to proposed settlement; under

circumstances, plaintiff had sufficient notice to satisfy due process, and subsequent suit was

precluded by judgment in earlier class action).

       Twigg first argues that barring his suit would violate principles of due process because he

never received notice of the 1992 National Class Action. Due process requires that “[t]he means


                                                  -8-
employed [to give notice] . . . be such as one desirous of actually informing the absentee might

reasonably adopt to accomplish it.” Mullane, 

339 U.S. at 315

, 

70 S. Ct. at 657

. The Northern

District of California authorized notice by nationwide publication and posted notice in Sears

stores. Although this manner of notice may not satisfy the requirements of either due process4 or

FED. R. CIV. P. 23,5 we need not decide this issue, as we conclude that even if Twigg had

received the notices, their language was insufficient to notify him that claims like his were being

litigated in the action.

        The law of this circuit sets forth in some detail what the notice in a class action suit

should contain:




        4
        The record reveals that Twigg filled out a work order listing his name, address,
and telephone number when he brought his car to Sears. (See R.1-1, Ex. B.) Sears
supplied a number of similar work orders in an exhibit in support of its summary
judgment motion. (See R.1-16, Group Ex. B passim (complaints to BAR by people
who brought their cars to Sears, including work orders with names and addresses).)
Given the seeming ready availability of the names and addresses of absent class
members, the notices in the 1992 action may have been insufficient under Mullane.
See Schroeder v. City of New York, 

371 U.S. 211

, 212-13, 

83 S. Ct. 279

, 282 (1962)
(citing Mullane, 

339 U.S. at 318

, 

70 S. Ct. at 659

).

        5
       See Eisen v. Carlisle & Jacquelin, 

417 U.S. 156

, 

94 S. Ct. 2140

 (1974)
(proposed class in a 23(b)(3) class action included over 6,000,000 individuals,
2,250,000 of whose names and addresses were available from stock records; because
some class members were readily identifiable through reasonable effort, the express
language of Rule 23 precluded notice by publication only); see also In re Nissan
Motor Corp. Antitrust Litig., 

552 F.2d 1088

, 1098-99 (5th Cir. 1977) (manual search
for identifiable class members through 1,700,000 cards listing names and addresses
of purchasers of new motor vehicles, while expensive and time-consuming, is within
range of “reasonable effort” under Eisen).
                                                 -9-
               The essence of due process is that deprivation of life, liberty or property
       by adjudication be preceded by notice and opportunity for hearing appropriate to
       the nature of the case. . . .

               To satisfy this principle, it is not only necessary that the notice reach the
       parties affected but that it convey the required information. . . .

               ....

                . . . Surely the best notice practicable under the circumstances cannot stop
       with . . . generalities. It must also contain an adequate description of the
       proceedings written in objective, neutral terms, that, insofar as possible, may be
       understood by the average absentee class member. . . .

               Absentee class members will generally have had no knowledge of the suit
       until they receive the initial class notice. This will be their primary, if not
       exclusive, source of information for deciding how to exercise their rights under
       [R]ule 23. . . . Not only must the substantive claims be adequately described but
       the notice must also contain information reasonably necessary to make a decision
       to remain a class member and be bound by the final judgment or opt out of the
       action.

In re Nissan Motor Corp. Antitrust Litig., 

552 F.2d 1088

, 1103-05 (5th Cir. 1977) (quotations

and citations omitted); see also Bogard, 

586 F.2d at 408-09

 (plaintiff’s claims for money

damages not precluded by judgment in prior class action awarding injunctive and declaratory

relief when class notice did not alert him to possibility that he could seek individual money

damages).

       The preliminary notice (attached hereto as Appendix A) is directed to “[a]ll persons or

entities who, during the period from June 10, 1988 to September 2, 1992, inclusive, purchased

automotive repair services (including parts and/or labor) from any Sears, Roebuck & Co. Auto

Center.” App. A.6 As the parties’ briefs demonstrate, the meaning of the term “automotive



       6
             The preliminary and final notices here are materially similar in their
description of the action.
                                                -10-
repair services” and the question of whether that term encompasses AccuBalance is susceptible

to debate. Assuming arguendo that Twigg is a person who purchased “automotive repair

services,” the notices still needed to inform him as to whether claims like his were litigated in the

1992 action. Both the preliminary notice and the final notice attached hereto as Appendix B),

however, describe the gravamen of the 1992 National Class Action in a lone sentence. In the

preliminary notice, the gravamen of the action is described as follows: “The Consolidated

Amended Complaint filed in the action alleges that Sears and other defendants violated federal

and state laws by allegedly making unnecessary and/or improper repairs to its customers’

automobiles.” App. A (emphasis added). The final notice describes the gravamen of the action

as follows: “In their consolidated complaint, plaintiffs alleged that Sears and other defendants

violated federal and state laws by making unnecessary and/or improper repairs to its customers’

automobiles.” App. B (emphasis added). Twigg does not contend that the AccuBalance service

he paid for was either unnecessary or improperly performed. The claims described in the notices

arose out of services that, although “unnecessary” or “improper,” were actually rendered by

Sears. The notices do not alert a reader that the prior action included claims by Sears customers

based upon being billed for services that Sears never performed. The claims involved in the

1992 National Class Action apparently included claims of this kind, but the notices do not say

so.

       Twigg also contends that the settlement described in the final notice does not provide

relief to people with claims like his, therefore making it less likely that anyone with an

AccuBalance claim reading the notice would come to the conclusion that it was applicable to

him. We agree. The description of the settlement included in the final notice includes only one


                                                -11-
provision that could arguably afford compensatory relief to an AccuBalance claimant like

Twigg. It states that Sears “contractually obligated itself to all members of the Settlement Class

to take appropriate action consistent with its ‘Satisfaction Guaranteed or Your Money Bank’

policy.” App. B. Given our conclusion that the claims described in the notices do not include

claims based upon being billed for services that Sears never performed, the average person

would not understand Sears’s contractual undertaking relative to its “Satisfaction Guaranteed”

policy as affording compensatory relief to an AccuBalance claimant like Twigg.7

       Viewed as a whole, the notices do not adequately inform an absent class member like

Twigg either that claims like his were being litigated or that they had been settled. We need not

decide whether the district court correctly determined that Twigg was a person who purchased



       7
              While the actual terms of the settlement agreement on file in the 1992
National Class Action are not relevant to the due process analysis, we do not read the
settlement agreement to provide any compensatory relief to people with claims like
Twigg’s. The $50 coupons are available only to class members who had certain
services (not including AccuBalance) performed. (See R.1-16, Ex. 3-A, Settlement
Agreement at 9-10.) Sears points out that the settlement agreement obligates Sears
to “re-communicate to all service employees in its Auto Centers its firm policy” that
none of its employees should recommend unnecessary auto repairs. (Id. at 7.) While
this may qualify as some broad form of injunctive relief, this promise to instruct Sears
employees to refrain from future wrongdoing affords no compensatory relief to those
people who have already incurred damages due to Sears’s misconduct.
       Finally, Sears argues that people in Twigg’s position are covered by the
provision of the settlement agreement under which Sears contractually obligates itself
to class members to take action consistent with its “Satisfaction Guaranteed or Your
Money Back” policy. While the paragraph in question purports to apply to “each
member of the Settlement Class,” its also expressly limits Sears’s actions to
“review[ing] any complaints or concerns that any customer presents to [Sears] that
unnecessary service was performed, or that services were incorrectly performed, by
a Sears Auto Center.” (Id. at 9 (emphasis added).)
                                               -12-
“automotive repair services” or that his claims arose from the same operative nucleus of fact as

the 1992 National Class Action. Even if the elements of claim preclusion are present,

deficiencies in the notices preclude our allowing the judgment in the prior action to bar Twigg’s

claims because invocation of the bar would not be consistent with due process.

                                      V. CONCLUSION

       For the reasons cited above, we REVERSE the district court’s grant of summary

judgment in favor of Sears, and REMAND the case to the district court.

       REVERSED AND REMANDED.




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