decided: March 2, 1987; As Amended March 17, 1987.
Bauer, Chief Judge, and Coffey and Easterbrook, Circuit Judges.
EASTERBROOK, Circuit Judge.
This antitrust case presents questions concerning issue preclusion, horizontal price fixing with a union's assistance, and the Noerr-Pennington doctrine. The questions arise from an agreement in 1976 between the National Electrical Contractors Association, Inc. (the Association), which comprises firms doing 50-60% of the nation's electrical contracting work, and the International Brotherhood of Electrical Workers, AFL-CIO (the Union), which represents employees of these and many other contractors. The agreement established the National Electrical Industry Fund (the Fund), and members of the Association pay 1% of their gross payroll to the Fund to finance its activities. The Fund helps to defray the costs of the Association's bargaining with the Union on behalf of its members and administering their collective bargaining agreements. The Fund also pays for some research and educational programs. The 1976 agreement calls for the Union to obtain, as part of any collective bargaining agreement with a firm that is not a member of the Association, a requirement that the firm contribute 1% of its gross payroll to the Fund.
Firms that were outside the Association objected to the Union's effort to divert 1% of each employer's payroll to the Fund. Characterizing the contribution requirement as a cartel, they filed an antitrust suit in the federal court in Maryland in 1977. Two of the plaintiffs in the Maryland case asked that it be certified as a class action on behalf of all electrical contractors that did not belong to the Association. Despite the requirement of Fed.R.Civ.P. 23(c)(1) that the court determine "as soon as practicable" whether a suit may be maintained as a class action, the district court allowed that issue to slide for three years. It then simultaneously decided the merits and the application for certification of the class. National Constructors Ass'n v. National Electrical Contractors Ass'n, Inc., 498 F. Supp. 510 (D.Md.1980). The court held the contribution requirement unlawful per se under § 1 of the Sherman Act, 15 U.S.C. § 1, see 498 F. Supp. at 529-43. It also certified a class of electrical contractors that do not belong to the Association and have signed agreements with the Union requiring them to make the 1% contribution to the Fund. Id. at 544-51. The court denominated this as a class under Rule 23(b)(3), id. at 548, which required that each member be given notice and offered an opportunity to opt out. Certification under Rule 23(b)(3) was appropriate, the judge concluded, because all members of the class had identical claims for damages, which could be computed in a mechanical fashion. Id. at 549-50. The district court then deferred the required notice while the Association, Union, and Fund took an appeal under 28 U.S.C. § 1292(a)(1) from the injunction against their demand that firms pay the 1% fee.
On September 16, 1980, seven days after the Maryland court filed its opinion, Premier Electrical Construction Co. -- a member of the class that had been certified in Maryland -- filed this suit in Chicago. Premier's complaint tracked that of the plaintiffs in Maryland, with one exception. The plaintiffs in the Maryland case wanted an injunction and damages of treble the amounts they had paid into the Fund. Although Premier had signed contracts containing the 1% requirement, it had refused to pay and therefore could not obtain the kind of damages the class representatives had requested. Because Premier had refused to pay, the Fund had filed three suits (one for each year of the contract) in state courts of Illinois. Premier defended these suits, arguing among other things that the contribution requirement violated the Sherman Act. These state suits proceeded for a while as the Maryland litigation was ongoing. They were stayed after a time, and the Fund dismissed them voluntarily when it lost the Maryland case. Premier's complaint in federal court asked for treble damages based on the expense, including attorneys' fees, of defending the contract actions in Illinois.
Two weeks after filing the suit in Chicago, Premier informed the Maryland court that it would move to consolidate the cases. It did not file the necessary motion, however, until February 1982, when the court in Chicago demanded that Premier show cause for its inaction. Premier quickly filed with the Judicial Panel on Multidistrict Litigation a motion to transfer the case under 28 U.S.C. § 1407(c)(ii). This was a peculiar motion, because § 1407 allows transfer and consolidation only for pretrial proceedings, and the Maryland case was already on appeal from a dispositive judgment. The Panel denied the motion in light of "the more advanced stage of the Maryland action" and the "minimal number of actions involved in this litigation". Premier did nothing further concerning the Maryland litigation until March 1983.
Meanwhile the Fourth Circuit affirmed the Maryland court's decision. National Electrical Contractors Ass'n, Inc. v. National Constructors Ass'n, 678 F.2d 492 (4th Cir.1982). The court of appeals agreed with the district court that the 1% requirement was unlawful per se as price fixing. Premier did not participate in the appeal, and apparently no one asked the Fourth Circuit to address the propriety of the class certification. The Association, Union, and Fund asked the Supreme Court to review the case. While the petition was pending, the case was settled. The defendants consented to the entry of an injunction against collecting the 1% contribution from firms that did not belong to the Association. They also offered to create a fund of $6 million, on which class members could draw in proportion to their contributions to the Fund since 1977.
On learning of the terms of the proposed settlement, Premier objected that only payments into the Fund could be a basis of access to the $6 million. In April 1983 it asked the Maryland court to defer still further the giving of notice under Rule 23 and to allow it to add and litigate claims on behalf of a new subclass that had incurred expenses of litigation. The subclass Premier proposed would include contractors sued, threatened with suit, or subject to any other efforts to collect the fee. Premier apparently wanted payments to this subclass to come on top of the $6 million. The Maryland court concluded that Premier had tarried far too long in proposing a new subclass and rebuffed its requests. It stated that the case had "progressed to the point that . . . it would be totally unfair to interrupt it by permitting intervention along the lines requested and staying the distribution of the class notice and redefining the class. It seems to me that Premier, being a member of the class in this suit, should, if it so desires, object to the settlement, either that or seek to opt out of the settlement and pursue any further claims it may have elsewhere." The notices to the class were issued in April 1983 and told class members that they could accept the benefits of the settlement, object to the settlement (see Rule 23(e)), or opt out of the class. Premier opted out. The district court approved the settlement, and in August 1983 the defendants dismissed their petition for certiorari. 463 U.S. 1234, 104 S. Ct. 26, 77 L. Ed. 2d 1449 (1983).
The Maryland case was over, but the Chicago case had just begun. There had been only limited discovery, and Premier wanted to keep things that way. It asked the Chicago court to hold that the defendants are bound by the Fourth Circuit's decision that they violated the Sherman Act. The defendants opposed this request and added the contention that the sort of damages Premier requested are unavailable under the Sherman Act unless the state litigation was a "sham". Both sides moved for summary judgment.
The district court held that the defendants are bound by the Maryland decision under principles of issue preclusion (collateral estoppel, here the offensive, non-mutual variety). Premier Electrical Construction Co. v. IBEW, 627 F. Supp. 957, 960-63 (N.D.Ill.1985). The court concluded that class members should be entitled to the benefit of preclusion even when they opt out, because preclusion will reduce claims on judicial resources.*fn1 This did not carry the day for Premier, however, because the court also held that the Noerr-Pennington doctrine precludes the recovery as damages of the costs of defending the Fund's suits. Id. at 964-66. Premier had not alleged that the suits were shams in the sense that the Fund did not care whether it won, or that the Fund brought them for the sake of the costs they would impose rather than because of the prospect of winning.
The court did not grant the defendants' motions for summary judgment, however, because of the possibility that Premier could show some other kind of compensable injury. Premier asked the district court to certify its order for an interlocutory appeal under 28 U.S.C. § 1292(b), arguing that the court's interpretation of the Noerr-Pennington doctrine warranted immediate review. In the course of requesting the certification, Premier conceded that it did not expect to be able to show any other injury -- at least not enough other injury to make further litigation worthwhile. The district court took this as a concession that the case is over and entered judgment for the defendants.
We start with the district court's conclusion that Premier is entitled to the benefit of the Maryland court's holding that the defendants violated the Sherman Act. If the question of preclusion had arisen in 1967, there would have been a ready answer. Most federal courts would apply estoppel only among the parties to the original suit. This is the mutuality requirement -- the rule that unless a party would have obtained the full benefit of any victory against the person relying on preclusion, it does not bear the risk of loss. See Bigelow v. Old Dominion Copper Co., 225 U.S. 111, 127, 32 S. Ct. 641, 642, 56 L. Ed. 1009 (1912); Restatement of Judgments § 93 (1942). Had the settlement broken down and the defendants won this case in the Supreme Court, Premier would not have been bound. Until recently, that would have prevented Premier from taking advantage of a loss by the defendants in the Maryland case.
We choose 1967 as the benchmark because the preceding year the Supreme Court rewrote Fed.R.Civ.P. 23. One of the complaints about the old Rule 23 was that it allowed courts to entertain what were called "spurious class actions" -- actions for damages in which a decision for or against one member of the class did not inevitably entail the same result for all. One party could style the case a "class action", but the missing parties would not be bound. A victory by the plaintiff would be followed by an opportunity for other members of the class to intervene and claim the spoils; a loss by the plaintiff would not bind the other members of the class. (It would not be in their interest to intervene in a lost cause, and they could not be bound by a judgment to which they were not parties. Hansberry v. Lee, 311 U.S. 32, 40, 61 S. Ct. 115, 117, 85 L. Ed. 22 (1940).) So the defendant could win only against the named plaintiff and might face additional suits by other members of the class, but it could lose against all members of the class. This came to be known as "one-way intervention", which had few supporters. A principal purpose of the 1966 revision of Rule 23 was to end "one-way intervention". See the Advisory Committee's note to new Rule 23(c)(3), and, e.g., C. Wright, A. Miller & M. Kane, 7B Federal Practice and Procedure § 1789 at 266-67 (2d ed. 1986). See also H. Kalven & M. Rosenfield, The Contemporary Function of the Class Suit, 8 U.Chi.L.Rev. 684 (1941).
The drafters of new Rule 23 assumed that only parties could take advantage of a favorable judgment. Given that assumption, it was a simple matter to end one-way intervention. First, new Rule 23(b)(3) eliminated the "spurious" class suit and allowed the prosecution of damages actions as class suits with preclusive effects. Second, new Rule 23(c)(3) required the judgment in a Rule 23(b)(3) class action to define all members of the class. These members of the class were to be treated as full-fledged parties to the case, with full advantage of a favorable judgment and the full detriments of an unfavorable judgment. Third, new Rule 23(c)(1) required the district courts to decide whether a case could proceed as a class action "as soon as practicable" after it was filed. The prompt decision on certification would both fix the identities of the parties to the suit and prevent the absent class members from waiting to see how things turned out before deciding what to do. Finally, new Rule 23(c)(2) allowed members of a 23(b)(3) class action to opt out immediately after the certification in accordance with 23(c)(1). So a person's decision whether to be bound by the judgment -- like the court's decision whether to certify the class -- would come well in advance of the decision on the merits. Under the scheme of the revised Rule 23, a member of the class must cast his lot at the beginning of the suit and all parties are bound, for good or ill, by the results. Someone who opted out could take his chances separately, but the separate suit would proceed as if the class action had never been filed. As the Advisory Committee put it: "Under proposed subdivision (c)(3), one-way intervention is excluded; the action will have been early determined to be a class or a nonclass action, and in the former case the judgment, whether or not favorable, will include the class".
The drafters of new Rule 23 did not anticipate that courts would give preclusive effect to judgments in the absence of mutuality. Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. 313, 91 S. Ct. 1434, 28 L. Ed. 2d 788 (1971), and Parklane Hosiery Co. v. Shore, 439 U.S. 322, 99 S. Ct. 645, 58 L. Ed. 2d 552 (1979), which severely curtailed the mutuality doctrine in federal litigation, washed away the foundation on which the edifice of Rule 23 had been built. A rule requiring each person's decision whether to be bound by the judgment to precede the decision on the merits works only when the choice is conclusive. The curtailment of the mutuality requirement meant that a decision to opt out might not be conclusive. The drafters also did not anticipate the degree to which district judges would disregard Rule 23(c)(1). Rules 23(c)(1) and (2) together force class members to choose the binding effect of the judgment in advance of decision on the merits. (If they can choose later, it's one-way intervention all over again.) But district courts frequently postpone deciding whether a case may be maintained as a class action until the case has been settled or a decision has been rendered on the merits. That is what happened in the Maryland litigation. The district judge decided the merits and certified the case as a class action simultaneously, more than three years after it had been filed. The judge then did not give the Rule 23(c)(2) notice for another 2 1/2 years, by which time the judgment had been affirmed and the case had been settled. So by the time Premier and the other members of the class were asked to choose, they knew how the case had come out. Delay in certifying the class is regrettably frequent, even though appellate courts continually condemn the practice. E.g., Glidden v. Chromalloy American Corp., 808 F.2d 621 (7th Cir.1986); Watkins v. Blinzinger, 789 F.2d 474, 475 n. 3 (7th Cir.1986) (collecting other cases, which in turn collect still more).
The district court in Chicago concluded that these two unanticipated developments make all the difference. (Actually the district court did not refer to Rule 23, but its holding logically entails a belief that the decision made in 1966 to do away with one-way intervention is no longer binding.) It relied principally on Parklane, which allowed a private plaintiff in a securities case to obtain the benefit of a judgment against the defendant in an action brought by the Securities and Exchange Commission. The Court criticized the mutuality doctrine for "failing to recognize the obvious difference in position between a party who has never litigated an issue and one who has fully litigated and lost", 439 U.S. at 327, 99 S. Ct. at 649, and for wasting the time of courts (and parties) on the way to a duplication of the initial result. Even if the second case differed from the result of the first, this might mean that the second decision was the error. If the first litigation is complete, and the parties have good reason to present their cases fully, the decision is as likely to be accurate as any later outcome, and there is accordingly no reason to endure a series of similar cases. The application of the first outcome to all parties is as accurate as a sequence of cases with varying outcomes. Still, the Court recognized, the use of non-mutual, offensive issue preclusion might leave the defendant being pecked to death by ducks. One plaintiff could sue and lose; another could sue and lose; and another and another until one finally prevailed; then everyone else would ride on that single success. This sort of sequence, too, would waste resources; it also could make the minority (and therefore presumptively ...