Magistrate Judge Has Subject Matter Jurisdiction to Enter Judgment in Class Action — Absent Class Members Not “Parties” — Ordinary Meaning Shown in Contemporaneous Black’s, Restatements, Cases—Stern v. Marshall Does Not Void 28 USC § 636
Day v. Persels & Assocs., LLC, 2013 U.S. App. LEXIS 18741 (11th Cir. Sept. 10, 2013):
This appeal requires that we resolve ... whether a magistrate judge had subject-matter jurisdiction to enter a final judgment in a class action without first obtaining the consent of the absent members of the class.... Miranda Day sued several debt management businesses and individual employees of those businesses on behalf of herself and a statewide class of about 10,000 consumers. Day and the defendants consented to allow a magistrate judge to enter a final judgment in the class action. 28 U.S.C. § 636(c). Day and the defendants then informed the magistrate judge that they had reached a settlement agreement, which expanded the definition of the class to a nationwide class of 125,000 consumers and released most of the claims of that class in exchange for no monetary relief for the absent class members. At a fairness hearing on the settlement agreement, Day and the defendants argued that the defendants would be financially unable to satisfy a judgment, but the evidence in the record supported the conclusion that only one of the defendants, Persels & Associates, LLC, would be financially unable to satisfy a significant judgment. The magistrate judge concluded that the settlement agreement was fair, adequate, and reasonable even though it did not provide any monetary relief to the absent class members because the defendants would be unable to satisfy a significant judgment. We conclude that the magistrate judge had subject-matter jurisdiction to enter a final judgment because absent class members are not parties whose consent is required for a magistrate judge to enter a final judgment under section 636(c). But we vacate that judgment because the magistrate judge abused his discretion when he found, without adequate evidentiary support, that the defendants could not satisfy a significant judgment, and we remand for further proceedings.***
A. The Magistrate Judge Had Subject-Matter Jurisdiction to Enter a Final Judgment.
We divide our discussion of our jurisdiction in two parts. First, we explain that the magistrate judge had statutory jurisdiction to enter a final judgment. Second, we explain that the magistrate judge had constitutional jurisdiction to enter the judgment.
1. The Magistrate Judge Had Jurisdiction, Under the Federal Magistrates Act, to Enter a Final Judgment.
The Federal Magistrates Act provides that, "[u]pon the consent of the parties," a magistrate judge "may conduct any or all proceedings in a jury or nonjury civil matter and order the entry of judgment in the case, when specially designated to exercise such jurisdiction by the district court or courts he serves." 28 U.S.C. § 636(c)(1). After the magistrate judge enters a final judgment, "an aggrieved party may appeal directly to the appropriate United States court of appeals." 28 U.S.C. § 636(c)(3). The National Association of Consumer Advocates, as amicus curiae, argues that the magistrate judge lacked jurisdiction because the absent plaintiffs are parties under section 636(c)(1) and never consented to the entry of a final judgment by a magistrate judge, but we disagree.
We conclude, as have the Third and Seventh Circuits, that absent class members are not "parties" whose consent is required for a magistrate judge to enter a final judgment under section 636(c). See Dewey v. Volkswagen Aktiengesellschaft, 681 F.3d 170, 181 (3d Cir. 2012); Williams v. Gen. Elec. Capital Auto Lease, Inc., 159 F.3d 266, 269 (7th Cir. 1998); see also, William B. Rubenstein, et al., Newberg on Class Actions § 1:1 ("Class actions are a form of representative litigation. One or more class representatives litigate on behalf of those class members, and those class members are bound by the outcome of the representative's litigation."). Our conclusion is supported by the ordinary legal meaning of the term "parties" in 1979, the presumption of consistent usage, and the practical approach to interpreting the term "party" adopted by the Supreme Court in Devlin v. Scardelletti, 536 U.S. 1, 7-14 122 S. Ct. 2005, 2009-13, 153 L. Ed. 2d 27 (2002).
When Congress leaves a term in a statute undefined, "we must 'give it its ordinary meaning,' keeping in mind the context of the statute." United States v. Jimenez, 705 F.3d 1305, 1308 (11th Cir. 2013) (quoting United States v. Santos, 553 U.S. 507, 511, 128 S. Ct. 2020, 2024, 170 L. Ed. 2d 912 (2008)). "And when the law is the subject, ordinary legal meaning is to be expected . . . ." Antonin Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 73 (2012). To interpret the term "party" in context, it "must be given the [ordinary legal] meaning [it] had when the text was adopted." Id. at 78.
The ordinary legal meaning of the term "party," when Congress added the relevant language of section 636(c)(1) in 1979, suggests that the term "parties" excludes absent class members. See Federal Magistrate Act of 1979, Pub. L. No. 96-82, § 2, 93 Stat. 643 (1979). This conclusion is supported by the contemporaneous version of Black's Law Dictionary, the contemporaneous First Restatement of Judgments, the Second Restatement of Judgments published three years after the addition of the relevant language, and a decision of the Supreme Court six years after the amendment to section 636(c)(1).
The fifth edition of Black's Law Dictionary, published the same year that Congress added the relevant language, explained that "[a] 'party' to an action is a person whose name is designated on record as plaintiff or defendant." Black's Law Dictionary 1010 (5th ed. 1979). Black's Law Dictionary also made clear that the term "party" "[i]n general, means one having the right to control proceedings, to make defense, to adduce and cross-examine witnesses, and to appeal from judgment," and that "party" "refers to those by or against whom a legal suit is brought." Id. Absent class members are not designated on record as a plaintiff or defendant. Absent class members also ordinarily lack the power to control proceedings. And a suit is not brought "by or against" absent class members. Instead, the Federal Rules of Civil Procedure provide that "[o]ne or more members of a class may sue or be sued as representative parties on behalf of all members" when the requirements for a class action have been met. Fed. R. Civ. P. 23(a).
The Restatement (First) of Judgments, which was the only version available when Congress added the relevant language, explained that "[a] class action is an illustration of a situation where it is not feasible for all persons whose interests may be affected by an action to be made parties to it." Restatement (First) of Judgments § 86 cmt. b (1942). And the Restatement (First) made clear that, as the Seventh Circuit has noted, "[g]enerally speaking, absent class members are not 'parties' before the court in the sense of being able to direct the litigation," Williams, 159 F.3d at 269, because "the expense and difficulty of making all persons who have interests in the proceeding parties to it outweigh the normal desirability of not depriving persons of causes of action or of defenses without giving them an opportunity to be heard," Restatement (First) of Judgments § 86, cmt. b (1942). In the absence of class members as parties, the class representative, who is a named plaintiff, must "purport to act on behalf of all." Id.
The Restatement (Second) of Judgments, which was published three years after the relevant portion of section 636(c)(1) was added, adhered as follows to the understanding of the term "party" in a class action that had been expressed in the Restatement (First)***:
And the decision of the Supreme Court in Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 105 S. Ct. 2965, 86 L. Ed. 2d 628 (1985), six years after the addition of the relevant portion of section 636(c)(1), also suggests that, at least for purposes of the management of the litigation, an absent class member who has not intervened is not a party. In Shutts, the Supreme Court held that a class representative may choose to file a class action in a jurisdiction that would not otherwise have personal jurisdiction over the absent class member so long as sufficient notice is provided to the absent class members and they are given an opportunity to opt out. Id. at 811-12, 105 S. Ct. at 2974-75. The Court explained that an opt-in procedure, similar to a requirement that each absent class member consent to the entry of a judgment by a magistrate judge, was unnecessary for a state court to exercise personal jurisdiction because a rule "[r]equiring a plaintiff to affirmatively request inclusion would probably impede the prosecution of those class actions involving an aggregation of small individual claims, where a large number of claims are required to make it economical to bring suit." Id. These authorities suggest that Congress excluded absent class members when it used the term "parties" in section 636(c)(1) because the ordinary legal meaning of "parties" excluded absent class members. See also Pearson v. Ecological Sci. Corp., 522 F.2d 171, 176 (5th Cir. 1975) (referring to absent class members as "nonparty class members").
Our reading of the term "parties" in section 636(c)(1) to exclude absent class members is also supported by the "presumption that a given term is used to mean the same thing throughout a statute." See Barber v. Thomas, 560 U.S. 474, 130 S. Ct. 2499, 2506, 177 L. Ed. 2d 1 (2010) (quoting Brown v. Gardner, 513 U.S. 115, 118, 115 S. Ct. 552, 555, 130 L. Ed. 2d 462 (1994)). Section 636 uses the word "parties" in several places: subsection (c)(1) requires the "consent of the parties" for the exercise of jurisdiction by a magistrate judge in a civil action; subsection (c)(2) provides that, if a magistrate judge is designated to exercise jurisdiction, "the clerk of court shall, at the time the action is filed, notify the parties of the availability of a magistrate judge to exercise such jurisdiction"; subsection (c)(2) also provides that, after the "decision of the parties [has] be[en] communicated to the clerk of court[,] . . . the district court judge or the magistrate judge may again advise the parties of the availability of the magistrate judge, but in so doing, shall also advise the parties that they are free to withhold consent without adverse substantive consequences"; and subsection (b)(1), (c) states that a magistrate judge who has been assigned to conduct evidentiary hearings, but not to render a judgment, "shall file his proposed findings and recommendations . . . with the court and a copy shall forthwith be mailed to all parties." 28 U.S.C. § 636(b), (c). If we were to interpret the word "parties" in the consent provision to include absent class members, we would also interpret the word "parties" in the other provisions of section 636 to include absent class members based on the presumption that a word is used consistently throughout a statute. But to apply that broad definition of the word "parties" throughout the statute would greatly increase the costs of class actions and the burdens on the courts. Under subsection (b)(1), the court would be responsible for notifying all absent members of a class of the report and recommendations of a magistrate judge. And if the absent class members consented to adjudication of their claims by a magistrate judge, the clerk of the court would be required, under subsection (c)(2), to notify those absent class members of the availability of a magistrate judge to exercise such jurisdiction. To be sure, subsection (c)(3) instructs that "an aggrieved party may appeal directly to the appropriate United States court of appeals," id. § 636(c)(3), and the Supreme Court has held that, under its precedents, an absent class member who unsuccessfully objects to a proposed settlement may appeal the approval of that settlement, Devlin, 536 U.S. at 14, 122 S. Ct. at 2012. But the Supreme Court in Devlin did not purport to determine the meaning of the term "party" in any provision of section 636. For the purpose of the consent requirement of section 636(c), absent class members "are more accurately regarded as having something less than full party status." See Williams, 159 F.3d at 269.***
2. The Magistrate Judge Had Jurisdiction, Under Article III, to Enter a Final Judgment.
Article III, Section 1, of the Constitution requires that "[t]he judicial Power of the United States, shall be vested in one supreme Court, and in such inferior Courts as the Congress may from time to time ordain and establish." Judges of Article III courts "shall hold their Offices during good Behaviour" and "receive for their Services . . . a Compensation [that] shall not be diminished." U.S. Const. Art. III, § 1. The Supreme Court has identified two purposes served by this constitutional provision: first, Article III acts "to safeguard litigants' right to have claims decided before judges who are free from potential domination by other branches of government," Commodity Futures Trading Comm'n v. Schor, 478 U.S. 833, 848, 106 S. Ct. 3245, 3255, 92 L. Ed. 2d 675 (1986) (citations and internal quotation marks omitted); and, second, Article III "serves . . . to protect the role of the independent judiciary within the constitutional scheme of tripartite government," Id. (citations and internal quotation marks omitted). We have explained that section 636(c) "is constitutional because the act requires that the parties and the district court consent to the transfer of the case to a magistrate and because the district court retains sufficient control over the magistrate." Sinclair, 814 F.2d at 1519.***
a. Section 636(c) Is Facially Constitutional.
The consumer advocates argue that section 636(c) facially violates Article III, but we held otherwise in Sinclair.
814 F.2d at 1519. "[I]t is the firmly established rule of this Circuit that each succeeding panel is bound by the holding of the first panel to address an issue of law, unless and until that holding is overruled en banc, or by the Supreme Court." United States v. Joseph, 709 F.3d 1082, 1098-99 (11th Cir. 2013) (quoting United States v. Hogan, 986 F.2d 1364, 1369 (11th Cir. 1993)).
The consumer advocates suggest that the decision of the Supreme Court in Stern v. Marshall, U.S. , 131 S. Ct. 2594, 180 L. Ed. 2d 475 (2011), abrogated our decision in Sinclair, but we disagree. In Stern, the Court held that, under Article III, a "Bankruptcy Court . . . lacked the constitutional authority to enter a final judgment on a state law counterclaim that is not resolved in the process of ruling on a creditor's proof of claim." Id. at 2620. The Court explained that the entry of a judgment is an exercise of "the essential attributes of judicial power." Id. at 2618. The Court rejected an argument that a bankruptcy judge could enter a judgment as an "adjunct" of a district court and explained that a bankruptcy judge entering a judgment subject to review by the district court only if a party appealed "can no more be deemed a mere 'adjunct' of the district court than a district court can be deemed such an 'adjunct' of the court of appeals." 131 S. Ct. at 2619. And the Court explained that, when "the essential attributes of judicial power that are reserved to Article III courts" are exercised, "it does not matter who appointed the . . . judge or authorized the judge to render final judgments in such proceedings." Id. (citations and internal quotations omitted).
Stern did not abrogate our decision in Sinclair. In Sinclair, we concluded that section 636(c) was constitutional because "[a]t least nine other circuits" had reached that conclusion and "we f[ou]nd the reasoning of th[o]se cases persuasive." Sinclair, 814 F.2d at 1519. Stern suggests that some of the factors cited in those decisions may not provide the district court sufficient control over magistrate judges to avoid a problem under Article III when a magistrate judge enters a judgment. For example, the decisions of our sister circuits relied on the authority of Article III judges over the selection and retention of magistrate judges and the ability to appeal to an Article III judge to support the constitutionality of section 636(c). See, e.g., Pacemaker Diagnostic Clinic of America, Inc. v. Instromedix, Inc., 725 F.2d 537, 545-46 (9th Cir. 1984). But these decisions also relied on other factors including the "authority to cancel an order of reference, sua sponte or on application of the parties, in individual cases" for good cause, that the Supreme Court did not address in Stern. Id. at 545. And, in Sinclair, we explained that the "district court [must] consent to the transfer of the case to a magistrate" under section 636(c). Sinclair, 814 F.2d at 1519. "[T]he doctrine of adherence to prior precedent . . . mandates that the intervening Supreme Court case actually abrogate or directly conflict with, as opposed to merely weaken, the holding of the prior panel." United States v. Kaley, 579 F.3d 1246, 1255 (11th Cir. 2009). Because Stern did not address many of the factors that led to our conclusion that section 636(c) is constitutional, Stern did not abrogate our decision in Sinclair. b. Section 636(c), As Applied to Class Actions, Does Not Violate Article III.
The consumer advocates also argue that section 636(c) as applied to class actions violates Article III because it allows a magistrate judge to enter a judgment without the consent of the absent class members, but we agree with the Seventh Circuit that section 636(c) does not violate Article III as applied to class actions. Williams, 159 F.3d at 270. We have explained that one reason that "section 636(c) is constitutional [is] because the act requires that the parties . . . consent to the transfer of the case to a magistrate," Sinclair, 814 F.2d at 1519, and in a class action, the named party "is the 'party' to the lawsuit who acts on behalf of the entire class, including with regard to the decision to proceed before a magistrate judge," Williams, 159 F.3d at 269. Because of the representation of the named party, absent class members do not have the same constitutional interest in the conduct of litigation as a named party. This conclusion is consistent with the explanation of the Supreme Court, in another context, that "the Due Process Clause . . . does not afford [absent class members] as much protection from state-court jurisdiction as it does the [named party]." Shutts, 472 U.S. at 811, 105 S. Ct. at 2974.
Absent class members have sufficient tools to protect any interest that they have in litigating before an Article III judge. A]bsent class members retain at least three options to protect their rights to the adjudication of their claims by an Article III judge when a class is certified and the named class member has consented to adjudication by a magistrate judge: (1) absent class members can apply to intervene in the lawsuit; (2) absent class members in many class actions can opt out of a settlement and not be bound by the judgment entered by a non-Article III judge, see Devlin, 536 U.S. at 10-11, 122 S. Ct. at 2011; and (3) absent class members can bring a collateral attack of the decision of the named class member to consent to the entry of a judgment by the magistrate judge, Williams, 159 F.3d at 269-70.***
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