NOTICE REQUIREMENTS IN THE WAKE OF ORTHOPEDIC BONE SCREW

By Neil L. Zola, President and Chief
Operating Officer of
The Garden City Group, Inc.

In Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 173 (1974), the Supreme Court iterated the oft-cited maxim in class actions that notice is to be the "best notice practicable." While that Court and many that have followed interpret this phrase to mean direct mailed notice whenever possible, the definition of best notice is murkier where individual mailed notice is not only impracticable, but not possible based on available records. The Third Circuit, in the recent case of In re Orthopedic Bone Screw Products Liability Litigation, 246 F.3d 315 (3d Cir. 2001), may have just clouded the waters even more. While the Court clearly says more notice is better, it does not say what is enough.

In that case, the Third Circuit examined whether to allow a late-filed claim to participate in the settlement proceeds because of the doctrine of excusable neglect. The Court's analysis focused on whether the applicable claimant, who resided in Puerto Rico, should have been aware of the notice and the deadlines referenced therein. The Court, in a footnote, necessarily discussed the notice program which, in its opinion, was not widespread enough to solicit all claims possible. Stating that they "would be remiss" for not "express[ing] our concerns about the notice program used in this class action," the Third Circuit attempted to explain what is and what is not adequate notice. 246 F.3d at 328¹ . Perhaps raising the bar for all notice programs, the Court discussed, among other things, the obligations of the parties to disseminate direct notice even where mailing lists did not exist.

In December 1996, plaintiffs in Orthopedic Bone Screw reached a settlement of $100 million plus with AcroMed Corp., a major manufacturer of orthopedic bone screws. The settlement class included "all persons who underwent surgical implanting of AcroMed bone screws through December 31, 1996, a group estimated by the parties to exceed 100,000." 246 F.R.D. at 317. The class was certified as a non-opt-out class under Fed. R. Civ. P. 23(b)(1).

The factual underpinnings giving rise to the appeal do not directly concern notice, but rather, the purported failure of Alexander Sambolin, a class member, to timely file his settlement registration form with the claims administrator (although he did file his proof of claim within the Court-ordered deadline). However, the specter of notice is raised by one of Mr. Sambolin's arguments on appeal -- that the notice program was deficient under Rule 23 and due process. Although the Court explicitly did not opine as to the constitutional sufficiency of the notice program, 246 F.R.D. at 326, it did note, in commenting on whether Mr. Sambolin's delay in filing the form was excusable neglect, that: "absent actual notice mailed to his address, it is incongruous, in the unique circumstances of the case, to find Sambolin culpable for his failure to note a small advertisement run once on page 50 of a newspaper he does not receive." Id. at 327.

Thus, while the Court did not rule formally on the adequacy of notice, it discussed the subject in some detail. In its critique of the notice plan, the Third Circuit examined the administrator's failure to help create mailing lists as well as the publication program's perceived lack of focus and breadth. The first issue has important implications in direct mail notice campaigns. Typically, available lists, usually maintained by a defendant company, are used for sending direct notice to class members. These databases are supplemented by response to some form of publication notice. The burden is on the claimant to recognize that he or she is part of the class and to seek the necessary claim form or other paperwork to participate in the settlement. The Third Circuit suggests that this is not enough. It stated that the parties could have asked for lists of patients with bone screws implanted from hospitals and doctors. They could have sent a "Dear Doctor" letter to the orthopedic medical community. The Court also advocated placing ads in orthopedic trade publications asking doctors for help in identifying names and addresses of AcroMed bone screw recipients as yet another way to increase the mailing database. See generally, 246 F.3d at 328 n.1.

The Court noted that this last identification technique is already utilized in securities class actions where brokers are routinely asked to forward notice to their clients or to provide names of potential class members to the settlement administrator. Id. See also Victor Technologies Securities Litigation, 792 F.2d 862, 863 (9th Cir. 1986). Extending this obligation to doctors and hospitals may have important consequences. The logical continued extension of this reasoning is potentially limitless. For example, why not ask non-party software companies to identify customers when a notice program is trying to reach computer users? Or perhaps non-party auto manufacturers could be required to provide the claims administrator with a list of their customers in a case involving claims against tire or brake manufacturers.

The Third Circuit opinion makes it difficult for a party simply to rely on the lists available from a defendant. Moreover, it demonstrates overwhelmingly that courts will not excuse parties from sending mailed notice where lists are available. There are, of course, companies that are in the business of selling lists. These lists will generally be over-inclusive, raising the question of cost-effectiveness. See In re Silicone Gel Breast Implant Products Liability Litigation, 1994 WL 114580 at *8 (N.D. Ala. April 1, 1994) (there is a tension between meeting requirements of due process and the "wasteful diminution of settlement funds through excess notification procedures.").

As to publication notice, the program in Orthopedic Bone Screw devised by the parties and the administrator was as follows: during January and February 1997, notice was published twice in USA Today; once in TV Guide; once in Parade Magazine; and once in El Nuevo Dia, a daily newspaper published in San Juan, Puerto Rico. The Court endorsed Sambolin's argument that publication should have been broader, using a mix of national and local publications. Not to be overlooked is the Court's criticism of the content of the notice, which, among other things, failed to include a toll-free telephone number for claimant inquiries, a standard requirement for class action notice.

The Court also advocated Internet notice as well as radio and television ads. 246 F.R.D. at 328 n.1 . Internet notice, while in its infancy, is an important tool that should be considered in all notice programs. Banner ads, web newsletters and focused e-mail are all readily available, and relatively inexpensive ways of circulating notice. Giving notice to state agencies, which may be in contact with class members, is another possible way to supplement publication notice. See In re Agent Orange Product Liability Litigation, 818 F.2d 145, 169 (2d Cir. 1987).

Orthopedic Bone Screw does not stand for the proposition, however, that notice is adequate only if it reaches all intended recipients. Although Mr. Sambolin benefited from the excusable neglect doctrine, he may not have been able to do so had the notice program been more complete, even if he still did not receive notice. For example, in Caruso v. Candie's Inc., 201 F.R.D. 306 (S.D.N.Y. 2001), the Southern District of New York recently upheld the adequacy of a notice program despite one objector's complaint that notice was not mailed to his correct address. In analyzing the issue the court focused on effort and procedure rather than actual results, stating:

"[A] class action settlement is binding on an absent class member if the notice program is procedurally adequate, even if the absent class member does not receive personal written notice." In re Nasdaq Market-Makers Antitrust Litig., No. 94 Civ. 3996, 1999 WL 395407, at *2 (S.D.N.Y. June 15, 1999); see In re Prudential Sec. Inc. Ltd. P'ships Litig., 947 F. Supp. 750, 755-56 (S.D.N.Y. 1996); see also Mullane, 339 U.S. at 317-18, 70 S. Ct. 652.

Caruso, 201 F.R.D. at 314. See also Vancouver Women's Health Society v. A. H. Robins Co., 820 F.2d 1359, 1364 (4th Cir. 1987) ("Frequently, reasonable plans of notification are never contested because notices, particularly legal notices in newspapers, go unnoticed by potential claimants who lose their rights. The fact that some individuals may lose their rights under the law does not mean that an initial notification program is unreasonable.").

The reasoning in Orthopedic Bone Screw does not conflict with these holdings. Rather, it provides parties with guidelines for what must be evaluated to consider a notice program reasonable. Most particularly, it extends the dictates of Eisen and its progeny to mean that mailed notice is not just preferred, it should also be expanded creatively, if possible. Certainly, in the more high-profile cases, parties seem to embrace, and the courts endorse, extensive notice programs. See, e.g., In re Austrian and German Holocaust Litigation, 80 F. Supp. 2d 164 (S.D.N.Y. 2000) (individual notice sent to tens of thousands of Austrian Citizens, newspaper ads run throughout Europe and other parts of the world, promotional announcements issued in "key foreign cities," direct mailings to thousands of organizations, and use of an internet website). As the class action industry faces more scrutiny, notice issues must be given careful consideration in all cases, not just those with a high degree of publicity. Certainly a notice program provides an easy target for an objector's complaint and a poorly constructed notice program can undermine an otherwise adequate settlement.

Whether the Third Circuit raised the bar or simply revealed it, parties must be careful not to allow the notice program simply to be the tail wagged by the settlement dog. Rather, it is a vital component to the settlement. One message is clear, more is better. What will continue to evolve is what is enough.

¹Not surprisingly, the Court's discussion is more useful concerning what is insufficient notice than what is enough notice. Although there is a developing body of case law regarding notice standards, whether a program passes muster is usually a subjective determination. Thus, while a judge may not be able to define what a good program should look like, much like the now infamous line by Supreme Court Justice Potter Stewart regarding pornography -- "I know it when I see it," see Jacobellis v. Ohio, 378 U.S. 184, 197 (1964) (concurring opinion) -- courts know a good (or bad) notice program when they see it.

²The Court, however, hedged in declaring how much notice would have been sufficient: "While all of these efforts may not be required by due process, we are inclined to believe that some combination of them would help to bring the notice program closer to 'the best notice practicable.'" 246 F.R.D. at 328 n.1.

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