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High Court Justices Put Off by N.J. Order That Defendant Foot Class-Notification Bill
New Jersey Law Journal
October 21, 2009
Three U.S. Supreme Court justices, including newcomer Sonia Sotomayor, have criticized a New Jersey judge's use of a means test to decide that a dating service sued for consumer fraud should pay the cost of notifying up to 1,600 potential class-action beneficiaries.
"To the extent that New Jersey law allows a trial court to impose the onerous costs of class notification on a defendant simply because of the relative wealth of the defendant and without any consideration of the underlying merits of the suit, a serious due process question is raised," wrote Justice Anthony Kennedy, joined by Sotomayor and Chief Justice John Roberts Jr., in a concurrence accompanying a denial of certiorari in DTD Enterprises Inc. v. Wells, No. 08-1407.
Unlike federal class action law that puts the onus on plaintiffs to pay the cost of notification, New Jersey court rules give judges latitude to allocate notification costs among the litigants.
"Where a court has concluded that a plaintiff lacks the means to pay for class certification, the defendant has little hope of recovering its expenditures later if the suit proves meritless," Kennedy said. "And there is considerable force to the argument that a hearing in which the trial court does not consider the underlying merits of the class-action suit is not consistent with due process because it is not sufficient, or appropriate, to protect the property interest at stake."
The comments were gratuitous because the three justices agreed with the Court's decision not to hear the case, apparently on procedural grounds. The petition was interlocutory -- no state appeals court had reviewed the ruling by Superior Court Judge Nicholas Stroumtsos Jr. -- and the defendant has filed for bankruptcy, which automatically stayed proceedings in other courts.
The plaintiffs' class lawyer in the case, Andrew Wolf of Galex & Wolf in New Brunswick, N.J., says he is disappointed that Sotomayor, President Obama's nominee who joined the Court in August, sided with conservative justices Roberts and Kennedy.
But the lawyer for dating service DTD Enterprises, Vano Haroutunian of Ballon Stoll Bader & Nadler in New York, says, "Justice Sotomayor's decision to join the opinion is a welcome sign that she may have more empathy for the plight of small business than her predecessor, who rejected without comment DTD's emergency request for a stay while certiorari was pending."
Sotomayor replaced Justice David Souter, who denied the stay pending review of the certiorari petition in March.
Haroutunian says Stroumtsos's order threatened his client with a cost of about $40,000 and was the reason DTD filed for protection under Chapter 11 in U.S. Bankruptcy Court in Trenton.
The class action plaintiffs are unsecured creditors in the bankruptcy, which has stayed all other proceedings. Haroutunian had standing to seek review by the U.S. Supreme Court because the state Appellate Division and the state Supreme Court denied his interlocutory appeal of Stroumtsos' ruling, without comment.
Class action plaintiffs lawyer Wolf says the three justices' statement was based on an incomplete record. He argued against certiorari on the procedural grounds and never got into the substance of the New Jersey rule or argued in defense of what the trial judge did.
Had he done so, he suggests, the Court would have seen that the decision to make the defendant pay for notice was a good one, based on sound law.
"It was premature to make that determination without having a full record," he says of the justices' statement.
Janice Wells hired DTD, trading as "Together," to find her dates, and when she fell behind in payments the service brought a collection action. Instead of an answer, Wolf filed a putative class action alleging that DTS' retail installment financing contracts with customers violated the state Consumer Fraud Act.
Wolf says Stroumtsos had sufficient evidence to certify the class and ordered DTD to provide records showing which customers were eligible to be in the class. Wolf says the order was based on the judge's analysis of who could best afford the notification -- the plaintiffs or the defendant.
While the three justices expressed concern about making a defendant pay for notification in a meritless case, Wolf says, "this judge, during the class certification process, did the rigorous merits analysis that you are supposed to do." The judge told the defendants it looked like the plaintiffs would win at least one of the claims, Wolf says.
Under R. 4:32-2(b)(3), the cost of notice may be assessed against any party present before the court, or may be allocated among parties present.
He says that the cost of the notice became an issue only because DTD didn't do the in-house review of the records that Stroumtsos ordered, which would have been a lot less expensive than the outside audit that eventually had to be performed.
