Zahn v. International Paper Company

Docket No. 71-2157 (2d Cir. September 7, 1972)

A diversity case may not proceed as a class action when the named plaintiffs meet the jurisdictional amount but the unnamed representatives of the class do not. This defect may not be cured by the named plaintiffs allocating part of their share of punitive damages to the class members. Each member must show his damages reach the jurisdictional amount and the action (by lakeside residents against an allegedly polluting paper mill) must proceed as individual actions, not a class action.

Counsel for Plaintiffs
Mark L. Sperry
Langrock & Sperry
Middlebury, Vermont 05753

Counsel for Defendant
Taggart Whipple
Davis, Polk & Wardwell
One Chase Manhattan Plaza
New York, N.Y. 10005

Henry F. Black
George W. Ray, Jr.
Black & Plante
Municipal Building
White River Junction, Vermont 05001

Before: MOORE, SMITH and TIMBERS, Circuit Judges.

[2 ELR 20616]

SMITH, Circuit Judge:

We are confronted with the novel question whether a diversity case will be allowed to proceed as a class action under Fed. R. Civ. P. 23(b)(3) when the named plaintiffs meet the jurisdictional amount requirement of 28 U.S.C. § 1332(a) but the unnamed representatives of the class do not.¹ That question was answered in the negative by the late Chief Judge Leddy in the United States District Court for the District of Vermont (53 F.R.D. 429). He refused to allow the case to proceed as a class action and struck all references in the complaint to persons other than the four named plaintiffs. On October 21, 1971, Judge Leddy certified the order for interlocutory appeal under 28 U.S.C. § 1292(b), and this court granted permission to appeal.

The complaint, brought by the four named owners of lakefront property on Lake Champlain on behalf of themselves and some 200 other similarly situated riparian landowners and lessees, sought compensatory and punitive damages in the total amount of $40,000,000 for damage to their property rights caused by appellee's alleged pollution of the lake's waters. Purportedly the discharge of untreated or inadequately treated waste from appellee's now-closed pulp and paper making plant in the Village of Ticonderoga, passing into the lake via Ticonderoga Creek, created a massive sludge blanket on the bottom of the lake; masses of sludge apparently break off periodically to wash up on appellants' property. As a consequence appellants' property is claimed to be unfit for any recreational or other reasonable use and to be permanently diminished in value.

With "great reluctance" the district court read Snyder v. Harris, 394 U.S. 332 (1969) to compel the holding that "each class member in a spurious class action must independently satisfy the requirement as to jurisdictional amount." We agree and affirm the order below.

This case, brought under Rule 23(b)(3), would have been characterized as a "spurious" class action prior to the 1966 amendment of Rule 23. Since the new Rule 23 was intended to substitute a functional, pragmatic approach for the confusing conceptualism of the old rule,² the question arose whether the old restrictions which had precluded the aggregation of separate claims to compute the amount in controversy in a spurious class action were discarded. In Snyder, the Court stated flatly that the old categories and doctrines still apply to the determination of jurisdictional amount: in class actions which would formerly have been [2 ELR 20617] classified as spurious, separate and distinct claims may not be aggregated. It is true that in Snyder no single plaintiff met the jurisdictional amount; as the Court stated the issue, it declined to "hold that 'matter in controversy' encompasses the aggregation of all claims that can be brought together in a single suit, regardless of whether any single plaintiff has a claim that exceeds the jurisdictional amount." Snyder, 394 U.S. at 338 (emphasis supplied). Snyder therefore does not squarely hold that every unnamed member of a proposed spurious class must individually satisfy the jurisdictional amount. But appellants' attempt to escape the ambit of Snyder by this route is met by persuasive internal evidence that the Court did not so limit the rule enunciated there.³

The Court stated the jurisdictional rule for the former spurious class action, unaltered by the amended Rule 23, to have been that "each plaintiff had to show that his individual claim exceeded the jurisdictional amount." Id. at 335 (emphasis supplied). The Court stressed that the aggregation doctrine, grounded in the statutory phrase "matter in controversy," far antedated Rule 23, and adopted by illustration the language of an early joinder case, Troy Bank v. G.A. Whitehead & Co.:

When two or more plaintiffs, having separate and distinct demands, unite for convenience and economy in a single suit, it is essential that the demand of each be of the requisite jurisdictional amount. . . . 222 U.S. 39, 40. [Id. at 336 (emphasis supplied)]

And the analogy to joinder cases remains valid:

The fact that judgments under class actions formerly classified as spurious may now have the sma effect as claims brought under the joinder provisions is certainly no reason to treat them differently from joined actions for purposes of aggregation.

[Id. at 337 (emphasis in original)]

After 1938, Clark v. Paul Gray, Inc., 306 U.S. 583 (1939), the rule evolved in joinder cases that distinct claims could not be aggregated was applied to class actions under the new Federal Rules. Even aside from the clear language quoted above, the Court's reliance on Clark appears to offer an insurmountable obstacle to appellants, for the Clark Court had recognized that one originally named member of the proposed class might meet the jurisdictional amount requirement, just as the named plaintiffs do here; yet the action was dismissed as to all plaintiffs except that one. Clark, 306 U.S. at 589-590. It is no basis to distinguish Clark that all, rather than only one, of the named plaintiffs here meet the jurisdictional amount requirement; the point is that in a spurious class action one plaintiff may not ride in on another's coattails. Similarly the Court of Appeals for the Fifth Circuit, whose position was upheld by Snyder, dismissed a purported class action where only one member of the proposed class, albeit not a named member, could make a showing of the requisite jurisdictional amount, citing Clark v. Paul Gray, Inc., supra. Alvarez v. Pan American Life Insurance Co., 375 F.2d 992, 996-997 (5th Cir.), cert. denied, 389 U.S. 827 (1967).

We are entirely sympathetic to the proposition that the amended Rule 23 "should be given a liberal rather than a restrictive interpretation" in order to vindicate small federal claims. Eisen v. Carlisle & Jacquelin, 391 F.2d 555, 563 (2d Cir. 1968); but the policies underlying the amended rule are not determinative of this case.⁴ Rather it is clear in the light of Snyder, 394 U.S. at 336, that the critical focus in resolving the issue before us must be on 28 U.S.C. § 1332. Accepting that, one might ask how application of the aggregation doctrine to preclude this class action will sustain the congressional purpose underlying the jurisdictional amount requirement of section 1332 stressed in Snyder: to check the rising caseloads in federal courts. After all, this action may still be maintained in federal court under the banner of the named plaintiffs; but that was equally true in Clark and Alvarez. However, were this case to proceed as a class action it would in fact significantly increase the burden on the federal courts. Once appellee's liability had been established, and even assuming that appellee's defenses would not vary as to different members of appellants' class, it would be an enormously time consuming task to assess the damages suffered by each of the 200 riparian landowners, each of whose claims is regarded as separate and distinct. Indeed the Advisory Committee did not intend that Rule 23(b)(3) ordinarily be utilized in a mass tort situation. Advisory Committee Note, 39 F.R.D. 98, 103 (1966). Moreover a second policy consideration relied on in Snyder is relevant here: local controversies involving claims to be settled on the basis of state law "can often be most appropriately tried in state courts." Snyder, 394 U.S. at 341.

We are therefore persuaded that the district court properly applied the non-aggregation doctrine in refusing jurisdiction over the plaintiff class proposed in this case.

Affirmed.

1. The district court found that the named plaintiffs had each made good faith claims of damage in excess of $10,000, but that it was to a legal certainty incredible that each of the other lakefront landowners had suffered pollution damage in that amount. Appellants would cure this defect by allotting to the unnamed plaintiffs their share of the claimed punitive damages ($10,000,000); therefore, they argue, no final determination of class status can be made until after damages have been awarded. But the trial court is plainly not compelled to accept a claim of punitive damages, however unwarranted, made for the purpose of conferring federal jurisdiction. See Schroeder v. Nationwide Mutual Insurance Co., 242 F. Supp. 787, 789 (S.D.N.Y. 1965). Indeed, in computing jurisdictional amount, a claim for punitive damages is to be given closer scrutiny, and the trial judge accorded greater discretion, than a claim for actual damages. See Brown v. Bank of America Trust & Savings Ass'n., 281 F. Supp. 82, 84 (N.D. Ill. 1968). Since punitive damages are considered together with actual damages in determining the amount in controversy, the district court necessarily rejected appellants' claim for punitive damages as exorbitant when it found to a legal certainty that the jurisdictional amount could not be met. Given a mass tort situation in which the conduct complained of has been altered to conform to changing societal attitudes, and in which multiple punitive awards would in any case be of doubtful utility, see Roginsky v. Richardson-Merrell, Inc., 378 F.2d 832, 840-841 (2d Cir. 1967), we are not persuaded that the district court has abused its discretion.

2. See C. Wright, Handbook of the Law of Federal Courts § 72, at 307 (2d ed. 1970).

3. Indeed the dissent plainly read the rule laid down in the majority opinion to deny appellants this escape. Snyder, 394 U.S. at 343.

4. It is clear both from the majority opinion, 394 U.S. at 338, 341 and from the dissent of Justice Fortas, joined by Justice Douglas, id. at 342, that the Court in Snyder confronted and rejected the same policy arguments based on the amended Rule 23 which are presently made to this court.

[2 ELR 20617]

TIMBERS, Circuit Judge (dissenting):

With deference, it seems to me that the majority reads the Supreme Court's decision in Snyder v. Harris, 394 U.S. 332 (1969), for all it might be worth, rather than for the least it has to be worth. More significantly, the majority decision here ignores the well-established principle that if a case is properly in a federal court, that court has subject matter jurisdiction over the case or controversy in its entirety and therefore can adjudicate related claims of ancillary parties who have no independent jurisdictional grounds.

The concept of "ancillary jurisdiction" has been a part of the jurisprudence of the federal courts for many years. [2 ELR 20618] It originally was used to allow parties otherwise without grounds for jurisdiction to assert rights in property that had come under a federal court's control. Freeman v. Howe, 65 U.S. (24 How.) 450 (1861). Similarly, the doctrine was utilized to enable federal courts to effectuate their judgments in suits that had properly been before them. Supreme Tribe of Ben-Hur v. Cauble, 255 U.S. 356 (1921). During this early period, the concept of ancillary jurisdiction was applied only to situations in which its use was necessary to the effective operation of the federal courts.

Since the Supreme Court's decision in Moore v. New York Cotton Exchange, 270 U.S. 593 (1926), however, the concept has been used primarily to promote judicial economy through the avoidance of piecemeal litigation. In Moore, a state claim not independently cognizable in a federal court was asserted by way of compulsory counterclaim to a federal claim. The Court held that the state claim could be heard in the federal court even though the federal claim was eventually dismissed on the merits. The Moore decision was one of the major inspirations for the development of a general principle that federal courts can invoke ancillary jurisdiction to resolve in a single action any disputes, regardless of jurisdictional sufficiency, arising out of the facts supporting the plaintiff's "cause of action". See, e.g. Hurn v. Oursler, 289 U.S. 238 (1933).

The enactment of the Federal Rules of Civil Procedure, with their provisions for liberal joinder of parties and claims, especially stimulated the growth of the ancillary jurisdiction doctrine. The Rules broadened the concept of a single triable case or controversy by allowing to be joined in one action all parties and claims related to the main action. Also, courts found the ancillary jurisdiction doctrine helpful in putting to use some of the new joinder devices, particularly Rules 14, 20 and 24. Lower federal courts including ours, were quick to recognize that ancillary jurisdiction was available to solve jurisdictional problems, such as lack of diversity or amount in controversy, which were often attendant upon utilization of joinder procedures. See, e.g. Dery v. Wyer, 265 F.2d 804 (2 Cir. 1959) (impleader of third party defendant); Formulabs, Inc. v. Hartley Pen Co., 318 F.2d 485 (9 Cir. 1963) (intervention as of right); Jacobson v. Atlantic City Hosp., 392 F.2d 149 (3 Cir. 1968) (simple joinder of parties). But see Hymes v. Chai, 407 F.2d 136 (9 Cir. 1969) (simple joinder of parties).¹ These developments impelled one commentator to say recently that the ancillary jurisdiction doctrine "is in a process of evolution from a rule of prevention of basic unfairness to a rule of convenience for resolving all issues involved in the subject of the matter before the court". Note, Federal Practice: Jurisdiction of Third-Party Claims, 11 Okla. L.Rev. 326, 329 (1958), quoted in 7A Wright & Miller, Federal Practice and Procedure § 1917, at 590 n. 29 (1969). The majority's decision today greatly retards this "process of evolution".

An extension of the ancillary jurisdiction doctrine to permit an adjudication of the claims of the unnamed plaintiffs in this action would be unquestionably harmonious with this development.² For example, although in the past the courts had held that they could not invoke ancillary jurisdiction to hear claims for less than $10,000 asserted by parties joined under Rule 20, the majority of recent decisions are to the contrary. See, e.g., General Research, Inc. v. American Employers' Ins. Co., 289 F. Supp. 735 (W.D. Mich. 1968); Lucas v. Seagrave Corp., 277 F. Supp. 338 (D. Minn. 1967); John Manville Sales Corp. v. Chicago Title & Trust Co., 261 F. Supp. 905 (N.D. Ill. 1966). This change in position reflects growing realization that the disposition of jurisdictionally insufficient claims along with reasonably related claims having an independent jurisdictional basis is expeditious and not unduly burdensome. There is, of course, a limit on the number and nature of claims that can be conveniently tried together, but that limit would not be exceeded by adjudicating all the class members' claims here. Indeed, the purpose of the Rule 23(b)(3) class action device was to provide an efficient and economically effective procedure for adjudicating numerous small, closely related claims. See Eisen v. Carlisle and Jacquelin, 391 F.2d 555 (2 Cir. 1968); Escott v. Barchris Construction Corp., 340 F.2d 731 (2 Cir. 1965).

II.

The Supreme Court has not yet dealt with an ancillary jurisdiction doctrine in the context of a decision involving the Federal Rules of Civil Procedure. But in United Mine Workers v. Gibbs, 383 U.S. 715 (1966), the Court commented on the impact of the Rules while approving the liberal use of "pendent jurisdiction", a particularized application of the ancillary jurisdiction concept. In Gibbs, the plaintiff asserted a claim under § 303 of the Labor Management Relations Act and a state claim of unlawful conspiracy and boycott. The Court held that by means of pendent jurisdiction the federal court had adjudicative power over the state claim. Writing the opinion for the Court, Justice Brennan said:

". . . Under the [Federal Civil] Rules, the impulse is toward entertaining the broadest possible scope of action consistent with fairness to the parties; joinder of claims, parties and remedies is strongly encouraged. Yet because the Hurn question involves issues of jurisdiction as well as convenience, there has been some tendency to limit its application to cases in which the state and federal claims are, as in Hurn, 'little more than the equivalent of different epithets to characterize the same group of circumstances.' 289 U.S., at 246.

[2 ELR 20619]

This limited approach is unnecessarily grudging. Pendent jurisdiction, in the sense of judicial power, exists whenever there is a claim 'arising under [the] Constitution, the Laws of the United States, and Treaties made, or which shall be made, under their Authority . . .,' U.S. Const., Art. III, § 2, and the relationship between that claim and the state claim permits the conclusion that the entire action before the court comprises but one constitutional 'case.' The federal claim must have substance sufficient to confer subject matter jurisdiction on the court. Levering & Garrigues Co. v. Morrin, 289 U.S. 103. The state and federal claims must derive from a common nucleus of operative fact. But if, considered without regard to their federal or state character, a plaintiff's claims are such that he would ordinarily be expected to try them all in one judicial proceeding, then assuming substantiality of the federal issues, there is power in federal courts to hear the whole." 383 U.S. at 724-25.

These principles as expressed by the Gibbs court apply equally to a situation where the claims of named plaintiffs in a class action are properly before the court but the similar claims of other members of the class lack subject matter jurisdiction: judicial authority over the ancillary claims exist if the relationship between the claims having independent jurisdictional grounds and the pendent claims "permits the conclusion that the entire action before the court comprises but one constitutional 'case'"; or, as applied to the jurisdictional deficiency in the instant case, "if, considered without regard to" the amount in controversy, the claims satisfying the jurisdictional amount requirement and those that do not "are such that [the parties] would ordinarily be expected to try them all in one judicial proceeding, . . . there is power in federal courts to hear the whole". 383 U.S. at 724-25. Indeed, since pendent jurisdiction concerns constitutional limitations on the jurisdiction of federal courts, while the instant suit involves only statutory limitations, the case for recognizing jurisdiction over all class members and their claims here is even stronger. See Leather's Best, Inc. v. S.S. Mormaclynx, 451 F.2d 800, 809-11 (2 Cir. 1971); cf. Ryan v. J. Walter Thompson Co., 453 F.2d 444, 446 (2 Cir. 1971), cert. denied, U.S. ( ).

III.

The majority's reliance on Snyder v. Harris, 394 U.S. 332 (1969), and Clark v. Paul Gray, Inc., 306 U.S. 583 (1939), strikes me as being unsupportable. In Snyder no member of the class had a claim that could satisfy the amount in controversy requirement; so the Court never reached the ancillary jurisdiction issue. The Court held that the separate and distinct claims presented by or on behalf of the various claimants could not be aggregated to supply the $10,000 jurisdictional amount. The Court reached that result because (1) there was a settled line of precedent establishing that separate and distinct claims could not be aggregated for jurisdictional amount purposes, and (2) the workload of the federal courts would be substantially increased if those precedents were overruled. The Court's position was summarized in the following statement:

"There is no compelling reason for this Court to overturn a settled interpretation of an important congressional statute in order to add to the burdens of an already overloaded federal court system." 394 U.S. at 341.

The rationale of the Snyder decision is inapplicable to the issue before us. There is no "settled line of precedent" that every member of a Rule 23(b)(3) class must satisfy the amount in controversy requirement. The Snyder court referred to Clark v. Paul Gray, Inc. as the first case to apply the nonaggregation rule to a class action situation. 394 U.S. at 336-37.In that case, as the majority here points out, at least one plaintiff had a claim in excess of $10,000, but the Supreme Court held that each plaintiff who had a similar claim must meet the amount in controversy requirement. That suit, however, seems not to have been a class action, although the Snyder court characterized it as such; it was merely a case of permissive joinder. It was decided prior to the 1966 amendment of Rule 23, which had the effect of making a judgment in a Rule 23(b)(3) class action binding on unnamed plaintiffs, thus greatly distinguishing it from a permissive joinder situation and old Rule 23.

Most importantly, whatever the nature of the action in Clark, the precedential value of that decision has been substantially reduced by recent decisions. Although the Court in Snyder cited Clark with approval, its approval was directed not to the holding in Clark but to some of Clark's dictum on aggregation of claims. Since Clark was decided, moreover, the ancillary jurisdiction doctrine has expanded and grown. As discussed above, within the last few years many federal courts have held that a court has discretion to adjudicate a jurisdictionally insufficient claim joined with a claim for more than $10,000 if the claims derive primarily from the same operative facts. See Hatridge v. Aetna Cas. & Sur. Co., 415 F.2d 809 (8 Cir. 1969); Stone v. Stone, 405 F.2d 94 (4 Cir. 1968); Jacobson v. Atlantic City Hospital, 392 F.2d 149 (3 Cir. 1968); Wilson v. American Chain and Cable Co., 364 F.2d 558 (3 Cir. 1966); Wright, Federal Courts 124, 316 (1970). Cf. United Mine Workers v. Gibbs, supra. But see Alvarez v. Pan American Life Ins. Co., 375 F.2d 992, 996-97 (5 Cir.), cert. denied, 389 U.S. 827 (1967), referred to by the majority.³ In the light of this distinct trend, and the Supreme Court's enthusiastic endorsement in Gibbs of the ancillary jurisdiction concept, old cases such as Clark should be wielded with discrimination.

The other reason for the result in Snyder — to avoid a large increase in the workload of the federal courts — is also inapplicable to the present controversy. The four named plaintiffs here meet the jurisdictional requirements; a federal court must adjudicate their claims. The burden on the federal courts would not be substantially increased if the claims of the other class members were to be heard by the same court; the predominate questions of law or fact with regard to these claims must be common to all the claims or a class action could not be brought. If the [2 ELR 20620] trial court decides before or during trial that the resolution of individual issues will be difficult and time-consuming, it can refuse to try the ancillary claims. The Gibbs decision provides authority for wide discretion in a trial judge to determine whether all the claims arising out of a transaction or occurrence should be tried together in federal court:

"That power [pendent jurisdiction] need not be exercised in every case in which it is found to exist. It has consistently been recognized that pendent jurisdiction is a doctrine of discretion, not of plaintiff's right. Its justification lies in considerations of judicial economy, convenience and fairness to litigants; if these are not present a federal court should hesitate to exercise jurisdiction . . . ." 383 U.S. at 726.

The position of the majority in this action promotes duplicative litigation — a trial of the representative claims in the federal court and an identical action by the other class members in the state court. Not only does this discourage the named plaintiffs from asserting their right to a federal forum, but it restricts the use of the Rule 23(b)(3) class action to the extraordinary situation in which every member of the class has a claim in excess of $10,000 (unless a statute dispensing with the jurisdictional amount requirement can be invoked). Furthermore, there is no guarantee that a class action could be initiated in the state court. Many states discourage class actions and if the individual claims are so small that suit would have to be instituted in a state court of limited jurisdiction, most likely the class action device would be unavailable.

The majority's decision is not compelled by Snyder and Clark, as the opinion states. The result reached disregards the development of a sound doctrine for more efficient and economical judicial administration and severely impairs the efforts of those who would modernize the federal law of class actions. It undercuts this Circuit's strong policy favoring class actions. I therefore respectfully dissent.

1. In addition to a split of authority on the use of ancillary jurisdiction with regard to joinder under Rule 20, the courts have also held that the doctrine may not be used to provide jurisdiction over a party determined to be indispensable under Rule 19, e.g. Lang v. Colonial Pipeline Co., 383 F.2d 986 (3 Cir. 1967), or a party seeking permissive intervention under Rule 24(b), e.g. Hunt Tool Co. v.Moore, Inc., 212 F.2d 685 (5 Cir. 1954).

2. Such a result would be consistent with the firmly established rule that claims against third party defendants properly impleaded under Rule 14 need not satisfy the amount in controversy requirement, King v. State Farm Mut. Ins. Co., 274 F. Supp. 824 (W.D. Ark. 1967); Schinella v. Iron Workers Union Local 361, 149 F. Supp. 5 (E.D.N.Y. 1957), and the rule that once federal jurisdiction has been fixed by the original parties of record in a class action, subsequent intervenors need not meet the jurisdictional requirements as to diversity and amount, Dickinson v. Burnham, 197 F.2d 973 (2 Cir. 1952).

3. Alvarez held that in a class action where the claims of the members are several and distinct, each member must establish jurisdictional amount.