Torrisi v. Tucson Elec. Power Co.

• Decision Date: 03 November 1993
• Docket Number: 92-15556 and 92-15557,Nos. 92-15550,s. 92-15550
• Citation: 8 F.3d 1370
• Parties: Fed. Sec. L. Rep. P 97,816, 27 Fed.R.Serv.3d 349 John V. TORRISI, Plaintiff-Appellee, and James Lazar, Objector-Appellant, v. TUCSON ELECTRIC POWER COMPANY, et al., Defendants-Appellees. (Two Cases) In re TUCSON ELECTRIC COMPANY SECURITIES LITIGATION. (Two Cases) John V. TORRISI, Plaintiff-Appellee, and Patricia Reilly, Plaintiff-Appellant, v. TUCSON ELECTRIC POWER COMPANY; Thomas Weir, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1370

8 F.3d 1370

Fed. Sec. L. Rep. P 97,816, 27 Fed.R.Serv.3d 349

John V. TORRISI, Plaintiff-Appellee, and James Lazar, Objector-Appellant, v. TUCSON ELECTRIC POWER COMPANY, et al., Defendants-Appellees.

(Two Cases)

In re TUCSON ELECTRIC COMPANY SECURITIES LITIGATION. (Two Cases)

John V. TORRISI, Plaintiff-Appellee, and Patricia Reilly, Plaintiff-Appellant, v. TUCSON ELECTRIC POWER COMPANY; Thomas Weir, et al.,

Defendants-Appellees.

Nos. 92-15550, 92-15556 and 92-15557.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Aug. 13, 1993.

Decided Nov. 3, 1993.

Daniel W. Meek, Portland, OR, for objector-appellant Lazar.

Patricia Reilly, pro se for objector-appellant Reilly.

Ralph L. Ellis, Abbey & Ellis, Melvyn I. Weiss, Milberg, Weiss, Bershad, Huynes & Lerach, New York City, and Stanley Wolfe, Berger & Montague, Philadelphia, PA, for plaintiffs-appellees.

Thomas M. Pace, O'Connor, Cavanagh, Anderson, Westover, Killingsworth & Beshears, liaison counsel for the plaintiff.

Charles C. Platt, LeBoeuf, Lamb, Leiby & MacRae, New York City, and Dennis R. Nelson, Tucson Elec. Power Co., Tucson, AZ, for defendants-appellees.

Before: KOZINSKI, THOMPSON and T.G. NELSON, Circuit Judges.

Appeal from the United States District Court for the District of Arizona, William P. Copple, Senior District Judge, Presiding.

DAVID R. THOMPSON, Circuit Judge:

OVERVIEW

Appellants James Lazar and Patricia Reilly appeal the district court's approval of a $30 million settlement of a class-action suit brought against Tucson Electric Power ("Tucson"), its executive officers and directors.

Lazar contends the notice of proposed settlement was improper because it was not timely and because it failed to inform class members of what they could expect to receive from the settlement. He also contends Reilly, in addition to joining arguments made by Lazar, contends that the notice was inadequate because it failed to inform class members of the class attorneys' self-interest in settling the case. She also argues that the district court should have appointed a special master to look into the propriety of the settlement, and that the settlement hearing conducted by the district court was a sham, because the court had previously made up its mind to approve the settlement.

                the settlement was inadequate and the amount of attorney fees awarded to counsel for the class was excessive.   He argues further that class members were improperly divided into two subclasses, that the two subclasses were wrongly determined to be entitled to different portions of the settlement fund, and that the two subclasses should have been represented by separate legal counsel.   Finally, he contends his counsel is entitled to fees from the common settlement fund, because the fund will benefit from interest earned on class counsel's fee award during the pendency of this appeal
                

We have jurisdiction under 28 U.S.C. § 1291 and we affirm.

FACTS

The class consisted of purchasers of Tucson stock who suffered losses as a result of alleged fraud and violations of the securities laws. Under the terms of the settlement, the class was divided into two subclasses. Class members who bought stock during the class period, but after July 18, 1989, were entitled to only one-fourth the recovery allocated to members who bought stock on or before that date. The reason for this division was that on July 18, 1989 adverse information was released which caused a precipitous drop in the market price of Tucson's shares, alerting subsequent purchasers to Tucson's significant financial problems.

The source of the $30 million settlement was from Tucson's officers' and directors' liability insurance. This was the maximum amount of available insurance, and the only significant source of money to fund the settlement.

The settlement was agreed upon, subject to court approval, in late 1991. On December 11, 1991, the district court ordered that notice of the proposed settlement be sent to known class members. It also ordered publication in the Wall Street Journal and the New York Times. The December 11, 1991 order set February 6, 1992 as the last day to receive written objections and February 20, 1992 as the date for a hearing on approval of the settlement and class counsel's request for attorney fees.

The notice was published, and on January 6, 1992 it was mailed to 76,700 individual stockholders and to 277 brokerages, banks and institutions, which held shares in their street names. All names and addresses were generated from Tucson's stockholder lists. The brokerages, banks and institutions provided Tucson with the names and addresses of 36,000 additional beneficial owners of shares. Tucson mailed the notice to these persons as their names and addresses were made known to it, the last mailing occurring on February 11, 1992.

The notice stated the aggregate amount of the proposed settlement, but it did not inform class members how they might calculate their individual shares of the settlement proceeds. The notice also advised the class that anyone who did not want to participate in the settlement could "opt out" by February 6, 1992.

The settlement hearing was held February 20, 1992. At that hearing, the district court considered objections which had been received from class members, rejected challenges to the settlement and the adequacy of the notice, approved the settlement, and awarded class counsel $7.5 million in attorney fees, which was 25% of the $30 million settlement. This appeal followed.

DISCUSSION

I Adequacy of the Notice

Lazar and Reilly first contend that the notice of the proposed settlement failed to satisfy due process requirements because it did not contain enough information to enable individual class members to calculate what they would get out of the settlement. Lazar further argues that the notice's timing was inadequate to satisfy both due process and Federal Rule of Civil Procedure 23(c)(2). ¹ Finally, Reilly argues that the notice was defective because it did not state class counsel's self-interest in settling the case.

We review de novo whether notice of a proposed settlement satisfies due process. In re Cement and Concrete Antitrust Litigation, 817 F.2d 1435, 1440 (9th Cir.1987), rev'd on other grounds, 490 U.S. 93, 109 S.Ct. 1661, 104 L.Ed.2d 86 (1989). We also review de novo whether the timing of a notice satisfies Rule 23(c)(2).

A. Did the content of the notice violate due process?

In Marshall v. Holiday Magic, Inc., 550 F.2d 1173 (9th Cir.1977), objectors to the settlement of a class action made the same argument Lazar and Reilly make here. They "argue[d] that the notice [of a proposed settlement and hearing on it] did not fairly apprise class members of their positions because it did not specify their potential recovery." Id. at 1177. We stated that their potential recovery was "a matter of conjecture since it was unknown how many class members would opt out or submit claims." Id. at 1177-78. We held that the aggregate amount of the proposed settlement and the formula for computing recoveries was all that was required. Id. at 1178.

Here, the settlement notice states that the aggregate amount of the settlement is $30 million. It also states that each class member's recovery will be proportional to "Recognized Loss," which it defines as 100% of losses resulting from stock bought during the first period ending July 18, 1989, and 25% of losses resulting from stock bought during the second period. The notice clearly stated the aggregate amount of the settlement and the formula for computing awards. The notice was adequate under Holiday Magic. See also In re Cement and Concrete, 817 F.2d at 1440 ("Notice is satisfactory if it 'generally describes the terms of the settlement in sufficient detail to alert those with adverse viewpoints to investigate and to come forward and be heard.' ").

B. Did the timing of the notice violate due process or Rule 23(c)(2)?

Due process requires that notice provide affected parties with the opportunity to be heard. In re Cement and Concrete, 817 F.2d at 1440. Similarly, Rule 23(c)(2) requires "the best notice practicable under the circumstances." Fed.R.Civ.P. 23(c)(2).

The notice was mailed to some shareholders as late as February 11, 1992. Lazar contends that because the deadline for filing objections or opting out was February 6, 1992 and the settlement hearing was February 20, 1992, the timing of the notice was not the best practicable under the circumstances nor was it adequate. We disagree.

Tucson mailed the notice on January 6, 1992 to 76,700 shareholders at their addresses obtained from its stockholder lists. On the same day it mailed the notice to 277 brokerages, banks and institutions who held shares in their street names for the beneficial owners. These brokerages, banks and institutions responded to the mailing by providing Tucson with approximately 36,000 additional names and addresses of shareholders. Tucson mailed the notice to these shareholders as their names and addresses were received. This mailing continued through February 11, 1992. In all, the notice was mailed to approximately 113,000 shareholders. Only 20 objections were received. All were considered by the district court.

In Holiday Magic, we approved the timing of a notice which was mailed 26 days before the deadline for opting out of a settlement. Holiday Magic, 550 F.2d at 1178. While Lazar is correct in pointing out that Holiday Magic involved a class likely to be better informed than the class here, in Holiday Magic, we cited with approval Milstein v. Werner, 57 F.R.D. 515 (S.D.N.Y.1972). In Milstein, the court approved a notice mailed 38 days before a scheduled hearing in a case similar to this, a class action by corporate shareholders. Id. at 518. The notice here was mailed 31 days before the deadline for written objections and 45 days before the hearing. It was mailed to 76,700 shareholders who held their shares in their...