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declining to apply the law of the case doctrine because the issue in the subsequent appeal was not "squarely before" the court in the prior appeal and amounted to mere dicta
Summary of this case from Bowman v. BowmanOpinion
Docket Nos. 63278-63280.
Decided February 21, 1984. Leave to appeal applied for.
Evans Luptak (by D. Michael Kratchman), for plaintiffs.
Miller, Canfield, Paddock Stone (by Gilbert E. Gove), for Sears, Roebuck Co.
Dykema, Gossett, Spencer, Goodnow Trigg (by James W. Collier and Susan P. Trigger), for Montgomery Ward Co., Incorporated.
Butzel, Keidan, Simon, Myers Graham (by Richard P. Saslow), for Winkelman Stores, Incorporated.
This appeal constitutes the legal residue of six consolidated class actions filed in 1970 alleging that defendants, all retail sales outlets, exacted illegal and excessive finance charges pursuant to credit sales agreements. Plaintiffs appeal as of right from an unfavorable disposition below.
Part of plaintiffs' original cause of action was based upon the Michigan Retail Installment Sales Act (MRISA), MCL 445.851 et seq.; MSA 19.416(101) et seq., effective March 10, 1967. Section 12 of the act, MCL 445.862; MSA 19.416(112), limited time-price differentials to "1.7% of the unpaid balance per month", and plaintiffs alleged that defendants violated that limitation by using a previous balance method in computing finance charges on their charge accounts. A more complete factual background is presented in Grigg v Robinson Furniture Co, 78 Mich. App. 712; 260 N.W.2d 898 (1977), a prior appeal in this matter.
See also Grigg v Michigan National Bank, 72 Mich. App. 358; 249 N.W.2d 701 (1976), rev'd 405 Mich. 148; 274 N.W.2d 752 (1979), a companion case.
The trial court in the original action deferred the issue of propriety of the class action format and granted partial summary judgment for plaintiff on the issue of liability. Specifically, the court held that the previous balance method violated § 12 of MRISA and that defendants were liable for the use of that method from the March 10, 1967, effective date of the act until defendants abandoned use of this method in 1971.
For a brief description of this and other methods of computing finance charges, see Grigg v Robinson Furniture, supra, pp 718-719, and accompanying footnotes.
Abandonment of the previous balance method came about in this fashion:
"On August 11, 1970, in response to a legislative inquiry, the Attorney General released an opinion concluding that the previous balance method as then employed by the defendants and other retailers violated the maximum rate limitation in § 12 of MRISA. OAG 1969-1970, No. 4706, p 163 (August 11, 1970). The release of that opinion coincided with the filing of the first of the complaints in these consolidated actions. The Attorney General's opinion also sparked a lawsuit in Ingham County Circuit Court by some of these defendants challenging the correctness of that opinion. Sears, Roebuck Co v Attorney General, Ingham County Circuit Court No. 12204-C. That lawsuit was finally ended by a stipulation which (1) reached no conclusion on the legality of the previous balance method, (2) stated that the defendants' use of that method had been in good faith, but that (3) the defendants would switch to the average daily balance method with a 30-day deferral feature as explained in fn 4, supra. The defendants switched from the previous balance method to the average daily balance method on various dates in 1971." Grigg, supra, p 720.
On appeal, the Grigg Court disposed of the previous balance issue without addressing its merits:
"The third question posed by this appeal is whether the defendants' use of the previous balance method between March 10, 1967, and late 1971 was in violation of MRISA. The trial judge ruled in the plaintiffs' favor on this point. We are reluctant to express an opinion on this question because we are well satisfied with the terms of the stipulation signed by the Attorney General and several of the defendants. Were we seeking only to determine the fairest system for all parties concerned, the true average daily balance method of computation would be our choice. Because of its finance charge deferral and avoidance features, the hybrid method required by the Attorney General's stipulation is even more favorable to customers. Our resolution of the next issue makes it unnecessary at this time to disturb the stipulated arrangement by expressing an opinion on the validity of the previous balance method under MRISA." (Footnote omitted.) Grigg, supra, pp 727-728.
The Grigg Court reversed in part the lower court judgment because it was concerned, and legitimately so, that the costs of calculating and distributing individual damage awards could be grossly disproportionate to the size of those awards; the Court was further of the opinion that these costs would ultimately be passed on to defendants' customers. Grigg, supra, pp 729-730. The cause was remanded for resolution of the class certification question and the "presentation of evidence concerning the potential size and administrative costs of possible damage awards". Grigg, supra, pp 731-732.
On remand, the parties engaged in further discovery and ultimately agreed on a description of the average damage claim. Plaintiffs did not contest defendants' evidence concerning costs associated with effecting refunds to potential class members. In an opinion issued October 19, 1981, the trial court made these findings:
As a result of settlement agreements involving Robinson Furniture Co., E.J. Korvette and Federals, the original six consolidated cases were reduced to three.
"1. The number of possible claimants in this class action exceeds one million.
"2. The maximum average amount any claimant would receive is $4.50.
"3. The cost per account to determine if a claimant has paid any excess finance charge would be as follows:
Winkelman's $78.54 Sears $50.23 Montgomery Ward $60.94
"4. That the total cost of conducting this analysis would be as follows:
Winkelman's $8,816,386.00 Wards $21,329,000.00 Sears $52,273,750.00
"5. That in addition to these expenses there would be an enormous expense for other items in processing this claim such as notice to the claimants and attendant mailing and printing costs.
"6. That plaintiffs have indicated they are unwilling to pay the costs of notices.
"7. That the aggregate amount to be refunded to the claimants would be approximately one million dollars as indicated by the plaintiff.
"8. That the effect on this court system would be staggering.
"9. That the primary beneficiary of these proceedings would most likely be the attorneys thru fees."
Based upon this bleak assessment, the court declined to certify the consolidated cases as class actions. The court rejected plaintiffs' suggestion that the manageability problem could be avoided by aggregate distribution of the recovery to a charity or consumer advocacy group, a distribution format derived by analogy to the cy pres doctrine of testamentary trusts. The court further denied plaintiffs' motion for attorney fees.
Plaintiffs' first contention in these appeals is that the trial court should have allowed distribution of the recovery according to the fluid recovery or cy pres format. Upon due consideration, we are convinced that the court properly declined to employ this recovery mechanism.
The terms "cy pres" and "fluid recovery", in the context of class action suits, have been employed interchangeably and embrace this central concept: "[T]hat where distribution to the class who should ideally receive a fund is impracticable or inappropriate, the distribution should be made in the `next best' fashion in order as closely as possible to approximate the intended disposition." In re Folding Carton Antitrust Litigation, 557 F. Supp. 1091, 1108 (ND Ill, 1983). The fluid recovery mechanism seeks to avoid manageability problems by use of the following general format: (1) the amount of damages incurred by the class as a whole is determined in a single adjudication, creating a damage fund; (2) individual member claimants capable of proving valid claims obtain their share of the fund; and (3) the unclaimed portion of the fund is applied to the class's benefit. In re Federal Skywalk Cases, 680 F.2d 1175, 1189, fn 14 (CA 8, 1982) (Heaney, J., dissenting). The third procedural characteristic above is the actual fluid recovery, and it commonly assumes one of two forms. The remainder of the fund is either distributed through the market, "usually in the form of a reduced charge for an item the defendant previously overpriced", or it is "given to the state to use on a project likely to be of interest to class members or, if that is not possible, for general purposes". (Footnotes omitted.) Note, Developments in the Law — Class Actions, 89 Harv L Rev 1318, 1522 (1976). See Bebchick v Public Utilities Comm, 115 US App DC 216; 318 F.2d 187, 203-204 (1963), cert den 373 U.S. 913; 83 S Ct 1304; 10 L Ed 2d 414 (1963); West Virginia v Chas Pfizer Co, 440 F.2d 1079 (CA 2, 1971), cert den sub nom Cotler Drugs, Inc v Chas Pfizer Co, 404 U.S. 871; 92 S Ct 81; 30 L Ed 2d 115 (1971).
By suggesting that we reject a cy pres distribution merely because a testamentary trust is not involved in this appeal, defendants are playing word games with the Court. The use of the term "cy pres" indicates at best that fluid recovery is an analogue sharing common features with the cy pres trust doctrine, but in the context of class actions it is an independent concept.
This is an esoteric corner of the law, but it does not want for authoritative comment. See, e.g., Comments, Due Process and Fluid Class Recovery, 53 Or L Rev 225 (1974); Malina, Fluid Class Recovery as a Consumer Remedy in Antitrust Cases, 47 N.Y. U L Rev 447 (1972).
Defendants urge peremptory disposition of the issue based upon the law of the case doctrine because this Court in Grigg expressed disapproval of the fluid recovery mechanism. This is what was said in the prior appeal:
"We reject any suggestion that the computation difficulties can be avoided by employing some variation of the `fluid class' concept. That idea was emphatically rejected by the Second Circuit Court of Appeals in Eisen v Carlisle Jacquelin, 479 F.2d 1005 (CA 2, 1973). And while that decision does not control an interpretation of GCR 1963, 208, we are persuaded by its reasoning." Grigg, supra, pp 729-730, fn 12.
The law of the case doctrine holds that, if an appellate court has passed on a legal question and remanded the case for further proceedings, the legal questions thus determined by the appellate court will not be differently determined on a subsequent appeal in the same case where the facts remain materially the same. CAF Investment Co v Saginaw Twp, 410 Mich. 428; 302 N.W.2d 164 (1981); Thomas Bros, Inc v Secretary of State (After Remand), 107 Mich. App. 805; 310 N.W.2d 249 (1981), lv den 417 Mich. 938 (1983). In this case the Grigg Court was quite specific concerning which issues were squarely before it, and the propriety of a fluid recovery was not one of them. The Grigg footnote was therefore dicta, to which the law of the case doctrine does not apply.
We further believe that the Grigg Court was somewhat hasty in its condemnation of the fluid recovery idea. Indeed, the statement by the Grigg Court that it found Eisen's reasoning persuasive is mysterious because the Eisen Court did not explain why it found fluid recovery offensive to due process. See Eisen, 479 F.2d 1018. Fluid recovery was also rejected in Windham v American Brands, Inc, 565 F.2d 59 (CA 4, 1977), but that Court merely parroted Eisen's conclusions that the method was "`illegal, inadmissible as a solution of the manageability problems of class actions and wholly improper'". Windham, supra, p 72, citing Eisen, supra. Speculating that Eisen's due process concerns might center around the aggregate damage determination, at least one authoritative comment has found such an argument uncompelling:
Eisen was vacated and remanded by the Supreme Court, 417 U.S. 156; 94 S Ct 2140; 40 L Ed 2d 732 (1974), but the issue concerning fluid recovery's propriety or legality was not reached.
"The nature of the due process argument is not clear. Because of the constraints of substantive law, class-wide calculation of damages would be inappropriate where the class opponent has defenses that he could assert against class members on an individual basis. In the absence of such necessarily individualized inquiries, however, the class opponent hardly seems prejudiced by being restricted to only one hearing on common issues. Even though the calculation of damages might involve issues on which a hearing would ordinarily be required by due process, it has never been thought that due process required multiple hearings where there was one full and fair adjudication of the merits." (Footnote omitted.) Note, Developments, supra, pp 1524-1525.
Because Eisen does not convince us of the existence of an inherent constitutional defect in the fluid recovery format, we are attracted to the reasoning of the Court in Simer v Rios, 661 F.2d 655 (CA 7, 1981), cert den 456 U.S. 917; 102 S Ct 1773; 72 L Ed 2d 177 (1982), which suggested an ad hoc determination of the format's appropriateness. The Simer Court said:
"We need not adopt either of the two extreme positions — that is, whether a fluid recovery always can be used to surmount problems in the going forward of a class action or whether a fluid recovery is per se unconstitutional. Rather, we believe that a careful case-by-case analysis of use of the fluid recovery mechanism is the better approach. In this approach we focus on the various substantive policies that use of a fluid recovery would serve in the particular case. The general inquiry is whether the use of such a mechanism is consistent with the policy or policies reflected by the statute violated. This matter can be more particularized into an assessment of to what extent the statute embodies policies of deterrence, disgorgement, and compensation." (Footnotes omitted.) Simer, supra, p 676.
This warrants a fresh consideration of MRISA, and the principal thrust of that act's enforcement provision is clearly deterrence. Section 19 of MRISA, MCL 445.869; MSA 19.416(119), grants the attorney general or the prosecuting attorney in the county where a violation occurs the ability to seek injunctive relief. If the violation is wilful and intentional, the offender is guilty of a misdemeanor per § 17, MCL 445.867; MSA 19.416(117). Section 18 provides in part:
"Any seller who enters into any contract or agreement which does not comply with the provisions of this act or who violates any provision of this act except as a result of accidental or bona fide error is barred from the recovery of any time price differential, any official fees, delinquency or collection charge, attorney fees or court costs and the buyer shall be entitled to recover his reasonable attorney fees and court costs from the seller or his assigns." MCL 445.868; MSA 19.416(118).
This section, preventing an overcharging seller from recovering any time-price differential, is punitive and hence a deterrent. So is the misdemeanor charge in § 17. Absent is any statutory emphasis on compensation or disgorgement. In this case, therefore, the justification for employment of the fluid recovery mode would have to be hung almost entirely on its deterrent value. This singular deterrent purpose would tip the balance in favor of fluid recovery, if at all, only "where the danger of overdeterrence or excessive punishment through private enforcement is low: for example, where the substantive law is quite clear, where deterrence of borderline conduct would not cause any serious consequences, or where good-faith violations are exempt from coverage". Note, Developments, supra, pp 1527-1528. This is not such a case. Although no appellate court has determined the question of whether defendants were in violation of § 12 of MRISA, it has been determined that any violation was made in good faith. On this point, the Grigg Court left no room for dispute:
This statement was made in the context of a hypothetical statute showing a "deep concern" for both deterrence and disgorgement, a fortiori it applies, perhaps more forcefully, where only a deterrent intent is displayed. Note, Developments, supra.
Nor do we do so.
"The trial judge found — and the Attorney General stipulated — that the defendants' use of the previous balance method was done in the good faith belief that it was legal in Michigan. We affirm that finding. This is not a situation like Hays v Regents of University of Michigan, 393 Mich. 756; 233 N.W.2d 276 (1974), in which the defendant should have been alerted to the clear illegality of its practices by earlier court decisions. In the present case, the most that can be said is that there is a split of opinion among the state and Federal courts which have considered the legality of the previous balance method under statutes similar to MRISA. Contrast Haas v Pittsburgh National Bank, 526 F.2d 1083 (CA 3, 1975), and Partain v First National Bank of Montgomery, 467 F.2d 167 (CA 5, 1972), with Zachary v R H Macy Co, 31 N.Y.2d 443; 340 N.Y.S.2d 908; 293 N.E.2d 80 (1972); Seibert v Sears, Roebuck Co, 45 Cal.App.3d 1; 120 Cal.Rptr. 233 (1975); Federated Dep't Stores, Inc v Pasco, 275 So.2d 46 (Fla App, 1973); Johnson v Sears, Roebuck Co, 14 Ill. App.3d 838; 303 N.E.2d 627 (1973)." Grigg, supra, p 729.
In summary, the policies of compensation and disgorgement are not applicable and weigh against fluid recovery. Simer, supra, p 677. Additionally, because defendants acted in good faith, fluid recovery may not be justified solely as a deterrent even though MRISA has a deterrent purpose. For these reasons we uphold the trial court's refusal to invoke the fluid recovery method in this case.
A fair reading of the enforcement provisions, supra, indicates that they are not fully invoked unless the perpetrator's act was intentional and deliberate.
Plaintiffs argue that they are entitled to an attorney fee award despite the fact that no recovery was distributed. Generally, no attorney fees may be awarded unless authorized by statute or court rule. GRP, Ltd v United States Aviation Underwriters, Inc, 70 Mich. App. 671; 247 N.W.2d 583 (1976), aff'd 402 Mich. 107; 261 N.W.2d 707 (1978). However, under the "common fund" exception attorney fees may be awarded to a party who has created or protected a common fund for the benefit of others as well as himself. In the Matter of Attorney Fees of Kelman, Loria, Downing, Schneider Simpson, 406 Mich. 497; 280 N.W.2d 457 (1979); Foremost Life Ins Co v Waters (On Remand), 125 Mich. App. 799, 805; 337 N.W.2d 29 (1983). One of the requisites for a fee award is successful maintenance of the suit by plaintiff. Kelman, supra, pp 503-504, citing Mills v Electric Auto-Lite Co, 396 U.S. 375, 391-392; 90 S Ct 616; 24 L Ed 2d 593 (1970). Since in this case there is no recovery, we do not view such a suit as successful, nor do we perceive a direct benefit to the class. We conclude that plaintiffs were not entitled to an attorney fee award.
It is not impossible that the filing of these suits may have contributed to the cessation of the "previous balance" practice by defendants. However, such is more likely the product of the Attorney General's involvement, beginning with OAG, 1969-1970, No 4706, p 163 (August 11, 1970), which concluded that the previous balance method violated the maximum rate limitation in § 12 of MRISA.
Affirmed.