ELY, Circuit Judge:
This appeal is from an Order allowing the appellees' consolidated actions to be
The first action in this case was filed in the Central District of California, and shortly thereafter, ten similar actions were filed in nine other districts. The Judicial Panel on Multi-District Litigation ordered the consolidation of all the actions in the Central District of California. The complaints allege a nationwide conspiracy among forty-seven hotel chains and approximately six hundred individual hotels to increase room rates in violation of federal antitrust laws and state laws. The appellants allegedly acted in concert to add a surcharge for telephone services to the quoted room rate. The appellees further alleged that such a charge, generally amounting from one to three percent of the quoted room rate, was labeled a tax or otherwise confusingly mislabeled.
Here, the controlling issue is whether the District Court correctly applied Rule 23(b)(3) in determining that the actions were appropriate for class action treatment. Rule 23(b)(3) requires that common questions of law or fact predominate over any individual questions, and that a class action be superior to other available methods for the fair and efficient adjudication of the controversy. While these two requirements are to some extent interrelated, they are not co-extensive and each requirement must be met. See LaMar v. H. & B. Novelty Loan Co., 489 F.2d 461 (9th Cir., 1973). We are firmly convinced that, in these cases, the appellees did not make an adequate showing of proof as to either element of Rule 23(b)(3).
I. Common Questions Do Not Predominate Over Individual Questions
Two types of claims have been brought by the appellees: (1) claims that the appellants conspired to violate the federal antitrust laws; (2) pendent state claims primarily based on statutory or common law fraud.
The state fraud claims raise individual issues as to whether each of the six hundred hotels falsely represented or concealed the nature of the charge, as to individual reliance on any alleged misrepresentation, and as to the specific amount of damage suffered by each member of the class as the result of the alleged misrepresentation. The appellees argue that these individual questions can be conveniently dealt with by allowing them to recover if it is proved that the appellants did participate in a "fraudulent scheme," thereby fusing the separate elements of a fraud action into a single conspiracy issue. That same argument was made in Cotchett v. Avis Rent-A-Car System, Inc., 56 F.R.D. 549 (S.D.N.Y.1972), a case which also involved an alleged conspiracy fraudulently to impose a surcharge on customers. In Cotchett the court wrote:
Our case involves millions more plaintiffs, hundreds more defendants, and an even greater variety of alleged misrepresentations and surcharge amounts than Cotchett, supra. Without eliminating or eroding the traditional or statutory elements of a fraud action, there is no possibility that common questions can predominate over individual ones in these claims. See Advisory Committee's Note, Proposed Rules of Civil Procedure, 39 F.R.D. 69, 103 (1966), wherein the Committee noted that a class action treatment may be unsuitable in a fraud case if there are material variations in the representations made or in the kinds or degrees of reliance by the plaintiffs. See also Simon, Class Actions—Useful Tool or Engine of Destruction, 55 F.R.D. 375 (1972).
The appellees' Sherman Act claims, while charging hundreds of hotels with similar conduct, nonetheless raise individual questions that could require decades of litigation. The appellees' allegation that a conspiracy existed to violate the antitrust laws does not insure that common questions will predominate. Advisory Committee's Note, supra at 103. In order substantially to establish each hotel's involvement in a conspiracy to violate the antitrust laws, each hotel's knowing participation would be a requisite element of proof. Furthermore, since the surcharges varied from hotel to hotel, the amount of each defendant's surcharge would necessarily require individual treatment, as would the period in which each hotel's surcharge was in effect. And while the amount of each hotel's surcharge might constitute prima facie evidence of the amount of damage, the appellants might rebut that evidence by showing what the cost of each hotel's telephone service charge would have been in a competitive market. See Pollack, The "Injury" and "Causation" Elements Of a Treble Damage Antitrust Action, 57 Nw.L.Rev. 691, 692 (1963); Timberlake, The Legal Injury Requirements And Proof of Damages In Treble Damage Actions Under The Antitrust Laws, 30 Geo.Wash.L. Rev. 231 (1961-62). For a discussion of the statutory limitations within which plaintiffs must establish their damages, see Malina, Fluid Class Recovery As a Consumer Remedy In Antitrust Cases, 47 N.Y.L.Rev. 477, 492 (1972). After the basis for computing damages had been individually determined for each defendant, each member of the class seeking recovery would then be required to prove that he patronized the hotel while the surcharge was in effect and that he absorbed the cost of the surcharge. Furthermore, it would then be necessary to compute the amount of damages due the class member. In a class of forty million, assuming only ten percent of these unknown class members came forward with claims, and assuming the proof of each claim required only ten minutes, approximately one hundred years would yet be required to adjudicate the claims. Unless the court is to allow the procedural device of the class action to wear away the substantive requirements to maintain a private antitrust cause of action, this suit raises far too many individual questions to qualify for class action treatment.
The appellees have argued that many of the individual questions arising from the damage claims can be solved by allowing damages in the form of fluid recovery, relying on Bebchick v. Public Utilities Commission, 115 U.S.App.D.C. 216, 318 F.2d 187 (1963), cert. denied 373 U.S. 913, 83 S.Ct. 1304, 10 L.Ed.2d 414 (1963); In Re Antibiotics Antitrust Actions, 333 F.Supp. 278 (S.D.N.Y.1971); and Daar v. Yellow Cab Co., 67 Cal.2d 695, 63 Cal.Rptr. 724, 433 P.2d 732
The District Court in this case has relied on the "imagination" of appellees' counsel to provide solutions that will, at some point in the future, prevent these individual issues from splintering the action into thousands of individual trials requiring years to litigate. Thus far the appellees have not been able to demonstrate to our satisfaction that the individual questions will not overwhelm the common questions, unless some of the required elements or allowed defenses in respect to the alleged claims are eliminated or impaired. The issues raised by the apparent existence of numerous individual questions must be resolved before a class is certified, even if certification is conditional. Conditional certification is not a means whereby the District Court can avoid deciding whether, at that time, the requirements of the Rule have been substantially met. The purpose of conditional certification is to preserve the Court's power to revoke certification in those cases wherein the magnitude or complexity of the litigation may eventually reveal problems not theretofore apparent. But in this case the District Court seemed to brush aside one of the requirements of Rule 23(b)(3) by stating that at this time "analysis of the individual versus common question issue would be for the Court to act as a seer." However difficult it may have been for the District Court to decide whether common questions predominate over individual questions, it should not have sidestepped this preliminary requirement of the Rule by merely stating that the problem of individual questions "lies far beyond the horizon in the realm of speculation."
II. The Present Class Action Is Not the Superior Method of Adjudication.
In attempting to satisfy the second requirement of Rule 23(b)(3), the appellees argue that maintaining individual actions is not economically feasible in this case. They contend that the suit must therefore proceed as a class action, regardless of its unmanageability. Furthermore, they maintain that if they are not allowed to proceed with their class action suit, the appellants will go "unpunished" for their alleged antitrust violations.
Despite the appellees' arguments, the desirability of allowing small claimants a forum to recover for large-scale antitrust violations does not eclipse the problem of unmanageability. Eisen v. Carlisle & Jacquelin, supra. Some actions have been dismissed on the basis of manageability problems alone, particularly in cases involving large numbers of plaintiff class members. See Schaffner v. Chemical Bank, 339 F.Supp. 329 (S.D.N.Y.1972); City of Philadelphia v. American Oil Co., 53 F.R.D. 45 (D.N.J. 1971). In structuring this suit to include over six hundred defendants
Whenever the principal, if not the only, beneficiaries to the class action are to be the attorneys for the plaintiffs and not the individual class members, a costly and time-consuming class action is hardly the superior method for resolving the dispute. See Free World Foreign Cars, Inc. v. Alfa Romeo, 55 F.R.D. 26 (S.D. N.Y.1972); Cotchett v. Avis Rent-A-Car System, Inc., 56 F.R.D. 549 (S.D.N.Y. 1972).
The appellees' attorneys have asserted that burdening the already strained judicial resources with this class action, which promises no real benefit to class members, is nonetheless justified
In view of the following factors: (1) the predominance of individual questions over common questions; (2) the unmanageability of the litigation in terms of time, administrative costs, and complexity; (3) the minimal recovery it promises the potential individual class members; and (4) the initiation and financial maintenance of the suits primarily by attorneys acting in a dual capacity as named plaintiffs and counsel for the plaintiffs, we hold that the requirements of Rule 23 have not been met and that, consequently, the District Court's class certification was erroneous. Our conclusion in this respect renders it unnecessary to reach other issues presented in the appeal.