Croyden Associates v. Alleco, Inc.
| Decision Date | 24 August 1992 |
| Docket Number | No. 91-2641,91-2641 |
| Citation | 969 F.2d 675 |
| Parties | Bankr. L. Rep. P 74,710 CROYDEN ASSOCIATES, a Florida Partnership, Individually and on Behalf of all Those Similarly Situated, Plaintiff-Appellee, The Harry and Jeanette Weinberg Foundation Incorporated, Plaintiff-Objector-Appellant, v. ALLECO, INC., Service America Corporation, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Robert A. Brunig, Minneapolis, Minn., argued (Lawrence R. Commers and Tim A. Staum, on the brief), for appellant.
Steven Goldstone, New York City, argued (Robert P. Thavis, John M. Baker and Charles Quaintance, Jr., Minneapolis, Minn., on the brief), for appellee.
Before JOHN R. GIBSON, Circuit Judge, FRIEDMAN, * Senior Circuit Judge, and MAGILL, Circuit Judge.
The Harry and Jeanette Weinberg Foundation appeal the district court's order 1 approving the settlement of a class action suit pursuant to Fed.R.Civ.P. 23(e), in which the Foundation was an unnamed class member. The Weinberg Foundation objects to the settlement between the plaintiff class, represented by Croyden Associates, and Alleco, Inc. and Service America Corporation, the defendants. The Weinberg Foundation raises a number of arguments regarding justiciability, subject matter jurisdiction, Croyden Associates' standing to sue, a violation of the Trust Indenture Act of 1939, the adequacy of class representation, the certification of a non-opt-out class, adequacy of notice, and the fairness, reasonableness, and adequacy of the settlement. We need not address these arguments because we dismiss the Foundation's appeal for lack of standing.
Alleco issued $105 million in 9 1/2% debentures to the public in August 1985. Through a series of transactions occurring in 1987 and 1988, Service America was to assume Alleco's obligations under the debentures. A controversy then arose as to whether the debentures had gone into default due to the transactions between Alleco and Service America. Prompted by Service America's deteriorating financial condition, a group of debenture holders, including Croyden Associates, organized a committee in July 1990 to negotiate a consensual restructuring of Alleco's and Service America's obligations to the debenture holders. After months of negotiations, the parties reached a tentative settlement on March 20, 1991. The agreement contemplated that its terms would be "effectuated by a court-approved class action settlement," and was contingent upon court approval of the settlement and certification of a non-opt-out class.
On May 14, 1991, Croyden Associates filed a complaint individually and on behalf of the putative class of debenture holders against Alleco and Service America, seeking the payment of principal and interest on the debentures as well as a declaration of the class's rights regarding the acceleration and payment of the debentures. The complaint also outlined the terms of the proposed settlement between the parties and asked for a declaration that the settlement was fair, reasonable, and adequate. Croyden Associates also moved for conditional class certification under Fed.R.Civ.P. 23(b)(1) and (b)(2) for settlement purposes and approval of the form of notice to be sent to class members regarding the proposed settlement.
The district court granted Croyden Associates' class certification motion, approved the proposed form of notice, and scheduled a hearing for June 14, 1991, to consider the fairness of the proposed settlement to all class members. In the meantime, negotiations continued, leading to a formal settlement agreement on May 21, 1991, executed by Alleco, Service America, and the holders of more than two-thirds of the aggregate principal amount outstanding on the debentures.
The Weinberg Foundation, an unnamed class member, submitted written objections to the fairness of the settlement, appeared at the June 14 hearing, and made oral objections to the proposed settlement. The Weinberg Foundation made no attempt, however, to intervene in the action. No other class members objected to the proposed settlement.
The district court entered a final judgment on June 19, 1991, approving the settlement as "fair and adequate to the Class," and also granted related relief to the parties. 2 Croyden Associates v. Alleco, Inc. & Service America Corp., No. 3-91-0323 (D.Minn. June 9, 1991). 3 The Weinberg Foundation then appealed.
While this appeal was pending, indeed, while the court was considering a draft of our opinion, Alleco's counsel notified us that it has sought protection under Chapter 11 of the Bankruptcy Act. Alleco is plainly entitled to a stay under 11 U.S.C.A. § 362(a)(1) (West Supp.1992), and we sought response of the other parties as to the proper extent of that stay. The Weinberg Foundation argues that the stay should apply only to Alleco, and the case should proceed as to the other parties. Croyden Associates argues that the stay should apply to all proceedings. Service America takes no position as to whether Alleco is entitled to a stay, but argues that if the action is stayed as to Alleco, it should be stayed also as to Service America.
We are persuaded that the stay required by section 362 should extend only to claims against Alleco, and that the stay is not available to nonbankrupt codefendants, "even if they are in a similar legal or factual nexus with the debtor." Maritime Elec. Co. v. United Jersey Bank, 959 F.2d 1194, 1205 (3d Cir.1992). See also Fortier v. Dona Anna Plaza Partners, 747 F.2d 1324, 1330 (10th Cir.1984) (). The only exception to this rule that any of the circuits recognize seems to relate only to nonbankrupt codefendants in " 'unusual circumstances.' " A.H. Robins Co. v. Piccinin, 788 F.2d 994, 999 (4th Cir.), cert. denied, 479 U.S. 876, 107 S.Ct. 251, 93 L.Ed.2d 177 (1986). Decisions involving whether a stay is appropriate when a supersedeas bond has been filed or whether a party may move to dismiss an action commenced by a debtor do not reach the issue before us. We stay further proceedings in this appeal with respect to Alleco but decide the issues presented with respect to the remaining parties.
The Weinberg Foundation argues that its appearance at the fairness hearing and its filing of objections to the proposed settlement gives it standing to prosecute this appeal. The appellees contend that the Weinberg Foundation lacks standing to appeal the district court's approval of the consent decree because the Foundation failed to intervene in the action pursuant to Fed.R.Civ.P. 24. The appellees also make the telling point that the Foundation benefited from the settlement, which preserved the viability of the corporate entities, and then attempted to gain full recovery on the debentures not available to the rest of the class by bringing this appeal.
This court has not ruled on whether an unnamed class member has standing to appeal from an order approving a settlement agreement between the named parties of a class action suit. In Grunin v. International House of Pancakes, 513 F.2d 114 (8th Cir.), cert. denied, 423 U.S. 864, 96 S.Ct. 124, 46 L.Ed.2d 93 (1975), a class member who opposed a court-approved settlement agreement appealed the settlement without objection from the named parties. Id. at 120. Grunin is silent as to whether the objector was a named party, or whether he had intervened in the suit. Because of this ambiguity, and because no one raised the issue of standing on appeal, Grunin gives us no guidance for the issue we face. See also Reynolds v. National Football League, 584 F.2d 280 (8th Cir.1978) ().
The circuits are divided on this issue, and some have inconsistent holdings. The Eleventh Circuit has held that "a class member who is not a named plaintiff[ ] does not have standing to appeal the final judgment in [a] class action." Guthrie v. Evans, 815 F.2d 626, 627 (11th Cir.1987). Guthrie gave three reasons for its holding:
First, such individuals cannot represent the class absent the procedures provided for in Rule 23 of the Federal Rules of Civil Procedure. Second, class members who disagree with the course of a class action have available adequate procedures through which their individual interests can be protected. Third, class actions could be unmanageable and non-productive if each member could individually decide to appeal.
Id. at 628 (emphasis in original).
Guthrie expands upon the first reason above by explaining that the named plaintiffs cannot represent a class until the district court makes findings "that they will fairly and adequately protect the interests of the class." Id. Because there had been no such findings made regarding the non-named plaintiffs, the court held that they "clearly ha[d] no standing to take action on behalf of the class." Id.
Guthrie outlined three alternative avenues of relief for a class member who is unsatisfied with the class settlement. First, the objector may move to intervene as of right pursuant to Fed.R.Civ.P. 24(a)(2), id., and the district court's denial of the motion to intervene of right is appealable. Id. (citing Sellers v. United States, 709 F.2d 1469, 1471 (11th Cir.1983)). Second, the objector may collaterally attack the settlement approval by filing a separate suit challenging the adequacy of the class representation. 815 F.2d at 628. Third, if the class is certified under Rule 23(b)(3), the individual class member may opt out. Id. With these legal avenues available, Guthrie concluded there was no need to allow a class member to appeal a judgment satisfactory to the class representatives and presumably the majority of class members. Id.
Finally, Guthrie looked to the rationale for class...
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