Gould v. Alleco, Inc.
| Decision Date | 08 September 1989 |
| Docket Number | 88-3638,Nos. 88-3637,s. 88-3637 |
| Citation | 883 F.2d 281 |
| Parties | Fed. Sec. L. Rep. P 94,851, 14 Fed.R.Serv.3d 549 David P. GOULD; Marks, Inc.; Lawrence I. Weisman, Philip Doccolo; Rocko, Inc.; Patrick L. Day, Trustee for James M. Weisman, Plaintiffs-Appellants, v. ALLECO, INC.; Morton M. Lapides; Henry Weitz; Edward A. Weisman; Harry J. Conn; David H. Cohen; Robert H. Heller; William D. Houser; Frederic K. Raiff; Arthur F. Staley; David C. Barr; John E. Baker; Jeffrey R. Lapides; Heather A. Ditto; Jayme Dorf; Mark A. Garfinkle; David S. Klein; Donn A. Lewis; Jeffrey E. Mann; J. Tighe Merkert; Joan L. Nickel; Frank E. Silvestro; Norman B. Weisman; Deborah A. Wenner; C.J. Nelson; Harry J. Kane; Pamela Lapides; Smith Barney, Harris Upham & Company; Peat, Marwick, Mitchell & Company, Now--Peat, Marwick, Main & Company; Laventhol & Worwath; American Security Bank; Perpetual Savings Bank; Squire, Sanders and Dempsey; Marshall M. Meyer, Defendants--Appellees. Appeal of Lawrence I. WEISMAN; David P. Gould; Marks, Inc.; Philip Doccolo; Rocko, Inc.; Patrick L. Day, Trustee for James M. Weisman. Leonard ROBINSON; Patricia Robinson, Plaintiffs--Appellees, v. ALLEGHENY BEVERAGE CORPORATION; Morton M. Lapides; Henry Weitz; Marshall M. Meyer; Edward A. Weisman; Harry J. Conn, Defendants--Appellees. |
| Court | U.S. Court of Appeals — Fourth Circuit |
David Reed Burton for plaintiffs-appellants.
Bruce K. Cohen (Meredith & Cohen, P.C., on brief), Stephen Howard Glickman (Leslie A. Blackmon, Auckerman, Spaeder, Goldstein, Taylor & Kolker; A. Raymond Randolph, Daniel I. Prywes, Pepper, Hamilton & Scheetz; Steven A. Allen, Davis, Weikel & Allen, on brief) for defendants-appellees.
Before ERVIN, Chief Judge, and HALL and WILKINSON, Circuit Judges.
Lawrence I. Weisman and two others appeal from the denial of a motion to intervene in Robinson v. Allegheny Beverage Corporation, CA No. S-88-2399 (D.Md.) and from the order approving a class settlement of the same case. Weisman also appeals from the district court's refusal to address his objections to the settlement proposal. The district court determined that the motion to intervene in the class action was not timely filed and that the appellants lacked standing to object to the proposed class settlement or to intervene in the action itself. Finding that the district court correctly decided each of these issues, we affirm.
In July, 1986, Allegheny Beverage Corporation was sued by Robinson and six other persons who had purchased Allegheny stock during a prior thirteen-month period. The complaint claimed violations of federal securities laws and state common law for alleged fraud by the company's officers in inflating the stock's price. Robinson was consolidated with two other similar actions, and almost two years of litigation culminated in a proposed "Stipulation of Settlement" which was presented to the district court on May 17, 1988. This proposal contemplated payment of $6.95 million to the plaintiff class. The court preliminarily approved the settlement, certified the class for settlement purposes, scheduled a hearing for September 6, 1988, to consider the fairness of the proposal, and set August 1, 1988, as the deadline for the filing of objections by class members to the proposal. Notice of the settlement was mailed to each member of the class and was published in the Wall Street Journal.
No class members objected to the settlement but Weisman, an Allegheny bondholder, filed an "opposition" on August 1 on behalf of all owners of bonds issued by the company. The crux of Weisman's objection was that bondholders, whose rights to payment he alleged to be superior to the rights of stockholders, would be harmed because the Robinson settlement would dilute the conversion value of the bonds by depleting the company's assets. The company and the named plaintiffs filed responses to the objection; Weisman, however, failed to reply although given the opportunity to do so.
On August 15, 1988, Weisman and five others filed a complaint in the district court against the company and thirty-three other defendants claiming, among other things, $200 million in compensatory damages and $500 million in punitive damages for alleged violations of federal securities law. Gould v. Alleco, Inc., 1 C/A No. B88-2399 (D.Md.). On August 24, the district court notified all parties in both cases that any requests for injunctive relief in the Robinson case would be entertained at the September 6 settlement hearing.
On September 2, the Gould plaintiffs filed a 155-page amended complaint which included a request to enjoin the Robinson settlement. The basis of the request was the Gould plaintiffs' contention that payment of the settlement would impair the company's ability to satisfy any judgment which might be rendered against it in Gould.
Moments before the commencement of the September 6 hearing, counsel for the Robinson parties were served with copies of the amended Gould complaint and with a motion by Weisman and two other Gould plaintiffs to intervene in the Robinson case and to delay the approval of the settlement. After extended argument, the district court denied the motion to intervene on the grounds that it was untimely under Fed.R.Civ.P. 24(b) and, alternatively, that the would-be intervenors lacked standing. The court disposed of Weisman's August 1 objection to the settlement on the grounds that Weisman was not a member of the class and, therefore, had no standing to object. The court then approved the settlement and noted that such action mooted any claims for injunctive relief against approval sought by the Gould plaintiffs 2.
This appeal followed.
On appeal, the appellants contend that the lower court erred in ignoring Weisman's objections to the settlement proposal and in denying the motion to intervene on standing and timeliness grounds. Weisman and the other intervenor-appellants also address the merits of the settlement proposal. Because our resolution of the intervention/objection issues is completely dispositive, however, we do not reach the issue of the propriety vel non of the settlement itself.
The lower court held that Weisman had no standing to intervene or to object. Although both the August 1 objection and the intervention motion had identical purposes, i.e. to delay or halt the Robinson settlement, resolution of each requires a slightly different analysis. We begin with a discussion of the August 1, 1988, "opposition" or objection filed by Weisman on behalf of himself and other bondholders.
Fed.R.Civ.P. 23(e) requires that notice of any proposed settlement of a class action be given to "all members of the class in such manner as the court directs." No one argues that the manner of notice was deficient in any respect; Weisman, however, contends that his August 1, 1988, "opposition" to the settlement should have required the court to reach the merits of his objection. We disagree. The plain language of Rule 23(e) clearly contemplates allowing only class members to object to settlement proposals. Kusner v. First Penn Corp., 74 F.R.D. 606, 610 n. 3 (E.D.Pa.1977), aff'd 577 F.2d 726 (3rd Cir.1978); Jenson v. Continental Financial Corp., 591 F.2d 477, 482 n. 7 (8th Cir.1979). Beginning from the unassailable premise that settlements are to be encouraged, it follows that to routinely allow non-class members to inject their concerns via objection at the settlement stage would tend to frustrate this goal. Were the rule as Weisman contends, every objection from a non-class member would trigger an examination by the court of the effects of the proposal on the objector. Kusner, at 611. We cannot conceive that the drafters of the Rules intended to permit such eleventh-hour expansion of class actions. We hold, therefore, that non-class members have no standing to object, pursuant to a Rule 23(e) notice directed to class members, to a proposed class settlement. Interjection of the opposing views of non-class members should proceed via intervention under Rule 24. 3 We proceed, then, to a discussion of the motion by the Weisman intervenors.
Rule 24(a)(2), "Intervention of Right," requires the court to allow intervention when, upon timely application,
... the applicant claims an interest relating to the property or transaction which is the subject of the action and the applicant is so situated that the disposition of the action may as a practical matter impair or impede the applicant's ability to protect that interest unless the applicant's interest is adequately represented by existing parties.
Thus, in addition to timeliness, intervention of right is dependent on the moving party's fulfillment of three requirements: interest, impairment of interest and inadequate representation. 3B J. Moore, Moore's Federal Practice, 24.07(1) (2d ed. 1987); United Guar. Res. Ins. Co. v. Philadelphia Sav. Fund, 819 F.2d 473, 474 (4th Cir.1987). The district court's denial of the intervention motion for failure to meet these requirements will only be disturbed if an abuse of discretion is found. Virginia v. Westinghouse Elec. Corp., 542 F.2d 214, 216 (4th Cir.1976); Aluminum Co. v. Utilities Comm. of State of N.C., 713 F.2d 1024, 1025, n. 1 (4th Cir.1983); Southern Christian Leadership v. Kelley, 747 F.2d 777, 779 (D.C.Cir.1984); contra Mothersill D.I.S.C. Corp. v. Petroleos Mexicanos, S.A., 831 F.2d 59, 61-62 (5th Cir.1987) (); Getty Oil Co. v. Dept. of Energy, 865 F.2d 270 (Em.App.1988) ().
In analyzing whether the Weisman intervenors meet these requirements, we will assume that their interests, such as they are, were not "adequately represented by existing parties." It is on the interest requirement of ...
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