HENLEY, Senior Circuit Judge:
This is an appeal from a final district court judgment certifying a class action and approving a settlement in a complex securities fraud case. The plaintiffs are victims of a fraud perpetrated by Dennis Greenman, a securities seller. The defendants are brokerage firms that employed Greenman while he was conducting the fraud as well as others who might be liable for Greenman's actions. Appellants, some alleged victims of Greenman, contend that the district court erred in certifying the class for settlement purposes pursuant to Fed.R.Civ.P. 23(b)(1). For reasons to be stated, we reverse.
Greenman conducted the fraud over a period of almost four years beginning in mid-1977 as a broker for or associate of three different brokerage firms: Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch), Paine Webber Jackson & Curtis, Inc. (Paine Webber), and Barclay Financial Corp. (Barclay). Greenman represented himself as operating a riskless, highly profitable computer-driven arbitrage system. In actuality, he was investing the funds in high risk options trading and lost substantial sums of money. Greenman also converted funds to his own use. He concealed the fraud by diverting the genuine
In April of 1981, the Securities and Exchange Commission filed a complaint against Greenman, Barclay, and its principals seeking injunctive relief and the appointment of a receiver. The district court issued an injunction against Greenman and appointed a receiver to collect and distribute the investors' assets under the custody or control of Greenman, Barclay, or A.G. Becker.
Subsequent to the SEC's disclosure of the fraud, numerous suits were filed on behalf of investors. Among the suits, a complaint was filed on behalf of all people and entities who lost investments. The class action complaint named as defendants: Greenman, Paine Webber, Barclay, A.G. Becker, Inc., and various officers of Paine Webber and Barclay. The plaintiffs alleged violations of the Security Exchange Acts of 1933 and 1934, the Investment Company Act of 1940, the R.I.C.O. Act, various Florida statutes, the rules of the New York Stock Exchange and the National Association of Securities Dealers. In addition, plaintiffs alleged common law causes of action of fraudulent misrepresentation, concealment, nondisclosure, breach of fiduciary duty, conversion, and negligence. As relief, the plaintiffs sought their lost investments, the three-fold damage award provided for in the R.I.C.O. Act, punitive damages, interest, costs, and attorney fees.
After receiving advice from counsel and conducting hearings, the district court consolidated and stayed the individual suits and certified a class action pursuant to Fed.R.Civ.P. 23(b)(1). See In re Dennis Greenman Securities Litigation, 94 F.R.D. 273, 279 (S.D.Fla.1982). The district court ruled that the general class action prerequisites of Rule 23(a) were satisfied because of the large number of investors and the similarity of their claims. Id. at 276. In reaching its decision to certify the class pursuant to Rule 23(b)(1), the district court reasoned that the case's unique facts made the possibility of individual actions, as would be allowed under Rule 23(b)(3), undesirable. The district court observed that: (1) all investors were involved in the same fraud scheme and shared causes of action, id. at 277; (2) individual actions may cause both defendants and plaintiffs to develop inconsistent claims and defenses, id.; (3) class members' interests would best be protected by insuring that the receivership fund was used and distributed equitably, id. at 278; and (4) individual actions would result in huge attorney fees and burden the judicial system. Id.
In certifying the class, the district court again emphasized the special circumstances of the case. The court reasoned that the cohesion among the plaintiffs' claims caused each plaintiff's ability to recover to be intertwined with that of other plaintiffs. Id. at 1445. Specifically, the court expressed concern that plaintiffs, who brought their actions first, might bankrupt potential sources of recovery and, thereby, preclude recovery for those plaintiffs who brought later actions. Id. at 1447. In addition, the district court feared that individual actions would cause the defendants to face incompatible standards of conduct or create for them inconsistent adjudications. Id. at 1445. The court also noted that Rule 23(b)(1) certification would aid in equitably distributing the receivership fund. Id. at 1447. The court further recited several negative consequences that would result if the class was not certified pursuant to Rule 23(b)(1). Individual defendants would lose the ability to set off, against their investors' claims, the money they paid through the receivership fund to those who invested at other brokerage firms. Id. Individual actions would also create both burdens for the court and the prospect of enormous attorneys' fees. Id. at 1450. The court also expressed concern that by not certifying the class pursuant to Rule 23(b)(1), most plaintiffs would be deprived of the settlement they desire. Id. at 1447.
A group of plaintiffs, named the Baer plaintiffs, brought this appeal challenging the district court's class certification under Rule 23(b)(1). Appellants contend that the class should have been certified pursuant to Rule 23(b)(3) to allow class members to opt out.
Initially, we observe that appellants have not waived their right to object to the Rule 23(b)(1) certification by failing to appeal the district court's initial class certification decision. Orders certifying a class ordinarily are not appealable as final orders pursuant to 28 U.S.C. § 1291. Williams v. City of New Orleans, 565 F.2d 874, 874-75 (5th Cir.1978); Link v. Mercedes-Benz of North America, Inc., 550 F.2d 860, 862 (3d Cir.), cert. denied, 431 U.S. 933, 97 S.Ct. 2641, 53 L.Ed.2d 250 (1977); Hellerstein v. Mr. Steak, Inc., 531 F.2d 470, 472 (10th Cir.), cert. denied, 429 U.S. 823, 97 S.Ct. 75, 5 L.Ed.2d 85 (1976); Bennett v. Behring Corp., 525 F.2d 1202, 1202 (5th Cir.), cert. denied, 425 U.S. 975, 96 S.Ct. 2175, 48 L.Ed.2d 798 (1976); Blackie v. Barrack, 524 F.2d 891, 900 (9th Cir.1975), cert. denied, 429 U.S. 816, 97 S.Ct. 57, 50 L.Ed.2d 75 (1976). Such orders may become the subjects of interlocutory appeal. Indeed, to the extent that they involve injunctive relief or appointment of a receiver, the orders may be appealable pursuant to 28 U.S.C. § 1292(a). Parties may also seek appellate review through a petition for a writ of mandamus pursuant to the All Writs Statute, 28 U.S.C. § 1651. See In re Bendectin Products Liability Litigation, 749 F.2d 300, 303 (6th Cir.1984). However, parties should not be precluded from bringing an appeal upon the district court's entry of a final judgment merely because they neither sought an interlocutory appeal nor a writ of mandamus. Consequently, we hold that appellants should not now be precluded from obtaining appellate review.
Nor did appellants waive their right to appeal by virtue of their participation in the settlement process. In order to preserve an appeal from a class settlement, a class member must, during the course of proceedings, object to either the terms of the settlement, see Research Corp. v. Asgrow Seed Co., 425 F.2d 1059, 1060-61 (7th Cir.1970), or to the nature of the class certification. See, e.g., Howard v. McLucas,
Appellants in this case adequately pursued their objections to the class certification throughout the proceedings. The record shows that appellants on several occasions objected to the certification.
As indicated, the district court twice certified the class action. The second certification was for "settlement purposes." 622 F.Supp. at 1433. Despite the controversy surrounding this practice,
However, despite the district court's depiction here, this case is meaningfully different from most of those involving settlement class certifications. The district court certified a class action prior to the commencement of settlement negotiations. The plaintiff class was represented during the negotiations by court approved representatives and the court itself participated in the settlement process. Consequently, we have no cause to employ a special standard in reviewing either certification decision.
Determination of the question whether a lawsuit may proceed as a class action is committed to the sound discretion of the district court, and its determination will not be overturned absent a showing
A class must satisfy the requirements of one of the subsections to Rule 23(b).
We turn briefly to the applicability here of the Anti-Injunction Act which states: "A court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or when necessary in aid of its jurisdiction, or to protect or effectuate its judgments." 28 U.S.C. § 2283.
The district court in its initial certification order stayed all class members from pursuing actions pending in other jurisdictions. 94 F.R.D. at 279. The second certification, for mandatory class action settlement under Rule 23(b)(1), of necessity includes restraint of prosecution of other actions. Thus, it is clear that the certifications implicate the Anti-Injunction Act. It is clear also that there is a lack of judicial unanimity of opinion as to circumstances in which the Act bars certification of class actions. See In re Federal Skywalk Cases, 680 F.2d 1175 (8th Cir.), cert. denied sub nom. Stover v. Rau, 459 U.S. 988, 103 S.Ct. 342, 74 L.Ed.2d 383 (1982); National City Lines, Inc. v. LLC Corp., 687 F.2d 1122, 1127 (8th Cir.1982); National City Lines, 687 F.2d at 1135 (Arnold, Circuit Judge, concurring in part and dissenting in part), as discussed in 622 F.Supp. 1430, 1448-50 & n. 15. While we might be inclined to hold the Act not a bar to class certification, here we decline affirmatively so to decide. As the district court noted "[n]o plaintiff class member who filed suit in a state court action objected to the 23(b)(1) settlement on the basis of the Anti-Injunction Statute or has sought leave to appeal that decision pursuant to 28 U.S.C. § 1292(b)." 622 F.Supp. at 1449. The anti-injunction issue is not directly raised on appeal now, the Act is not jurisdictional, Smith v. Apple, 264 U.S. 274, 278-79, 44 S.Ct. 311, 313, 68 L.Ed. 678 (1924), and we prefer to base our decision on other grounds that are definitely before us.
The district court certified the class both under subpart (A) and (B) of Rule 23(b)(1). Rule 23(b)(1)(A) allows for certification for adjudications that might cause "inconsistent or varying adjudications with respect to individual members of the class which would establish incompatible standards of conduct for the party opposing the class...."
As a threshold consideration to certification under sub-part A, it must be ascertained that separate actions would result if the class was not certified pursuant to Rule 23(b)(1). Eisen v. Carlisle & Jacquelin,
The identity of judicial action that creates "inconsistent or varying adjudications" is not clear. Many courts confronting the issue have held that Rule 23(b)(1)(A) does not apply to actions seeking compensatory damages. See Zimmerman v. Bell, 800 F.2d 386, 389 (4th Cir.1986); Green v. Occidental Petroleum Corp., 541 F.2d 1335, 1340 n. 10 (9th Cir.1976); McDonnell Douglas Corp. v. United States District Court for the Central District of California, 523 F.2d 1083, 1086 (9th Cir.1975), cert. denied sub nom. Flanagan v. McDonnell Douglas Corp., 425 U.S. 911, 96 S.Ct. 1506, 47 L.Ed.2d 761 (1976); LaMar v. H & B Novelty & Loan Co., 489 F.2d 461, 466 (9th Cir.1973); see also Fraser, Kinds of Class Action Cases, 7 Okla.U.L.Rev. 1, 3 (1982). These courts reason that inconsistent standards for future conduct are not created because a defendant might be found liable to some plaintiffs and not to others. See In re Bendectin Products Liability Litigation, 749 F.2d at 305. Implicit in these decisions is the view that only actions seeking declaratory or injunctive relief can be certified under this section. See, e.g., Abramovitz v. Ahern, 96 F.R.D. 208, 215 (D.Conn.1982). Underlying is the concern that if compensatory damage actions can be certified under Rule 23(b)(1)(A), then all actions could be certified under the section, thereby making the other sub-sections of Rule 23 meaningless, particularly Rule 23(b)(3). See McDonnell Douglas, 523 F.2d at 1086.
Albeit reluctantly, we must agree. Although sound criticism exists for this interpretation,
Rule 23(b)(1)(B) provides for class certification where:
The district court found that if separate cases were litigated "determination in the prior action would as a practical matter create a predisposition to a similar determination
It is settled that the possibility that an action will have either precendential or stare decisis effect on later cases is not sufficient to satisfy Rule 23(b)(1)(B). Larionoff v. United States, 533 F.2d 1167, 1181 n. 36 (D.C.Cir.1976), aff'd, 431 U.S. 864, 97 S.Ct. 2150, 53 L.Ed.2d 48 (1977); LaMar, 489 F.2d at 467; 7A Wright, Miller & Kane, Federal Practice and Procedure § 1774 at p. 439. A contrary rule would enable any action, with the possibility that it might be one of multiple actions, to be certified pursuant to Rule 23(b)(1)(B). Consequently, the district court's finding that earlier decisions would create a "predisposition" for the determination of later actions standing alone is clearly not a sufficient basis for certification.
The district court also certified the settlement class pursuant to Rule 23(b)(1)(B) because a limited fund existed. Limited fund cases exist where a fund is insufficient to satisfy all of the claims against it. See Advisory Committee Note, 39 F.R.D. at 101; In re Bendectin Products Liability Litigation, 749 F.2d at 305-06; Green, 541 F.2d at 1340 n. 9. The district court found two bases for certification based on this theory. First, the district court relied on the existence of the receivership fund. 622 F.Supp. at 1447; 94 F.R.D. at 278. The court indicated that the fund had been and would be protected throughout the litigation and "that certification under Rule 23(b)(1) will aid in protecting, managing and equitably distributing this fund." 622 F.Supp. at 1447. We do not find this to be an adequate basis for certification. The district court doubtless stated correctly that the fund would be protected but that protection does not depend upon Rule 23(b)(1) certification. In addition, the district court did not indicate that the receivership fund initially was intended to be the sole source of recovery for plaintiffs. It is of no consequence that the receivership fund now contains settlement contributions. Consequently, the receivership fund is not a limited fund for purposes of Rule 23(b)(1).
The district court also found a limited fund on the basis that some investors may bankrupt potential sources of recovery. 622 F.Supp. at 1447. The court made no specific findings of the defendants' financial status. Absent such findings the district court could not properly rely on this ground for certification. See In re Bendectin Products Liability Litigation, 749 F.2d at 306; In re Northern District of California, Dalkon Shield IUD Products Liability Litigation, 693 F.2d 847, 852 (9th Cir.1982), cert. denied sub nom. A.H. Robins Co. v. Abed, 459 U.S. 1171, 103 S.Ct. 817, 74 L.Ed.2d 1015 (1983).
We certainly empathize with the district court's desire to bring this case to a just and not untimely end. However, the court took a road not well travelled. In so doing, it ignored Justice Jackson's admonition that "the mere fact that a path is a beaten one is a persuasive reason for following it." Jackson, Full Faith and Credit — The Lawyer's Clause of the Constitution, 45 Col.L.Rev. 1, 26 (1945). While the Congress might well consider forging additional courses to facilitate the expeditious and equitable management of complex cases such as this one, Rule 23, as written, does not support the district court's action.
Accordingly, we REVERSE the district court's judgment now under attack and REMAND for further proceedings consistent with this opinion.