Quad/Graphics, Inc. v. Fass, 82-2976

• Citation: 724 F.2d 1230
• Decision Date: 03 November 1983
• Docket Number: No. 82-2976,82-2976
• Parties: 14 Fed. R. Evid. Serv. 737 QUAD/GRAPHICS, INC., a Wisconsin corporation, Plaintiff-Appellee, v. Myron FASS; Readington Farms, Inc.; Countrywide Publications, Inc.; Stories, Layouts and Press, Inc.; Equine Enterprises, Inc.; Fass Publications, Inc.; General Newstand Publishing Corp.; Great American Magazines, Inc.; Jock, Inc.; M.F. Enterprises, Inc.; Modern Sports, Inc.; National Newstand Publishing Corp.; Newstand Media Publishing Corp.; and U.S. Publishing, Inc., Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 1230

724 F.2d 1230

14 Fed. R. Evid. Serv. 737

QUAD/GRAPHICS, INC., a Wisconsin corporation, Plaintiff-Appellee, v. Myron FASS; Readington Farms, Inc.; Countrywide

Publications, Inc.; Stories, Layouts and Press, Inc.;

Equine Enterprises, Inc.; Fass Publications, Inc.; General

Newstand Publishing Corp.; Great American Magazines, Inc.;

Jock, Inc.; M.F. Enterprises, Inc.; Modern Sports, Inc.;

National Newstand Publishing Corp.; Newstand Media

Publishing Corp.; and U.S. Publishing, Inc., Defendants-Appellants.

No. 82-2976.

United States Court of Appeals, Seventh Circuit.

Argued May 13, 1983.

Decided Nov. 3, 1983. ^*

Bruce C. O'Neill, Fox, Carpenter, O'Neill & Shannon, Milwaukee, Wis., for defendants-appellants.

Robert K. Steuer, Weiss, Steuer, Berzowski, Brady & Donahue, Milwaukee, Wis., for plaintiff-appellee.

Before WOOD and ESCHBACH, Circuit Judges, and CAMPBELL, Senior District Judge. ^**

WILLIAM J. CAMPBELL, Senior District Judge.

Quad/Graphics, Inc. filed the complaint in this cause on February 11, 1980 seeking $1,500,000 due on contracts with numerous corporate defendants. Irving Fass and Myron Fass, the principals of those corporations, were also named as defendants because the plaintiff sought to pierce the corporate veil and impose personal liability on them. After the defendants filed answers and counterclaims and substantial discovery was completed, Irving Fass reached a settlement with Quad/Graphics and, over the objections of the other defendants, was dismissed from the lawsuit. The case proceeded to a non-jury trial and the district court, 548 F.Supp. 966, found for the plaintiff and entered a judgment against the corporations for $1,500,000 and against Myron Fass for $750,000. The defendants' counter-claims were dismissed. The defendants bring this appeal contesting the court's findings and conclusions regarding liability as well as various pre-trial decisions. For the reasons stated below, we affirm.

Appellants raise numerous issues which can be grouped into three categories. First, they argue that the settlement between Quad/Graphics and Irving Fass was improper and should have been set aside or, alternatively, that it should have been admitted into evidence at trial. These contentions will be addressed below. The appellants also argue that the district court's findings of fact and conclusions of law were erroneous. However, upon review of the trial court's Decision and Order dated September 9, 1982, we find no error therein and hereby adopt it as dispositive of those issues. Lastly, appellants claim error in the district court's issuance of a protective order preventing the deposition of Quad/Graphics' attorney, Robert Steuer. Upon review of Judge Gordon's order of September 25, 1980 on that matter, we find no fault with his ruling and hereby adopt that order as dispositive of that contention.

The settlement agreement between Quad/Graphics and Irving Fass is reproduced in the Appendix hereto. Generally, it provided that Quad/Graphics would dismiss its claims against him and satisfy the judgment to the extent it would create a right of contribution against him in return for Irving's payment of $25,000 and his withdrawal from the lawsuit. The terms of Irving's withdrawal included an agreement not to financially support the defense or to voluntarily testify, as well as an assignment to Quad/Graphics of any benefits he might receive through the corporations as a result of the counter-claims.

When Quad/Graphics moved to dismiss Irving pursuant to Rule 41(a)(2) the other defendants objected. Their major argument was that Irving's withdrawal from the lawsuit violated his duty to the corporations to support their defense. They noted that because Irving was the corporate officer involved in the production aspect of the business, he was the person most knowledgeable as to the negotiations and transactions in issue. His loss, they claimed, crippled their defenses and violated his fiduciary duty to honestly and unselfishly further the best interests of the corporations. After receiving briefs on the issues, the district court granted the motion to dismiss without requiring disclosure of the settlement agreement. ¹

The court based its decision on numerous grounds, including inter alia, that the non-settling defendants did not have standing to challenge the settlement, citing In Re Beef Industry Antitrust Litigation, 607 F.2d 167 (5th Cir.1979). Since standing is a threshold issue, we must address it first.

We note initially that the nature of this lawsuit does not require the court to independently evaluate the fairness or reasonableness of the settlement as it might in other situations, see McDonald v. Chicago Milwaukee Corp., 565 F.2d 416 (7th Cir.1977) (class action); Metropolitan Housing Development Corp. v. Village of Arlington Heights, 616 F.2d 1006 (7th Cir.1980) (Fair Housing Act suit alleging racial discrimination); Protective Committee v. Anderson, 390 U.S. 414, 88 S.Ct. 1157, 20 L.Ed.2d 1 (1968) (bankruptcy compromise of claims); Norman v. McKee, 431 F.2d 769 (9th Cir.1970) (stockholder derivative suit); Gueho v. Diamond M. Drilling Company, 524 F.2d 986 (5th Cir.1976) (seaman's rights); Gaxiola v. Schmidt, 508 F.Supp. 401 (E.D.Tenn.1980) (plaintiffs under disability of minority); New Mexico Veteran's Service Commission v. United Van Lines, Inc., 325 F.2d 548 (10th Cir.1963) (incompetent party); United States v. Bechtel Corp., 648 F.2d 660 (9th Cir.1981), cert. den. 454 U.S. 1083, 102 S.Ct. 638, 70 L.Ed.2d 617 (1981) (antitrust action brought by United States, see 15 U.S.C. Sec. 16(e)). This is strictly "ordinary litigation" between private parties and therefore "settlement of the dispute is solely in the hands of the parties," United States v. Miami, 614 F.2d 1322, 1330 (5th Cir.1980). However, in multi-party lawsuits, non-settling defendants often seek the court's intervention to invalidate or alter partial settlements. The Beef Industry case cited by the district court states the general proposition that non-settling defendants who are not prejudiced by a partial settlement have no standing to challenge it, see Beef Industry, 607 F.2d at 172 citing, In re Nissan Motor Corp. Antitrust Litigation, 552 F.2d 1088 (5th Cir.1977); see also In re Viatron Computer Systems Corporation Litigation, 614 F.2d 11 (1st Cir.1980). However, the court in Beef Industry did quote with approval from Newberg on Class Actions:

[N]onsettling defendants in a partial settlement have no standing to object to the fairness or adequacy of the settlement, but they may object to any terms that preclude them from seeking indemnification from the settling defendants. 3 Newberg on Class Actions (1977) Sec. 5660b at 564-565.

For example, in Altman v. Liberty Equities Corp., 54 F.R.D. 620 (S.D.N.Y.1972) a non-settling defendant objected to a partial settlement in a class action securities case. The proposed settlement included a provision barring the non-settling defendants from pursuing any claim for indemnification or contribution against the settling defendants. The court concluded that it could not approve the settlement:

There can be no doubt that this result may be read to cut athwart the policy consideration in favor of settlements of litigations, including class actions. Indeed, from the point of view of the plaintiff and the class which he represents in this case, it is at least theoretically possible that this ruling may work a deprivation of their contemplated partial recovery now of a substantial amount of money. These cogent considerations notwithstanding, I cannot approve of the proposed settlement so long as it contains the bar order. While there may be circumstances in which a court in its discretion should enforce such a bar provision, here I conclude that to cut off the remaining nine defendants at this early stage of the litigation from their rights of contribution or indemnification would be unjust. 54 F.R.D. at 625.

In Altman, enforcement of the proposed settlement would have prejudiced the non-settling defendants rights to indemnification and contribution, and no collateral means existed to protect those rights. Therefore, based on the objections, the court refused to accept the settlement, implicitly finding that the non-settling defendants had standing to be heard on the issue.

In Krause v. Rhodes, 640 F.2d 214 (6th Cir.1981), a settlement was challenged by prior counsel for the plaintiffs on the grounds that it violated his contingency fee contract. The underlying case arose out of the tragic incident at Kent State University in 1970. The plaintiffs were persons who had been injured or killed in the shooting and they had sued various state and federal officials for damages under 42 U.S.C. Sec. 1983. Steven Sindell originally represented twelve of the plaintiffs under contracts providing for a 33 1/3% contingency fee. After lengthy legal proceedings, including two sets of appeals, the American Civil Liberties Union became lead counsel for the plaintiffs. Thereafter, a settlement fund of $675,000 was offered by the State of Ohio with the condition that $600,000 would be paid directly to the plaintiffs and the balance would be available for attorneys' fees and expenses. The settlement was accepted by the parties and approved by the presiding judge, who also determined the allocation of the $75,000. Sindell received a significant portion of that fund but objected and appealed on the ground that the settlement operated to invalidate his contingency fee contract with the plaintiffs. However, the appellate court upheld the settlement, concluding that a federal judge had the authority to contravene a contingency fee contract and that the trial court had not abused its discretion in doing so under the facts of the case. While the subject of standing was not specifically addressed by the court, it is implicit in the discussion of the merits that Sindell had standing to challenge the...