On certification to the Superior Court, Appellate Division, whose opinion is reported at 393 N.J. Super. 333 (2007).
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
ALBIN, J., writing for a unanimous Court.
The Court considers whether, under the Full Faith and Credit Clause of the United States Constitution, a New Jersey court must give preclusive effect to a nationwide class action settlement in Tennessee and dismiss an individual lawsuit in this state that involves the same defendant and subject matter.
In September 2001, James Simmermon filed a complaint in New Jersey alleging that defendant Dryvit Systems, Inc. (Dryvit), the manufacturer of a synthetic stucco, fraudulently misrepresented the quality of its product when he purchased it in 1995 for his New Jersey home. A year before Simmermon brought his New Jersey action, a class action lawsuit asserting the same claims was filed against Dryvit in the Tennessee Circuit Court. In April 2002, the Tennessee class action was converted into a nationwide homeowners' class action and the parties entered into a settlement that was preliminarily approved by the Tennessee Circuit Court. Under the settlement agreement, Dryvit would provide class members with property inspections, three-year warranties, and reimbursement of some repair costs.
In June 2002, the claims administrator for the class action settlement sent all identifiable class members a mailing that included settlement information and an opt-out form that had to be returned by September 3, 2002. Homeowners who opted out of the class would not be bound by the settlement and could pursue individual lawsuits against Dryvit. Those who did not timely return the opt-out form would have to abide by the terms of the settlement. According to the claims administrator's records, the notification letter was mailed to Simmermon's home in New Jersey on June 24, 2002. The letter was not returned by the postal service as undeliverable, and Simmermon was not among those who filed a request to opt out of the settlement, nor was he one of the objectors who challenged the adequacy of the notice procedures and the proposed settlement at an October 2002 hearing in Tennessee.
In January 2003, the Tennessee court approved the settlement. The court also found that the notification to class members constituted the best practicable notice and was reasonably calculated to apprise class members of their right to exclude themselves from the settlement. The court ordered that class members who had not returned the opt-out form were permanently enjoined from obtaining any benefits or other relief in a lawsuit filed in another jurisdiction. After a two-year stay during which appeals were considered, final judgment was entered in Tennessee in April 2005.
Meanwhile, Dryvit filed its answer in the New Jersey action in March 2002. The answer did not contain the certification mandated by Rule 4:5-1(b), disclosing whether the matter in controversy was the subject of any other action pending in any court or whether any other action was contemplated. Then, in March 2003, six months after the opt-out deadline, Dryvit's counsel sent a letter to Simmermon's counsel informing him for the first time of the class action settlement and advising that because Simmermon had not opted out of the class, he was enjoined from proceeding in New Jersey. In May 2003, Dryvit's counsel informed the trial court for the first time about the class action settlement and asserted that Simmermon was barred from prosecuting the claim. At a hearing in November 2004, Dryvit's counsel sought a stay of the New Jersey action and advised the court that Dryvit was not yet entitled to res judicata, which bars a party from litigating a second lawsuit on the same claim, because the order approving the class action settlement in Tennessee had been stayed pending an appeal. Nevertheless, Simmermon did not take this opportunity to seek relief in Tennessee from his failure to timely opt out of the settlement. Instead, he filed an affidavit in New Jersey averring that he did not receive the mailed notice and if he had timely received it he would have opted out. The trial court denied the stay, finding that Dryvit's counsel had strategically waited until after the opt-out deadline to inform Simmermon of the nationwide class action, and finding further that Simmermon's New Jersey lawsuit reasonably demonstrated his desire to be excluded from the class.
After the appeals in Tennessee had run their course and the settlement was approved, the trial court in New Jersey granted a motion by Dryvit to dismiss Simmermon's lawsuit on the ground that the final judgment of a sister state is entitled to full faith and credit. The trial court determined that the Tennessee court had jurisdiction over the class action and over Simmermon as a class member, the notification of the settlement and opt-out provision satisfied federal due process requirements, and Simmermon's failure to opt out bound him to the settlement.
The Appellate Division reversed, holding that Dryvit's failure to timely disclose to Simmermon and to the court its knowledge of the class action settlement, pursuant to Rule 4:5-1(b)(2), prevented it from invoking the preclusive effect of the Tennessee judgment. Because the Appellate Division panel concluded that the violation of the rule was an independent legal basis for not enforcing the Tennessee judgment, it discerned no need to address the due process analysis conducted by the trial court. 393 N.J. Super. 333 (2007).
HELD: A Tennessee court is the proper forum to address whether James Simmermon received sufficient notice of the nationwide class action against Dryvit Systems, Inc., and whether prosecuting an individual suit against Dryvit in New Jersey constituted an effective opt-out of the class action. Only if a Tennessee court decides that Simmermon is not bound by the class action settlement may he proceed with his New Jersey action. However, because it violated Rule 4:5-1(b)(2), Dryvit will be responsible for Simmermon's litigation expenses, including attorneys' fees.
1. Article IV, Section I of the United States Constitution provides that "Full Faith and Credit shall be given in each State to the public Acts, Records, and judicial Proceedings of every other State." That principle is enforced in a similarly worded federal statute, the Full Faith and Credit Act, 28 U.S.C.A. § 1738. The full faith and credit doctrine is essential to our system of federalism, comprised of fifty equal states, each with its own judicial system. Respect for the judgments entered by the court of a sister state is critical to avoid the type of divisive parochialism that breeds duplicative litigation and waste of judicial resources. However, before full faith and credit will attach to a class action judgment of a sister state, the class members must have been afforded the minimum procedural requirements of due process. Those requirements are notice plus an opportunity to be heard and participate in the litigation. The notice must be the best practicable, reasonably calculated under all the circumstances to apprise class members of the pendency of the action and afford them an opportunity to present their objections. The notice should also describe the class members' rights in the action and provide them an opportunity to remove themselves from the class by executing and returning an opt out or request for exclusion form to the court. (Pp. 16-19).
2. Principles of comity and federalism counsel that a sister state court-not a New Jersey court-should entertain challenges to the fairness or adequacy of one of its judgments. Permitting broad collateral review of a state's nationwide class action judgment in forty-nine other states would undermine the efficacy of class actions and result in the waste of judicial resources. Therefore, this Court limits its review to determining whether the Tennessee Circuit Court implemented adequate safeguards to ensure that the notice to class members satisfied due process requirements. The Court finds that the multi-faceted methods used for notifying class members, including the first-class mailing containing information about the settlement and separate opt-out form, met the requisite standards of due process. (Pp. 19-22).
3. Two representatives of the claims administrator filed affidavits attesting that the notice was sent to Simmermon's home address on June 24, 2002, and was not returned as undeliverable. Although Simmermon has the right to argue that he did not receive actual notice of the settlement, that he effectively opted out by prosecuting his claim in New Jersey, and that Dryvit's violation of Rule 4:5-1(b)(2) denied him timely information concerning his right to opt out, he must make those arguments in Tennessee. After a New Jersey court has determined that a sister state court has entered a class action judgment following due process standards, a broader collateral attack of that judgment- absent exceptional circumstances that are not present here-should be made in the sister state court. (Pp. 22-23).
4. The Court finds inexcusable Dryvit's failure to comply with Rule 4:5-1(b)(2). That rule requires each party to certify in the first pleading whether the matter in controversy is the subject of any other action pending in any court or whether such litigation is contemplated, and it imposes a continuing disclosure obligation if a change occurs during the course of the litigation. Although Dryvit's failure to file the certification appears to have been a tactical decision, the Court does not find under the circumstances of this case that the rule provides a basis to ignore the dictates of the Full Faith and Credit Clause. Simmermon's attorney learned of the class action settlement from Dryvit's counsel in March 2003, but he did not take steps to intervene in Tennessee, including during the two years that enforcement of the settlement was stayed. (Pp. 23-29).
5. The Court concludes that the Tennessee Circuit Court had jurisdiction over Simmermon and the nationwide class action settlement, and that the notification procedures for apprising class members about the settlement and the optout met the requisite standards of due process. The Tennessee judgment, therefore, must be given full faith and credit in this state unless Simmermon obtains relief from that judgment in a Tennessee court. The Court recognizes, however, that if Dryvit had provided the certification mandated by Rule 4:5-1(b)(2), Simmermon could have taken timely steps to opt out of the class action, and the trial court could have inquired whether he intended to proceed as a member of the class, thereby avoiding duplicative litigation and the waste of judicial resources. Because the rule provides for the imposition of sanctions on a non-complying party, Dryvit will be held responsible for Simmermon's litigation expenses and attorneys' fees that would have been avoided if Dryvit had filed a timely certification, including any expenses and fees incurred in seeking relief from the Tennessee judgment. If Simmermon applies for relief in Tennessee and is denied that relief, the Law Division in this state must give preclusive effect to that judgment and, in that case, Dryvit will also be responsible for all litigation expenses, including attorneys' fees, incurred by Simmermon in his New Jersey action after March 15, 2002--the date that Dryvit filed an answer without the required certification. If Tennessee excludes Simmermon from the class action settlement, he may proceed with his New Jersey claims, and the trial court is directed to impose on Dryvit the litigation expenses incurred by Simmermon in the appeals to the Appellate Division and this Court, which could have been avoided if Dryvit had filed the certification. The trial court will also determine all other litigation expenses incurred by Simmermon at the pretrial stage that are attributable to the violation of the rule. (Pp. 29-30).
The judgment of the Appellate Division is REVERSED and the matter is REMANDED to the trial court for proceedings consistent with this opinion.
CHIEF JUSTICE RABNER and JUSTICES LONG, LaVECCHIA, WALLACE, RIVERA-SOTO and HOENS join in JUSTICE ALBIN's opinion.
The opinion of the court was delivered by: Justice Albin
Nationwide class action suits, which seek redress for victims of defective products, consumer fraud, environmental torts, and other wrongs, are now part of the modern legal landscape. Such actions, however, pose particular challenges to our system of federalism. The central issue in this case is whether, pursuant to the Full Faith and Credit Clause, a New Jersey court must give preclusive effect to a nationwide class action consumer fraud settlement in Tennessee and dismiss an ongoing individual action in this state that involves the same defendant and same subject matter covered in the Tennessee settlement.
Plaintiff claims that he did not receive timely notice of the Tennessee class action settlement or of his right to opt out of that settlement, and that, in any event, the prosecution of his New Jersey lawsuit constituted an unmistakable opt-out. Plaintiff also contends that in the New Jersey action defendant failed to make a timely disclosure of the parallel Tennessee class action as required by Rule 4:5-1(b)(2), thus fatally prejudicing his rights. For those reasons, he claims that our courts should not give full faith and credit to the Tennessee judgment.
On the other hand, defendant argues that the notice provided in the Tennessee class action met the due process requirements for invoking the Full Faith and Credit Clause.
Defendant also maintains that plaintiff cannot collaterally attack the Tennessee judgment in a New Jersey court, regardless of whether defendant violated the disclosure mandated by our court rule.
The Law Division dismissed plaintiff's lawsuit on the ground that the final judgment of a sister state is entitled to full faith and credit. The Appellate Division reversed, holding that defendant's failure to timely disclose to plaintiff and the court its knowledge of the class action settlement, pursuant to Rule 4:5-1(b)(2), "prevents it from invoking the preclusive effect" of the Tennessee judgment. Simmermon v. Dryvit Sys., Inc., 393 N.J. Super. 333, 335 (App. Div. 2007).
We now reverse. Although defendant's violation of Rule 4:5-1(b)(2) made it more difficult for plaintiff to seek relief in the Tennessee court from the class action settlement, it did not necessarily fatally impair his ability to do so. The Full Faith and Credit Clause and principles of federalism command that a Tennessee court, not a New Jersey court, should determine whether plaintiff is bound by the class action settlement. Once a New Jersey court determines that the class action notice procedures complied with due process, absent exceptional circumstances, a Tennessee court is the proper forum to address whether ...