Grunin v. International House of Pancakes
| Decision Date | 17 March 1975 |
| Docket Number | Nos. 74-1066,74-1194,74-1271 and 74-1282,s. 74-1066 |
| Citation | 513 F.2d 114 |
| Parties | 1975-1 Trade Cases 60,222 Abraham GRUNIN, Appellant, v. INTERNATIONAL HOUSE OF PANCAKES, a Division of International Industries, Inc., Appellee. SHAPIRO, POSELL & PILLING and Mitchell S. Shapiro, Appellants, v. INTERNATIONAL HOUSE OF PANCAKES, a Division of International Industries, Inc., Appellee. Mark J. KLEIN, Appellant, v. INTERNATIONAL HOUSE OF PANCAKES, a Division of International Industries, Inc., Appellee. David BERGER, P. A., Cross-Appellant, v. Mark J. KLEIN, Cross-Appellee. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Jay S. Fichtner & D. E. Yeager, Dallas, Tex., David Berger, Philadelphia, Pa., Richard Posell, Los Angeles, Cal., for appellants.
Harry L. Gershon, Los Angeles, Cal., Sheridan Morgan, Kansas City, Mo., for appellee.
Alvin D. Shapiro, Stinson, Mag, Thomson, McEvers & Fizzell, Kansas City, Mo., for Mark J. Klein.
Before VOGEL, Senior Circuit Judge, and LAY and STEPHENSON, Circuit Judges.
These consolidated appeals arise out of the district court's 1 approval of a proposed settlement, pursuant to Rule 23(e) of the Federal Rules of Civil Procedure, of a private antitrust national class action brought by International House of Pancakes (IHOP) franchisees against their franchisor, a division of International Industries, Inc. The approved settlement, filed on November 29, 1973, calls for revisions of the franchise and equipment lease agreements between the parties (valued in excess of $12 million to the class), the payment by IHOP of $500,000 to a subclass of former franchisees, and grants a fee award of $1.25 million to counsel for the class. In this court one appellant contends that the approval of the settlement was improper because the notice given to class and subclass members did not satisfy the requirements of Rule 23 or due process and because the agreement perpetuated a number of the antitrust violations that were the primary focus of the initial litigation. Other appellants challenge the district court's allocation of attorneys' fees. Two of them claim that the court improperly denied their fee requests. A third claims that the court made its fee awards based on insufficient data regarding co-lead counsel Berger's claim for compensation. Finally, Berger has filed a cross-appeal claiming that the court's award to class counsel Klein was excessive and should be reconsidered.
We conclude that the district court did not abuse its discretion in its notice procedure or in its approval of the settlement in this case. The record reveals that the court properly fulfilled its obligation to all parties involved despite the length and complexity of the litigation. However, recent judicial developments in the area of attorneys' fee awards in class action settlements compel us to reverse in part the fee award order and remand for further hearings in accordance with the standards set forth in this opinion.
On August 23, 1971, the Judicial Panel on Multi-District Litigation transferred to the Western District of Missouri nine pending actions that had been instituted by current or former franchisees of IHOP against the franchisor. In re International House of Pancakes Litigation, 331 F.Supp. 556 (Jud.Pan.Mult.Lit.1971). On October 26, 1971, the district court ordered that these actions be maintained as a class action pursuant to Fed.R.Civ.P. 23. In accordance with that order, two categories of plaintiffs were created a class composed of current franchisees and a subclass of former franchisees. Original notice of the class action was mailed to all prospective class members on November 19, 1971. Subsequently a similar notice was sent to those parties qualifying for subclass membership.
The class action sought injunctive relief, treble damages, and attorneys' fees from IHOP on the basis that the franchise agreements and equipment leases executed between franchisor and franchisee violated the Sherman Act, 15 U.S.C. §§ 1 & 2 (1970), and the Clayton Act, 15 U.S.C. § 14 (1970). Specifically the franchisees alleged that IHOP illegally tied to the acquisition of a standard 15- or 20-year restaurant franchise the requirement that the franchisee lease or purchase a wide variety of essential products and services from IHOP or an IHOP-approved supplier. Among these "tied" items were restaurant furniture and equipment, 2 dining room supplies, menus, food items, insurance, advertising, training, management counseling and bookkeeping services. 3 The franchisees sought additional damages on the theory that these goods and services had been supplied at a price greatly in excess of fair market value 4 and on the grounds that the IHOP prohibition against selling any non-IHOP approved and priced food items deprived them of the opportunity to increase their individual profits.
Following the appointment of counsel for the class, extensive discovery was undertaken by the parties. 5 Within a short time serious settlement negotiations began. On April 24, 1973, a proposed settlement agreement was forwarded to the class and subclass members along with notice of a hearing to be held on June 1, 1973, in Kansas City. The agreement provided for a damage fund of $4.025 million (less attorneys' fees of $1.11 million) but did not amend the equipment leases in any material respect. This factor was the major subject of the objections voiced at the June hearing by a group of dissatisfied franchisees.
The district court, in a memorandum and order issued on July 12, 1973, rejected the proposed settlement. In re International House of Pancakes Litigation, 1973-2 Trade Cases P 74,616 (W.D.Mo.), aff'd, 487 F.2d 303 (8th Cir. 1973). The court acknowledged that the "precarious financial condition" of IHOP caused plaintiffs' counsel to conclude that "any substantial monetary judgment that might be recovered would be uncollectible, and would only result in the bankruptcy of the defendant." Nonetheless, the court stated that approval of the settlement would continue those franchise and lease provisions which allegedly violated antitrust laws, would bar class members from seeking further injunctive relief, and would provide insignificant monetary damage relief to the franchisees. The court concluded: "Certainly, they (the franchisees) are entitled to their day in court on this vital issue, and this Court will not foreclose them by approval of this settlement." The rejection was subsequently affirmed by this court in In re International House of Pancakes Litigation, 487 F.2d 303 (8th Cir. 1973).
On November 7, 1973, a second settlement proposal was submitted to the court for its approval. This agreement differed from the first in that it gave each class member the option to purchase his own equipment at a rate lower than the terms of the lease or to continue to lease at a reduced rate. In addition, the settlement amended the franchise agreement in that IHOP would require its franchisees to purchase from it only their pancake flour (at a lesser markup) and coffee. The agreement also expanded and made specific the services to be provided by IHOP in exchange for the management fee and granted other concessions. Finally, the settlement created a fund of $500,000 to be shared by the subclass of former franchisees and provided for the payment of up to $1.25 million in attorneys' fees at the court's direction. Notice was sent out on November 8, 1973, and a hearing on the proposal began on November 28, 1973. In contrast to the June hearing, there were no formal objections filed with the court regarding the new proposal. However, counsel for appellant Grunin participated in the hearing and voiced his objections through cross-examination. 6 At the close of the hearings the district court approved the settlement stating simply that it was "fair, reasonable, and adequate as to said class and sub-class plaintiffs." Another order was entered on February 1, 1974, awarding attorneys' fees to respective claimants. Appeals were taken from the entry of each order.
The initial claim set forth by appellant Grunin is that the notice sent to class and subclass members in November regarding the second proposed settlement was so inadequate as to timing, content, and means of transmission that it violated the requirements of Rule 23 and the dictates of due process. We disagree.
By virtue of the fact that an action maintained as a class suit under Rule 23 has res judicata effect on all members of the class, due process requires that notice of a proposed settlement be given to the class. See Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 172-77, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974); Greenfield v. Villager Industries, Inc., 483 F.2d 824, 833-34 (3d Cir. 1974); Air Line Stewards & Stewardesses Ass'n, Local 550 v. American Airlines, Inc., 455 F.2d 101, 108 (7th Cir. 1972). See also 3B J. Moore, Federal Practice P 23.80(1) at 23-1502; Dole, The Settlement of Class Actions for Damages, 71 Colum.L.Rev. 971, 976-78 (1971); Manual for Complex Litigation §§ 1.45 & 1.46 (1973).
The notice given must be "reasonably calculated, under all of the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections." Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314, 70 S.Ct. 652, 657, 94 L.Ed. 865 (1950). In addition, the notice must "reasonably to convey the required information * * * and it must afford a reasonable time for those interested to make their appearance." Id. (citations omitted). See also Greenfield, 483 F.2d at 834; Milstein v. Werner, 57 F.R.D. 515, 518 (S.D.N.Y.1972). However, Rule 23(e) provides that notice be given "in such manner as the court directs." Thus, the mechanics of the notice process are left to the discretion of the court subject...
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