Fidel v. Farley

• Decision Date: 18 July 2008
• Docket Number: No. 06-5550.,06-5550.
• Parties: Bernard FIDEL, et al., on behalf of themselves and all others similarly situated, Lead Plaintiffs-Appellees, James J. Hayes, Plaintiff-Appellant, v. William FARLEY, et al., Defendants.
• Court: U.S. Court of Appeals — Sixth Circuit

534 F.3d 508

Bernard FIDEL, et al., on behalf of themselves and all others similarly situated, Lead Plaintiffs-Appellees James J. Hayes, Plaintiff-Appellant, v. William FARLEY, et al., Defendants.

No. 06-5550.

United States Court of Appeals, Sixth Circuit.

Submitted: June 11, 2008.

Decided and Filed: July 18, 2008.

ON BRIEF: Eric A. Isaacson, Coughlin, Stoia, Geller, Rudman & Robbins, San Francisco, California, for Appellees. James J. Hayes, Annandale, Virginia, pro se.

Before: GIBBONS and SUTTON, Circuit Judges; ACKERMAN, District Judge.^*

OPINION

JULIA SMITH GIBBONS, Circuit Judge.

Plaintiff-appellant James J. Hayes, appearing pro se, seeks review of the district court's approval of a settlement in this securities class action brought against Fruit of the Loom. Hayes, a nonnamed member of a class of Fruit of the Loom shareholders, contends that the district court erred in approving the settlement because certain class members, including Hayes, received notice of the settlement after the deadline for objecting to the settlement. Hayes maintains that the settlement should be set aside and the class renotified. Additionally, Hayes requests that the attorney's fees granted by the district court to class counsel be reduced due to the alleged deficiencies in providing notice to the class. In turn, the lead plaintiffs — the appellees in the instant case — argue that this court should decline to hear Hayes's appeal because Hayes, as a nonintervening, nonnamed class member, is not a "party" for purposes of appealing the settlement.

We conclude that Hayes has the power to bring this appeal, notwithstanding his status as a nonintervening, nonnamed class member. Nonetheless, we affirm the district court's order approving the settlement, as well as the court's award of attorney's fees to class counsel.

I.

This case arises out of the settlement of two consolidated class action lawsuits alleging that defendants, Fruit of the Loom and a number of its executives, engaged in fraudulent conduct that inflated the market price of Fruit of the Loom's stock. See New England Health Care Employees Pension Fund v. Fruit of the Loom, Inc., 234 F.R.D. 627, 630 (W.D.Ky.2006). The first case, New England Health Care Employees Pension Fund v. Farley ("New England"), involves a class of shareholders who purchased Fruit of the Loom stock between July 24, 1996, and September 5, 1997. In the second case, Fidel v. Farley ("Fidel"), the class encompasses all shareholders who acquired Fruit of the Loom stock from September 28, 1998 through November 4, 1999. Hayes is a member of the class in the Fidel action; however, he is not a named plaintiff.

Counsel agreed upon a $23.2 million settlement in the New England action and a $19.1 million settlement in the Fidel action. On December 16, 2005, the district court preliminarily approved the proposed settlements and provided for notice to the class members. Pursuant to the district court's order, the claims administrator, Gilardi & Company, LLC, was to mail notice of the settlement to the class members by December 19, 2005, and publish notice of the settlement in the national edition of Investor's Business Daily.¹ Fruit of the Loom's transfer agent, Mellon Investment Services, was unable to identify any potential class members for the claims administrator. Accordingly, on December 19, the claims administrator sent a cover letter with the notice and proof of claim to eighty-four entities, most of which were major brokerage houses. The letter advised the brokerage houses — which hold securities in "street name" for the benefit of their customers² — of the settlement and requested their cooperation in forwarding notice to their beneficiaries. Specifically, the letter asked the brokerage houses to either provide the names of class members or forward a copy of the notice to class members within ten days. In either case, the cost of providing the notice would be paid by plaintiffs' counsel.

Ultimately, claim packages were sent to over 11,568 potential class members in the New England action and to over 17,717 potential class members in the Fidel action. However, Hayes's broker, National Investor Services, did not respond to the claims administrator's December 19 letter. The claims administrator thus sent follow-up letters to National Investor Services on January 4, 2006, and January 20, 2006. On February 8, 2006, the claims administrator received a list of 3,663 potential class members from National Investor Services. Eight business days later, on February 21, 2006, the claims administrator mailed the notice to those potential class members.

Hayes claims that he received the notice on February 27, 2006. The notice, however, specified that class members had until February 3, 2006, to opt out of the class or object to the settlement. On March 4, 2006, Hayes penned an objection letter to the district court, in which he noted that some class members, including Hayes himself, had not received timely notice of the settlement. Hayes requested that the court either renotify the class or, in the alternative, reduce the attorney's fees award granted to plaintiffs' counsel. The district court received Hayes's letter on March 8, 2006 — several days after the March 3, 2006 fairness hearing regarding the settlement. Nonetheless, the court considered and rejected Hayes's objection on the merits. See New England, 234 F.R.D. at 632 n. 2. At the outset, the court observed that Hayes did not appear to object to the substance of the settlement, but only to the timeliness of notice and the attorney's fees award. Id. As to the issue of notice, the court explained that it had received no indication that notice was not timely received by any other class members and, moreover, the claims administrator averred that notice was mailed to the brokerage firms by December 19, 2005. Id. The court thus concluded that "the notices allowed members of the class a full and fair opportunity to consider the proposed settlement." Id. The court then affirmed the settlement and awarded attorney's fees at the rate of twenty-five percent of the total settlement fund. Id. at 632-35.

On March 22, 2006, plaintiffs in the Fidel action filed a response to Hayes's objection. Hayes, however, simply filed a notice of appeal as to the district court's order approving the settlement and awarding attorney's fees.

II.

Generally, non-parties cannot appeal from an order of the district court, unless they have first sought leave to intervene as party. See Marino v. Ortiz, 484 U.S. 301, 304, 108 S.Ct. 586, 98 L.Ed.2d 629 (1988) ("The rule that only parties to a lawsuit, or those that properly become parties, may appeal an adverse judgment, is well settled."). Hayes is a nonnamed member of the Fidel class who did not seek leave to intervene as a party; thus, at first glance, it would seem that Hayes does not have the capacity to bring this appeal. Recently, however, the Supreme Court recognized that a nonnamed member of a mandatory Rule 23(b)(1) class who has objected in a timely manner to approval of a settlement at a fairness hearing has the power to bring an appeal without first intervening. Devlin v. Scardelletti, 536 U.S. 1, 14, 122 S.Ct. 2005, 153 L.Ed.2d 27 (2002).³ At the outset, the Court clarified that the question presented by such an appeal is not one of "standing"; nonnamed class members, the Court explained, satisfy both the "case or controversy" requirements and the prudential standing requirements. Id. at 6-7, 122 S.Ct. 2005. Rather, "[w]hat is at issue ... is whether petitioner should be considered a `party' for the purposes of appealing the approval of the settlement." Id. at 7, 122 S.Ct. 2005. Answering this question affirmatively, the Court explained,

What is most important to this case is that nonnamed class members are parties to the proceedings in the sense of being bound by the settlement. It is this feature of class action litigation that requires that class members be allowed to appeal the approval of a settlement when they have objected at the fairness hearing. To hold otherwise would deprive nonnamed class members of the power to preserve their own interests in a settlement that will ultimately bind them, despite their expressed objections before the trial court. Particularly in light of the fact that petitioner had no ability to opt out of the settlement, see Fed. Rule Civ. Proc. 23(b)(1), appealing the approval of the settlement is petitioner's only means of protecting himself from being bound by a disposition of his rights he finds unacceptable and that a reviewing court might find legally inadequate.

Id. at 10-11, 122 S.Ct. 2005.

Here, Hayes was a member of a Rule 23(b)(3) class; in other words, Hayes — unlike the petitioner in Devlin — technically had the opportunity to opt out of the settlement and avoid its binding effect. Seizing upon this distinction, lead plaintiffs contend that Devlin's holding should not be extended to Rule 23(b)(3) class members, and, consequently, Hayes should not be permitted to appeal the Fidel class action settlement. We disagree. In Churchill Village, L.L.C. v. General Electric, 361 F.3d 566, 572 (9th Cir.2004), the Ninth Circuit, applying Devlin, permitted Rule 23(b)(3) class members to appeal the approval of a settlement, even though the appellant class members could have opted out of the settlement to escape its binding effect. We are persuaded by this broad reading of Devlin. The reality of class action litigation — wherein each class member is generally entitled to only a small damages claim — necessitates the application of Devlin to Rule 23(b)(3) class actions. As the Churchill Village court explained, "Because each objector's claim is too small to justify individual litigation, a class action is the only feasible means of obtaining relief.... [T]he settlement will effectively bind the objectors. They therefore occupy precisely the status the Devlin Court sought to protect." I...