Linney v. Cellular Alaska Partnership
| Decision Date | 21 August 1998 |
| Docket Number | Nos. 97-16637,97-16638,97-16639 and 97-16640,s. 97-16637 |
| Citation | 151 F.3d 1234 |
| Parties | , 98 Cal. Daily Op. Serv. 6521, 98 Daily Journal D.A.R. 9061 Warren LINNEY, an individual, and all persons similarly situated, Plaintiff, and Ed Bryant; Bill Chin; Lloyd Dawson; Arnold Leong; Lee McDonald; Garry Samuels; Bruce Stone, aka Roam-Tel Partners, Ltd.; Ronald Trinchitella, Claimants-Appellants, v. CELLULAR ALASKA PARTNERSHIP, Defendant-Appellee. Bobby CHAUDHURI; Eagle Enterprises I; Mercury Enterprises II, Plaintiffs-Appellees, Ed Bryant; Bill Chin; Lloyd Dawson; Arnold Leong; Lee Mcdonald; Garry Samuels; Bruce Stone, aka Roam-Tel Partners, Ltd.; Ronald Trinchitella, Claimants-Appellants, v. CELLULAR ALASKA PARTNERSHIP, Defendant-Appellee. Glen CONNELLY, an individual, and all persons similarly situated, Plaintiff, and Ed Bryant; Bill Chin; Lloyd Dawson; Arnold Leong; Lee Mcdonald; Garry Samuels; Bruce Stone, aka Roam-Tel Partners, Ltd.; Ronald Trinchitella, Claimants-Appellants, v. CELLULAR ALASKA PARTNERSHIP, Defendant-Appellee. Kathleen SLOAN, Plaintiff-Appellee, Ed Bryant; Bill Chin; Lloyd Dawson; Arnold Leong; Lee Mcdonald; Garry Samuels; Bruce Stone, aka Roam-Tel Partners, Ltd.; Ronald Trinchitella, Claimants-Appellants, v. CELLULAR ALASKA PARTNERSHIP, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Paul F. Kirsch, Townsend and Townsend and Crew, San Francisco, California, for claimants-appellants.
Jacqueline Mottek and Elizabeth Joan Cabraser, Lieff, Cabraser, Heimann & Bernstein, San Francisco, California, for plaintiffs-appellees.
Dale E. Barnes, Jr., McCutchen, Doyle, Brown & Enersen, San Francisco, California, for defendant-appellee.
Appeals from the United States District Court for the Northern District of California; D. Lowell Jensen, District Judge, Presiding. D.C. No. CV-96-03008-DLJ, 97-00203-DLJ, 97-00425-DLJ and 97-00457-DLJ.
Before: HALL and THOMAS, Circuit Judges, and WHALEY, * District Judge.
Eight minority partners who operate various cellular telephone markets appeal the district court's judgment certifying and approving the settlement of class actions against AT & T Wireless Services, Inc., and its affiliates and subsidiaries ("AT & T"), which became the general partner or majority shareholder in these partnerships. This court has jurisdiction over the district court's final order certifying and settling the actions pursuant to 28 U.S.C. § 1291, and we affirm.
In the 1980s, the Federal Communications Commission (FCC) held lotteries to allocate cellular telephone licenses in the nation's smaller metropolitan areas. The FCC devised a plan to maximize the opportunities of small businesses to win a part of the growing cellular telephone market. Under this plan, contenders for a license were allowed to band together prior to the lottery in each market. Following the drawing, the winner of the lottery was given a bare majority interest in the market and the other members of the winner's band were given the balance of the interest. AT & T has purchased the rights of a number of majority interest holders throughout the country and has become a major player in the cellular telephone industry.
The complaints in these class actions were brought by holders of minority interests in markets in which AT & T holds a majority interest. The complaints allege that AT & T breached both its contract with class members and its fiduciary duty as a majority interest holder in the following ways: imposing costs, expenses, and fees in excess of reasonable overhead and profit and on less favorable terms than the market would bear; marking up the price of goods purchased on behalf of the markets; and financing the markets through onerous capital calls rather than through debt financing.
The lead complaint in this case, Warren Linney v. Cellular Alaska Partnership, was filed together with a Stipulation of Settlement after years of private negotiations. With regard to this settlement, the class was represented by Joseph W. Carcione and Tony J. Tanke, with Carcione also being a member of the class. The settlement provided that AT & T would cease charging a management fee; cease making capital calls on minority owners and instead provide funding at the prime lending rate; transfer equipment to the markets at its cost; not charge construction management fees for construction of facilities in the markets; lower the cost it charges markets to use AT & T switches; and enter into written agreements with minority owners with regard to fees, switch sharing, and costs.
The district court found that, while "the settlement itself may be fair and reasonable," the special master's award of $10 million in attorneys' fees was unreasonable. The district court held that the settlement value estimate provided by the parties was not developed during arm's-length negotiations, that the total award was unreasonable in light of the small liability AT & T would have faced, and that the method used to determine the fees was inappropriate. Most importantly, the district court found that the representation by class counsel Carcione and Tanke was inadequate in light of the fact that Carcione and Tanke entered into an employment agreement with defendant AT & T that raised a strong inference of conflict of interest. This agreement provided that, if the proposed settlement was approved, AT & T would hire Carcione and Tanke to monitor the settlement for six years.
After the district court rejected the first settlement, the plaintiffs hired as new class counsel the law firms of Lieff, Cabraser, Heimann & Bernstein and Girard & Green ("new class counsel"). 1 These firms conducted their own discovery and concluded that the class's past damages consisted principally of $14.8 million in charges paid by minority owners during the period 1991 to 1995 that inured to the benefit of AT & T, only a portion of which could constitute legal damages. These firms then reached a new settlement with AT & T. The new settlement resulted in AT & T agreeing to implement accounting and management changes that mirrored the changes in the first settlement except that they would remain in effect until January 1, 2004 (two years longer than the period of time contemplated in the first settlement). The new settlement also provided a $6 million "Settlement Fund" for the plaintiff class, and did not release the claims of minority owners who had sold their interests. The new settlement provided for attorneys' fees to be paid out of the settlement fund in an amount to be determined by the Court.
This new settlement had the support of the proposed class representatives Bobby Chaudhuri (who had objected to the first settlement) and Glenn Connelly. On May 21, 1997, the district court granted preliminary approval to the new settlement. In response, appellant Lee McDonald sent a mailing to class members outlining his objections to the new settlement and soliciting responses. A number of other class members-including all appellants except one-also objected to the new settlement.
The district court, after a formal fairness hearing in which the objections were heard, issued an order certifying the new class and settlement. Appellants timely filed a notice of appeal.
At the outset, we note that we will reverse the district court's decision certifying a class only upon a showing that the district court abused its discretion. See Hanlon v. Chrysler Corp., No. 96-16076, slip op. at 7906 (9th Cir. June 9, 1998) (as amended July 24, 1998). However, as the Supreme Court in Amchem Products, Inc. v. Windsor, 521 U.S. 591, ----, 117 S.Ct. 2231, 2248, 138 L.Ed.2d 689 (1997), has made clear, certain "specifications of [Fed.R.Civ.P. 23]-those designed to protect absentees by blocking unwarranted or overbroad class definitions-demand undiluted, even heightened, attention in the settlement context."
With regard to the district court's decision certifying the settlement, this court conducts a "very limited" review and "will reverse 'only upon a strong showing that the district court's decision was a clear abuse of discretion.' " See Class Plaintiffs v. Seattle, 955 F.2d 1268, 1276 (9th Cir.1992) (citing Officers for Justice v. Civil Serv. Comm'n, 688 F.2d 615, 626 (9th Cir.1982)). "This is especially true in light of the strong judicial policy that favors settlements, particularly where complex class action litigation is concerned." Id.
The district court's factual findings can be set aside only if clearly erroneous. See Fed.R.Civ.P. 52(a).
The crux of this case involves issues surrounding adequate representation under Fed.R.Civ.P. 23(a)(4). Rule 23(a)(4) states that a class action may be certified by the district court only if "the representative parties will fairly and adequately protect the interests of the class." 2 This requirement ensures that the class is adequately represented both by counsel and by the named representative plaintiffs. See Brown v. Ticor Title Ins. Co., 982 F.2d 386, 390 (9th Cir.1992) () (citation omitted), cert. dismissed, 511 U.S. 117, 114 S.Ct. 1359, 128 L.Ed.2d 33 (1994); In re Drexel Burnham Lambert Group, Inc., 960 F.2d 285, 291 (2nd Cir.1992) ().
Appellants argue that the district court should have disqualified Carcione and Tanke and refused to certify the second settlement class because Carcione and Tanke's employment and fee-setting agreements with AT & T during the first settlement, and their...
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