Duhaime v. John Hancock Mutual Life Ins. Co.

• Decision Date: 05 April 1999
• Docket Number: No. 98-2139,98-2139
• Citation: 183 F.3d 1
• Parties: (1st Cir. 1999) RICHARD DUHAIME, ET AL., PLAINTIFFS, APPELLEES, v. JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY, ET AL. DEFENDANTS, APPELLEES, HOWARD M. METZENBAUM, APPELLANT. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 1

183 F.3d 1 (1st Cir. 1999)

RICHARD DUHAIME, ET AL., PLAINTIFFS, APPELLEES, v. JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY, ET AL. DEFENDANTS, APPELLEES, HOWARD M. METZENBAUM, APPELLANT.

No. 98-2139.

U.S. Court of Appeals, First Circuit.

Heard April 5, 1999.

Decided June 28, 1999.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS, Hon. George A. O'Toole, Jr., U.S. District Judge

Brian Wolfman, with whom Alan B. Morrison and Public Citizen Litigation Group, were on brief for appellant.

John G. Fabiano, with whom Peter A. Spaeth, Hale and Dorr Llp, Ralph C. Ferrara, Edwin G. Schallert, and Debevoise & Plimpton, were on brief for appellees.

Before Selya, Boudin, and Stahl, Circuit Judges.

Stahl, Circuit Judge.

This appeal is an offshoot of a massive securities fraud, fraud, and breach of fiduciary duties class-action lawsuit brought against John Hancock Mutual Life Insurance Company, John Hancock Variable Life Insurance Company, and John Hancock Distributors, Inc. (collectively "John Hancock"). The underlying suit, filed in September 1995 on behalf of nearly four million present and former policyholders, challenged a number of John Hancock's sales and marketing practices from 1979 through the mid-1990s. On June 6, 1997, the putative class entered into a Stipulation of Settlement with John Hancock. Eventually, the district court certified the class and approved the settlement, explaining its reasoning in a comprehensive opinion. See Duhaime v. John Hancock Mutual Life Ins. Co., 177 F.R.D. 54 (D. Mass. 1997) ("Duhaime I"). Because the particulars of the lawsuit and the settlement terms are largely irrelevant to our analysis, we refer interested readers to Duhaime I and confine our focus to facts pertinent to this appeal.

After the details of the proposed settlement were communicated to the class in late June 1997, seventy-seven absent class members (i.e., class members not named as parties) came forward and filed written objections. Among the objectors were appellant Howard M. Metzenbaum and sixteen policyholders represented by attorney Diane Nygaard. We follow the lead of the parties and refer to the Nygaard-led group as the "Rose Objectors."Metzenbaum initially took issue with various aspects of the class notice and with the structure of the proposed counsel-fees award, but after negotiating changes to the notice procedures that satisfied his concerns in this area, he chose to press only his counsel-fees objection. The Rose Objectors filed sweeping objections to nearly all aspects of the proposed settlement. On October 24, 1997, the district court held a hearing to evaluate the fairness of the settlement. See Fed. R. Civ. P. 23(e). Metzenbaum and the Rose Objectors appeared to present their arguments in opposition. On December 31, 1997, the court filed separate memoranda and orders approving the settlement, see Duhaime I, 177 F.R.D. at 72, but altering to some degree the fee-payment structure conceived by the settling parties, see Duhaime v. John Hancock Mutual Life Ins. Co., 989 F. Supp. 375, 378-80 (D. Mass. 1997) ("Duhaime II"). In doing so, the court largely sustained Metzenbaum's objections, see id., but rejected the Rose Objectors' complaints as lacking in merit, see Duhaime I, 177 F.R.D. at 71-72.

Shortly after the district court approved the settlement, Attorney Nygaard, acting on behalf of the Rose Objectors, filed a request for counsel fees in the district court and a notice of appeal from the court's approval of the settlement. When Metzenbaum's counsel learned of the appeal, he telephoned Nygaard and asked that she serve him with copies of the appellate briefs. Nygaard agreed to put Metzenbaum's counsel on the service list, but added that the appeal soon would be settled on "very, very good" terms for her clients. Shortly thereafter, the Rose Objectors withdrew with prejudice both their appeal and their still-pending request for counsel fees.

At this point, Metzenbaum became concerned that something was amiss because the Rose Objectors apparently had secured a side settlement more favorable than the class settlement and no court had evaluated the fairness of the side settlement. In Metzenbaum's view (elaborated below), a post-judgment settlement of this nature violates both the letter and spirit of Fed. R. Civ. P. 23(e): "A class action shall not be dismissed or compromised without the approval of the court, and notice of the proposed dismissal or compromise shall be given to all members of the class in such manner as the court directs." See also In re General Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 804-19 (3d Cir. 1995) (Rule 23(e) scrutiny entails a detailed inquiry into whether the proposed class action settlement is fair, reasonable, and adequate). Metzenbaum's counsel wrote to Nygaard, class counsel, and John Hancock's counsel, advising them that the side settlement should be presented to the district court and asking for disclosure of its terms. Counsel for the so-called "settling parties" responded that disclosure and approval were not required under the circumstances. The responses indicated that, in addition to resolving the claims of the Rose Objectors, the side settlement also resolved claims of other clients of Attorney Nygaard who had opted out of the class. The responses did not, however, disclose the terms of the side settlement or even the parties to the side settlement. Metzenbaum suggests that class counsel, as well as John Hancock, may have been involved in negotiating the side settlement, and we accept the suggestion for purposes of this appeal.

Metzenbaum then served discovery on John Hancock, Nygaard, and class counsel, but received replies stating that the discovery requests were untimely and that, as an absent class member, he was not a "party" entitled to discovery. Consequently, Metzenbaum moved the district court to compel post-judgment discovery under Fed. R. Civ. P. 37 and, in the event the court did not regard him as a party entitled to discovery, to permit him to intervene as a party under Fed. R. Civ. P. 24. In making his motion, Metzenbaum informed the court that, should the requested discovery reveal a substantial difference between the side settlement with the Rose Objectors and the settlement offered to the class, he would file a motion under Fed. R. Civ. P. 60(b) asking the court either to require John Hancock to offer the same deal to all class members, including himself, or to abrogate the Rose Objectors' side settlement and require that the proceeds be disbursed to the class. John Hancock opposed the motion, pointing out, inter alia, that the class settlement was entirely unaffected by the side settlement with the Rose Objectors. The court denied Metzenbaum's motion by margin order. This appeal, which only John Hancock actively opposes, followed.

In framing their appellate arguments, the parties have sounded broad themes and taken a number of controversial positions. Metzenbaum asserts that Fed. R. Civ. P. 23(e) applies even to settlements concluded on appeal; that in the circumstances presented here, he was entitled to invoke Fed. R. Civ. P. 37's enforcement provisions post-judgment; that absent class members such as himself are "parties" to class actions entitled to discovery; and alternatively, that he was entitled to intervene as a party in the district court either as of right, see Fed. R. Civ. P. 24(a), or by court permission, see Fed. R. Civ. P. 24(b). John Hancock counters that Metzenbaum lacked Article III standing in the district court because he failed to allege an injury in fact, i.e., that he has suffered, or imminently will suffer, an invasion of a concrete, particularized, and legally protected interest, see Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992); that absent class members are not parties to class actions; that Metzenbaum's allegations fail to establish an entitlement to intervention, either as of right or by court permission; and that the district court in any event properly declined Metzenbaum's request for discovery because the material sought could provide no basis for upsetting the judgment.

As to whether Metzenbaum had Article III standing, we think it sufficient to observe that the line of argument set forth in the motion to compel (and on appeal) necessitates a Discussion of the possibility of a fraud, see infra at 16-18, and that Metzenbaum, as a class member, has standing to press such an argument because he has a concrete, particularized, and legally protected interest in both faithful representation by class counsel and in not being defrauded by an adverse party, cf. Fed. R. Civ. P. 60(b)(3) (recognizing "fraud . . . misrepresentation, or other misconduct of an adverse party" as a basis for seeking relief from judgment). As to the potentially difficult issues of Metzenbaum's "party" status and right to intervention in order to obtain discovery, we think they are extinguished for purposes of this case by our answer to a narrower, logically antecedent question: Must a district court scrutinize and approve as fair an appellate side settlement between the parties who have reached a court-approved settlement of a class action and separately represented class members who had objected to the settlement prior to its approval? Metzenbaum contends that Fed. R. Civ. P. 23(e) and/or general class action principles derived from the case law give class members like himself an interest in such scrutiny and approval. But as we explain below, Metzenbaum reads the authority he cites too broadly. Where, as here, the class settlement is unaffected by the side settlement and there has been no demonstration of a fraud, absent class members like Metzenbaum simply have no unconditional right to have a court review and approve as fair the terms of such a side settlement.

We start with Metzenbaum's contention that Fed. R. Civ. P. 23(e) explicitly requires c...