Silber v. Mabon

• Decision Date: 15 March 1994
• Docket Number: No. 92-56004,92-56004
• Citation: 18 F.3d 1449
• Parties: , Fed. Sec. L. Rep. P 98,115 Joy SILBER, on behalf of herself and all others similarly situated, Plaintiff-Appellee, Arthur P. Argyris, Class Member, Plaintiff-Appellant, v. Stuart P. MABON; Dundas I. Flaherty; Eugene F. Hovanec; Ericson M. Dustan; Edwin P. Heacox; and Micropolis Corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1449

18 F.3d 1449

62 USLW 2596, Fed. Sec. L. Rep. P 98,115

Joy SILBER, on behalf of herself and all others similarly situated, Plaintiff-Appellee Arthur P. Argyris, Class Member, Plaintiff-Appellant, v. Stuart P. MABON; Dundas I. Flaherty; Eugene F. Hovanec Ericson M. Dustan; Edwin P. Heacox; and Micropolis Corporation, Defendants-Appellees.

No. 92-56004.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Feb. 3, 1994.

Decided March 15, 1994.

Lionel Z. Glancy, Santa Monica, CA, for plaintiff-appellant.

Herbert E. Milstein, Cohen, Milstein, Hausfeld & Toll, Washington, DC (argued), and Michael S. Glassman, Clemens, Glassman and Clemens, Los Angeles, CA (signed the briefs), for plaintiff-appellee Joy Silber.

William J. Meeske and Jennifer Upham Saunders, Latham & Watkins, Los Angeles, CA, for defendants-appellees.

Appeal from the United States District Court for the Central District of California.

Before: SNEED, THOMPSON, and RYMER, Circuit Judges.

RYMER, Circuit Judge:

Arthur P. Argyris was an absent member of a securities class action whose stock in Micropolis Corporation was held in street name by PaineWebber, Inc., his broker. He did not receive notice that he would be bound by a class action settlement until after the opt out date had passed. Neither the class representative, Joy Silber, nor the defendant, Micropolis Corporation, was to blame. The district court approved the settlement and entered judgment.

Argyris appealed, arguing that the notice procedures approved by the district court violated his due process rights, and that the court in any event erred by refusing to allow him to opt out late. In Silber I, we remanded for the district court to determine if the notice given was the "best practicable" even though the named representative did not offer to reimburse the brokerage houses for search and handling costs associated with forwarding notice as required by In re Victor Technologies Securities Litigation, 792 F.2d 862 (9th Cir.1986). Silber v. Mabon, 957 F.2d 697 (9th Cir.1992). On remand, Judge Tashima found that the brokerage community had conformed its practice to Victor Technologies, that PaineWebber forwarded notices without having to be told that it would be reimbursed, that its forwarding costs were minimal, and that the notice was the "best practicable." Argyris does not challenge these "technological" findings on this appeal.

In light of the remand, Silber I did not reach Argyris's argument that Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 105 S.Ct. 2965, 86 L.Ed.2d 628 (1985), renders even the procedures approved in Victor Technologies unconstitutional unless there is actual receipt of notice. That is the issue we must now confront. We hold that Argyris's due process rights were not violated even though he did not actually receive notice of the settlement and opt out date in time to opt out before the deadline. However, we again remand because the record is insufficient for us to determine whether the district court abused its discretion by refusing to allow Argyris to opt out late, after the deadline had passed but before the settlement had been approved. ¹

I

In January 1989, Silber filed a class action complaint pursuant to Fed.R.Civ.P. 23(b)(3) against Micropolis and certain of its officers and directors, alleging securities fraud, common law fraud, and negligent misrepresentation. On July 11, 1990, Silber and Micropolis filed a stipulation of settlement and a consent order setting out the content of notices to be sent and published to class members, along with the procedures to be used for their distribution and publication.

Under the order, long form notices were to be mailed first class to all "identified class members" at least sixty days prior to the October 15, 1990 hearing on the fairness of the settlement and forty days before the opt out deadline, September 25, 1990. ² For nominee accounts, the order provided that:

[u]pon request, Class Counsel or the Administrator shall send to nominees ... additional copies of the mailed notice for forwarding to customers and clients who were beneficial purchasers. Alternatively, such nominees may submit a list of the names and addresses of such beneficial purchasers, in which case Class Counsel or the Administrator shall immediately forward the mailed Notice and Claim form to the beneficial purchasers.

The parties also agreed that a summary notice would be published in the Wall Street Journal and the Los Angeles Times. It stated the date of the hearing and warned that "details of other significant matters" were contained in the long form notice which could be obtained by contacting the administrator whose address and phone number were listed. The notice was to be published fifty-five days before the hearing and thirty-five days before the opt out deadline.

On July 20, 1990, Judge Bonner signed the consent order, finding that the proposed notice procedures were "the best notice practicable under the circumstances ... and are sufficient to comply with the requirements of FRCP 23(c)(2) and due process."

On August 15, 1990, long form notices were sent to all 1,001 owners of Micropolis stock who were listed in Micropolis's own records. That same day, 288 brokerages, banks, and other nominees were sent notices and were asked either to mail the notices to beneficial owners or to provide the administrator with a list of the beneficial owners. The summary notice was published in the Journal and the Times five days later. By September 19, 1990, over 5,000 more long form notices were sent out by the administrator to people who had read the summary notice, institutions which forwarded them for distribution, or beneficial owners based on names supplied by the institutions.

On August 15, the claims administrator sent a notice to PaineWebber, who was the nominee for Argyris's Micropolis stock. A month later, on September 17, PaineWebber requested 1000 more copies of the notice which were sent to its Weehawken, New Jersey office on September 25, 1990--the opt out deadline. These notices were then shipped to shareholders, including Argyris, on October 4, 1990.

Argyris received his notice sometime after October 4 and well after the opt out deadline. On October 12, 1990, three days before the fairness hearing, Argyris filed a "Motion to be Excluded from the Settlement Class."

On October 15, 1990, Chief Judge Real declined Argyris's request to opt out on the basis that he did not receive adequate notice. Argyris argued that he had been denied due process because the notice given to absent class members was deficient, but the court found that the notice procedures were the "best notice practicable under the circumstances" and that plaintiff's counsel had fully complied with the consent order. In passing, Chief Judge Real stated that Argyris's failure to receive timely notice was due to PaineWebber's inaction rather than any failure by the parties. On October 24, 1990, the court entered a Final Judgment of Dismissal with Prejudice which approved the settlement, dismissed the case, and permanently enjoined all class members who did not opt out from filing an action against any defendants based on any claim relinquished in the settlement.

Argyris moved for reconsideration based in part on a declaration by an administrative assistant at PaineWebber which stated that she did not receive the notice until September 5, 1990. Silber responded with an affidavit by an employee of the notice administrator which indicated that notice had been mailed to PaineWebber by first class mail on August 15, 1990. Judge Letts denied the motion for reconsideration.

On remand from Silber I, Judge Tashima found that the current practice in the brokerage industry is to request reimbursement for search and mailing costs after complying with the notice procedures; thus the "industry has incorporated into its business practices the requirements of In re Victor Technologies Securities Litigation and complies with notice procedures in class actions on the understanding that search and mailing costs will be reimbursed once they have been determined." The court found that PaineWebber complied with current industry practice by following the notice procedures and then seeking reimbursement. It found that the delay was not caused by a failure by the class representative to offer to pay the search costs in advance and that the search costs involved were insignificant. The court concluded that actual notice is not necessary so that the notice given was the "best practicable."

The district court also found that Argyris failed to present sufficient grounds to opt out of the class or the settlement under Fed.R.Civ.P. 6, 23, or 60 and was therefore bound by the judgment. Given the posture of the case before it, the court treated Argyris's request for a late opt out as a motion to reconsider Chief Judge Real's ruling, and declined to do so because no new facts had been adduced since that ruling and Judge Letts's order declining to reconsider it.

II

We review the district court's ruling regarding notice to the class de novo. Victor Technologies, 792 F.2d at 864. Denial of Argyris's motion to opt out of the class is reviewed for abuse of discretion. In re Gypsum Antitrust Cases, 565 F.2d 1123, 1128 (9th Cir.1977).

III

A

Silber and Micropolis first submit that we should decide only whether Judge Tashima's ruling on the Victor Technologies issue is correct, as that is the only issue on which we previously remanded. We disagree. Our earlier opinion expressly reserved the two arguments Argyris renews here: whether Shutts "renders even the procedures approved in Victor Technologies unconstitutional unless there is actual receipt of notice," Silber I, 957 F.2d at 702; and whether the district court abused its discretion in not allowing Argyris to opt out belatedly. Id. at 698. The law of the case doctrine does not preclude us from deciding these issues...