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Katz v. Carte Blanche Corp.

May 22, 1973



Author: Seitz

Before SEITZ, Chief Judge, ALDISERT, Circuit Judge and FISHER, District Judge


SEITZ, Chief Judge.

On this appeal,*fn1 defendant contends the district court erroneously granted plaintiff's pretrial motion to allow his suit to proceed as a class action pursuant to Fed. R. Civ. P. 23. Defendant asks us to reverse that determination and permit plaintiff to proceed only on his own behalf.

Defendant Carte Blanche Corporation is a national credit card company. Members must pay an annual membership fee and, in return, have the privilege of charging items at the company's associated establishments. As part of its billing procedures, defendant levies certain service charges and late fees. Plaintiff attacks the defendant's disclosure of its charges, and its membership fee as a component thereof, under the civil damage provisions of the Truth-in-Lending Act.*fn2 15 U.S.C. ยงยง 1601, 1640 (1971). Under the Act, anyone injured by a violation of its provisions is entitled to recover twice the amount of his damages, but not less than $100 nor more than $1,000 per plaintiff, plus reasonable attorney's fees.

The instant problem arises from an individual plaintiff's assertion of the right to at least minimum recovery for each of a potential class of 800,000 similarly situated members of Carte Blanche Corporation. Defendant claims Congress did not intend class enforcement of the minimum penalty provisions of this Act; in the alternative, it contends the class is unmanageable under Rule 23. The district court concluded that while the issues were difficult, pretrial doubts should be resolved in favor of allowing the class action.

The two issues presented for resolution at this juncture are: (1) the standard to be applied by this court in reviewing the district court's pretrial grant of the class action; and (2) under that standard, whether the district court erred in granting the motion. Subsumed into the latter issue is the question of whether Congress intended to bar any class enforcement of the provisions of this Act.


Rule 23(c)(1) mandates that the district court determine as soon as practicable after commencement of a suit whether a class action is to be allowed. However, the district court retains discretion to modify that determination at any time before a final decision on the merits. This includes the discretion to decide later that class status was improperly granted and to dismiss that element of the proceeding. Thus, although the initial determination must be made without benefit of actual litigation of the case, the district court may modify its initial judgment after watching the litigation unfold. If it subsequently decides that its initial impression was erroneous, it can take appropriate action to remedy the error.

The district court's opportunity to review its own decision throughout the proceeding is part of the scheme in Rule 23 to vest broad discretion in the district court when dealing with class actions. Clearly, this broad discretion is essential if the court is to cope with the problems inherent in managing a class suit. Consequently, where the district court has granted a pretrial motion to proceed as a class, and where immediate appellate review of that order has been permitted, we conclude the appellant must make a convincing showing that the district court committed an abuse of discretion in granting the motion. Only then will this court intercede. Cf. Interpace Corp. v. City of Philadelphia, 438 F.2d 401 (3d Cir. 1972)(mandamus).

Four factors militate in favor of this standard. First, the district court has considered whether, in addition to the other criteria imposed under Rule 23, the class is manageable. Since this involves a determination by the district court as to a litigation over which it will be presiding, this court should give great deference to that decision. Second, as previously discussed, the district court may itself review and modify or reverse its initial, pretrial determination throughout the pendency of the proceeding. This second point buttresses the policy of giving great deference to the district court's pretrial grant. Third, because of this continuing power of review and because of the procedural setting when the initial decision is made, the district court should generally resolve all doubts in favor of allowing the class. Thus, in challenging the pretrial grant, more than reasonable doubt as to the propriety of initially allowing the class must be shown. Fourth, there is no right to interlocutory appeal. This last factor, like the first and third, is reinforced by the presence of the second factor: the power of continuing self-review vested in the district court.

Therefore, where, as here, interlocutory review of the district court's initial grant of Rule 23 status has been permitted, there should be a high threshold for appellate intervention. We believe our decision to require clear and convincing evidence of an ...

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