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Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 3, 2000 Decided June 9, 2000

No. 99-7256

In Re: Vitamins Antitrust Class Actions, et al.,

Consolidated with

No. 99-7281

Appeals from the United States District Court

For the District of Columbia

(No. 99 MS 00197)

Elaine Metlin argued the cause for appellants Agri Beef

Company, et al. With her on the briefs were C. Brooks

Wood, Kenneth L. Adams, James van R. Springer, Gerald G.

Saltarelli, Mary Martin, James Morsch, Michael C. Manning, Jenny J. Clevenger and John J. Rosenthal. Carmine R.

Zarlenga entered an appearance.

C. Brooks Wood argued the cause for appellant NutraBlend, L.L.C.

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Stephen Susman argued the cause for appellees. With him

on the brief were Michael D. Hausfeld, Ann C. Yahner,

David Boies, Robert Silver, Jonathan D. Schiller, William A.

Isaacson, Tyrone C. Fahner, Andrew S. Marovitz, D. Stuart

Meiklejohn, Lawrence Byrne, Bruce L. Montgomery, Michael L. Denger and John M. Majoras. George T. Manning

entered an appearance.

Before: Williams, Sentelle and Tatel, Circuit Judges.

Opinion for the Court filed by Circuit Judge Williams.

Williams, Circuit Judge: Over the 1990s, and even farther

back, vitamin manufacturers allegedly fixed prices on bulk

vitamin sales in violation of the antitrust laws. By September

1999 a Department of Justice investigation had secured guilty

pleas from several major suppliers. Dozens of private antitrust actions followed, and by late November 1999 approximately 49 cases were pending before the district court.

At a status conference for all interested parties on November 3, 1999, counsel for the proposed representatives of a

broad class of purchasers revealed that they had reached a

tentative settlement that would dispose of the class's claims

against seven of the defendants (who together with their

affiliates account for more than 90 percent of the bulk vitamins market). The then-draft agreement contained a socalled "most favored nation" ("MFN") clause, requiring defendants to hike their payments to the class in the event that

within two years of that date they reached a more favorable

settlement with a plaintiff who had opted out of the class.

See Settlement Agreement p p 1, 22. Appellants--who were

then presumptive members of the class but who have since

opted out--moved to intervene under Federal Rule of Civil

Procedure 24 for the limited purpose of opposing the MFN

clause. They argued--reasonably enough--that the clause

would make it harder for them to arrive at an independent

settlement, because it would raise the cost to defendants of

any more favorable agreement. The district court denied the

appellants' motion to intervene but granted them leave to

participate as amici curiae. Appellants filed timely notices of

appeal from denial of the motion to intervene.

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While this appeal was pending, appellants all chose to opt

out of the class action. See Tr. of Oral Arg. (Apr. 3, 2000), at

4. The district court held its final hearing regarding class

certification and the proposed settlement, and on March 31,

2000 certified the class and approved the settlement. Neither

of those decisions is at issue in this appeal.

In rejecting appellants' motion for intervention, the district

court reasoned that they lacked standing to challenge the

settlement agreement on the grounds asserted. We agree.

* * *

Appellants focus on their claim to intervention as of right.

Federal Rule of Civil Procedure 24(a)(2) allows such intervention for anyone who "claims an interest relating to the ...

transaction which is the subject of the action and ... is so

situated that the disposition of the action may as a practical

matter impair or impede [his] ability to protect that interest,

unless [his] interest is adequately represented by existing

parties." Id. Appellants argue that their interest in being

able to opt out of the class and to " 'go it alone' unhampered

by any judgment in the class action" qualifies as "an interest

relating to the ... transaction which is the subject of the

action." Fed. R. Civ. P. 24(a).

But appellants trip immediately over our decision in Mayfield v. Barr, 985 F.2d 1090 (D.C. Cir. 1993). There we held

that class members who have opted out of a 23(b)(3) class

action have no standing to object to a subsequent class

settlement; by opting out they "escape the binding effect of

the class settlement." Id. at 1093. We distinguished cases in

which plaintiffs lost claims involuntarily, and concluded:

Our decision rests on the principle that those who fully

preserve their legal rights cannot challenge an order

approving an agreement resolving the legal rights of

others.

Id. Compare New Mexico ex rel. Energy & Minerals Dep't

v. United States Dep't of the Interior, 820 F.2d 441 (D.C. Cir.

1987), in which we concluded that dismissal of the intervening

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Navajo Tribe's complaint was proper because the settlement

reached by the other parties "d[id] not serve to dispose of the

Tribe's claims." Id. at 445.

Appellants point to a number of cases in which we indicated

a willingness to construe Rule 24(a)'s "interest" requirement

liberally. See Cook v. Boorstin, 763 F.2d 1462, 1466 (D.C.

Cir. 1985); Foster v. Gueory, 655 F.2d 1319, 1324-25 (D.C.

Cir. 1981); Smuck v. Hobson, 408 F.2d 175, 179 (D.C. Cir.

1969) (plurality opinion); Nuesse v. Camp, 385 F.2d 694, 700

(D.C. Cir. 1967). But of all these, only Nuesse even addressed the issue of standing. Thus, because decisions that

depend on a merely assumed jurisdiction have no precedential

value on the jurisdictional issue, Steel Co. v. Citizens for a

Better Environment, 523 U.S. 83, 91 (1998); Lewis v. Casey,

518 U.S. 343, 352 n.2 (1996), only Nuesse could assist appellants. But Nuesse affords them no help, as there the court

found on the specific facts a sufficient interest for standing in

the stare decisis effect of a judgment, an analysis that has no

parallel here.

Standing, of course, is issue-specific. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 571-78 & nn.7-8 (1992). And as

we noted in Mova Pharmaceutical Corp. v. Shalala, 140 F.3d

1060 (D.C. Cir. 1998), potential intervenors must demonstrate

"prudential" as well as constitutional standing. Id. at 1074-

76. In the case of statutory rights, this requires would-be

intervenors to show that their interests are "arguably within

the zone of interests to be protected or regulated by the

statute." Association of Data Processing Serv. Orgs., Inc. v.

Camp, 397 U.S. 150, 153 (1970). Even if a particular litigant

is outside the class for whose benefit the statute was enacted,

that litigant retains prudential standing so long as "its interests are sufficiently congruent with those of the intended

beneficiaries that the litigants are not more likely to frustrate

than to further ... statutory objectives." Mova Pharmaceutical, 140 F.3d at 1075 (internal quotation marks omitted).

But as appellants' counsel admitted at oral argument, their

interests are not congruent with the interests of the settling

class that were in play at the time of their motion to

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intervene. See Tr. of Oral Arg. at 13-14. As opt-out plaintiffs they have no interest in the specifics of the settlement

except for their desire to be free of a troublesome MFN

clause. Id. at 14.

Appellants' MFN objection is, moreover, incongruent with

the interests that the rules charge the district court with

addressing. When appellants moved to intervene, the court

had remaining before it the questions of whether (1) the

proposed class satisfied the prerequisites for certification

under Rule 23(a) and (b), (2) the form and manner of notice

satisfied Rule 23(c), and (3) the proposed settlement satisfied

the requirements of Rule 23(e). Appellants' arguments

against the MFN clause have no logical relationship to any of

these. The first two questions are clearly irrelevant to

appellants' claims. Appellants do not seek to argue that the

proposed class failed to satisfy the conditions for class certification. See Fed. R. Civ. P. 23(a), (b)(3). And appellants'

Rule 23(c) arguments--which are treated more fully below--

do not challenge the form and manner of notice at all.

On the subject of class viability an extra word is needed for

appellant Nutra-Blend. According to its complaint, some of

the settling defendants compete with Nutra-Blend, selling

mixed vitamin products at retail prices below their wholesale

charges for the raw components and thus subjecting NutraBlend to a "price squeeze." Accordingly it has argued that

the class representatives do not adequately represent its

interests. This of course sounds like the inquiry under Rule

23(a)(4) as to adequacy of representation. But Nutra-Blend's

objections were not made on the premise assumed by Rule

23(a)--namely, that the prospective class member would be

bound by the ensuing litigation supposedly conducted on its

behalf.1

__________

1 We have no occasion to decide whether a party must remain

within the class to intervene for the purposes of challenging class

certification under Rule 23(a), (b), or settlement under 23(e). Cf. In

re Brand Name Prescription Drugs Antitrust Litig., 115 F.3d 456,

457 (7th Cir. 1997); 3 Herbert Newberg & Alba Conte, Newberg on

Class Actions s 16.18, at 16-99 to 16-100 (3d ed. 1992).

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Of course, in passing on the proposed settlement agreement, the district court has a duty under Fed. R. Civ. P. 23(e)

to ensure that it is fair, adequate, and reasonable and is not

the product of collusion between the parties. See Pigford v.

Glickman, 206 F.3d 1212, 1215 (D.C. Cir. 2000); Thomas v.

Albright, 139 F.2d 227, 231 (D.C. Cir. 1998). Thus Rule 23(e)

provides a check against settlement dynamics that may "lead

the negotiating parties--even those with the best intentions--

to give insufficient weight to the interests of at least some

class members." Manual for Complex Litigation (Third)

s 30.42, at 238-40 (1995); see also Amchem Prods., Inc. v.

Windsor, 521 U.S. 591, 621-22 (1997) (noting the dangers that

can arise owing to the usually non-adversarial posture of a

Rule 23(e) hearing). But the district court's duty is to the

class members themselves; it lacks the power to conduct a

free-ranging analysis as to the broader implications of the

proposed settlement agreement. Compare Agretti v. ANR

Freight Sys., 982 F.2d 242, 248 (7th Cir. 1992) ("Nor do we

know of any cases finding standing for a non-settling party

because a settlement is allegedly illegal or against public

policy.") (cited with approval in Mayfield v. Barr).

Appellants' only mention of the class's interests appears in

a footnote in which they argue that the class will not actually

benefit from the MFN clause. But even here they do not say

that its inclusion actually harms the class members. Of

course they might argue that in securing the MFN clause the

class representatives must have traded away some alternative

(and real) advantage. But that argument's force would turn

on a showing that defendants seriously resisted the clause, on

which appellants offer no evidence. In fact the defendants

may well not have much resisted, affirmatively liking a

Ulysses-tied-to-the-mast arrangement that enables them to

convincingly stiff opt-outs who demand more. Cf. Decl. of

William M. Landes at 8-9 (excerpted at Joint Appendix 246).

In any event, appellants do not deny that their sole actual

concern is that the MFN clause limits their ability to reach a

settlement more lucrative than that offered to the class.

Consequently, their arguments fall outside of the zone of

interests protected by Rule 23(e).

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Appellants' alternative tack invokes their right to opt out,

starting with the notice protections of Rule 23(c)(2). But the

rule by its terms is purely procedural. Any substantive right

to be free of ancillary effects flowing from a class settlement

must be found elsewhere.

Appellants next look to the Due Process Clause (presumably of the Fifth Amendment) for their claimed right to be

free of any effects of the class settlement. It is, of course,

not in dispute that notice and an opportunity to opt out are

requirements of due process--for any party to be bound by

the litigation. See Fed. R. Civ. P. 23, Advisory Committee

Notes to the 1966 Amendment for Subdivision (d)(2) ("This

mandatory notice pursuant to subdivision (c)(2) ... is designed to fulfill requirements of due process to which the

class action procedure is of course subject."); Ortiz v. Fibreboard Corp., 527 U.S. 817, ___, 119 S. Ct. 2295, 2314-15;

Hansberry v. Lee, 311 U.S. 32, 40 (1940).

Indeed, as Mayfield makes clear, one may challenge a

settlement agreement to which he is not a party if the

agreement will cause him " 'plain legal prejudice,' as when

'the settlement strips the party of a legal claim or cause of

action.' " Mayfield, 985 F.2d at 1093 (quoting Agretti, 982

F.2d at 247); see also Alumax Mill Prods. v. Congress Fin.

Corp., 912 F.2d 996, 1002 (8th Cir. 1990) (allowing nonsettling

defendant to challenge a partial settlement that dismissed

with prejudice its cross-claims and stripped it of indemnity

and contribution rights). But the MFN clause here causes no

plain legal prejudice. Although the alleged injury is more

substantial than that claimed by the nonsettling plaintiffs in

Mayfield, here as there the nonsettling plaintiffs have fully

preserved their "right to litigate their claims independently."

985 F.2d at 1093.

Other cases have turned on a similar understanding of

"plain legal prejudice." In Quad/Graphics, Inc. v. Fass, 724

F.2d 1230 (7th Cir. 1983), cited with approval in Mayfield, a

settlement required a participant not to "voluntarily" participate in the continuing litigation. The court insisted that the

non-settling party show "plain legal prejudice," a formula it

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took from its cases interpreting Federal Rule of Civil Procedure 41(a)(2). 724 F.2d at 1231. It found none, even though

that party clearly had had reason to expect advantageous

cooperation from the settling party, and the settlement restriction would require it to incur the burden of a lawsuit to

extract whatever cooperation it was legally entitled to. Id. at

1234. Similarly, in Agretti, 982 F.2d at 247-48, the court

ruled that a party to a contract had no standing to challenge a

settlement agreement in which a settling party on the same

side agreed to declare the contract void. Because the nonsettling party retained the right to assert that the contract was

valid and enforceable, it suffered no plain legal prejudice,

despite the obvious practical burden of having its contractual

partner disavow the contract. See id. at 248. The settlement

limitations imposed by the MFN clause are no more onerous

than the burdens imposed on non-settling parties in these

cases.

Finally, we turn to appellants' argument that the district

court abused its discretion in denying them permissive intervention under Rule 24(b)(2). Although the denial of a motion

for permissive intervention is not normally appealable in

itself, see Twelve John Does v. District of Columbia, 117 F.3d

571, 574 (D.C. Cir. 1997), we may exercise our pendent

appellate jurisdiction to reach questions that are "inextricably

intertwined with ones over which we have direct jurisdiction."

Id. at 574-75. Here the basis for appellants' motion for

permissive intervention is the same as the basis for its quest

for intervention as of right. The two are in that respect

inextricably intertwined.

But there is uncertainty over whether standing is necessary for permissive intervention. Compare EEOC v. National Children's Ctr., Inc., 146 F.3d 1042, 1045-46 (D.C. Cir.

1998) (recounting that Rule 24(b) requires would-be intervenors to have "an independent ground for subject matter

jurisdiction" on a claim or defense that shares a common

question with the claims of the original parties), and Diamond v. Charles, 476 U.S. 54, 76 (1986) (O'Connor, J., concurring) ("The words 'claim or defense' manifestly refer to the

kinds of claims or defenses that can be raised in courts of law

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as part of an actual or impending lawsuit"); with National

Children's Ctr., 146 F.3d at 1045-46 (noting that our circuit

precedent avoids "strict readings of the phrase 'claim or

defense,' allowing intervention even in 'situations where the

existence of any nominate 'claim' or 'defense' is difficult to

find.' " (quoting Nuesse, 385 F.2d at 704)). And Steel Co.

precludes us from reaching merits issues in the absence of

jurisdiction. See 523 U.S. at 94. Of course if standing is

required, then what we have said above clearly precludes

appellants' success on this theory as well. If it is not, then

appellants would have to show that the trial court abused its

discretion in denying intervention but granting them amicus

status--enabling them to elucidate the court on their position

with less risk of delaying the settlement. In view of the

unresolved standing issue, however, we think it inappropriate

to exercise our pendent jurisdiction.

* * *

The district court's decision is

Affirmed.

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