McKAY, Chief Judge.
In this case, we must decide whether, and under what circumstances, an unnamed plaintiff in a class action suit under Federal Rule of Civil Procedure 23 has standing to appeal the approval of a settlement when the named plaintiffs do not wish to pursue an appeal. This is a question of first impression in this circuit. We hold that standing is dependent upon a grant of intervention, a result which we believe to be consistent with the rule in all of the circuits that have directly addressed the issue, and which we believe best serves the policy underlying Rule 23 class actions.
A brief statement of the facts underlying this matter is sufficient for our analysis. Timothy and Dorothy Welch, unnamed plaintiffs in a Rule 23(b)(3) class action suit, appealed the district court's approval of a settlement of the suit. Feivel Gottlieb, one of the named plaintiffs in the class action and Q.T. Wiles, one of the defendants ("Appellees" herein), moved to dismiss the Welches' appeal on the grounds that they lacked standing because they had not intervened in the district court proceedings. The Welches then filed a "Renewed Motion to Intervene" as plaintiffs in the district court, renewing a motion they had made earlier, upon which the district court had not ruled. The district court denied this motion on the ground that the Welches' appeal of the approval of the settlement deprived it of jurisdiction. In an order filed on March 29, 1993, this court reserved judgment on the jurisdictional issues raised in the motion to dismiss. Appellants then appealed the district court's denial of their Renewed Motion to Intervene. This court sua sponte consolidated the two appeals and remanded the district court's denial of intervention for clarification as to whether it was a determination based on lack of jurisdiction or whether it was on the merits. The district court on remand issued an
The class action suit charged that the Mini-Scribe Corporation, several of its officers and directors, its accountants, and others had engaged in securities fraud. The district court certified the class in October 1990. Notice of the pendency of the action was disseminated pursuant to Rule 23(c), according to procedures approved by the district court, to all persons who had purchased Mini-Scribe stock during the class period. Among those who received this notice were the Welches, who had owned 6,000 shares of Mini-Scribe stock for a period of eight days.
On September 10, 1992, the Welches filed three objections to the settlement. They argued that: (1) the settlement notice violated the due process rights of the class members by failing to inform them of the maximum per-share distribution; (2) the settlement proponents had failed to establish that the proposal was fair, reasonable and adequate, because the court had failed to consider "the ability of the defendants to withstand a greater judgment"; and (3) the requested attorney fees were excessive.
In their Motion to Dismiss, Appellees argue that unnamed members of a class do not have standing to appeal approval of a settlement unless the district court has granted them intervenor status pursuant to Rule 24. The Welches respond that unnamed class members are parties for purposes of appeal, regardless of whether they have been granted intervenor status. Alternatively, the Welches argue that all that is required is that an unnamed class member attempt to intervene, which they did.
Rule 23 was intended to promote the efficient resolution of claims in cases involving multiple parties with similar claims, to eliminate repetitious litigation, and to avoid inconsistent judgments. To that end, the Rule elaborates comprehensive procedures to be followed in class actions. These procedures represent a careful balancing of the need for efficiency with the need to ensure adequate protection for the individual members of the class, factors not present in non-class action contexts. Cases addressing standing in other contexts are therefore inapplicable. See, e.g., In re Grand Jury Proceedings, Vargas, 723 F.2d 1461 (10th Cir. 1983), cert. denied, 469 U.S. 819, 105 S.Ct. 90, 83 L.Ed.2d 37 (1984) (holding that client had standing to appeal court's order to client's
The Eleventh Circuit, in Guthrie v. Evans, 815 F.2d 626 (11th Cir.1987), set forth three reasons for requiring an unnamed class member to intervene formally in the action in order to gain standing to appeal approval of the settlement. First, unnamed class members cannot represent the class absent the procedures set forth in Rule 23 for the certification of class representatives. Guthrie, 815 F.2d at 628. Under Rule 23(a), the district court must make a preliminary, affirmative determination that the proposed class representatives' claims are typical of those of the class as a whole, and that the representatives will fairly and adequately represent the interests of the class members. While the court has made that determination with regard to the named plaintiffs in this action, it has made no such determination with regard to the Welches. Nor have the Welches made any serious attempt to attack the adequacy of the representation afforded by the named plaintiffs in this suit. Rather, the entire focus of the Welches' attack is on the district court's determination that the settlement was fair.
Second, as the Guthrie court noted, Rule 23 provides other recourse for unnamed class members who disagree with the course taken by the class representatives. Guthrie, 815 F.2d at 628. In the event that the unnamed class members can establish that the current representation is inadequate, they may be entitled to intervention as of right under Federal Rule of Civil Procedure 24(a)(2). Intervention to protect the rights of unnamed class members was explicitly contemplated by the Advisory Committee in adopting Rule 24. See Notes of Advisory Committee on Rules to the 1966 Amendment to Fed. R.Civ.P. 24, 28 U.S.C.App. at 607 (1988). Since a denial of a motion to intervene of right is immediately appealable, Stringfellow v. Concerned Neighbors in Action, 480 U.S. 370, 107 S.Ct. 1177, 94 L.Ed.2d 389 (1987),
Additional reasons exist for denying standing to unnamed class members in Rule 23(b)(3) class actions that do not exist in class actions under Rules 23(b)(1) or (b)(2). Class actions under Rule 23(b)(3) enjoy the added protections offered by the notice and opt-out provisions of Rule 23(c). Under this rule, the court must direct to the members of the class "the best notice practicable under the circumstances" of the pendency of the class action. This notice, combined with the opt-out provision, is intended to protect the individuals' interest in pursuing their own litigation rather than participating in a class action. See Notes of Advisory Committee on Rules to the 1966 Amendment to Fed. R.Civ.P. 23(c)(2), 28 U.S.C.App. at 604 (1988); id., Note to Rule 23(d)(2), 28 U.S.C.App. at 605.
Third, we agree with the Eleventh Circuit that the underlying policy rationale of Rule 23 class actions weighs heavily against granting unnamed class members standing to appeal absent formal intervention. See Guthrie, 815 F.2d at 629. Rule 23 class actions were designed to unify and render manageable litigation involving numerous members of a homogenous class who would otherwise each have access to the courts through individual lawsuits. 7A C. Wright & A. Miller, Federal Practice and Procedure § 1751, at 8 (2d ed. 1986). If individual appeals without formal intervention were to be permitted, the class action would break down under the burden of unpredictable and unlimited individual actions. Such a result would directly conflict with the goals of Rule 23 and would eviscerate the utility of the class action suit.
For the above reasons, we agree with the Eleventh Circuit that formal intervention is a prerequisite to an unnamed class member's standing to appeal, at least in the absence of any violations of the Rule 23 procedures intended to protect the rights of those unnamed class members. We note that the Eighth and Fifth Circuits have recently come to the same conclusion. See Croyden Assoc. v. Alleco, Inc., 969 F.2d 675 (8th Cir.1992); Walker v. City of Mesquite, 858 F.2d 1071 (5th Cir.1988).
While the Welches cited several cases from other circuits in support of their position, we believe that a close review of these cases indicates that there is no true conflict. In several of these cases, the courts permitted unnamed class members to appeal. However, despite apparently broad language, we are of the view that these cases are distinguishable because in each case at least one of the specific protective mechanisms of Rule 23 was not heeded. Accordingly, the unnamed class members were deprived of the protection that forms such an integral part of the Rule 23 action. See, e.g., Silber v. Mabon, 957 F.2d 697, 700 (9th Cir.1992) (Appellant had not received notice of pendency of class action until after opt-out deadline, thus depriving him of opportunity to exclude himself. Court held only that objector had standing to appeal the constitutionality of the notice procedures, not to appeal the settlement itself.); Sertic v. Carpenters Dist. Council, 459 F.2d 579, 581 (6th Cir.1972) (District court consent orders were entered without any notice to class members or opportunity to object. The court noted that "[i]f such notice to the class and opportunity to present adverse claims was not required ..., we would be forced to conclude that appellant ... has no standing to bring the appeal."); Philadelphia Hous. Auth. v. American Radiator & Standard Sanitary Corp., 322 F.Supp. 834, aff'd sub nom Ace Heating & Plumbing Co. v. Crane Co., 453 F.2d 30 (3d Cir.1971) (settlement negotiated prior to certification of class, by plaintiffs not yet certified as "fairly and adequately" representing the class, and settlement approved by court without opportunity to appear and present objections pursuant to Rule 23(e)).
For the same reason, cases holding that an unnamed plaintiff in a shareholder derivative suit under Rule 23.1 has standing to appeal are inapposite. See, e.g., Bell Atlantic Corp.
On the other hand, the Seventh Circuit recently stated in dictum that, under Seventh Circuit precedent, an unnamed class member would have standing to appeal the approval of a class action settlement. In the Matter of VMS Ltd. Partnership Sec. Litig., 976 F.2d 362, 368 (7th Cir.1992). The court in VMS cited Research Corp. v. Asgrow Seed Co., 425 F.2d 1059 (7th Cir.1970), for this proposition. While the Seventh Circuit is obviously the authoritative interpreter of its precedents, we believe a close examination of Asgrow reveals that this is not an accurate statement of the holding of that case. Asgrow involved two class action proceedings, a patent infringement case and an antitrust case. Each was certified as a class action under different sections of Rule 23; the patent case was certified under Rule 23(b)(1) and (b)(2), while the antitrust proceeding was certified under Rule 23(b)(3). See Research Corp. v. Pfister Associated Growers, Inc., 301 F.Supp. 497, 500, 502 (N.D.Ill.1969). The Seventh Circuit in Asgrow did state that "[i]f a class member intervenes or even appears in response to a notice pursuant to Fed.R.Civ.P. 23(e) and objects to the dismissal or compromise, he has a right to appeal from an adverse final judgment." Asgrow, 425 F.2d at 1060 (citation omitted). However, this statement referred only to the patent infringement case. Since Rules 23(b)(1) and (b)(2) do not have an opt-out provision, see Fed.R.Civ.P. 23(c)(2), the case is similar to that of shareholder derivative suits under Rule 23.1. With regard to the antitrust aspect of the case, which had been certified under Rule 23(b)(3), the Asgrow court explicitly stated that "the failure of appellants formally to intervene ... forecloses their right to appeal." Id. at 1060 n. 2 and text accompanying note. See also, In re General Motors Corp. Engine Interchange Litig., 594 F.2d 1106, 1121 (7th Cir.) (a Rule 23(b)(3) class action in which the court stated that in Asgrow it had "held that the failure of the appellants to intervene in the action foreclosed their right to appeal"), cert. denied, 444 U.S. 870, 100 S.Ct. 146, 62 L.Ed.2d 95 (1979). Thus, in the only portion of the Asgrow decision directly parallel to the situation in this case, the Seventh Circuit held that formal intervention was a prerequisite to the right to appeal. The dictum in VMS appears to ignore the distinction between the two holdings in Asgrow. Since VMS was a Rule 23(b)(3) class action, it appears that the portion of Asgrow pertaining to such actions should have controlled in VMS, rather than the portion pertaining to class actions under Rules 23(b)(1) or (b)(2).
Despite the above-mentioned dictum in VMS, we believe that the tone of VMS indicates that the Seventh Circuit will ultimately adopt the rule we set forth today. In VMS, the Seventh Circuit expressly followed Guthrie in holding that an unnamed class member who had not intervened had no standing to appeal a post-settlement order implementing the settlement agreement. VMS, 976 F.2d at 368-69. Thus, even assuming that the Seventh Circuit considers itself bound by Asgrow on the question of whether an unnamed class member in a Rule 23(b)(3) class
Regardless of how the Seventh Circuit ultimately decides the issue, we hold that the policy underlying class actions under Rule 23 is best served by requiring an unnamed class member in a class action under Rule 23 to move formally to intervene and to be granted intervenor status in order to gain standing to appeal the adequacy of the settlement. While it is possible to distinguish class actions under Rule 23(b)(1) and (b)(2) from those under Rule 23(b)(3), we believe that the policy can only be accommodated by applying the same rule to all class action suits.
III. DUE PROCESS CLAIMS
The Welches have asserted several claims of due process violations in the notice provided to class members regarding the proposed settlement. The Welches do have standing to raise these claims, see Silber, 957 F.2d at 700, and if the notice of the settlement were constitutionally deficient, then the Welches would have standing to appeal the approval of the settlement.
The Welches argue that the notice of the settlement was constitutionally deficient because it did not assure individual notice, and because the published notice was inadequate. Consequently, they argue, the notice was not the best notice practicable under the circumstances. This argument ignores the above distinction between the notice required under Rule 23(c)(2) and the notice required under Rule 23(e). While Rule 23(c)(2) requires individual notice when the names of the individuals can be easily ascertained, Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 173, 94 S.Ct. 2140, 2150, 40 L.Ed.2d 732 (1974), there is no such rigid requirement under Rule 23(e). Moreover, as Appellants acknowledge, the published notice, whatever its alleged deficiencies, "generated a significant response." (Appellants' Br., Case No. 92-1392 at 16.) We need not decide under what circumstances notice provided pursuant to Rule 23(e) might be so deficient as to constitute no notice at all. We hold that this was not the case here. Accordingly, there was no due process violation.
The Welches also claim that the settlement notice was deficient because it did not specify the exact formula to be used in calculating the amounts to be awarded to the individual class members. This argument must also fail. It is not necessary to give all of the details of the settlement, but only to "fairly apprise" the class members of the terms of the settlement. The notice provided was sufficient for this purpose.
The Welches further argue that the notice of the settlement was constitutionally deficient because it failed to inform the class members of the need to intervene in order to preserve their right to appeal from the approval of the settlement. Since the Welches did in fact move to intervene, they have not shown any injury resulting from such alleged deficiency, and therefore have no constitutional standing to raise this argument. We note in passing, however, that Rule 23(e) requires only notice of the proposed dismissal or compromise, not a tutorial on the Rules of Civil Procedure.
Finally, the Welches argue that the trial court erred in finding that the actual notice of the settlement complied with the requirements of its order of July 9, 1992. The district court stated in its Final Judgment and Order Approving Class Settlement that "[i]t appears ... that there has been full compliance with the Court's directives with respect to notice to the Class." (Appellants' App. at 420.) This is a factual finding subject to the clearly erroneous standard. The district court is in the best position to determine whether its orders have been complied with, and we cannot hold that this determination was clearly erroneous.
Accordingly, we hold that the Welches have not demonstrated any constitutional violation that might afford them standing to appeal in this matter.
IV. ABUSE OF DISCRETION
As we noted above, the district court denied the Welches' motion to intervene on the ground that intervention was not necessary to enable the Welches to appeal from the approval of the settlement. Since we decide otherwise, in the current posture of this case, the Welches lack standing to appeal. We therefore would not ordinarily have the occasion to consider the merits of the Welches' objections unless we first remanded to the district court for a ruling on the motion to intervene in light of our decision today. However, the standing rule we adopt today is founded upon prudential, rather than constitutional concerns. See, e.g., Warth v. Seldin, 422 U.S. 490, 498-502, 95 S.Ct. 2197, 2204-07, 45 L.Ed.2d 343 (1975) (discussing distinction between constitutional and prudential standing doctrine). In the case sub judice, those prudential concerns, specifically the efficient resolution of multiparty litigation, would not
As a preliminary matter, however, we must resolve the issue of the Welches' eligibility to participate in the settlement. If the Welches are ineligible to participate in the settlement, then they have no constitutional standing to raise their objections because they lack any interest in the case. There is some dispute as to whether the Welches actually filed a proof of claim form. (See Brief of Class Plaintiffs/Appellees at 12-13 and n. 4.) After this dispute arose, the Welches filed a Motion for Allowance of Claim with the district court. (Appellee's Supp.App. Vol. II at 439-50.) The district court deferred ruling on the Welches' motion.
This matter requires only minimal analysis, as we must "accept as true all material allegations of the complaint, and must construe the complaint in favor of the complaining party." Warth, 422 U.S. at 501, 95 S.Ct. at 2206. We therefore accept as true the Welches' assertion that they filed a proof of claim form and are accordingly eligible to participate in the settlement.
Before us are two objections that the Welches presented to the settlement approved by the district court. The first, concerning the adequacy of the notice procedures employed in informing the class of the terms of the settlement, we have already disposed of in the context of due process. The second, the Welches' claim that the district court abused its discretion by failing to consider adequately evidence of defendant Coopers and Lybrand's financial condition and ability to withstand a greater judgment, need not detain us long.
The authority to approve a settlement of a class action suit is committed to the sound discretion of the trial court, and we will not set aside such a settlement absent an abuse of discretion. Jones v. Nuclear Pharmacy, Inc., 741 F.2d 322, 324 (10th Cir.1984). In Jones, we set out four factors that the trial court "should" consider in assessing whether a proposed settlement is fair, reasonable and adequate. Id. Notwithstanding the strenuous assertions of Appellants' Counsel to the contrary, "all" courts do not require that the trial court consider the financial condition of the defendants in assessing the adequacy of the settlement. Specifically, this court has never so held. In Jones, we set out the following four relevant factors:
Id. at 324. Appellants attempt to fit their financial condition factor into the third Jones factor, arguing that "[w]ithout any information as to the defendants' financial condition and ability to pay, the trial court cannot determine the value of the settlement being proposed; and thus is incapable of exercising its discretion in considering the third Jones factor." (Appellants' Reply Brief at 7.) This argument is apparently based on a belief that "value" has some metaphysical import aside from its plain meaning; that a settlement cannot have value to the plaintiffs unless it
While some courts may have considered the defendants' financial viability, see, e.g., Alvarado Partners, L.P. v. Mehta, 723 F.Supp. 540, 547 (D.Colo.1989), we have never held that courts are required to do so. Nor need we reach the question here, because after thoroughly reviewing the record, we conclude that the district court did, in fact, consider the defendants' financial condition. (See, e.g., Findings, Conclusions and Order Approving Settlement and Plan of Distribution of Proceeds at 9, Appellants' App. at 434; Transcript of Fairness Hearing at 38-44, Appellants' App. at 521-27; Transcript of Attorney Fee Application Hearing at 160-61, Class Plaintiffs/Appellees' Supp. App. Vol. II at 513-14). The district court gave full consideration to defendant Coopers and Lybrand's potentially wide exposure to liability in other pending lawsuits arising out of the Mini-Scribe affair, in determining that the settlement was reasonable. The district court also considered the additional risk posed to the plaintiff class arising from the fact that, pursuant to the court's order setting the related bankruptcy case for trial before the class action, any judgment ultimately obtained in the class action would be subject to the availability of funds after resolution of the bankruptcy case.
The Welches argue that the district court had an independent duty to analyze the evidence, and that the district court in this case erred in not requiring additional evidence of defendant Coopers and Lybrand's financial condition. Independent analysis does not mean, however, that the district court must conduct a foray into the wilderness in search of evidence that might undermine the conclusion that the settlement is fair. Rather, as the Welches acknowledge, the district court must independently analyze the evidence before it in making its determination; it may not rely solely upon the assertions of the proponents of the settlement as to what the evidence shows. (See Appellants' Reply Brief at 4 (quoting 1 H. Newberg & A. Conte, Newberg on Class Actions 3d, § 11.14)). It is the responsibility of the proponents of the settlement to provide sufficient evidence to support a conclusion that the settlement is fair, and where the proponents have failed in this regard, the district court may be justified in requiring more evidence, or in declining to approve the settlement. However, as we stated in Jones,
Jones, 741 F.2d at 325 (quoting Weinberger v. Kendrick, 698 F.2d 61, 80 (2d Cir.1982), cert. denied, 464 U.S. 818, 104 S.Ct. 77, 78 L.Ed.2d 89 (1983)). We conclude that the settlement proponents met their obligation, and that there was sufficient evidence on which the district court could base its decision to approve the settlement. The Welches failed to make a clear and specific showing that the district court ignored vital information. On the facts of this case, therefore, we cannot conclude that the district court abused its discretion in failing to conduct a factual inquiry to gain additional evidence that might or might not have supported Appellants' claims that Coopers and Lybrand could have paid more.
To summarize, we hold that an unnamed class member must formally move to intervene and must be granted intervenor status in order to have standing to appeal the approval of a settlement in a class action under Rule 23. We deny the Welches' claim to standing to appeal to the extent it is based
We respectfully disagree with the Third Circuit's analysis of Guthrie, Croyden, and Walker. First, while the Carlough court stated that "Croyden does not apply to class members who ... have moved to intervene," id. 5 F.3d at 713-14 (emphasis added), the Croyden court spoke of the appropriateness of "requir[ing] intervention as a condition for appeal," and stated that "intervention to allow assertion of all objections ... represents a preferable method of resolving such differences." Croyden, 969 F.2d at 680. We believe that this language indicates that a mere motion to intervene is not sufficient to gain standing to appeal under Croyden and that the objectors must have actually been granted intervenor status. Moreover, we observe that the Croyden court noted the availability of immediate appeal from a denial of intervention. Id. 969 F.2d at 678. If Croyden merely required a motion to intervene, then, as the Third Circuit stated in Carlough, a denial of such motion would not be immediately appealable as a collateral order.
Second, the Carlough court distinguished Guthrie on the ground that "there is no indication ... that the class member who attempted to appeal participated or attempted to participate in the proceedings in the district court." Carlough, 5 F.3d at 714. We believe that the holding in Guthrie is not dependent on whether the unnamed class member had participated in the district court proceedings. As the Carlough court noted, there is "no indication" that the appellant had participated in the district court proceedings; if the lack of participation had been relevant to the Eleventh Circuit, we believe that there would be some indication in the decision as to whether the appellant had participated or not. Furthermore, the language and rationale of Guthrie both indicate that unnamed class members may not appeal, regardless of whether they have participated in the settlement proceedings. Cf. Shores v. Sklar, 844 F.2d 1485, 1491 (11th Cir.1988) ("As we explained in Guthrie, an unnamed member of a class action always has the option of moving to intervene in the course of the class action if he disagrees with the course of proceedings taken by the representative party. If the district court denies the motion to intervene, the unnamed class member may appeal that denial immediately."), vacated and reh'g en banc granted, 855 F.2d 722 (11th Cir.1988), and reinstated in pertinent part, 885 F.2d 760, 760 n. 1 (11th Cir.1989), cert. denied, 493 U.S. 1045, 110 S.Ct. 843, 107 L.Ed.2d 838 (1990); and cf. Research Corp. v. Asgrow Seed Co., 425 F.2d 1059, 1060 n. 2 ("We need not consider the factual questions concerning the degree of participation by appellants in the settlement hearing and negotiations since the failure of appellants formally to intervene, after receipt of notice under Fed. R.Civ.P. 23(e) before final judgment forecloses their right to appeal.").
The Third Circuit also distinguished Walker on the grounds that the appellants had not participated in the district court proceedings. Carlough, 5 F.3d at 714. Again, we believe that the holding and rationale of Walker, which were closely tied to those in Guthrie, are not dependent on such participation. Cf. Walker, 858 F.2d at 1074 n. 1 (concluding only that "individual, nonnamed class members do not have standing to appeal the final judgment in a class action," with no mention of participation at all).
Regardless of our disagreement with the Third Circuit's analysis of Guthrie, Croyden, and Walker, we do not believe that the Carlough court's reiteration of the holding in Ace Heating precludes a distinction between the rules set forth in Carlough and Ace Heating and the rule we adopt today. Carlough involved a situation similar to that in Ace Heating, where the settlement was negotiated between certain plaintiffs and defendants, prior to the district court's certification of the class and of the adequacy of the plaintiffs' representation of the absent class members. See Carlough, 5 F.3d at 711. Thus, in both Carlough and Ace Heating, unlike in the present case, the specific protective mechanisms envisioned by the drafters of Rule 23 were not engaged.
6th Cir.R. 24(c).