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Shelter Realty Corp. v. Allied Maintenance Corp.


decided from the bench: March 20, 1978.


Appeal from an order of the United States District Court for the Southern District of New York, Frankel, District Judge, granting plaintiffs-appellees' motion for class action certification. Appeal dismissed.

Kaufman, Chief Judge, Smith and Meskill, Circuit Judges.

Author: Kaufman

KAUFMAN, Chief Judge:

In this case, we are once again confronted with an attempted appeal of an interlocutory order granting class action certification. Since the issues raised manifestly do not satisfy the tripartite test of "fundamentality," "separability" and "irreparable harm" governing our Court's extremely limited exception to the final judgment doctrine in class certification cases, we dismissed this appeal in open court. But, in light of the burgeoning caseload borne by this Court,*fn1 the unnecessary burden on judicial resources imposed by futile appeals such as the one at bar has grown increasingly heavy. Accordingly, we pause to reiterate briefly, and to place in relatively concise form, the guiding principles controlling our jurisdiction to review orders granting class action status, in the hope that we may dissuade future litigants from bringing similar appeals, doomed by their "garden-variety" nature to dismissal, while leaving the door open to those rare cases which raise issues of exceptional importance requiring immediate review.


The facts necessary to our decision may be limned with broad strokes. Appellants, defendants below,*fn2 are twelve building maintenance companies alleged to have conspired to restrain competition in their industry, in violation of Section 1 of the Sherman Act.*fn3 They seek to appeal, pursuant to 28 U.S.C. § 1291 (1970), an interlocutory order by Judge Frankel certifying this civil suit as a class action. The plaintiff class consists of all persons who purchased building maintenance services*fn4 in New York County during the period January 1, 1970 through October, 1974. The named plaintiffs-appellees*fn5 are corporate entities that purchased such services from some of the appellants during the class period.

The allegations of the consolidated complaint*fn6 track the language of a criminal information to which all of the appellants have pleaded nolo contendere.*fn7 Plaintiffs-appellees charge that, pursuant to a conspiracy, the appellants engaged in a variety of anti-competitive practices, including the submission of collusive bids, allocation of customers, and compensation by one appellant to another if the latter's customers relocated in the former's territory. The alleged effect of this conspiracy was the stabilization of artificially high prices in all aspects of the building maintenance industry.*fn8

In August 1976, appellees moved for class certification under Fed.R.Civ.P. 23(b)(3) and (c)(1). Appellants resisted, "at every trench and barricade emplaced among the subdivisions of Rule 23," as Judge Frankel commented in the opinion below.*fn9 Appellants' primary arguments against class certification were, and remain on appeal, that common questions of law or fact do not predominate over questions affecting only individual class members and that the class action would be unmanageable. Both contentions rest in large measure on appellants' assertion that building maintenance services are a non-fungible commodity -- that is, each customer has unique requirements and purchases services either after face-to-face negotiations or the submission of individually solicited bids. Appellants argue that, since liability must be predicated on proof of injury to, or impact on, each class member, the right to recovery, as well as the amount of damage, will necessarily depend on the particular circumstances of each of the 25,000 class members.*fn10 Accordingly, appellants contend, the trial of individual issues would predominate. In addition, it is claimed the entire action would be unmanageable.

The trial court rejected these arguments, finding the common question of an overall conspiracy having the indirect effect of raising the geneal price level predominant over individual issues. Judge Frankel noted that impact might be presumed from proof of an overall conspiracy.*fn11 And damages might well be susceptible to a formulary approach. He concluded that, at that early stage of the litigation, the class action appeared manageable. The judge also ruled that the named plaintiffs had typical claims, possessed financial resources sufficient to meet the responsibility of class representation, and were in all respects adequate class representatives.

Judge Frankel refused to certify an appeal under 28 U.S.C. § 1292(b) (1970) because the "determination allowing a class action to proceed involves a particular appraisal of specific facts and is to a measurable extent discretionary." Accordingly, he concluded, "this is not a suitable case for burdening the Court of Appeals." We can only wish that appellants, represented as they are by a stunning array of able counsel, had heeded his words.


Since this appeal has not been certified by the district court, it must be dismissed unless the order falls within "that small class which finally determine claims of right separable from, and collateral to, rights asserted in the action, too important to be denied review and too independent of the cause itself to require that appellate consideration be deferred until the whole case is adjudicated." Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 546, 93 L. Ed. 1528, 69 S. Ct. 1221 (1949).

A review of the cases that have dealt with the issue presented to us may serve to clarify any confusion which may persist on the question. Several circuits have found that orders certifying a class action, because of their tentative nature, can never satisfy the Cohen doctrine.*fn12 But the Second Circuit, following a brief evolutionary period, has laid down its rule permitting an appeal of such an order only when three prerequisites are present in conjunction: (1) the class action determination must be "fundamental to the further conduct of the case"; (2) review of the order must be "separable from the merits"; and, (3) it must appear that the order, unless reviewed, will cause "irreparable harm to the defendant in terms of time and money spent in defending a huge class action." See, e.g., Schlick v. Penn-Dixie Cement Corp., 551 F.2d 531, 533 (2d Cir. 1977); Parkinson v. April Industries, Inc., 520 F.2d 650, 656 (2d Cir. 1975); Handwerger v. Ginsberg, 519 F.2d 1339, 1341 (2d Cir. 1975); Kohn v. Royall, Koegel & Wells, 496 F.2d 1094, 1098-99 (2d Cir. 1974). Each element of this rule has been carefully defined in Kohn and subsequent cases.


The well-established rule of this circuit is that a class action determination is "fundamental" only when the individual damage claim of the class representative is so small that the suit would not continue as a private action.*fn13 See, e.g., In re Master Key Antitrust Litigation, 528 F.2d 5, 10-11 (2d Cir. 1975); Parkinson v. April Industries, Inc., supra, 520 F.2d at 656; Handwerger v. Ginsberg, supra, 519 F.2d at 1341; Kohn v. Royall, Koegel & Wells, supra, 496 F.2d at 1099.

It is readily apparent that the viability of the present action does not turn on class certification. If the named plaintiffs are successful, their damages, when trebled, can be expected to be substantial. Moreover, the statutory provision allowing recovery of attorneys' fees gives plaintiffs' counsel an incentive to pursue this action regardless of the size of the claims. See Kohn v. Royall, Koegel & Wells, supra, 496 F.2d at 1100; Shayne v. Madison Square Garden Corp., 491 F.2d 397, 402 n.15 (2d Cir. 1974).


In addition to fundamentality, appellants must also show that an exceptional issue exists that can be conclusively determined without delving into the merits of the underlying claim. Accordingly, we will review finite determinations of judicial power -- such as the notice issue decided in Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 40 L. Ed. 2d 732, 94 S. Ct. 2140 (1974) -- but not discretionary decisions which vary from case to case. See General Motors Corporation v. City of New York, 501 F.2d 639, 646-47 (2d Cir. 1974).

As noted earlier, appellants' major contention is that common questions do not predominate because a determination of liability, as well as damages, depends on a showing of impact on each class member. A similar claim was raised in In re Master Key Antitrust Litigation, 528 F.2d 5 (2d Cir. 1975). In dismissing that appeal, we noted that "the question of what must be proven to establish liability is not a matter separable from the claim for relief." 528 F.2d at 12.

Indeed, Windham v. American Brands, Inc., 565 F.2d 59 (4th Cir. 1977) (en banc), cert. denied, 435 U.S. 968, 98 S. Ct. 1605, 56 L. Ed. 2d 58 (1978) (No. 77-925), the primary case upon which appellants rely in their appeal for the principle that class certification is inappropriate when there are individual issues of impact, supports the view that Judge Frankel's discretionary decision should be left undisturbed. Windham, involving a denial of class action certification, decided that issues such as the predominance of common questions and manageability were so largely factual that they should be left to the lower court's discretion.*fn14

This Court has repeatedly held that the predominancy question is not an issue capable of separation from the merits. See Parkinson v. April Industries, Inc., supra, 520 F.2d at 656; General Motors Corporation v. City of New York, supra, 501 F.2d at 647; Kohn v. Royall, Koegel & Wells, supra, 496 F.2d at 1100. Similarly, the inadequacy of class representation, another of appellants' contentions, has also been held unsuitable for interlocutory review under the final judgment doctrine. See Schlick v. Penn-Dixie Cement Corp., 551 F.2d at 533; Phillips v. Tobin, 548 F.2d 408, 410 (2d Cir. 1976); Handwerger v. Ginsberg, supra, 519 F.2d at 1341; Kohn v. Royall, Koegel & Wells, supra, 496 F.2d at 1100. Accordingly, we find that the issues raised by appellants do not satisfy the "separability" requirement.*fn15

Irreparable Harm

It is also urged that appellants will be irreparably injured if we do not allow this appeal. In considering this question, "attention . . . . must be directed to the incremental costs and time in defending the particular action if it is maintained as a class action." Kohn v. Royall, Koegel & Wells, supra, 496 F.2d at 1100. In this case, there is a strong argument that the incremental burden imposed by the class action will not be substantial. A countywide conspiracy would still have to be proved were this suit to proceed as a private action. And appellants will also be defending a very similar action by the International Telephone & Telegraph Corporation. Moreover, the burden of class litigation ipso facto does not justify immediate appellate review. See Parkinson v. April Industries, Inc., supra, 520 F.2d at 653-54.*fn16


Although perfunctorily acknowledging the tripartite test, appellants in reality are asking us to modify our rule, to permit an appeal of a class certification order whenever the class is numerous.*fn17 We decline this invitation to open the floodgates to the wave of appeals of discretionary class certification decisions which would necessarily ensue from the adoption of appellants' ill-defined suggestion. Accordingly, we have dismissed the appeal.

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