Birmingham Steel Corp. v. Tennessee Valley Authority

353 F.3d 1331, 57 Fed. R. Serv. 3d 708, 2003 U.S. App. LEXIS 26169, 2003 WL 22999501
CourtCourt of Appeals for the Eleventh Circuit
DecidedDecember 23, 2003
Docket02-15379
StatusPublished
Cited by54 cases

This text of 353 F.3d 1331 (Birmingham Steel Corp. v. Tennessee Valley Authority) is published on Counsel Stack Legal Research, covering Court of Appeals for the Eleventh Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Birmingham Steel Corp. v. Tennessee Valley Authority, 353 F.3d 1331, 57 Fed. R. Serv. 3d 708, 2003 U.S. App. LEXIS 26169, 2003 WL 22999501 (11th Cir. 2003).

Opinion

CARNES, District Judge:

This appeal stems from the decertification of a class action lawsuit against defendant Tennessee Valley Authority (“TVA”) after the class representative filed for bankruptcy. The district court granted defendant’s motion to decertify the class because it concluded that the named plaintiff, Birmingham Steel Corporation (“Birmingham Steel”), had become an inadequate class representative, that class counsel had failed to request the substitution of a class representative, and *1333 that no other member of the class was willing to serve in that role. Plaintiff Birmingham Steel appeals the district court’s decertification of the class, arguing that the court should have allowed a reasonable time for a class member to intervene or be substituted as the new class representative.

We conclude that the district court abused its discretion by decertifying the class without permitting class counsel reasonable time to determine whether a new class representative could be substituted. We therefore remand the case to the district court for the purpose of allowing a reasonable period of time for another member of the class to offer itself as the class representative.

I. Factual and Procedural Background,

As the underlying proceedings in this ease are pivotal to an understanding and resolution of this dispute, we will address them in some detail here. Plaintiff Birmingham Steel brought this case as a class action on behalf of a group of approximately 400 large-volume industrial consumers of electrical power who had Economy Surplus Power (“ESP”) contracts with TVA. Birmingham Steel alleged that TVA had overcharged for power during the summer of 1998 and thus had breached the ESP contracts. Pursuant to Federal Rule of Civil Procedure 23(b)(3), 1 the district court certified the case as a class action, with Birmingham Steel as the class representative, on December 5, 2000. At the suggestion of both parties, the district court endorsed a bifurcated trial plan, whereby a trial would first be held on the issue of liability; a second trial to determine damages would be scheduled only if the defendant was found liable in the first trial. On September 28, 2001, the court set this liability trial to begin approximately one year later, on September 30, 2002. On this same date, the district court approved the Notice of Class Action to be sent to potential class members, which Notice directed members who wished to be excluded from the class to file an opt-out form with the court no later than December 14, 2001. Of significance to later events in this case, the Notice, which was drafted by class counsel, states specifically that “[y]ou are not included in this class if you are in bankruptcy.”

Pretrial matters proceeded uneventfully until June 14, 2002, when defendant TVA, having learned that Birmingham Steel had filed a petition for Chapter 11 bankruptcy approximately two weeks before, alerted the district court to that fact and moved the court to decertify the class. In support of this motion, TVA argued that, as a company in bankruptcy, Birmingham Steel was no longer a member of the class and therefore could not serve as the class representative. In the alternative, TVA requested the entry of an order staying the proceedings until a substitute class representative could be certified or the class representation issue could be decided. Birmingham Steel opposed decertification, arguing that the class definition did not exclude bankrupt companies, albeit the class notice did, and that, in any event, the district court should amend the class definition to allow bankrupt companies such as Birmingham Steel to remain in the class. With regard to TVA’s argument that Bir *1334 mingham Steel could not serve as a representative, given that its assets would soon be transferred to a liquidation trustee and the company would cease to exist, Birmingham Steel disagreed with TVA’s characterization of the effect or the timing of the proposed reorganization plan.

The district court denied defendant’s motion to stay proceedings, but did set down a hearing on the motion for August 22, 2002. Much of this hearing revolved around the many legal and practical problems that would be engendered by Birmingham Steel’s continuation as a representative plaintiff, in view of its bankruptcy status. Central to this discussion was the question whether a bankrupt company controlled by a liquidator could adequately serve as a class representative. The district court also expressed concern about what type of new notice and opt-out period would be required, were the court amenable to redefining the class to include bankrupt entities and to allowing Birmingham Steel to remain as the representative plaintiff.

Toward the conclusion of the hearing, the court inquired about the possibility of finding a substitute class representative, should Birmingham Steel be excluded. Class counsel replied that it would be “some trouble” to find another representative because most of the class members were current customers of TVA who regularly negotiated new power contracts and who therefore would likely be unwilling to undermine their ongoing business relationships with TVA. Class counsel also noted that substituting a new class representative would necessitate more discovery and therefore force the postponement of the trial date. In short, class counsel expressed the view that a search for a new representative was “unnecessary” and would cause “serious trouble.” Nevertheless, counsel did indicate to the district court that, should it decide that Birmingham Steel could no longer serve as the class representative, the law would require that counsel be given a reasonable period of time to substitute a new representative: a proposition with which the court concurred.

In contrast, defendant TVA took the position that a new representative was not an option, but a necessity, under these circumstances. Moreover, TVA opposed, as inappropriate, any efforts by class counsel to “beat the bushes begging” for a new representative to step forth, but instead urged the court to require any such volunteer to contact the court directly.

Thereafter, on September 19, 2002, the district court issued an order granting TVA’s motion to decertify the class. The court rejected Birmingham Steel’s argument that, as a bankrupt entity, it was still properly within the definition of a class member, and the court further declined to amend the class notice to expand this definition to cover bankrupt companies. Accordingly, the court reasoned that, as it was no longer a member of the class, Birmingham Steel could not serve as the class representative. With regard to the substitution of another class member into the representative spot, the court indicated: “No Party has asked this court to allow another class member to act as class representative.” The court subsequently reiterated this point when, in distinguishing cases in which substitution had occurred after the original class representative ceased its membership in the class, the court noted: “No motion to substitute has ever been placed before this court.” Finally, having decertified the action, the court indicated that class members were now free to bring their own individual breach of contract cases, if they saw fit.

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Bluebook (online)
353 F.3d 1331, 57 Fed. R. Serv. 3d 708, 2003 U.S. App. LEXIS 26169, 2003 WL 22999501, Counsel Stack Legal Research, https://law.counselstack.com/opinion/birmingham-steel-corp-v-tennessee-valley-authority-ca11-2003.