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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Turner v. Alaska Communications Systems Long Distance (10/10/2003) sp-5742

Turner v. Alaska Communications Systems Long Distance (10/10/2003) sp-5742

     Notice:   This opinion is subject to correction  before
     publication  in  the  Pacific  Reporter.   Readers  are
     requested to bring errors to the attention of the Clerk
     of  the  Appellate  Courts, 303  K  Street,  Anchorage,
     Alaska 99501, phone (907) 264-0608, fax (907) 264-0878,
     e-mail corrections@appellate.courts.state.ak.us.


            THE SUPREME COURT OF THE STATE OF ALASKA


DEWANA G. TURNER, BONITA )
H. HIXSON, and YOLANDA P.     )    Supreme Court No. S-10692
MONROE, on behalf of themselves    )
and all others similarly situated,      )    Superior Court No.
                              )    3AN-01-07208 CI
             Petitioners,          )
                              )    O P I N I O N
     v.                       )
                              )    [No. 5742 - October 10, 2003]
ALASKA COMMUNICATIONS    )
SYSTEMS LONG DISTANCE,   )
INC., and ALASKA              )
COMMUNICATIONS SYSTEMS   )
GROUP, INC.,                  )
                              )
             Respondents.          )
________________________________)




          Petition  for Review from the Superior  Court
          of   the  State  of  Alaska,  Third  Judicial
          District, Anchorage, William F. Morse, Judge.

          Appearances:   Peter  J.  Maassen,  Ingaldson
          Maassen,  P.C., Anchorage, and Paul  Adelman,
          Law  Office  of Paul Edelman, Anchorage,  for
          Petitioners.   Susan  Orlansky,  Jeffrey   M.
          Feldman,   and  Ruth  Botstein,   Feldman   &
          Orlansky, Anchorage, for Respondents.

          Before:    Fabe,  Chief  Justice,   Matthews,
          Eastaugh, Bryner, and Carpeneti, Justices.

          FABE, Chief Justice.


I.   INTRODUCTION

          Petitioners,   representing  a   class   suing   Alaska

Communications   Systems   Long   Distance,   Inc.   and   Alaska

Communications  Systems  Group, Inc.  for  terminating  a  widely

advertised  calling  plan,  contest  a  class  notification  that

suggests that the court may hold absent class members liable  for

defendants  attorneys  fees  if  the  class  suffers  an  adverse

judgment.   We  conclude that holding these absent class  members

liable  for   attorneys fees upon an adverse judgment will  chill

class   participation  and  hamper  the  efficiencies  of   class

litigation.  We therefore reverse the order of the superior court

approving the disputed language in the class notice.

II.  FACTS AND PROCEEDINGS

     A.   Factual History

          In  October  2000  Alaska Communications  Systems  Long

Distance,  Inc.  and  Alaska Communications Systems  Group,  Inc.

(collectively  ACS) offered and marketed a long distance  calling

plan  that provided unlimited long distance service for a twenty-

dollar  monthly  fee.   After  the plan  attracted  thousands  of

customers,  ACS  canceled the calling plan in  May  2001,  citing

unexpected  high  costs, unforseen regulation  requirements,  and

customer  abuses  of  the plan.  ACS did continue  to  provide  a

twenty-dollar  monthly  long distance plan,  but  that  plan  was

limited to 600 monthly minutes.

     B.   Procedural History

          Dewana  G.  Turner, Bonita H. Hixson,  and  Yolanda  P.

Monroe  (collectively Turner), three former subscribers, sued  on

behalf  of  the  approximately 30,000 subscribers  to  the  plan,

claiming,  among other things,  that ACSs unilateral  elimination

of the most material element of the long distance contract was  a

breach,  that ACS violated the Alaska Unfair Trade Practices  and

Consumer Protection Act by making misleading statements about the

plan,   and  that  ACS  fraudulently  concealed  material  facts,

including  the  companys  inability  to  maintain  the  plan  for

anything  longer  than a promotional period. The  superior  court

certified  the  class  as an Alaska Civil  Rule  23(b)(3)  class,

requiring  notice to potential class members and  an  opportunity

for  class opt-outs.  The classs counsel indicated that the award

of damages for each individual class member would range from zero

to a thousand dollars.

          The  parties  disagreed on the  wording  of  the  class

notification.   Turner wanted the notification  to  affirmatively

state  that  absent  class members may not  be  held  liable  for

attorneys fees:  [A]s an absent class member, you cannot be  held

liable  for any attorneys fees or costs that the Court may  award

ACS,  if  ACS  prevails.   ACS wanted the class  notification  to

indicate  that  class members who did not opt out might  be  held

liable  for  attorneys fees in the case of an  adverse  judgment.

Recognizing  that the question whether unsuccessful absent  class

members  could  be  exposed to Rule 82 fees  raised  a  difficult

issue,  and  that  the answer was uncertain, the  superior  court

decided  to err on the side of revelation and warn class  members

of  their  possible liability for attorneys fees.   It  therefore

crafted the following notice:

          In  Alaska,  the losing side in a lawsuit  is
          generally  required to pay a portion  of  the
          winning  sides  costs  and  attorneys   fees.
          Whether this rule applies to all members of a
          class  action  is uncertain.   The  plaintiff
          class appears to have roughly 30,000 members.
          If  the  class  loses on the  claims  it  has
          brought  against  ACS, and if  the  class  is
          required  to pay a portion of ACSs costs  and
          attorneys fees, then the money owed would  be
          spread  out amongst the entire class.   Thus,
          if you choose to remain a member of the class
          there  is  a  possibility that  you  will  be
          required, if the class loses, to pay some  of
          ACSs  costs  and attorneys fees  incurred  in
          opposing this litigation.
          
          Believing  that  the  class notice misstated  the  law,

Turner   petitioned   this  court  for  review   of   the   legal

permissibility  of imposing defendants attorneys fees  on  absent

class members, and we granted the petition.  After oral argument,

we  issued  an order requiring the superior court to redraft  the

notice.  This opinion now follows.

III. STANDARD OF REVIEW

          The parties disagree about the appropriate standard  of

review.   ACS argues that we should apply the abuse of discretion

standard,  which  we have applied for other certification  issues

and  which  federal  courts have applied  in  class  notification

cases.   But  Turner  correctly points out  that  the  underlying

question  whether  a court may assess defendants  attorneys  fees

against  absent class members is one of law.1  Legal  issues  are

reviewed  de  novo, and we adopt the rule of  law  that  is  most

persuasive in light of precedent, reason, and policy.2

IV.  DISCUSSION

          It  is  well established that absent members of a class

generally  are  not held liable for attorneys  fees:   An  absent

class member is not personally liable for litigation expenses  or

attorneys fees except insofar as there is a common fund  recovery

for  the class.3  The United States Supreme Courts discussion  in

Phillips  Petroleum Co. v. Shutts explains the  purpose  of  this

rule.4   The Shutts Court addressed whether the state  of  Kansas

could,  without violating the Due Process Clause, assert personal

jurisdiction  over  members of a class who did not  affirmatively

opt into but did not opt out of a class seeking a money judgment.5

In  ruling that a Kansas court could assert personal jurisdiction

over absent class members who had limited contacts with the forum

state,  the Court reasoned that [u]nlike a defendant in a  normal

civil  suit, an absent class-action plaintiff is not required  to

do  anything and an adverse judgment typically [will not] bind an

absent  plaintiff  for  any  damages, although  a  valid  adverse

judgment  may extinguish any of the plaintiffs claims which  were

litigated.6  Therefore, the Due Process Clause need not and  does

          not afford [absent class plaintiffs] as much protection from

state-court  jurisdiction  as  it  does  [absent  defendants   in

nonclass suits].7  While the Shutts decision deals with damages,8

and  this  case deals with attorneys fees, the relevant point  is

that  absent  class members generally cannot be held  liable  for

monetary awards.9

          Thus,  absent class members are not liable  for  costs,

though  they  may  be  otherwise bound by the  judgment,  whether

favorable or unfavorable.10  An exception applies to this general

rule.   When . . . the class action successfully recovers a  fund

for  the  benefit of a class or when nonparties to the suit  will

share  in  those  monies,  it is long settled,  as  one  treatise

explains,   based  largely  on  windfall  and  unjust  enrichment

principles, that the attorneys who created the class recovery are

entitled  to  be  reimbursed  from  the  common  fund  for  their

reasonable  litigation expenses, including  reasonable  attorneys

fees.11

          In  Municipality  of Anchorage v. Gentile,  a  case  in

which class representatives successfully protected the retirement

benefits  of  retired Anchorage police officers and firefighters,

we addressed the issue of imposing attorneys fees on absent class

members.12  Specifically, we answered the question whether a trial

court could impose attorneys fees on absent class members when  a

class  common  fund consists of benefits protected,  rather  than

created,  by  class attorneys.13  In holding that a  trial  court

could  conclude  that class members should  be  required  to  pay

something for the benefit they have received as a result  of  the

attorneys efforts,14 we noted that named class parties and  their

counsel . . . are not entitled to charge absent class members for

reimbursement  of attorneys fees or litigation  expenses  if  the

class suit is unsuccessful.15  However,  [w]hen litigation bestows

a benefit upon a class, the propriety of spreading the litigation

costs among those benefited is well established.16

          ACS  argues  that  the  treatises and  court  decisions

          relied on by Turner address only the question whether it is

permissible  to  assess the classs own attorneys fees  on  absent

class  members.   In contrast, ACS contends, the  issue  at  hand

deals  with  whether attorneys fees assessed in the  case  of  an

adverse  judgment may be imposed on absent class members pursuant

to  Rule 82.  ACS argues that Rule 82 is unique to Alaska, making

other  authority simply inapposite.  While the issue of  imposing

Rule  82  attorneys fees on absent class members is an  issue  of

first impression,17 we are not convinced that Rule 82s uniqueness

requires  us to impose attorneys fees on absent class members  in

the event of an adverse judgment.

          In  Adams v. Pipeliners Union 798,18 we suggested  that

courts may not assess attorneys fees against absent class members

in  the event of an adverse judgment.  In that case, a union that

supplied   workers   for  the  Trans-Alaska   Pipeline   racially

discriminated against black workers in violation of Alaska law.19

The  Alaska  State Commission for Human Rights  imposed  a  quota

requiring  the  Union  in  filling any job  order  in  Alaska  to

allocate  2.2%  of its dispatches to blacks.20  The  2.2%  figure

matched the percentage of Alaskas black population at the time.21

Adams  appealed  the commissions remedy, pointing  out  that  the

union  had recruited more than half its dispatched Alaska workers

from the South, where the black population represented 38% of the

population.22   In ruling that Adams had standing to  appeal  the

commissions  limited remedy, we stated: [N]o class member  stands

to  lose anything if Adamss appeal is unsuccessful on the merits.

There  still  will  be  a  hiring quota  imposed  on  Local  798.

Moreover, Adams will not be able to assess class members  with  a

portion  of his attorneys fees if he loses on the merits.23   ACS

argues  that  Adams is not controlling because the fee  liability

question  addressed by the court was about Adamss  own  attorneys

fees,  not prevailing party fees.  ACS, however, ignores that  in

Adams we partially based our conclusion that standing existed  on

the  fact  that no class member stood to lose anything.   If  the

          imposition of attorneys fees on class members had been allowed,

then  class members would have stood to lose something in  Adams.

Consequently, Adams does suggest that attorneys fees would not be

imposed  on  absent  class members in the  event  of  an  adverse

judgment.

          Civil Rule 82(a) provides that the prevailing party  in

a  civil  case  shall be awarded attorneys fees calculated  under

this  rule.  Thus, the application of Rule 82 depends on  whether

absent class members are parties at all for Rule 82 purposes.

          The  United States Supreme Court has recently held that

whether  unnamed  class  members  are  parties  depends  on   the

procedural  context  in question.  In Devlin v.  Scardelletti,  a

class of retired pension plan recipients attempted to prevent the

trustees of the plan from eliminating a cost of living adjustment

for   retired  recipients.24   One  absent  class  member,  after

objecting  to  a  settlement between the class  and  the  adverse

parties,   attempted to appeal the trial courts approval  of  the

settlement.25  The circuit court held that the absent class member

was  not  a party and could not appeal the trial courts ruling.26

In  overturning  the circuit court, the Supreme Court  held  that

[n]onnamed  class members . . . may be parties for some  purposes

and  not for others.27 The Court continued that [t]he label party

does  not  indicate  an  absolute characteristic,  but  rather  a

conclusion  about  the applicability of various procedural  rules

that  may  differ  based on context.28  In determining  that  the

absent class member was a party in the context of appealing  from

an  objection  to  a  class settlement offer, the  Supreme  Court

reasoned  that  [t]o hold otherwise would deprive nonnamed  class

members  of  the  power  to preserve their  own  interests  in  a

settlement that will ultimately bind them . . . .29  In following

Devlins  rationale, we look to the procedural context of Rule  82

attorneys fees and assess the impact of holding that absent class

members are parties liable for non-class attorneys fees.

          In  this case, each class member only stands to recover

          damages ranging from zero to a thousand dollars.  Holding absent

class members who stand to gain such small monetary awards liable

for ACSs fees defeats a key role of the class action.  In Deposit

Guaranty National Bank v. Roper, the United States Supreme  Court

noted  that  the  aggregation of small individual  claims  is  an

important  use  of  the class action device,  since  without  it,

aggrieved persons may be without any effective redress . . .  .30

A  rule  that permits the imposition of attorneys fees on  absent

class  members who stand to gain such small monetary compensation

will  encourage  opt-outs  and have a  chilling  effect  on  this

important  use  of the class action device.  As  a  result,  some

class  members  with legitimate claims will  be  left  without  a

remedy.

          Moreover,   such  a  rule  might  increase  litigation.

Although ACS contends that a rational potential plaintiff .  .  .

would  not  opt  out  of the class and file a  separate  lawsuit,

because such a litigant then would assume the responsibility  for

paying the entire Rule 82 award in the second lawsuit, this might

not  be  the case.  ACSs argument ignores the fact that potential

class  members who face imposition of attorneys fees in the  case

of  an  adverse verdict may have an incentive to opt out  of  the

initial  litigation  in order to observe  what  happens  in  that

litigation, maintaining an option to file a second lawsuit if the

first one is successful.  This would defeat a key purpose of  the

class   action   the  consolidation  of  like  claims  into   one

litigation.31

          ACS  contends that public policy favors the  imposition

of  defendants attorneys fees on absent class members,  but  ACSs

arguments are unpersuasive.  ACS argues that Rule 82 is  supposed

to  encourage litigants to factor in the costs of litigation when

they  decide  whether to file lawsuits and whether  and  when  to

settle  them, and contends that failing to impose attorneys  fees

will  improperly affect absent class member behavior.  ACS  fails

to recognize that absent class members do not file lawsuits32 nor

          do they normally settle them.33

          As  ACS  points out, Rule 82, which deviates  from  the

American rule, is designed to create basic fairness.  One who has

been  forced to litigate in order to vindicate ones rights should

be  reimbursed in part for litigation expenses.34  ACS also notes

that  Rule  82  is a two-way fee-shifting statute  mandating  the

awarding  of attorneys fees to the prevailing party whether  that

be  defendant or plaintiff, whereas many cause of action-specific

fee-shifting statutes are one-way, only providing attorneys  fees

for  plaintiffs.   But  our ruling does  not  eliminate  Rule  82

attorneys  fees  in  class actions;  it simply  limits  Rule  82s

possible  reach to named parties, meaning that a person  who  has

been forced to litigate in order to secure his or her rights will

be reimbursed in part for litigation expenses.

          Furthermore,  we  are guided by other courts  decisions

regarding whether fee-shifting statutes require the imposition of

attorneys fees on absent class members in the event of an adverse

judgment.  In Earley v. Superior Court, for example, a California

court  of appeals held that absent class members, at least  those

identified  on  an  opt-out basis, cannot be held  liable  for  a

successful  defendants  attorneys fees or  costs.35   The  Earley

court,  considering  an  employee class action  case  for  unpaid

overtime  wages, reasoned that imposing attorneys fees  liability

on  absent class members would encourage class members to opt out

and  engage  in  separate  litigation.36   The  court  in  Earley

recognized  that because the individual claims for  unpaid  wages

were  relatively  small, [d]efense fees and  costs  could  easily

dwarf  the  potential overtime compensation recovery each  worker

might  obtain.37  Consequently, workers may well forego asserting

their   statutory  wage  and  hour  rights,  thereby  emboldening

employers  who violate the overtime laws.38  Similarly,  in  this

case, individual class members have relatively small claims.  The

threat  of  liability  for  attorneys fees  might  lead  them  to

conclude that the game is not worth the candle39 and cause them to

          forgo their legal remedies, thereby encouraging allegedly harmful

business practices.

          Moreover,  while  some class members will  forgo  their

legal  remedies,  others might opt out and file separate  claims.

The  Earley court noted that [i]f an individual wage claimant  is

going  to  be  held liable for defense fees, it makes  much  more

economic sense to be liable only for the defense of an individual

action rather than for the defense of a class action.40  Imposing

attorneys fees on absent class members after an adverse  judgment

would  foster  repetitious  litigation of  essentially  identical

claims by individuals whose claims could otherwise be resolved in

one class action.41  And that would undermine the effectiveness of

the group remedy provided by the class action.42

          Similarly,  in  Wright  v.  Schock,  a  case  involving

certain  banks practices in purchasing secured promissory  notes,

the  Ninth  Circuit addressed this issue.43  The trial  court  in

Wright  granted summary judgment and awarded costs to  defendants

prior  to ruling on class certification.44  The plaintiff  argued

that  the  court should not have granted summary judgment  before

ruling   on  class  certification  because  that  prevented   the

plaintiff from spreading the judgment of defendants costs  across

the  class.45   In rejecting this argument, the court  recognized

that  granting summary judgment before certifying the class would

not  harm  the plaintiff because [a]bsent class members  have  no

obligation  to  pay attorneys fees and litigation  costs,  except

when they elect to accept the benefit of the litigation.46

V.   CONCLUSION

          Holding class members who have relatively small  claims

and  who remain passive throughout litigation liable for nonclass

attorneys   fees   will  increase  litigation  and   hamper   the

efficiencies  of  class  litigation.   Consequently,  we   hereby

REVERSE  the  order of the superior court approving the  disputed

language  in  the  class notice and hold that  the  absent  class

members  in  this case may not be held liable for ACSs  attorneys

          fees if ACS proves to be successful in this litigation.

_______________________________
     1    Earley v. Superior Court, 95 Cal. Rptr. 2d 57, 60 (Cal.
App.  2000) (The extent to which absent class members  should  be
exposed   to  personal  liability  for  a  successful  defendants
attorneys fees and costs is a matter dependent upon questions  of
public  policy  as well as statutory interpretation.   These  are
questions of law subject to our independent review.).

     2    Bennett v. Bennett, 6 P.3d 724, 726 (Alaska 2000).

     3     1  Herbert  Newberg  & Alba Conte,  Newberg  on  Class
Actions  1.03, at 1-12 (3d ed. 1992).

     4     472 U.S. 797 (1985); see also Bartek v. State, Dept of
Natural  Res.,  Div. of Forestry, 31 P.3d 100, 102 (Alaska  2001)
(noting  that  federal decisions are particularly  persuasive  in
interpreting Alaska Civil Rule 23 because that rule is  patterned
after Federal Civil Rule 23).

     5    Phillips Petroleum, 472 U.S. at 811.

     6    Id. at 810.
          
     7    Id. at 811.
          
     8     In a footnote, the Shutts Court explicitly declined to
make  a  ruling on the imposition of court costs on absent  class
members,  but  did  make  this  observation:  Petitioner   places
emphasis  on the fact that absent class members might be  subject
to   discovery,  counterclaims,  cross-claims,  or  court  costs.
Petitioner  cites  no  cases involving any such  imposition  upon
plaintiffs,  however.   We are convinced that  such  burdens  are
rarely  imposed  upon  plaintiff  class  members,  and  that  the
disposition of these issues is best left to a case which presents
them in a more concrete way.  Id. at 810 n.2.

     9     Id. at 811-12.
          
     10     3  Herbert  Newberg & Alba Conte,  Newberg  on  Class
Actions  16.13, at 16-78 (3d ed. 1992).

     11    Id.  14.02, at 14-3.

     12    922 P.2d 248 (Alaska 1996).

     13    Id. at 267.

     14    Id.

     15    Id. (quoting 3 Herbert Newberg & Alba Conte, Newberg on
Class Actions  14.02, at 14-2 through 14-3 (3d ed. 1992)).

     16    Id.

     17     In deciding that absent class members, at least those
identified  on  an  opt-out basis, cannot be held  liable  for  a
successful defendants attorneys fees or costs, a California court
of appeals noted that [i]n reaching this result, we have not been
aided by any direct authority; indeed, this appears to be a  very
novel  issue.  Earley v. Superior Court, 95 Cal. Rptr. 2d 57,  64
(Cal. App. 2000).

     18    699 P.2d 343 (Alaska 1985).
          
     19    Id. at 345.
          
     20    Id. (internal quotation omitted).
          
     21    Id.

     22    Id.
          
     23    Id. at 349.
          
     24    536 U.S. 1, 4 (2002).

     25    Id. at 4-6.

     26    Id. at 6.

     27    Id. at 9-10.
          
     28    Id. at 10.

     29    Id.
          
     30    445 U.S. 326, 339 (1980).
          
     31    See Earley v. Superior Court, 95 Cal. Rptr. 2d 57, 66-
          67 (Cal. App. 2000).
          
     32     Absent class members are absent, unnamed parties  who
did  not  initiate the action . . . .  1 Herbert Newberg  &  Alba
Conte, Newberg on Class Actions  1.03, at 1-11 (3d ed. 1992).

     33    While it is possible for an absent class member to opt
out  of  a  class  and settle individually with  defendant,  such
scenarios  are unlikely because [a]fter a class is  certified,  a
defendants settlement with any individual plaintiff, or even  the
sole  named plaintiff, will ordinarily not diminish the  exposure
to  liability  of the defendant to claims from the  rest  of  the
class.   2 Herbert Newberg & Alba Conte, Newberg on Class Actions
11.14,  at 11-18 through 11-19 (3d ed. 1992).  It should be noted
that  any  absent  class member may object to a settlement.   Id.
11.55,  at  11-132.  However, we need not address  the  issue  of
whether absent members who become active at some point during the
litigation are liable for attorneys fees.

     34     Bozarth v. Atlantic Richfield Oil Co., 833 P.2d 2,  4
          n.3 (Alaska 1992).
          
     35    95 Cal. Rptr. 2d at 64.
          
     36    Id. at 58, 67.

     37    Id. at 67.
          
     38    Id.

     39    Id. at 65.

     40    Id. at 67.
          
     41    Id.
          
     42    Id.

     43    742 F.2d 541, 542 (9th Cir. 1984).

     44                        Id. at 542-43.
                              
     45    Id. at 543 & 545.

     46    Id. at 545.