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September 15, 2015
  Ward v. Apple, Inc. - Ninth Circuit
Headline: Is a Joint Tortfeasor always a 'necessary party' under FRCP Rule 19.

Areas of Law: Federal Civil Procedure, Antitrust

Issues Presented:

Whether AT&T Mobility (AT&T) was, as a joint tortfeasor, a necessary party to the legal action, such that the class' failure to join AT&T as a party to the legal action was cause dismissal of the entire action.

Whether the decision of the district court was voluntary or adverse to plaintiff, such that it invoked the court of appeals statutory appellate jurisdiction.

Brief Summary:
On October 19, 2012, the present putative class action was filed against Apple (Apple III) asserting a single antitrust claim: conspiracy to monopolize the aftermarket for iPhone voice and data services. The class did not name AT&T as a defendant even though the alleged conspiracy with Apple. The case was consolidated with Apple II and the parties stipulated to submit the Apple II briefs on the Rule 19 claim. The stipulation provided that the parties "agreed that the district court should grant Apple's motion to dismiss under Rule 12(b)(7) if the court decided to follow Judge Ware's decision in Apple II." Judge Rogers then granted the motion for reasons set forth in Judge Ware's July 11, 2012 Order. This created the judgment in favor of Apple and the Plaintiff's filed a timely appeal.

The Ninth Circuit first determined that they had jurisdiction because "voluntary dismissals with prejudice that produce an adverse final judgment may be appealed . . . at least where the plaintiff is not acting pursuant to a settlement agreement." The dissent stated that the parties "effectively agreed with Judge Rogers to manufacture appellate jurisdiction without presenting the Rule 19 issue to her for an independent decision."

As to the Rule 19 issue, the Plaintiff argued the District Court violated the "longstanding principle that joint tortfeasors need not be joined in one action." The Ninth Circuit responded by stating that whether a joint tortfeasor must be joined is a conclusion from the factual analysis because there "may be circumstances in which an alleged joint tortfeasor has particular interests that cannot be protected in a legal action unless it is joined under Rule 19(a)(1)(B)." The Ninth Circuit looked at the advisory committee's note to the 1966 amendment to the Federal Rules of Civil Procedure (FRCP) Rule 19, which stated that "a tortfeasor with the 'joint-and-several' liability is merely a permissive party to an action against another with like liability" and concluded that "[a]ntitrust conspirators are liable for the acts of their co-conspirators" and that therefore "a plaintiff is 'not required to sue all of the alleged conspirators . . . as antitrust coconspirators are joint and severally liable.'" This led the Ninth Circuit to the conclusion that "an absent antitrust co-conspirator generally will not be a required party under Rule 19(a)(1)(A)." It was the Ninth Circuit's opinion that the class could recover "all of their damages" from Apple alone, and that AT&T was not a required party under Rule 19(a)(1)(A).

The Ninth Circuit then turned their focus to Rule 19(a)(1)(B)(i) to determine if AT&T was a required party because their absence left them with an unprotected interest. The Ninth Circuit stated that "Rule 19(a)(1)(B) requires the determination of whether an absent joint tortfeasor is a required party by identifying the specific interest the absent party claims and . . . whether the party's ability to protect that interest may be impaired."

The Ninth Circuit then turned to the order from Judge Ware in Apple II which reasoned "that it would be required to evaluate AT&T's conduct, and that such an evaluation would necessarily implicate the interests of AT&T, which means that AT&T is a necessary party." This language left the Ninth Circuit with the interpretation that the district court was saying that "because the alleged conspiracy is with AT&T . . . AT&T is a necessary party." This was contrary to the general rule, however, the Ninth Circuit stated that FRCP Rule 19 (a)(1)(B)(i) turned on whether AT&T's interest qualifies for protection.

The Ninth Circuit stated that under FRCP Rule 19(a)(1)(B)(i) that there were to requirement for finding a required party. The first was whether or not the party identified as a required party, "claimed a legally protected interest relating to the subject matter of the action. Quoting Bowen v. United States, 172 F.3d 682 (9th Cir. 1999). Second is that the interest being claimed is legally protected. In Cachil Dehe Band, 547 F.3d at 970 (quoting Am. Greyhound Racing, 305 F.3d at 1023) the Ninth Circuit stated that the interest needs to "be more than a financial stake, and more than speculation about a future event."

To the first requirement, the Ninth Circuit went on to state that is was questionable whether or not a declaration from AT&T's counsel in Apple I, stating that AT&T has an interest in the case in Apple II was sufficient to be recognized as AT&T claiming an interest. However, the Ninth Circuit stated that it was not necessary to resolve that issue because "Apple has not shown that the interests AT&T has purportedly claimed are legally protected under [FRCP] Rule 19."

Turning focus to the second requirement, that the interest being claimed is legally protected the Ninth Circuit focused on the interest contended by Apple: (1) AT&T faces a risk of regulatory scrutiny; (2) AT&T faces risk of harms to its reputation; and (3) AT&T has a number of contractual rights that may be impaired if this action is resolved in its absence.

The Ninth Circuit stated that they were "reluctant to recognize legally protected interests based solely on '[s]peculation about the occurrence of a future event'" and that is what the risk of regulatory scrutiny was, a future speculated future event. As to the reputational interest, the Ninth Circuit stated "[a] joint tortfeasor's reputation generally will be adversely impacted in any case accusing it of wrongdoing . . . recognizing a protected interest in business reputation would significantly erode the general rule that a plaintiff need not join all joint tortfeasors in one action." Finally, looking at the contractual rights, the Ninth Circuit concluded that the rights to the unlock codes may or may not have been an interest that AT&T had at the time, the Plaintiffs had no claims arising under the AT&T Wireless Service Agreement (WSA), and that Apple was not a party to the WSA and could not benefit from the WSA.
In concluding that AT&T may or may not have claimed an interest, but that any interest claimed by AT&T was not a legally protected interest, the Ninth Circuit found that AT&T was not a necessary party to the action. The Ninth Circuit reversed the decision of the district court and remanded the case for further proceedings.

Significance:

Under Rule 19, the general rule is that joint tortfeasors are not a required party, unless it is shown that the party is claiming an interest in the subject matter of the case, and that the interest being claimed is a legally protected interest.

Extended Summary: The sale of iPhones began in June 2007 when Apple, Inc. (Apple) entered into an agreement with AT&T Mobility (AT&T) as the exclusive provider of voice and data services for a period of five years. The first lawsuit was filed in the Northern District of California by nine Apple customers. The suit claimed that Apple installed "software locks" on the iPhones in order to protect and enforce the exclusivity agreement between Apple and AT&T without the customer's knowledge. Theses "software locks" allowed AT&T to charge "supra-competitive prices for wireless services. The nine cases were consolidated into the case In re Apple AT&TM Anti-Trust Litigation, No. 5:07-cv-05152-JW(N.D. Cal.)(Apple I). In 2008 and 2009, the district court denied motions by Apple and AT&T to dismiss, but he motions were denied and the class was certified on July 8, 2010. AT&T, after originally being denied motions to compel arbitration under their user agreements, AT&T was successful in 2011 in getting the motions granted.

In 2011 and 2012 new suits were filed by Apple customers and were consolidated into In re Apple iPhone Antitrust Litigation, No. 4:11-cv-06714-YGR (N.D. Cal.) (Apple II). The claims by the plaintiffs in Apple II were the same as those in Apple I, with a change of defendants. In Apple II, AT&T was not named a defendant. Under Apple II, AT&T again attempted to compel arbitration but was unsuccessful because AT&T was not a named party. AT&T then filed a declaration stating that "AT&T has an interest in this case, . . . AT&T has not intervened in this suit because, given the ruling in Apple I, . . . f AT&T were to be joined to this litigation, AT&T would move to compel arbitration." The District court then held that AT&T was a necessary party. The district court stated in the opinion " n order to evaluate Plaintiffs' antitrust claims in regard to the alleged conspiracy to monopolize the alleged iPhone Voice and Data Services Aftermarket, the Court will be required to evaluate AT&T's conduct." The district court concluded that "[s]uch an evaluation of AT&T's conduct would necessarily implicate the interests of AT&T, which means that AT&T is a necessary party pursuant to Rule 19(a)." Since the plaintiff in Apple II refused to add AT&T as a party, their suit was dismissed.

On October 19, 2012, the present putative class action against Apple was filed (Apple III) asserting a single claim against Apple, conspiracy to monopolize the aftermarket for iPhone voice and data services. Again, AT&T was not a named defendant. The case was consolidated with Apple II and the parties stipulated to submit the Apple II briefs on the Rule 19 claim. The stipulation provided that the parties "agreed that the district court should grant Apple's motion to dismiss under Rule 12(b)(7) if the court decided to follow Judge Ware's decision in Apple II." Judge Rogers then granted the motion "for reasons set forth in Judge Ware's July 11, 2012 Order." This created the judgment in favor of Apple and the Plaintiff's filed a timely appeal.

The Ninth Circuit first determined that they had jurisdiction because "voluntary dismissals with prejudice that produce an adverse final judgment may be appealed . . . at least where the plaintiff is not acting pursuant to a settlement agreement." The dissent stated that the parties "effectively agreed with Judge Rogers to manufacture appellate jurisdiction without presenting the Rule 19 issue to her for an independent decision." This was because the parties stipulation regarding the Rule 19 briefs from Apple II. However, the majority of the Ninth Circuit determined from the statements in the record that Judge Rogers completed her own review and agreed with Judge Ware and instead of issuing different language, repeated the wording used by Judge Ware. This meant that Ward had an adverse judgment, that was appealable.

The Ninth Circuit then turned to the Rule 19 issue. Here, Plaintiff Ward had argued that the "longstanding principle that joint tortfeasor need not be joined in one action" was violated by the District Court's ruling. The Ninth Circuit responded by stating that whether a joint tortfeasor must be joined is a conclusion from the facts because there "may be circumstances in which an alleged joint tortfeasor has particular interests that cannot be protected in a legal action unless it is joined under Rule 19(a)(1)(B)." The Ninth Circuit looked at the advisory committee's note to the 1966 amendment to the Federal Rules of Civil Procedure (FRCP) Rule 19, which stated that "a tortfeasor with the 'joint-and-several' liability is merely a permissive party to an action against another with like liability" and concluded that "[a]ntitrust conspirators are liable for the acts of their co-conspirators" and that therefore "a plaintiff is 'not required to sue all of the alleged conspirators . . . as antitrust coconspirators are joint and severally liable." This lead the Ninth Circuit to the conclusion that "an absent antitrust co-conspirator general will not be a required party under Rule 19(a)(1)(A). It was the Ninth Circuit's opinion that Ward would be able to recover "all of their damages" from Apple alone, and that AT&T was not a required party under Rule 19(a)(1)(A).

The Ninth Circuit then turned their focus to Rule 19(a)(1)(B)(i) to determine if AT&T was a required party because their absence left them with an unprotected interest. In this regard, the Plaintiffs contended that the district court erred by holding AT&T a required party without specifically identifying AT&T's interests and how that interest might be impaired if the action were resolved in their absence. This argument struck accord with the Ninth Circuit, who agreed that "Rule 19(a)(1)(B) requires the determination of whether an absent joint tortfeasor is a required party by identifying the specific interest the absent party claims and . . . whether the party's ability to protect that interest may be impaired."

The Ninth Circuit then turned to the order from Judge Ware in Apple II which reasoned "that it would be required to evaluate AT&T's conduct, and that such an evaluation would necessarily implicate the interests of AT&T, which means that AT&T is a necessary party." This language left the Ninth Circuit with the interpretation that the district court was saying that "because the alleged conspiracy is with AT&T . . . AT&T is a necessary party." However, the Ninth Circuit stated that FRCP Rule 19 (a)(1)(B)(i) turned on whether AT&T's interest qualifies for protection.

The Ninth Circuit stated that under FRCP Rule 19(a)(1)(B)(i) that there were to requirement for finding a necessary party. The first was whether or not the party identified as a required party, "claimed a legally protected interest relating to the subject matter of the action. Quoting Bowen v. United States, 172 F.3d 682 (9th Cir. 1999). Second is that the interest being claimed is legally protected. In Cachil Dehe Band, 547 F.3d at 970 (quoting Am. Greyhound Racing, 305 F.3d at 1023) the Ninth Circuit stated that the interest "be more than a financial stake, and more than speculation about a future event.

To the first requirement, the Ninth Circuit went on to state that is was questionable whether or not a declaration from AT&T's counsel in Apple I, stating that AT&T has an interest in the case in Apple II was sufficient to be recognized as AT&T claiming an interest. However, the Ninth Circuit stated that it was not necessary to resolve that issue because "Apple has not shown that the interests AT&T has purportedly claimed are legally protected under [FRCP] Rule 19."

Turning focus to the second requirement, that the interest being claimed is legally protected the Ninth Circuit focused on the interest contended by Apple: (1) AT&T faces a risk of regulatory scrutiny; (2) AT&T faces risk of harms to its reputation; and (3) AT&T has a number of contractual rights that may be impaired if this action is resolved in its absence.

On the issue of regulatory scrutiny, Apple relied on an Eleventh Circuit case of Laker Airways, Inc. v. British Airways PLC, 182 F.3d 843 (11th Cir. 1999). The Ninth Circuit held that the Laker Airways case was inapposite because the private corporation in that case stood to lose their approval as the appointed coordinator, not just routine regulatory scrutiny. In addition the Ninth Circuit went on to say that they were "reluctant to recognize legally protected interests based solely on '[s]peculation about the occurrence of a future event.'"

On the issue of reputational interests the Ninth Circuit made it clear that this was not a legally protected interest. The Ninth Circuit stated "[a] joint tortfeasor's reputation generally will be adversely impacted in any case accusing it of wrongdoing . . . recognizing a protected interest in business reputation would significantly erode the general rule that a plaintiff need not join all joint tortfeasors in one action."

Turning to the final interest contended by Apple, that of contractual rights being impaired, the Ninth Circuit found that Apple was claiming AT&T had three different contract rights that would be impaired: (1) AT&T's right to control unlock codes; (2) rights arising from AT&T's wireless Service Agreement (WSA) with customers; and (3) AT&T's arbitration provisions in the WSA.

As to the first, AT&T's rights to control unlock codes, the Ninth Circuit found that this right only lasted during the contract and the unwind period. With the contract over and the unwind period sufficiently vague, the Ninth Circuit concluded that this was insufficient to constitute a protected interest because AT&T may not have the rights to control unlock codes.

As for the second claimed interest, claims from AT&T's WSA, the Ninth Circuit found that this was not a protected interest because the district court stated that "[the] Plaintiffs have not contended that any of their claims arise from AT&T service contracts." In addition, if the WSA was so important there would have been a copy in the record, and there was none.

Finally, as for the AT&T arbitration provision of the WSA, the Ninth Circuit found that Apple was not a signatory to the contract and thus could not benefit from its provisions. Thus, this interest was not a legally protected interest.

In concluding that AT&T may or may not have claimed an interest, but that any interest claimed by AT&T was not a legally protected interest, the Ninth Circuit found that AT&T was not a necessary party to the action. The Ninth Circuit reversed the decision of the district court and remanded the case for further proceedings.

Dissent:

In Judge Wallace's dissent, he wrote that the court should not have heard the case because there was no appealable issue - it was voluntarily dismissed that resulted no adverse judgment for which to appeal. Judge Wallace would have also affirmed the order of the district court by concluding Plaintiff waived the Rule 19 issue "by inviting Judge Rogers to adopt the very analysis that they now allege on appeal was erroneous." Judge Wallace stated that "[O]ne may not complain on review of errors below for which he is responsible."

To read full opinion, please visit:

http://cdn.ca9.uscourts.gov/da...15/06/29/12-17805.pdf

Panel:
J. Clifford Wallace, Milan D. Smith, Jr., and Michelle T. Friedland, Circuit Judges.

Date of Issued Opinion: June 29, 2015

Docket Number: No. 12-17805

Decided: Reversed and Remanded.

Case Alert Author:
Lawrence J. Hudack

Counsel:
Mark C. Rifkin (argued), Alexander H. Schmidt, and Michael Liskow, Wolf Haldenstein Adler Freeman & Herz LLP, New York, New York; Francis M. Gregorek and Rachele R. Rickert, Wolf Haldenstein Adler Freeman & Herz LLP, San Diego, California; Randall S. Newman, Randall S. Newman P.C., New York, New York, for Plaintiff-Appellant Zack Ward.

Adam J. Levitt, Grant & Eisenhofer P.A., Chicago, Illinois, for Plaintiff-Appellant Thomas Buchar.

Daniel M. Wall (argued) and Christopher S. Yates, Latham & Watkins LLP, San Francisco, California; J. Scott Ballenger and Roman Martinez, Latham & Watkins LLP, Washington, D.C., for Defendant-Appellee.

Author of Opinion: Judge Milan D. Smith, Jr.

Author of Dissent: Judge Wallace

Case Alert Circuit Supervisor: Professor Ryan T. Williams

    Posted By: Ryan Williams @ 09/15/2015 03:37 PM     9th Circuit  

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