This fall the 1st U.S. Circuit Court of Appeals, in the consolidated cases of Zimmermann v. Epstein, Becker & Green, P.C., et al. and Zimmermann v. BDO Seidman LLP, et al., considered whether plaintiffs in a class action may seek “class-based” relief without seeking certification of the class in accordance with Rule 23 of the Federal Rules of Civil Procedure. The Zimmermann court found that the plaintiffs could not proceed with their suit without complying with Rule 23.
In Zimmermann, the named plaintiffs received a $259 million judgment in a class action but were unable to collect the judgment. Without seeking class certification under Rule 23, the plaintiffs brought a new claim against the attorneys and accountants who provided services to the original defendants while the allegedly fraudulent activities were occurring. The plaintiffs argued that there was no need to seek class certification as the new action against the newly named defendants was simply a continuation of the previous action.
The 1st Circuit rejected the plaintiffs’ arguments, finding no basis for the position that the subsequent action against the new defendants was simply a continuation of the initial action.
“[A] certified class in one action is not a free floating entity entitled to conduct new and separate law suits against new defendants — unless and until it is certified in the new action,” the court stated.
The opinion emphasized that the plaintiffs’ new claims were “being brought against new defendants whose liability would have to be separately proved based on facts pertaining to those new defendants.”
Threat to business
The plaintiffs’ position presented a serious threat to all businesses as, if upheld by the court, would potentially subject businesses to liability without the protections and limitations provided for by the Federal Rules of Civil Procedure. It is clear the plaintiffs only brought a claim against the “new” defendants’ as a result of their inability to collect their original judgment. The plaintiffs created their “continuation” argument in an effort to circumvent the statute of limitations and “boot-strap” their way in to a class action.
Neil Dilloff of DLA Piper LLP (US) in Baltimore, who successfully represented Epstein Becker, struck a major blow for class action defendants in arguing and winning this case. He ensured that all entities will receive due protection under the law while limiting the ability of plaintiffs to circumvent the procedural safeguards provided for in the Federal Rules of Civil Procedure.
The importance of this decision cannot be overstated. A decision for the plaintiffs would have opened the flood gates for class action claims by making it easier to bring such claims. All corporations owe Mr. Dilloff a debt of gratitude.
The Zimmermann decision is an important decision for in-house counsel as it protects the interests of all corporations by upholding the protections set forth in the Federal Rules of Civil Procedure. Zimmermann will also likely reduce the number of class actions or at least make it more difficult for such actions to be brought.
Mr. Classen is Deputy General Counsel of Computer Sciences Corporation. The views expressed herein are those of Mr. Classen and not those of Computer Sciences Corporation.