Ace Heating & Plumbing Company v. Crane Company

• Decision Date: 18 November 1971
• Docket Number: No. 71-1383-71-1385.,71-1383-71-1385.
• Citation: 453 F.2d 30
• Parties: ACE HEATING & PLUMBING COMPANY, Inc., et al. v. CRANE COMPANY et al. NALCO PLUMBING & HEATING COMPANY, a corporation, in behalf of itself and all others similarly situated v. AMERICAN RADIATOR & STANDARD SANITARY CORPORATION et al. Appeal of ACE HEATING & PLUMBING CO., Inc., et al., in Nos. 71-1383 and 71-1384. Appeal of ROLAND A. ESSWEIN AND SON, in No. 71-1385.
• Court: U.S. Court of Appeals — Third Circuit

453 F.2d 30 (1971)

ACE HEATING & PLUMBING COMPANY, Inc., et al. v. CRANE COMPANY et al.

NALCO PLUMBING & HEATING COMPANY, a corporation, in behalf of itself and all others similarly situated v. AMERICAN RADIATOR & STANDARD SANITARY CORPORATION et al.

Appeal of ACE HEATING & PLUMBING CO., Inc., et al., in Nos. 71-1383 and 71-1384.

Appeal of ROLAND A. ESSWEIN AND SON, in No. 71-1385.

Nos. 71-1383-71-1385.

United States Court of Appeals, Third Circuit.

Argued September 17, 1971.

Decided November 18, 1971.

Lawrence Walner, Johnson, Colmar, Kelley, Ambrose, Thienpont & Bailey, Chicago, Ill., for appellant Ace Heating & Plumbing Co., Inc.

Duke W. Thomas, Vorys, Sater, Seymour & Pease, Columbus, Ohio, for appellant Roland A. Esswein and Son.

James O. Sullivan, Sullivan, Jones, Archer & Brucher, San Diego, Cal., for Nalco Plumbing & Heating Co.

William E. Willis, Sullivan & Cromwell, New York City, for defendant-appellee American Standard Inc., William R. Norfolk, William T. Stephens, New York City, of counsel.

Buchanan, Ingersoll, Rodewald, Kyle & Buerger, Pittsburgh, Pa., for defendant-appellee Borg-Warner Corp., Clayton A. Sweeney, Pittsburgh, Pa., of counsel.

Pepper, Hamilton & Scheetz, Philadelphia, Pa., for defendant-appellee Crane Co., K. Robert Conrad, Philadelphia, Pa., of counsel.

Reed, Smith, Shaw & McClay, Pittsburgh, Pa., for defendant-appellee Kohler Co., Gilbert J. Helwig, Pittsburgh, Pa., of counsel.

Cravath, Swaine & Moore, New York City, for defendant-appellee Rheem Manufacturing Co., Ralph L. McAfee, New York City, of counsel.

Arnstein, Gluck, Weitzenfeld & Minow, Chicago, Ill., for defendant-appellee Universal-Rundle Corp., Frank C. McAleer, Chicago, Ill., of counsel.

Kaye, Scholer, Fierman, Hays & Handler, New York City, for defendant-appellee Wallace-Murray Corp., Fred A. Freund, New York City, of counsel.

Drinker, Biddle & Reath, Philadelphia, Pa., for defendant-appellee Plumbing Fixture Manufacturers Assn., Patrick T. Ryan, Philadelphia, Pa., of counsel.

Before SEITZ, Chief Judge, BIGGS and ROSENN, Circuit Judges.

OPINION OF THE COURT

SEITZ, Chief Judge.

These are consolidated appeals from an order of the district court approving a two million dollar settlement with a nationwide class of plumbing, mechanical and general contractor claimants in the so-called Plumbing Fixture Antitrust Cases. The legal steps and negotiations leading to the order complained of are exhaustively set out in Philadelphia Housing Authority v. American Radiator & Standard Sanitary Corp., 323 F.Supp. 364 (1970) and Philadelphia Housing Authority v. American Radiator & Standard Sanitary Corp., 322 F.Supp. 834 (1971) (reporting the opinion involved in this appeal). We address ourselves primarily to the resolution of several novel and important procedural aspects of antitrust settlements.

Plaintiffs' right to appeal

The unique procedural steps leading to final district court approval of the settlement in December, 1970 are the basis for the appellees' contention that the appellants have no right to appeal the district court's order approving the settlement. In moving to dismiss the appeal appellees point out that all potential class members, including the appellants, were informed of the terms of the proposed settlement and were given the option beforehand to exclude themselves from participation therein. From this premise they reason that appellants' election to join the class constituted a ratification of the settlement or a waiver of objections to it.

The appellees rely upon the Legal Notice sent to all identifiable class members prior to the district court's approval order:

"As a condition to disbursement of the Settlement Fund, the claims of all members of the Class who have not excluded themselves shall be the subject of final and unappealable judgments of dismissal with prejudice." (emphasis added)

We read the quoted language to mean that disbursement of the settlement fund would await a final judgment which could not be appealed. It cannot be construed to preclude a timely appeal from the original judgment of approval. A serious public policy question would be presented if the notice were construed to require a waiver of the right to appeal as a condition to opting in.

We next consider whether plaintiffs are otherwise precluded from appealing the district court's findings of fairness and its approval of expenses and appointment of counsel. Appellees argue that a party who "accepts" a settlement by not electing to be excluded admits that the settlement benefits him and, therefore, cannot be aggrieved by an order approving the settlement. This contention highlights an important unresolved question involving the administration of class action law suits brought pursuant to Federal Rules of Civil Procedure, 28 U.S.C.A., Rule 23 (1971 Supp.).

Ordinarily, aggrieved class members may appeal any final order of a district court in proceedings held pursuant to Rule 23. This general proposition holds true even though such class members have the right to exclude themselves from the class. Here, however, at the point of deciding whether to join the class, the potential class members had the advantage of knowing all the substantial terms of the proposed settlement. The question then is whether this conceded awareness so differentiates the situation here that the right to appeal the approved settlement is lost. The answer must be found by a consideration of the policies behind the federal class action rule.

Perhaps the drafters of Rule 23 did not envisage circumstances like those here, in which potential class members are able to elect whether or not to join the class knowing the proposed settlement terms. In such a case there may be less need to police settlements, since the question of fairness is left to the informed choice of the class members. Nevertheless, the remedy for this unprovided for situation does not lie with the courts. Furthermore, court approval under these circumstances still may serve salutary purposes. It is possible that, within a class, a group of small claimants might be unfavorably treated by the terms of a proposed settlement. For them, the option to join is in reality no option at all. Rule 23 recognizes the fact that many small claimants frequently have no litigable claims unless aggregated. So, without court approval and a subsequent right to ask for review, such claimants would be faced with equally unpalatable alternatives—accept either nothing at all or a possibly unfair settlement. We conclude that appellants have standing to appeal in the circumstances here presented. Cf. 3B Moore's Federal Practice, Para. 23.80(5) (1969).

We therefore conclude that appellees' motion to dismiss the appeals should be denied.

Ineffective Class Representation

In early 1970, defendants attempted to negotiate a settlement with a so-called ad hoc committee of contractors' counsel led by Mr. Hamburg. An impasse was reached when that committee turned down defendants' last offer. Defendants then began settlement talks with James Sullivan who was attorney for Nalco and two other companies which had filed a class action in May 1969. These talks with Sullivan, which he communicated to the attorneys for plaintiffs in numerous other similar actions, resulted in the $2,000,000 settlement offer here challenged by appellants.

The appellants contend that Mr. Sullivan's representation of the class was inadequate. Although pointing to no specific lapses or omissions attributable to him, they argue that the inadequacy stems implicitly from Sullivan's having bargained the settlement terms with defendants prior to his official designation by the court as class representative. Appellants point out that a person who unofficially represents the class during settlement negotiations may be under strong pressure to conform to the defendants' wishes. This is so because such an individual, lacking official status, knows that a negotiating defendant may not like his "attitude" and may try to reach a settlement with another member of the class. That is exactly what happened here. What is the court's function in this general situation?

The attorneys' fees and the prestige attendant upon probable appointment as class representative are the rewards for the attorney who bargains successfully with the defendants. Consequently when the settlement is not negotiated by a court designated class representative the court must be doubly careful in evaluating the fairness of the settlement to plaintiff's class. Indeed, if it is feasible in the first instance for the court to designate a class representative to conduct settlement negotiations, such a course is highly desirable. We think Rule 23 permits such action by the court.

Since the settlement here was reached prior to court designation of a class representative we next consider whether in the circumstances the district court abused its discretion in giving its approval. We cannot conclude on this record that the class suffered inadequate representation. The district court expressly approved Sullivan's course of conduct in negotiating the settlement; a large majority of plaintiffs' counsel, representing the bulk of the claims, seconded his efforts;...