Bell Atlantic Corp. v. Bolger
| Decision Date | 18 August 1993 |
| Docket Number | 92-1653,Nos. 92-1615,s. 92-1615 |
| Parties | Fed. Sec. L. Rep. P 97,714, 26 Fed.R.Serv.3d 1104 BELL ATLANTIC CORPORATION, Derivatively by Trustees u/w of Beatrice Wilding and Martha Staub and on behalf of themselves and all others similarly situated v. Thomas E. BOLGER; Anton J. Campanella; Robert H. Levetown; Raymond W. Smith; Frank C. Carlucci; William G. Copeland; James H. Gilliam, Jr.; Gerald T. Halpin; Thomas H. Kean; John C. Marous, Jr.; John F. Maypole; Thomas H. O'Brien; Rozanne L. Ridgway; Shirley Young and Bell Atlantic Corporation, Nominal Defendant, Seymour Lazar, objector and class member and shareholder, Appellant in 92-1615, Objectors, Anne R. Klein, Robert M. Klein and Adele Schwartz, Appellants in 92-1653. |
| Court | U.S. Court of Appeals — Third Circuit |
Robert C. Heim (argued), Mary A. McLaughlin, Dechert, Price & Rhoads, Philadelphia, PA, for appellees Thomas E. Bolger, Anton J. Campanella, Robert H. Levetown, Raymond W. Smith, Frank C. Carlucci, William G. Copeland, James H. Gilliam, Jr., Gerald T. Halpin, Thomas H. Kean, John C. Marous, Jr., John F. Maypole, Thomas H. O'Brien, Rozanne L. Ridgway, Shirley Young and Bell Atlantic Corp.
Sheldon L. Albert (argued), Anthony J. Bolognese, Barrack, Rodos & Bacine, Philadelphia, PA, for appellant Seymour Lazar, appellant in 92-1615.
Eric A. Klein, (argued), New York City, for appellants Anne R. Klein, Robert M. Klein and Adele Schwartz, appellants in 92-1653.
C. Oliver Burt, III, (argued), Greenfield & Chimicles, Haverford, PA, Phyllis K. Sager, Law Offices of Phyllis K. Sager, Bryn Mawr, PA, for appellee Bell Atlantic Corp., derivatively by trustees u/w of Beatrice Wilding and Martha Staub and on behalf of themselves and all others similarly situated.
Before: MANSMANN, SCIRICA and FEINBERG *, Circuit Judges.
This appeal concerns certain Bell Atlantic Corp. shareholders' objections to the district court's approval of a derivative lawsuit settlement. Appellant-objectors Seymour Lazar, Anne Klein, and Robert Klein 1 contend the settlement agreement between defendants and derivative plaintiff Bell Atlantic confers no benefit on Bell Atlantic and benefits only individual defendant directors and plaintiffs' counsel. The objectors' principal claim is that the district court abused its discretion by approving an unfair and inadequate settlement. We believe the settlement was fair both substantively and procedurally. We will affirm.
Subject matter jurisdiction was founded on section 22 of the Securities Act of 1933, 15 U.S.C. Sec. 77v (1988), section 27 of the Securities Exchange Act of 1934, 15 U.S.C. Sec. 78aa (1988), 28 U.S.C. Sec. 1331 (1988), and principles of pendent jurisdiction, 28 U.S.C. Sec. 1367 (Supp.1991). We have jurisdiction over the district court's approval of the settlement agreement. Binker v. Commonwealth of Pa., 977 F.2d 738, 744 (3d Cir.1992).
We review the district court's approval of a shareholder's derivative lawsuit for abuse of discretion. Shlensky v. Dorsey, 574 F.2d 131, 147 (3d Cir.1978); Ace Heating & Plumbing Co. v. Crane Co., 453 F.2d 30, 34 (3d Cir.1971) (where district judge approves class
action settlement ).
This lawsuit stems from the April 1990 settlement of consumer fraud claims brought by the Pennsylvania Attorney General and the Pennsylvania Office of the Consumer Advocate against one of Bell Atlantic's subsidiaries, Bell of Pennsylvania. 2 Settlement of the Bell of Pennsylvania matter required Bell Atlantic to pay over $40 million in refunds to customers, contributions to a consumer education trust, and legal costs to the Attorney General.
Two groups of shareholder attorneys responded to the announcement of the settlement. The first group, representing shareholder Lazar, brought a derivative action in state court against nominal defendant Bell Atlantic and certain of its officers and inside directors, charging defendants with mismanagement and breach of fiduciary duty. The Lazar suit sought to recover, on behalf of nominal defendant Bell Atlantic, amounts lost due to the alleged misconduct of Bell Atlantic directors and officers.
The second group of shareholder attorneys, representing the plaintiffs in this action, Martha Taub and the Trustees under the will of Beatrice Wilding, made a demand on Bell Atlantic's board to seek recovery from those responsible for the Bell of Pennsylvania matter. In response, Bell Atlantic's board created a special committee that investigated the allegations with independent counsel. Following the investigation, Bell Atlantic's board accepted the committee's recommendation to reject the demand as not in the company's best interests.
When Bell Atlantic rejected the Taub plaintiffs' demand, plaintiffs brought a derivative action in federal court on June 11, 1991. Counts I and II of the complaint asserted federal and state claims on behalf of a class of Bell Atlantic shareholders for failing to disclose requisite information, while count III, the derivative claim, charged the officers and directors with mismanagement and breach of fiduciary duties to Bell Atlantic. Shortly before filing their complaint, the Taub plaintiffs notified Lazar's counsel of the pending suit. Lazar never attempted to intervene.
Defendants struck first, unsuccessfully seeking dismissal of the derivative claim. At the close of discovery, defendants moved alternatively for dismissal or for summary judgment, claiming the board conducted a good faith, reasonable investigation of plaintiffs' demands and that Bell Atlantic's charter insulated the board from damages. The district court found no evidence raising a genuine issue of material fact on the board's good faith in investigating plaintiffs' demands but found the record did not permit a finding as to the reasonableness of the investigation (i.e., whether the board acted in an informed manner and with due care). The district court also found that Bell Atlantic's charter absolved directors of liability for damages resulting from negligent management. 3
Both sides prepared for trial. With the class certified, each side submitted pretrial memoranda, trial briefs, proposed findings, and jury instructions. On the Friday preceding the Monday trial date, following extensive negotiations, the parties reached an agreement on settlement. Under the settlement agreement Bell Atlantic agreed to (and did) disclose in its 1992 proxy statement information regarding the Bell of Pennsylvania After the parties filed the proposed settlement agreement on March 25, 1992, the district court approved the notice and ordered it sent to all 1.1 million Bell Atlantic shareholders. See Fed.R.Civ.P. 23.1. The notice summarized the litigation's background, the proposed settlement terms, and stated the settlement hearing date.
matter, this litigation, and the Lazar state court litigation. Bell Atlantic also agreed to establish and follow new procedures to monitor sales and marketing programs. The agreement released all claims which were or could have been alleged in the complaint, including all claims arising from the Bell of Pennsylvania consumer fraud litigation. The agreement thereby jettisoned the Lazar state court claim. It also provided for counsel fees and expenses in an amount not to exceed $450,000.
Before the settlement hearing, twenty-five shareholders, including objector Lazar, protested aspects of the proposed settlement. Plaintiffs furnished requested documents to Lazar's counsel to explore the adequacy of the settlement. At the settlement hearing, counsel for Lazar and counsel for objectors Anne and Robert Klein argued against approval of the settlement. Shortly thereafter, the district court denied all objections, approved the settlement agreement, and awarded fees and expenses to plaintiffs' counsel in the amount of $421,437.19 plus interest. Lazar and the Kleins now appeal.
Plaintiffs contend Lazar lacks standing to appeal the district court's order because Lazar is not a named party and failed to intervene under Fed.R.Civ.P. 24. Plaintiffs concede Lazar had standing to object to the settlement in the district court but contend he does not have standing to appeal from a court order approving the settlement. In their view, if Lazar believed his interests were inadequately protected by named plaintiffs, then he should have moved to intervene. Failure to intervene, they claim, constitutes an implicit admission that named plaintiffs adequately represented Lazar's interests. Plaintiffs contend we should adopt a "no-intervention, no-standing" rule for appeals by unnamed members of class or derivative actions who object to settlement agreements.
Generally, "only parties to a lawsuit, or those that properly become parties, may appeal an adverse judgment." Marino v. Ortiz, 484 U.S. 301, 304, 108 S.Ct. 586, 587, 98 L.Ed.2d 629 (1988) (per curiam); Fed.R.App.P. 3(c) (). But it is not settled whether an objecting member of the class or derivative litigation who is not a named party may appeal the court's approval of the compromise. According to two leading treatises, "[a] member of the class who appears in response to the court's notice, given pursuant to the Rule [23.1], and objects to the dismissal or compromise has a right to appeal from an adverse final judgment although he did not become a formal party of record." 3B James W. Moore, Moore's Federal Practice, p 23.1.24 (); p 23.80 (...
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