CCT III v. MERRILL LYNCH PIERCE FENNER AND SMITH INC (1997)

OPINION

We are required for the second time in this case to decide whether the intervenors-appellants, whom for purposes of this appeal we shall call the plaintiffs, or Florida plaintiffs, are barred by the doctrine of virtual representation from prosecuting this lawsuit.   In an earlier opinion, Becherer v. Merrill Lynch, Pierce, Fenner and Smith, Inc., 43 F.3d 1054 (6th Cir.1995) (Becherer III ), we found that the district court applied too broad a definition of “virtual representation” in holding these plaintiffs bound by res judicata to a judgment against a prior set of plaintiffs, the Becherer plaintiffs, asserting identical claims.   We remanded for a factual determination whether these plaintiffs, the Florida plaintiffs, authorized, financed, and controlled the investigation and prosecution of the first suit, brought by the Becherer plaintiffs.   The district court, on remand, held that even under a narrower theory of virtual representation, these Florida plaintiffs should be bound to the judgment against the first plaintiffs.  Becherer v. Merrill Lynch, Pierce, Fenner and Smith, Inc., 920 F.Supp. 1345 (E.D.Mich.1996) (Becherer IV ).

We now reverse the judgment of the district court, because we conclude that the court's factual findings are insufficient to justify application of the virtual representation doctrine as we defined it in Becherer III.

I.

The Becherer plaintiffs and the Florida plaintiffs are all investors in a Florida condominium/hotel development.   The Becherer plaintiffs filed suit in 1989 in the federal court in Michigan against the hotel's developers, the securities broker, the escrow agent, and the financial institution involved in the financing of the project, alleging fraud, securities violations, breach of contract, and other claims.   The Becherer plaintiffs requested class certification under Fed.R.Civ.P. 23(b)(3).

The Florida plaintiffs, who, as we have said, are intervenors-appellants in the case, were originally putative class members in the Becherer suit, but later filed a separate action in a Florida state court in 1992, when a proposed class settlement in federal court failed.

After the Becherer plaintiffs filed suit, the district court certified a class consisting of both the Becherer plaintiffs and the Florida plaintiffs, but only as to two contract claims against the developer/construction company defendants, Shelter Seagate Corporation and its affiliates, or SSG. The class prevailed in this action, winning a substantial money judgment.   In February 1992, the district court certified another class, once again consisting of both groups of plaintiffs, for the purpose of ratifying a proposed settlement between all the investors and the remaining defendants.   Because this class was also certified under Fed.R.Civ.P. 23(b)(3), the court gave all putative class members until April 3, 1992, to object to the proposed settlement.   On April 3, 1992, 44 plaintiffs, among whom were many of the Florida plaintiffs, objected.   Additionally, the law firm representing these objectors reserved the right to add to the list of plaintiffs who were objecting, as the court had extended the time for doing so until April 14.

Under the terms of the proposed settlement, the number of investors electing to opt out was sufficient to scuttle the agreement and vitiate the class certification, and that is what occurred.   Significantly, the Florida plaintiffs now claim that all of them either opted out of the proposed settlement class, or reserved their right to object to the proposed settlement.   It appears that by the terms of the April 3 objection documents, this is literally accurate.   Subsequently, on July 28, 1992, the Florida plaintiffs filed claims in a Florida state court practically identical to those filed in the federal district court by the Becherer plaintiffs.

In August 1992, after the contract class had prevailed at trial over SSG and after the proposed settlement collapsed, the district court dismissed all of the Becherer plaintiffs' remaining claims against the other defendants on summary judgment, and also enjoined the Florida plaintiffs from pursuing their claims in the Florida state court, pursuant to the relitigation exception found in the Anti-Injunction Act, 28 U.S.C. § 2283.  Becherer v. Merrill Lynch, Pierce, Fenner and Smith, Inc., 809 F.Supp. 1259 (E.D.Mich.1992) (Becherer I ).   Essentially, the district court held that, because both groups' interests were identical and they had a “sufficiently close” relationship, the Florida plaintiffs were bound, under the principles of res judicata and collateral estoppel, by the summary judgment against the Becherer plaintiffs.  Id. at 1267-68.

On appeal, this court reversed in part, holding, in an opinion by Judge Kennedy, that the theory of claim preclusion relied on by the district court was too broad.  Becherer III, 43 F.3d at 1071.   We determined that the district court erred in finding virtual representation based solely on identity of interests and a close relationship, because claim preclusion requires, among other things, an express or implied legal relationship in which parties to the first suit are accountable to nonparties who file a subsequent suit raising identical issues.   This court remanded for a determination whether a legal relationship existed between the Becherer plaintiffs and the Florida plaintiffs such that the former group was accountable to or controlled by the latter group.   This court intimated, however, that if the Florida plaintiffs, acting through the Association of Unit Owners, or AUO, of which all plaintiffs in both groups were members, “authorized, financed, and controlled the investigation and prosecution of the Becherer plaintiffs' suit, including hiring an attorney and arranging to pay him a combination retainer and contingency fee,” then collateral estoppel would probably bar the Florida plaintiffs' claims.  Id. at 1071.

Virtual representation is one variety of one element of res judicata.   Generally, a finding that a plaintiff is barred by res judicata from pursuing a claim requires 1) a final decision on the merits in a prior action, 2) that the current action involve the same parties or their privies, 3) that the current action raise an issue or issues which were or should have been litigated in the prior action, and 4) an identity of the causes of action.  Sanders Confectionery Prods., Inc. v. Heller Fin., Inc., 973 F.2d 474, 480 (6th Cir.1992).   A nonparty to an action in which he or she is “virtually represented” by an actual party is considered to be in privity with that party, satisfying the second requirement above.   In this case, the other three elements have been established.

On remand, the district court made 67 findings of fact as to the collateral estoppel issue.  Becherer IV, 920 F.Supp. at 1357-67.   Essentially, the district court found that the AUO was the real party in interest in the Becherer case, and that the AUO authorized, financed, and controlled the investigation and the prosecution of the first suit.  Id. at 1367.   Importantly, however, the district court made no explicit finding as to whether the Florida plaintiffs authorized, financed, and controlled the AUO to prosecute the Becherer suit, other than that each Florida plaintiff “is or has been associated with the AUO as a unit owner or through a limited partnership.”  Id. at 1357.   The Florida plaintiffs point out, and the district court acknowledged, that membership in the AUO was mandatory for all investors in the hotel.  Id. The only other findings made by the district court which may be said to establish any of the virtual representation factors connecting the Florida plaintiffs and the Becherer plaintiffs, through the AUO, are the following, which we have paraphrased:

1.  Florida plaintiffs' counsel, Thomas Grady, told a Florida court in 1990 that the resolution of the Becherer case in the Eastern District of Michigan would determine the rights of his clients in the Florida case.

2.  All unit owners, including the Florida plaintiffs, had access to the Becherer plaintiffs' counsel, Elwood S. Simon, and had access to information about the litigation, and Simon sought their input so that he could represent their interests.   The unit owners as a group had “many opportunities” to object to the AUO's litigation efforts, but instead gave a positive “overall response.”  (We note, however, that the record indicates the Florida plaintiffs own approximately 60 of the 474 total hotel units.   Thus, they quite obviously would not control a majority vote in the AUO.)

3.  At least four Florida plaintiffs retained Simon to represent them.

4.  Approximately 29 Florida plaintiffs contributed $14,500 out of the total $58,500 received by the class-action expense fund.

5.  In 1992, 22 Florida plaintiffs signed affidavits requested by Simon opposing defendants' motions for summary judgment.

6.  Florida plaintiffs' counsel, Grady, and the Becherer plaintiffs' counsel, Simon, “worked closely together at the time that litigation strategies were being formulated.”   Grady and Simon “worked as a team to further their mutual interests.”

7.  Grady had a “working relationship” with the AUO Board and with some of the Becherer plaintiffs.

8.  The Becherer plaintiffs claimed to adequately represent the Florida plaintiffs' interests.

9.  Grady acknowledged that the Florida plaintiffs' interests were congruent to those of the AUO.

10.  Grady believed that the Florida plaintiffs' interests were being adequately represented by Simon and the Becherer plaintiffs.

11.  Grady recognized a possibility that his clients would be bound by the Becherer decisions even in the absence of class certification and so advised his clients.

12.  The Florida plaintiffs decided to forego individual claims against the defendants so that they could “wait and see” if the class action furthered their objectives.

Id. at 1357-67.   Based upon these findings, the district court held that the Florida plaintiffs and the Becherer plaintiffs were in privity, and thus, under the doctrine of virtual representation, the former were barred from further litigating this matter.  Id. at 1367.

In ruling that its findings of fact mandated barring the Florida plaintiffs because they had been virtually represented, the district court first established that the AUO controlled the Becherer litigation.  Id. at 1368.   The court relied on the facts that the AUO hired and paid Simon, and directed his investigation and prosecution of the putative class action.   In finding that the Florida plaintiffs in turn controlled or could hold accountable the AUO, the court noted that the AUO had a fiduciary relationship to all its investor-members, including the Florida plaintiffs.   The court acknowledged that 1) the AUO must have acted in its capacity as fiduciary in prosecuting the Becherer suit in order to have represented all the unit owners, 2) the AUO did not formally file the Becherer case, and 3) it may not have had authority to do so.   Nevertheless, the court concluded that the AUO represented the Florida plaintiffs because those plaintiffs took that position “when it has served their interests.”  Id. The court did not explain how the plaintiffs' taking a particular position could establish a fiduciary relationship.

Next, according to the district court, the Florida plaintiffs improperly maneuvered in order to avoid the potential effects of res judicata.  Id. The court observed that the Florida plaintiffs' counsel contemporaneously argued to two different Florida courts both that the Becherer action would, and that it would not, resolve the issues in the Florida case, depending on which position was most advantageous in the particular courtroom.   However, plaintiffs point out that the initial representation was made in 1990 before the settlement was even proposed, while the latter statement was made in 1995, well after the proposed settlement had collapsed.   The district court's findings do not contradict plaintiffs' explanation in this regard.

Proceeding down the list of factors set out in this court's initial opinion, the district court then found that the Florida plaintiffs were active in the Becherer litigation, either by supplying money and affidavits, or by “acquiescing” in the actions taken by the AUO. Id. at 1369.   The court supports this last contention by stating that unit owners had many opportunities to object to the AUO's handling of the case and that the “overall response to the AUO's efforts was positive.”  Id. The court also found, in this regard, that the parties' attorneys, Simon and Grady, worked closely together and that this fact establishes the Florida plaintiffs' active participation.  Id. However, the court did not distinguish between cooperation before, and after, the proposed settlement.

In discussing accountability-the last factor for determining virtual representation-the district court implied that Simon was accountable to Grady “[i]n the sense that Simon risked losing the support of his teammates if he rebuffed their concerns in conducting the Becherer litigation.”  Id. at 1370.   Notably, this is the only reference in the district court's discussion of accountability and control which addresses the Florida plaintiffs' connection with the Becherer plaintiffs, as opposed to the connection between the AUO and the Becherer plaintiffs or between the Becherer plaintiffs and the unit owners at large.   Again, this finding also seems to reference conduct prior to the proposed settlement.   Based on these findings, the district court found that the Florida plaintiffs were barred by res judicata from litigating their claims in Florida state court.   This appeal followed.

II.

This court reviews a district court's findings of fact for clear error, and its conclusions of law de novo.  United States v. Bencs, 28 F.3d 555, 558 (6th Cir.1994).   Although, in general, virtual representation may be a “matter of fact,” the conclusion that the Florida plaintiffs were virtually represented by the Becherer plaintiffs is an application of the law to the enumerated facts found by the district court-it is not a “fact” unto itself.   See Benson and Ford, Inc. v. Wanda Petroleum Co., 833 F.2d 1172, 1174 (5th Cir.1987).   Thus, this court accepts the enumerated facts unless clearly erroneous, but reviews de novo whether those facts constitute virtual representation under the law as set out in Becherer III by this court.

In order to be bound by a prior judgment, a nonparty to that judgment must have been represented by a “privy.”  Becherer III, 43 F.3d at 1069.   The concept of privity has been divided into three categories.   First, those who are successors in interest to a party will be bound by a judgment against that party.   Second, a nonparty who controlled the original suit will be bound by the resulting judgment.   Third, a nonparty who is adequately, or “virtually, ” represented by a party will also be precluded from relitigating the same issues.  Id. at 1070 (citing Southwest Airlines Co. v. Texas Int'l Airlines, 546 F.2d 84, 95 (5th Cir.1977)).

In this case, the district court employed a hybrid analysis of the “control” and “adequate representation” aspects of “privity” in ruling that res judicata barred the Florida plaintiffs' action.   See Becherer IV, 920 F.Supp. at 1367.   Whatever analysis a court applies, however, minimum standards of due process require that, in order to be claim precluded, a nonparty must (A) have actual control over the first litigation, (B) be able to hold the first party or its attorney legally accountable for the result in the first action, or (C) be able to rescind its apparent or actual acquiescence in being represented by the first party if it deems its interests diverge sufficiently early in the litigation.

A.

“Control” means actual control in determining the legal theories and strategies to be employed.   For example, in a case with similar facts as the present case, and one this court cited in Becherer III, a person who worked closely with the plaintiff in the first suit, and had the same interests, was not precluded from pursuing his own claim.  Benson and Ford, 833 F.2d at 1173.   The Benson and Ford court found that “control” required a relationship akin to that between a president/sole shareholder and his or her company, a parent corporation and its subsidiary, an indemnitor and its indemnitee, or a liability insurer and an insured.  Id. at 1174.   Thus, in that case, supplying an attorney, helping to finance the litigation, testifying as a witness, participating in consolidated pretrial proceedings, and even making limited presentations to the court in the first action constituted insufficient “control” to be precluded in a subsequent action asserting the same facts and legal theories.  Id.

Clearly, in this case, the Florida plaintiffs did not control the Becherer plaintiffs.   There is no evidence that the Florida plaintiffs-cumulatively as individuals, or collectively as a group-chose Simon as counsel in the Becherer suit, or that they in any way dictated or even influenced the bringing of the suit, the conditions of the proposed settlement, or the arguments made in opposition to summary judgment in the Becherer action.   While a handful of the Florida plaintiffs may have individually retained Simon, signed affidavits, contributed money to the first case, and communicated regarding the progress of the case, there is no evidence that these few could have exercised any authority over the Becherer action which could reasonably be called “control.”   Moreover, even if these actions are indicia of control, there is no evidence whatsoever that any of them were taken after the settlement was proposed.   In fact, had the Florida plaintiffs controlled the negotiation of the proposed settlement, there seems to be no reason to have filed a separate suit in Florida and opted out of the conditional class in the federal district court.

B.

Adequate representation is distinct from “control,” and despite its name, does not require that the first party or its attorney have done a competent job.   Rather, this term denotes “ ‘an express or implied legal relationship in which parties to the first suit are accountable to non-parties who file a subsequent suit raising identical issues.’ ”  Benson and Ford, 833 F.2d at 1175 (emphasis added) (citation omitted).   Thus, after a car crash in which a father was injured and his daughter killed, the father was not precluded from bringing a wrongful death action on behalf of his family after he had already lost a suit against the same defendant for his own injuries.   Id. (citing Freeman v. Lester Coggins Trucking, Inc., 771 F.2d 860 (5th Cir.1985)).   Despite the fact that the same attorney was used, the same accident was at issue, and the same negligence was alleged, the family's claims were not precluded because they “had their own personal claims ․ and were due their day in court.”  Id. There existed no legal relationship, express or implied, between the father and the other members of his family by which the latter could hold the former legally responsible for the outcome of the first litigation, if for example the father or his attorney had been negligent in the prosecution of the first case.

Similarly, there is no evidence that the Florida plaintiffs here could have held the Becherer plaintiffs, the AUO, or Simon legally accountable for the result of the Becherer litigation.   First, although the AUO may have held a fiduciary relationship vis-vis all unit owners, the AUO's responsibilities were to run the hotel.   The district court made no findings which indicate that the AUO was authorized to bring a lawsuit on behalf of its members.   To the contrary, the AUO Board of Directors disclaimed authority to bring such an action.

Second, the only factual finding which supports accountability is that three Florida plaintiffs retained Simon to represent them.   Plaintiff Spencer, purported by the district court to be a Florida plaintiff, is not listed as one.   Even if not clearly erroneous, the district court's finding that the Florida plaintiffs were represented by Simon establishes only that these three plaintiffs could hold him accountable;  there is no evidence that the remainder of the plaintiffs before us had any legal relationship of accountability with Simon, the AUO, or the Becherer plaintiffs.   Moreover, the Florida plaintiffs do contend that the implication of the district court's finding as to the three having retained Simon in the present suit is clearly erroneous.

In its findings, the district court relied on retainer agreements addressed to Simon and his former firm, signed between June 6 and June 12, 1989, by Florida plaintiffs Mary Lou Frazier, Phillip W. McCollum, and Robert Hawley.   However, these plaintiffs note that 1) Simon himself has denied that he represented them individually, and the retainer agreements in question were apparently sent to him without his request or assent;  2) Grady has testified that none of his clients considered himself represented by Simon in any capacity other than the class action against SSG;  and 3) none of the retainer agreements referenced by the district court in making its findings was signed by any law firm.

Even if the district court's finding that at least three Florida plaintiffs were represented by Simon is not clearly erroneous, that finding does not establish that he represented them after the SSG victory.   Although the retainer agreements themselves do not limit Simon's representation temporally or to the SSG defendants in particular, there is no evidence that Simon did, in fact, continue as counsel for these individuals after the SSG litigation.   That is, we have been provided no evidence demonstrating payments by these plaintiffs to Simon, or the assertion of privilege on their behalf, or any legal communications between Simon and these plaintiffs after the SSG verdict.   Moreover, Simon's representation of these plaintiffs surely terminated upon their retention of Grady.   See Stroud v. Ward, 169 Mich.App. 1, 425 N.W.2d 490, 493 (1988).   Thus, the record is insufficient to find that Frazier, McCollum, Hawley, or any of the other Florida plaintiffs could hold Simon legally accountable for his actions in the post-SSG Becherer litigation.

C.

The final strain of virtual representation is that of acquiescence.  “A person having a claim or defense paralleling or related to other litigation may agree that the outcome of the other litigation will be determinative of the issues in his case․   An agreement to be bound by the result of another action ․ may be implied from conduct and manifestations of intention.”   Restatement (Second) of Judgments § 40 cmt. a (1980).   As the Supreme Court has indicated, when a nonparty has notice of a suit in which its interests are being litigated, it may have an obligation to intervene in that suit or be bound by the ensuing judgment.  Penn-Central Merger and N & W Inclusion Cases, 389 U.S. 486, 505-06, 88 S.Ct. 602, 611-12, 19 L.Ed.2d 723 (1968).   Notably, however, in Penn-Central Merger, all actions contesting the proposed merger filed in any court in the country, other than that in the Southern District of New York, were stayed pending a decision by the federal district court as to the permissibility of the merger.  Id. at 505, 88 S.Ct. at 611-12.   Thus, not only did the nonparty that was bound by the federal district court judgment have notice of those proceedings, the nonparty also knew that the federal district court would be conclusively determining issues common to suits in other courts.  Id.

Similarly, in Cauefield v. Fidelity and Casualty Co. of New York, 378 F.2d 876 (5th Cir.1967), nonparties had acquiesced to a judgment in light of the fact that their federal case had been continued in order for a state case to be resolved.   As the Fifth Circuit later pointed out in discussing Cauefield, the preclusive effect of the state court proceeding on the federal litigants arose out of a “tacit agreement” to “resolve all the numerous identical claims” in state court.  Benson and Ford, 833 F.2d at 1176.

As the Benson and Ford court recognized in a more analogous situation, however, a nonparty to a suit is generally “ ‘not obliged to seize an available opportunity to intervene in pending litigation that presents question [sic] affecting the nonparty.’ ”  Id. (quoting 18 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure § 4452 (1981)).   This general rule has recently been reaffirmed by the Supreme Court in Richards v. Jefferson County, 517 U.S. 793, ---- n. 5, 116 S.Ct. 1761, 1766 n. 5, 135 L.Ed.2d 76 (1996).   According to the Court, “ ‘[t]he law does not impose upon any person absolutely entitled to a hearing the burden of voluntary intervention in a suit to which he is a stranger.’ ”  Id. (quoting Chase Nat'l Bank v. Norwalk, 291 U.S. 431, 441, 54 S.Ct. 475, 479, 78 L.Ed. 894 (1934)).   Conversely, as the Benson and Ford court noted, a defendant who seeks protection against a subsequent suit by additional plaintiffs could consolidate the two claims under Fed.R.Civ.P. 42 if he so chose.  833 F.2d at 1176.

There is substantial evidence that the Florida plaintiffs acquiesced in being represented by the Becherer plaintiffs, at least up until the class settlement was proposed.   To reiterate, Grady specifically told a Florida court in 1990 that the resolution of the Becherer case in the Eastern District of Michigan would determine the rights of his clients in the Florida case.   Additionally, all unit owners, including the Florida plaintiffs, had access to Simon and information about the litigation, and Simon sought their input so that he could represent the unit owners' interests.   The unit owners as a group had “many opportunities” to object to the AUO's litigation efforts, but instead gave a positive “overall response.”   Three Florida plaintiffs may have retained Simon to represent them.   Approximately 29 Florida plaintiffs contributed $14,500 out of the total $58,500 received by the class-action expense fund.   In 1992, 22 Florida plaintiffs signed affidavits requested by Simon opposing defendants' motions for summary judgment.   Grady and Simon “worked closely together at the time that litigation strategies were being formulated” “to further their mutual interests.”   Grady had a “working relationship” with the AUO Board and with some of the Becherer plaintiffs.   He acknowledged that the Florida plaintiffs' interests were congruent to those of the AUO and believed that the Florida plaintiffs' interests were being adequately represented by Simon and the Becherer plaintiffs.   He recognized a possibility that his clients would be bound by the Becherer decisions even in the absence of class certification and so advised his clients.   Lastly, the Florida plaintiffs decided to forego individual claims against the defendants so that they could “wait and see” if the class action furthered their objectives.

However, this is not enough to hold the Florida plaintiffs to the judgment rendered after the settlement collapsed and after these plaintiffs filed suit in Florida court.   The class-action setting imposes additional requirements under these circumstances.   More specifically, Rule 23 of the Federal Rules of Civil Procedure encourages putative class members to “acquiesce” in the representation of the named plaintiffs, but mandates that these putative plaintiffs be allowed, before a court-imposed date, to opt out of the class.   Binding the Florida plaintiffs to the Becherer judgment would surely defeat the purposes, if not the letter, of Rule 23.

We acknowledge that claim-preclusion doctrine is separate and distinct from class-action rules.   As a theoretical matter, in deciding whether one set of plaintiffs has virtually represented another, no reference need be made to Rule 23.   Nevertheless, Rule 23 is relevant in cases filed as class actions.  Rule 23(c)(2) provides, in part:

In any class action maintained under subdivision (b)(3), the court shall direct to the members of the class the best notice practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort.   The notice shall advise each member that (A) the court will exclude the member from the class if the member so requests by a specified date.

Fed.R.Civ.P. 23(c)(2) (emphasis added).   The opt out required by Rule 23 is mandated by due-process concerns.   See Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 812, 105 S.Ct. 2965, 2974-75, 86 L.Ed.2d 628 (1985).   Thus, the minimum requirements of due process inform both res judicata and class-action doctrines, and as such, both must be considered here.   Moreover, we believe that the well-established rules of civil procedure should not be undermined by the relatively undeveloped doctrine of virtual representation.

Crown, Cork & Seal Co. v. Parker, 462 U.S. 345, 103 S.Ct. 2392, 76 L.Ed.2d 628 (1983), informs the interplay between civil procedure rules in general and class-action rules.   In that case, a putative class member had failed to comply with a statute of limitations in filing his independent claim, although the class action had been timely filed.   The Court held that the statute was to be tolled for all purported members of the class until the class action had run its course.   Otherwise, the purposes of Rule 23 would be thwarted:  there would be needless duplicity of claims as potential class members each filed separately in order to preserve their rights and comply with the limitations period;  furthermore, putative plaintiffs would lose their right to opt out if the limitations period were allowed to expire while the class was being formed.  Id. at 351, 103 S.Ct. at 2396.   The Court noted:

There are many reasons why a class member, after the denial of class certification, might prefer to bring an individual suit rather than intervene.   The forum in which the class action is pending might be an inconvenient one, for example, or the class member might not wish to share control over the litigation with other plaintiffs once the economies of a class action were no longer available.

Id. at 350, 103 S.Ct. at 2396.

Thus, when a class is certified, Rule 23 implicitly discourages members from filing separate claims, by allowing those dissatisfied with the representation of the named plaintiffs to opt out before a specified date.   In other words, despite the identity of interests, facts, and legal theories that make a class possible in the first place, a plaintiff has the right to pursue his or her separate action.   Moreover, this right remains intact even after such plaintiff initially acquiesces in the representation of others.   As long as effected before the cutoff date promulgated by the court, opt out is available to class members even though they may have benefitted from the economies of scale inherent in the representation up to that point by class counsel.   As a result, it would defeat the clear purposes of the Rule to bar a group of plaintiffs, who were putative members of a class but either opted out or retained their right to opt out, from litigating separately when the conditional class collapses.

As we have indicated, the Florida plaintiffs may be said to have acquiesced in representation by the Becherer plaintiffs and Simon up until the class settlement was proposed in February 1992.   However, the only arguable evidence that any Florida plaintiffs may have consented to the representation by the Becherer plaintiffs after February 1992 is 22 affidavits signed by Florida plaintiffs in opposition to summary judgment in the Becherer case.   However, weighed against this tenuous indication of acquiescence are the substantial facts that these plaintiffs either opted out or reserved their right to opt out of the class within the time allowed by the district court, and that they each filed suit separately in Florida state court before the Becherer litigation had concluded.   If they were subsequently held to the judgment against the Becherer plaintiffs, their decision to opt out of the settlement and their reservation of that right would be meaningless.

The district court relied heavily on the fact that the AUO controlled the Becherer action.   While this finding is not clearly erroneous, it only goes halfway to establishing privity between the Florida and the Becherer plaintiffs.   As we have observed, the Florida plaintiffs had insufficient numbers to control the AUO, or to hold it legally accountable for the manner in which it prosecuted the Becherer litigation.   Moreover, the Florida plaintiffs cannot be held to have acquiesced in the AUO's representation as intimated by the district court.   Membership in the AUO is required of all investors.   Apparently, only by divesting their interest in the hotel could the Florida plaintiffs have disassociated themselves from the AUO. Obviously, such an endeavor is not required to demonstrate an intention not to be bound by the association's actions, especially in light of the more reasonable and precise steps which these plaintiffs did take-opt out and file an independent claim.

If the plaintiffs in Bittinger v. Tecumseh Products Co., 123 F.3d 877 (6th Cir.1997), were not virtually represented in a previous suit asserting identical claims against the same defendants, surely the Florida plaintiffs here cannot be barred from pursuing their claims.   In Bittinger, both sets of plaintiffs were selected by a common voluntary association formed exclusively for a litigation purpose;  and the association hired the attorney for both suits, authorized both suits, and bore the costs of both suits.   Id. at 885-86 (Ryan, J., dissenting).   Bittinger himself had been advised by counsel not to file independently while the first suit was in progress because his interests were being represented there.  Id. There can be no doubt, in light of the Bittinger holding, that members of an in voluntary association formed for a non litigation purpose cannot be held to a judgment against other members of the association, or against the association itself, when the second group takes concrete steps to protect its autonomy by hiring and paying for separate counsel, opting out of a proposed settlement class, and filing an independent action.

We conclude that the district court erred in its application of the law of virtual representation.   It relied on events that occurred before 1992 and that were largely irrelevant in establishing whether the Florida plaintiffs controlled, could hold legally accountable, or acquiesced in being represented by the Becherer plaintiffs.   At best, those facts demonstrate conditional acquiescence.   On the other hand, they could also indicate only that the Florida plaintiffs were interested in consolidating their litigation efforts as encouraged by class-action rules.   Most importantly, the district court failed to make findings sufficient to demonstrate that the Florida plaintiffs controlled, held accountable, or acquiesced after the class settlement was proposed in 1992.   Nor is it evident from the record that such facts exist.

Rather, just the opposite finding seems required:  the Florida plaintiffs did all they could do to exercise their right to their own day in court.   Many of the Florida plaintiffs objected to the proposed settlement.   Those who did not, reserved their right to do so up until the April 14 date designated by the court.   The settlement collapsed before April 14 due to the initial opt outs;  therefore, the remaining Florida plaintiffs' right to object became moot.   Subsequently, all Florida plaintiffs brought suit independently before the Becherer case was resolved.   And, it is important to note, the Florida courts have not ruled that this latter suit is precluded.   Instead, the federal district court has interpreted the reach of its own judgment, as it is allowed to do in this unusual circumstance under the Anti-Injunction Act. However, we are especially reluctant in such a case to enjoin Florida courts from proceeding with a state action by resort to a relatively undeveloped federal procedural doctrine, which, in all events, is inapplicable here.

III.

The district court's judgment as to virtual representation is REVERSED, and its injunction VACATED.

To me, the return of this case for a third review of matters meticulously examined by courts in Michigan and Florida is a terrible waste of the current limited resources of our judicial system.

The Florida plaintiffs were part of the class certified with respect to the contract claims against SSG and were part of a class that was conditionally certified for settlement purposes as to all issues.   Although no class was certified for purposes of resolving the fraud claims, the district court correctly found that the Becherer plaintiffs and Florida plaintiffs had substantially identical interests in the claims against Merrill Lynch and that the Becherer plaintiffs adequately represented the Florida plaintiffs.

We review the district court's factual findings regarding adequacy of representation for clear error.   See Sanders Confectionery Products v. Heller Financial, 973 F.2d 474, 481 (6th Cir.1992) (citing King v. South Cent. Bell Tel. & Tel. Co., 790 F.2d 524, 530 (6th Cir.1986));  Fed.R.Civ.P. 52(a).   Of course, the ultimate legal determination of res judicata is subject to de novo review.  Sanders, 973 F.2d at 480.

In Becherer III, this Court stated that the doctrine of virtual representation

requires more than a showing of parallel interest or, even, a use of the same attorney in both suits․   The question of virtual representation is one of fact and is to be kept within “strict confines.”   Virtual representation demands the existence of an express or implied legal relationship in which the parties to the first suit are accountable to non-parties who file a subsequent suit raising identical issues.

43 F.3d at 1070 (quoting Benson & Ford, Inc. v. Wanda Petroleum Co., 833 F.2d 1172, 1175 (5th Cir.1987) (citations omitted)).   Thus, the essential prerequisite for a finding of virtual representation is an express or implied legal relationship in which the parties to the first suit are accountable to the parties who bring the second suit.

In addition, this Court cited four additional factors that support a finding of virtual representation:  (1) a close non-litigating relationship between the parties in the two suits;  (2) participation by the second parties in the first suit;  (3) apparent acquiescence in the prior proceedings;  and (4) deliberate maneuvering by the second parties to avoid the effects of the previous suit.   Id. (quoting 18 Charles A. Wright et al., Federal Practice and Procedure § 4457 (1981)).

After reviewing the district court's opinion, I believe that this Court should affirm its determination that the Florida plaintiffs were virtually represented by the Becherer plaintiffs in the earlier action, and that they are bound by this Court's prior decision.   The district court carefully evaluated voluminous evidence in this case and concluded that there was an express or implied legal relationship that made the Becherer plaintiffs accountable to all Unit Owners, including the Florida plaintiffs.   Specifically, the district court found that the requisite accountability existed because the Becherer plaintiffs and their counsel, Simon, owed a fiduciary duty to, and thus were accountable to all Unit Owners, including the Florida plaintiffs.   See Sondel v. Northwest Airlines, 56 F.3d 934, 938 (8th Cir.1995).   The AUO and Unit Owners provided substantial financial and other assistance and participated in the Becherer action.   They also influenced the conduct of the litigation in the Becherer action.

The Florida plaintiffs argue that the requisite legal relationship can only be found in a few precise situations-trustees and beneficiaries, agents and principals, fiduciaries, legal representatives, and class representatives-articulated in the Restatement of Judgments (Second) § 41 (1981).   However, Merrill Lynch correctly points out that nothing in our prior opinions suggests such a limited scope for the doctrine;  rather this Court's suggestion that “this case may yet be an appropriate one for the application of res judicata and collateral estoppel ․” strongly suggests that we did not intend to limit virtual representation to the situations listed in the Restatement.  Becherer, 43 F.3d at 1071;  see also Tyus v. Schoemehl, 93 F.3d 449, 454 (8th Cir.1996) (rejecting view that parties should be bound under a theory of virtual representation only in very limited, technical situations).

Moreover, the district court found that the other four factors cited by Wright & Miller were present in this case.   Specifically, it found that the Florida plaintiffs shared a close non-litigating relationship with the Becherer plaintiffs because, as Unit Owners, all had invested in the same enterprise, and every Unit Owner was a member of a legal entity-the AUO-which existed before the action was ever filed, and which elected a board and held regular meetings.   Second, the district court found that the Florida plaintiffs had participated in the Becherer plaintiffs' litigation.   It found that the AUO, to which all Florida plaintiffs belonged, authorized and financed the investigation and prosecution of the Becherer plaintiffs' lawsuit by hiring attorney Simon under an agreement that specifically contemplated class litigation.   Furthermore, the AUO paid Simon $250,000, of which over $58,000 was collected from Unit Owners, including $14,500 from twenty-nine Florida plaintiffs.   The district court also found that the AUO controlled the investigation and prosecution of the Becherer plaintiffs' lawsuit by continuing to communicate with class counsel throughout the Becherer action.   Third, the court found that the Unit Owners, including the Florida plaintiffs, acquiesced in permitting the Becherer plaintiffs to represent their interests.   Grady, Simon, and the AUO all acknowledged that they believed that the Becherer plaintiffs were adequately representing all Unit Owners' interests.   None of the Florida plaintiffs objected to the AUO's funding of and involvement in the Becherer action, and no Unit Owner sought to pursue individual claims until the Florida plaintiffs filed this second action.   There was also evidence that Grady told the Florida plaintiffs to “wait and see” if the results of the Becherer action would be favorable before acting themselves.   Fourth and finally, the district court found that the Unit Owners deliberately maneuvered to obtain the benefits of the Becherer action while avoiding its detriments, using the earlier suit as a “test case” to see how their rights would be determined, and filing their own action years after the Becherer action began, and only then upon the district court's imminent summary judgment ruling against the Becherer plaintiffs.

I believe that these findings amply support the district court's conclusion that virtual representation applies to bind the Florida plaintiffs to the result in the Becherer action.   None of the criticisms raised by the Florida plaintiffs in their brief is sufficient to find that the district court's factual determination was clearly erroneous.   Given the facts found by the district court, I cannot say that it erred in finding that the doctrine of virtual representation is appropriate in this case.

I, therefore, respectfully dissent.

RYAN, J., delivered the opinion of the court, in which BATCHELDER, J., joined.   MARTIN, C.J. (pp. 592-593), delivered a separate dissenting opinion.