When is a complaint styled as a “class action” to be treated as a real class action? Is it only after all of the prerequisites of CPLR 901 and 902 have been met, an order issued pursuant to CPLR 903 and notice sent pursuant to CPLR 904? Or is it earlier? The Court of Appeals in Desrosiers v. Perry Ellis Menswear, 2017 NY Slip Op 08620 (Dec. 12, 2017) wrestled with this issue in a 4-3 split regarding whether the notice provisions of “CPLR 908 applies only to certified class actions, or also to class actions that are settled or dismissed before the class has been certified.” The majority opinion of Judge Eugene Fahey concluded “that CPLR 908 applies in the pre-certification context.” The dissenting opinion of Judge Leslie Stein concluded that “the plain language of CPLR 908, taken in context, does not require notice to putative class members if the action is resolved prior to class certification.”

Each of their excellent and well written opinions are discussed below. It should be noted that Richard J. Schager Jr. wrote an excellent analysis of the Desrosiers decision (“Judicial Approval, Class Notice Required for Settlement of Uncertified Class Actions,” N.Y.L.J. (Jan. 24, 2018)) including a discussion of the great work of several New York City Bar Association Committees in 2003 and 2015. However, our points of view are quite different, as noted below.

There Are Differences

There are clear differences between Federal Rules of Civil Procedure Rule 23(e) (amended in 2003; mandatory approval and notice of a proposed settlement required only in certified class actions), other states (Dickerson, Class Actions: The Law of 50 States (Law Journal Press 2017) §4.06[2] (pre-certification offers to settle class representative claim (“pick off”) and communications with class members with or without court approval) and §9.02 (notice of pre-certification dismissal or compromise discretionary in some states, e.g., Ark. Rules of Civil Procedure Rule 23(c); Ill. Code of Civil Procedure Rule 2-806; Kan. Gen. Stat. Ann 60-223(3); Mass Rule of Civil Procedure Rule 23(d)); Alexander v. DaimlerChrysler, 2002 WL 1445191 (N.C. Super. 2002) (“Counsel … shall each file with the Court a suggested plan of notification designed to reach those absent class members who may have received publicity about the lawsuit [including] a good faith estimate of the cost that would be incurred if the plan were implemented”)) and New York state (Dickerson, Article 9, Weinstein Korn Miller [MB] Lexis Nexis (2017), §901.16 (pre-certification communications with class members) and §§908.01-908.03 (pre-certification notice requirements)).

A Conservative Approach

I have written about class actions, including New York state class actions under CPLR Article 9, for nearly 40 years. See Dickerson, “New York State Class Actions-Make It Work-Fulfill The Promise,” Albany L.R. 711. N.1 (2010/2011); Dickerson, Austin & Zucco, “New York State Class Actions: Making It Work-Fulfilling the Promise: Some Recent Positive Developments and Why CPLR 901(b) Should Be Repealed,” 77 Albany L.R. 59 (2013/2014).

In my view, if a complaint is identified on its face as a “class action” or a counterclaim is identified as a “class action,” then the conservative and salutary approach is to treat it as a class action to protect the interests of absent class members. Certainly, regarding the tolling of statutory and contractual time limitation periods, our courts have presumed that a class action is what it purports to be until class certification is finally denied. Snyder v. Town Insulations, 81 N.Y.2d 429 (1993); Osarczuk v. Associated Universities, 130 A.D.3d 592 (2d Dept. 2015); Yollin v. Holland America Cruises, 97 A.D.2d 720 (1st Dept. 1983).

Communicating With Putative Class Members

A related and particularly sensitive issue is whether and to what extent may defendants, pre-certification, “pick off” the named class representative (see, e.g., Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663 (2016)) or communicate with putative class members without informing plaintiff's counsel or seeking court approval for the purpose of reducing class size with de minimus payments (see, e.g., Klakis v. Nationwide Leisure, 73 A.D.2d 521 (1st Dept. 1979) (class size reduced by de minimus ($25 and $35) payments with releases resulting in denial of certification because of lack of numerosity)), by encouraging class members to sign forms containing retroactive arbitration clauses waiving participation in class actions (see, e.g., Carnegie v. H&R Block, 687 N.Y.S.2d (N.Y. Sup 1999), mod'd 269 A.D.2d 145 (1st Dept. 2000)) or implementing a new arbitration agreement with class action waivers the day class action litigation is commenced (Weinstein v. Jenny Craig Operations, 132 A.D.3d 446 (1st Dept. 2015) (“Given the authority granted to the court to protect putative class members and the fairness of the process … the (trial) court properly exercised its discretion by drawing the inference that the agreements had been implemented in response to this litigation and to preclude putative class members. Thus, the court properly declined to enforce those agreements signed after commencement of this litigation”)). Clearly, these cases presume that an identifiable class, pre-certification, exists, has rights and needs protection. Again, a conservative and salutary approach regarding communications with putative class members is to prohibit, both pre- and post-class certification, any communications between defendants and plaintiff's counsel with class members unless approved by the court. See Dickerson, “Between Counsel and Class Members, Silence Is Golden,” Law360 (Sept. 28, 2017) (discussion of a decision by federal Judge Edward M. Chen in O'Connor v. Uber Technologies, 13-cv-03826-EMC (N.D. Cal. Aug. 31, 2017) ordering the sending of a corrective notice to class members)].

CPLR 908 and Notice

CPLR 908 provides that “[a] class action shall not be dismissed, discontinued or compromised without the approval of the court” and that “[n]otice of the proposed dismissal, discontinuance or compromise shall be given to all members of the class in such manner as the court directs.” In Desrosiers v. Perry Ellis Menswear, the Court of Appeals noted: “On this appeal, we must determine whether CPLR 908 applies only to certified class actions, or also to class actions that are settled or dismissed before the class has been certified. We conclude that CPLR 908 applies in the pre-certification context. As a result, notice to putative class members of a proposed dismissal, discontinuance or compromise must be given.” Stated, simply, the majority in Desrosiers found the reasoning of the First Department in its 1982 decision in Avena v. Ford Motor Co., 85 A.D.2d 149 (1st Dept. 1982) to be persuasive. “In that case, the named plaintiffs settled with defendant before class certification and the settlement was without prejudice to putative class members … . The trial court refused to approve the settlement without first providing notice to the putative class members. The Appellate Division affirmed that determination, concluding that CPLR 908 applied to settlements reached before certification. The First Department reasoned that the 'potential for abuse by private settlement at this stage is …obvious and recognized' and that the named plaintiffs had a fiduciary obligation to disclose relevant facts to putative class members.”

The majority also noted: “This court has never overruled Avena or addressed this particular issue, and no other department of the Appellate Division has expressed a contrary view. Consequently, for 35 years Avena has been New York's sole appellate judicial interpretation of whether notice to putative class members before certification is required by CPLR 908.”

Legislative Inaction

In addition, the Desrosiers majority relied upon “legislative inaction” in circumstances where requests have been made to amend a statute. “Thus, '[w]hen the Legislature, with presumed knowledge of the judicial construction of a statute, forgoes specific invitations and requests to amend its provisions to effect a different result, we have construed that to be some manifestation of legislative approbation of the judicial interpretation, albeit of the lower courts' (Matter of Alanzo M. V. New York City Dept of Probation, 72 N.Y.2d 662, 667 (1988)). Stated another way, “It is a recognized principle that where a statute has been interpreted by the courts, the continued use of the same language by the Legislature subsequent to the judicial interpretation is indicative that the legislative intent has been correctly ascertained.” Matter of Knight-Ridder Broadcasting v. Greenberg, 70 N.Y.2d 151, 157 (1987). “The underlying concern, of course, is that public policy determined by the Legislature is not to be altered by a court by reason of its notion of what the public policy ought to be.”

Recommended Changes Rejected

In 2003, the New York City Bar Association's Council on Judicial Administration recommended that CPLR 908's notice requirement be discretionary instead of mandatory and should be provided when necessary to protect the putative class. In 2015, a similar request was made by several Committees. “Notwithstanding these repeated proposals, and the legislature's awareness of this issue [NY Assembly Bill A9573; cf. Roberts v. Tishman Speyer Props., L.P., 13 N.Y.3d 270. 287 (2009)] the legislature has left CPLR 908 untouched from its original version as enacted in 1975 … We conclude that the legislature's refusal to amend CPLR 908 in the decades since Avena was decided indicates that the Avena decision correctly ascertained the legislature's intent.” Alonzo M., 72 N.Y.2d at 667; Knight-Ridder, 70 N.Y.2d at 157.

'Avena' Rejected

In a vigorous dissent, Judge Stein asserted: “The majority finds ambiguity in CPLR 908 where none exists and, in my view, places undue weight on the First Department's holding in Avena v. Ford Motor. Even a cursory reading of the analysis in Avena reveals that it not grounded in the unambiguous statutory text. We are not bound by the result in that case or by subsequent legislative inaction, and the passage of time does not alter that conclusion … the requirement in CPLR 908 that notice be provided 'to all members of the class' is expressly limited to a 'class action'. In each of the actions here, plaintiffs did not comply with the requirements under article 9 of the CPLR that are necessary to transform the purported class action into an actual class action, with the members bound by the disposition of the litigation. Thus, there is no class action here and no basis under the statutory scheme to mandate CPLR 908 notice to putative members of undefined class that an individual claim-of which they had received no prior notice and in which they had taken no part-is being settled, but the settlement is not binding on them. For these reasons, I respectfully dissent.”

What Is a Real Class Action?

Stated simply, the Desrosiers dissent is of the view that to be a real class action it must be certified pursuant to CPLR 901 and 902 and notice given pursuant to CPLR 904. “CPLR 908 must be considered in the context of the statutory scheme set forth in the entirety of article 9. Inasmuch as '[an] action may be maintained as a class action only if the court finds that the prerequisites under section 901 have been satisfied' upon a motion brought within the specified time period pursuant to CPLR 902, it follows that a purported class action is not actually 'a class action' until so adjudicated by the court; concomitantly, prior to class certification, there are no 'members of the class' to whom notice could be provided. Thus, there is no statutory basis for applying the CPLR 908 notice requirement when, as here, the litigation is resolved during the pre-certification phase without prejudice to the rights of putative class members.”

Nothing Talismanic

As noted by Judge Stein: “There is nothing talismanic about styling a complaint as a class action. Indeed, any plaintiff may merely allege that a claim is being brought 'on behalf of all others similarly situated'. However, under article 9 of the CPLR, the court, not a would-be class representative has the power to determine whether an action brought as a class action may be maintained as such … Logically, the converse of that proposition must also be true—i.e., if the court has not made an affirmative finding that the CPLR 901 prerequisites have been met, the action may not be maintained as a class action” (relying upon O'Hara v. Del Bello (“[i]nasmuch as there was a failure to comply with the procedural and substantive provisions of CPLR article 9 with respect to class action[s] … there [was] no basis for granting relief other than to the individual party who brought the proceeding.”)).

When Is a Fiduciary a Real Fiduciary?

In finding “the First Department's decision in Avena flawed and continued reliance on it misguided,” Judge Stein concluded that there was no authority for the First Department's declaration that “[t]he fiduciary obligations of the named plaintiffs in instituting … [a class] action are generally recognized and not disputed” but nonetheless the “First Department concluded 'that CPLR 908 should apply to even to a without prejudice (to the class) settlement and discontinuance of a purported class action before certification or denial of certification'. However, it is questionable whether a would-be class representative has fiduciary responsibilities in the pre-certification stage in light of the absence of the would-be representative's authority to bind putative class members … While the majority glosses over whether it actually agrees with Avena, it adopts the rule of that case, following the novel theory espoused by the First Department … I would not acquiesce to the reasoning of Avena; instead, I would interpret the statute before us, which inexorably leads me to conclude that CPLR 908 notice is not required prior to certification.”

Conclusion

While the Legislature has the ability to make notice of pre-certification settlements discretionary, it has not yet chosen to do so. Until it does, the conservative and salutary approach on this issue is the one chosen by the majority.

Thomas A. Dickerson is a retired Associate Justice of the Appellate Division, Second Department and author of “Class Actions: The Law of 50 States” (Law Journal Press 2017).