Holmes v. Continental Can Co.

• Decision Date: 09 June 1983
• Docket Number: No. 80-9026,80-9026
• Citation: 706 F.2d 1144
• Parties: 31 Fair Empl.Prac.Cas. 1707, 32 Empl. Prac. Dec. P 33,668 Gloria HOLMES, et al., Plaintiffs-Appellants, v. CONTINENTAL CAN COMPANY, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1144

706 F.2d 1144

31 Fair Empl.Prac.Cas. 1707,

32 Empl. Prac. Dec. P 33,668

Gloria HOLMES, et al., Plaintiffs-Appellants, v. CONTINENTAL CAN COMPANY, et al., Defendants-Appellees.

No. 80-9026.

United States Court of Appeals, Eleventh Circuit.

June 9, 1983.

Robert L. Wiggins, Jr., Birmingham, Ala., for plaintiffs-appellants.

William F. Gardner, Birmingham, Ala., for Continental Can Co.

Jerome A. Cooper, Birmingham, Ala., for United Steelworkers, AFL-CIO, et al.

O. Williams Adams, III, Birmingham, Ala., for all class members who did not object to consent decree.

Appeal from the United States District Court for the Northern District of Alabama.

Before HILL and VANCE, Circuit Judges, and TUTTLE, Senior Circuit Judge.

VANCE, Circuit Judge:

This is an appeal, pursuant to 28 U.S.C. Sec. 1291, from a final order of the district court approving settlement of an antidiscrimination class action brought under Title VII of the Civil Rights Act of 1964, 42 U.S.C. Sec. 2000e, et seq. and section 1981 of the Civil Rights Act of 1866, 42 U.S.C. Sec. 1981. Appellants object to the intraclass distribution of a $43,775 lump sum back pay award, under which the eight named plaintiffs would receive half of the total fund. We hold that proponents of the settlement did not meet their burden of proving that the disparate allocation of the award was fair, adequate and reasonable. We further find that because the merits of many monetary damages and back pay claims in this case are uniquely individual to particular class members, the right to opt out of the class, normally accorded only in classes certified under Federal Rule of Civil Procedure 23(b)(3), must be extended to members of this (b)(2) monetary relief class. The objectors do not contest the propriety of the total amount of the lump sum award and we do not consider its overall fairness, although fallout from our disposition of the case may result in disintegration of the settlement that gave rise to that award.

We review the facts of this case in the light most favorable to the lower court's approval of the settlement. Armstrong v. Board of School Directors, 616 F.2d 305, 315 (7th Cir.1980). The lawsuit was originally filed on behalf of eight named plaintiffs and "others similarly situated" against three Birmingham, Alabama plants of the Continental Can Company and against the United Steelworkers of America and its Local Unions 4627 and 7636. The complaint, which was filed in 1974, was an across the board challenge alleging discrimination on the basis of race and sex in employment opportunities in hiring, mutual job assignments, clerical job assignments, supervisory job assignments, testing for promotions, educational requirements, training, layoffs, recalls, transfers, discipline and discharge.

Following the filing of answers by the defendants, extensive discovery ensued. Settlement negotiations began in 1976 and were pursued simultaneously with discovery. The district court held the case in abeyance as settlement discussions progressed.

During the progress of the settlement efforts, two separate actions were filed by employees of the defendant company at the facilities involved in the eventual settlement. On July 11, 1978, Frederick Seay filed an individual and class action contesting his denial of supervisory opportunities and the denial of promotional opportunities to the class of black employees at the Birmingham plants. On October 19, 1978, Robert Lawrence filed a similar individual action. As the original case, filed by Holmes, et al., neared settlement, Continental Can filed motions in the Seay and Lawrence cases requesting transfer to the district judge assigned the Holmes case. Over the objections of Seay and Lawrence, the cases were transferred and consolidated with Holmes.

By October 1978, a proposed settlement had been reached by the class representatives and the defendants. On November 1, the parties presented to the district court a proposed consent decree which would be binding on the putative class described in the original complaint. There had been no class certified at the time the settlement was submitted.

The proposed settlement provided for injunctive and declaratory relief ¹ as well as the payment of a $43,775 lump sum back pay award to the class. There was no requirement or understanding between the plaintiff employees and defendant company as to how the back pay fund would be divided among the class members. The intraclass distribution of the fund was left to the class and its representatives. Under the method of distribution eventually adopted by the class representatives, the eight named plaintiffs would receive approximately one-half of the fund. The remainder of the fund would be allocated, according to a schedule of distribution, to the remaining 118 members of the class. ²

The district court preliminarily approved the consent decree on November 6, 1978 and scheduled a hearing on objections for December 15, 1978. Thirty-nine class members objected to the suggested allocation of the settlement. During the three days of hearings on the objections to the fairness of the distribution, all sides presented witnesses. Almost two years later, in September 1980, the court certified the case as a class action, approved the consent decree, and overruled the objections to the settlement allocation. The court made findings that the higher monetary allocations to the named plaintiffs were justified by their meritorious individual claims, claims that were not common to the class. Class members objecting to the settlement appealed.

(1)

Distribution of the Settlement Fund

In reviewing the validity of a class action settlement, a district court's decision will be overturned only upon a clear showing of abuse of discretion. In re Chicken Antitrust Litigation, 669 F.2d 228, 238 (5th Cir.1982) (Unit B); ³ United States v. City of Alexandria, 614 F.2d 1358, 1361 (5th Cir.1980); United States v. City of Miami, 614 F.2d 1322, 1329-31, 1334-35 (5th Cir.1980), modified on other grounds, 664 F.2d 435 (5th Cir.1981) (en banc); Miller v. Republic National Life Insurance Co., 559 F.2d 426, 429 (5th Cir.1977). Although settlement is the preferred method of resolving Title VII suits, the class action settlement process is "more susceptible than adversarial adjudications to certain types of abuse." Pettway v. American Cast Iron Pipe Co., 576 F.2d 1157, 1169 (5th Cir.1978) (Pettway IV ), cert. denied, 439 U.S. 1115, 99 S.Ct. 1020, 59 L.Ed.2d 74 (1979). Federal Rule of Civil Procedure 23(e) mandates judicial approval of all class action settlements, and that requirement is manifested in both substantive and procedural protections accorded to absent class members. "In addition to requiring that the trial court evaluate whether a class action settlement is 'fair, adequate and reasonable and not the product of collusion between the parties,' the law accords special protections, primarily procedural in nature, to individual class members whose interests may be compromised in the settlement process." Pettway IV, 576 F.2d at 1169, quoting Cotton v. Hinton, 559 F.2d 1326, 1330 (5th Cir.1977). While most cases deal with the fairness of the total settlement as between the defendant and the class as a whole, the former fifth circuit recently held that the same legal principles apply "with as much force" to appellate review of the allocation agreement as to review of the settlement between plaintiffs and defendants. In re Chicken Antitrust Litigation, 669 F.2d at 238. See also In re Corrugated Container Antitrust Litigation, 643 F.2d 195, 218-21 (5th Cir.1981) (Container I ), cert. denied, --- U.S. ----, ----, 102 S.Ct. 2283, 2308, 73 L.Ed.2d 1294, 1309 (1982).

Appellate courts "must have a basis for judging the exercise of the district judge's discretion." Cotton v. Hinton, 559 F.2d at 1330. Proponents of class action settlements bear the burden of developing a record demonstrating that the settlement distribution is fair, reasonable and adequate. See Federal Judicial Center, Manual for Complex Litigation Sec. 1.46, p. 56 (West ed. 1981). See also Grunin v. International House of Pancakes, 513 F.2d 114, 123 (8th Cir.), cert. denied, 423 U.S. 864, 96 S.Ct. 124, 46 L.Ed.2d 93 (1975); In re Armored Car Antitrust Litigation, 472 F.Supp. 1357, 1367 (N.D.Ga.1979), modified on other grounds, 645 F.2d 488 (5th Cir.1981); Foster v. Boise Cascade, Inc., 420 F.Supp. 674, 680 (S.D.Tex.), aff'd, 577 F.2d 335 (5th Cir.1976); 7A C. Wright & A. Miller, Federal Practice & Procedure Sec. 1797, pp. 229-30 (1972).

When a settlement explicitly provides for preferential treatment for the named plaintiffs in a class action, a substantial burden falls upon the proponents of the settlement to demonstrate and document its fairness. In United States v. City of Miami, 614 F.2d at 1331 we noted that careful scrutiny by the court is "necessary to guard against settlements that may benefit the class representatives or their attorneys at the expense of absent class members." Similarly, in Pettway IV, 576 F.2d at 1217 the court stated that in a dispute over the allocation of a settlement fund, "the court should not allow a majority, no matter how large, to impose its decision on the minority. In such circumstances, objection by a few dissatisfied class members should trigger close judicial scrutiny to ensure that the burden of settlement is not shifted arbitrarily to a small group of class members." We agree that "where representative plaintiffs obtain more for themselves by settlement than they do for the class for whom they are obligated to act as fiduciaries, serious questions are raised as to the fairness of the settlement to the class." Plummer v. Chemical Bank, 91 F.R.D. 434, 441-42 (S.D.N.Y.1981), aff'd, 668 F.2d 654 (2d Cir.1982).

Although there is no rule that settlements benefit all class members equally, Kincade v. General Tire & Rubber Co., 635 F.2d 501, 506 n. 5 (5th Cir.1981),...