F I L E D

United States Court of Appeals

Tenth Circuit

JAN 14 2004

PATRICK FISHER

Clerk

PUBLISH

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

In re: 

INTEGRA REALTY RESOURCES,

INC.; INTEGRA - A HOTEL AND

RESTAURANT COMPANY; BHC OF

DENVER, INC.,

Debtors.

______________________________

JEFFREY A. WEINMAN, as Trustee

for the Integra Unsecured Creditors’

Trust,

Plaintiff - Appellee,

No. 99-1547

v.

FIDELITY CAPITAL

APPRECIATION FUND,

Defendant - Appellee,

and

JEFFREY D. ZYSKOWSKI and

MARILYN J. ZYSKOWSKI,

Defendants - Appellants.

_____________________________

JEFFREY A. WEINMAN, as Trustee

for the Integra Unsecured Creditors’

Trust,

Plaintiff - Appellee,

No. 99-1548
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v.

FIDELITY CAPITAL

APPRECIATION FUND,

Defendant - Appellee,

and

ELIEZER EISENBERG,

Defendant - Appellant.

_____________________________

JEFFREY A. WEINMAN, as Trustee

for the Integra Unsecured Creditors’

Trust,

Plaintiff - Appellee,

No. 99-1569

v.

FIDELITY CAPITAL

APPRECIATION FUND,

Defendant - Appellee,

and

JAMES CALDWELL, JOSELITO

MILLAN, ROBERT ALLEN WARD,

MARJORIE WARD, MARVIN

BARTLING, DOMINIC GIOIOSO,

LEON BELL, IRWIN YAMAMOTO,

and THOMAS R. ULIE, as custodian

FBO Alexander James Ulie,

Defendants - Appellants.

______________________________
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JEFFREY A. WEINMAN, as Trustee

for the Integra Unsecured Creditors’

Trust,

Plaintiff - Appellee,

No. 99-1586

v.

FIDELITY CAPITAL

APPRECIATION FUND,

Defendant - Appellee,

and

DEXTER YAMAMOTO, RONALD

YAMAMOTO, GEORGE

YAMASAKI, JR., and EDWARD

BLIZEWSKI,

Defendants - Appellants.

______________________________

JEFFREY A. WEINMAN, as Trustee

for the Integra Unsecured Creditors’

Trust,

Plaintiff - Appellee,

No. 00-1018

v.

FIDELITY CAPITAL

APPRECIATION FUND,

Defendant - Appellee,

and

E. THOMAS SPENGLER,

Defendant - Appellant.
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APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLORADO

(D.C. NO. 94-WM-2581)

Jeffrey J. Greenbaum, Sills, Cummis, Radin, Tischman, Epstein & Gross, P.A.,

Newark, New Jersey (Steven D. Gorelick, Sills, Cummis, Radin, Tischman,

Epstein & Gross, Newark, New Jersey; Chesley K. Culp III and Dianne M. Kueck,

Moye, Giles, O’Keefe, Vermeire & Gorrell LLP, Denver, Colorado, with him on

the briefs) for Defendants - Appellants.

John C. Smiley (Harold G. Morris, Jr., and Patrick D. Frye with him on the brief),

Lindquist & Vennum, P.L.L.P., Denver, Colorado, for Plaintiff - Appellee.

Before TACHA, Chief Judge, and ANDERSON and BRISCOE, Circuit Judges.

ANDERSON, Circuit Judge.

In these appeals, we consider for a second time challenges to the settlement

of a defendant class action arising out of the 1992 bankruptcy of Integra Realty

Resources, Inc. (“Integra”). See Weinman v. Fid. Capital Appreciation Fund (In

re Integra Realty Res., Inc.), 262 F.3d 1089 (10th Cir. 2001) (“Integra I”).

The appellants contend that the district court erred in approving the class

settlement because: (1) the bankruptcy court’s certification of (allegedly) a Fed.

R. Civ. P. 23(b)(1)(A) class was improper; (2) inadequate notice to members of

the class at every critical stage of the proceedings violated both due process and

the requirements of Rule 23; (3) the class members lacked adequate representation
1

In both Integra I and here we joined numerous appeals for procedural

purposes and, as relevant here, the appellants joined in a single opening and reply

brief. See Fed. R. App. P. 3(b)(2). The same counsel and virtually identical

briefs on the merits were before us then and again now.

Due to the congruence of issues in the Integra I appeals and the

subsequently docketed appeals now before us, we abated these appeals pending

our decision in Integra I. Following that decision, we ordered the parties to file

briefs addressing whether our decision in Integra I dictated that these appeals

should also be dismissed. Shortly before the Supreme Court’s decision in Devlin

v. Scardelletti, 536 U.S. 1 (2002), was issued, we ordered the parties to file briefs

on the merits. Because the five separate appeals addressed here (Docket Nos. 99-

1547, 99-1548, 99-1569, 99-1586 and 00-1018) have been combined for

convenience, we refer at various places to this appeal in the singular.

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because, among other things, the interests of one class representative, Fidelity

Capital Appreciation Fund (“Fidelity”) and its counsel, designated as lead

counsel, conflicted with those of other class members; (4) the settlement was not

fairly negotiated, and is unfair, unreasonable, and excessive; (5) the district court

erred by failing to weigh various defenses and objections (more fully set out

below), and failed to consider other legal and factual issues; and (6) the

bankruptcy court erred in denying a dispositive motion seeking to dismiss this

action on any of four separate grounds set forth in the motion (more specifically

described below).

These issues are substantially identical to the ones raised in Integra I; but

we addressed only some of them in Integra I due to our conclusion that the

appellants lacked standing to appeal.1 The Supreme Court’s subsequent decision

in Devlin v. Scardelletti, 536 U.S. 1 (2002), undercut that ruling. Accordingly,
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the appellants here further assert that they and the Integra I appellants have

“standing” to appeal and that we should reopen the appeals dismissed in Integra I. 

They urge us to reverse the order entered by the district court approving the class

settlement, vacate the class settlement and the class certification upon which it

was based, vacate the judgments against the appellants entered pursuant to the

settlement, and dismiss the action in its entirety. Defendants-Appellants’ Br. at 3.

For the reasons set out below, we conclude that certain of these appellants

have the right to appeal the settlement and that, therefore, the issues are properly

before us. We further conclude that there is no reversible error. Accordingly, we

affirm the settlement approval order and resulting judgments of the district court

against these appellants.

BACKGROUND

The history of this case is set out in detail in three prior published opinions. 

See Integra I; Weinman v. Fid. Capital Appreciation Fund (In re Integra Realty

Res., Inc.), 198 B.R. 352 (Bankr. D. Colo. 1996); Weinman v. Fid. Capital

Appreciation Fund (In re Integra Realty Res., Inc.), 179 B.R. 264 (Bankr. D.

Colo. 1995). We summarize some, and repeat and add to other of those

underlying facts as follows.
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Integra was incorporated as a hotel business in 1969 and went public in

1980 under the name Brock Hotel Corporation. About that time it expanded into

the restaurant business through a subsidiary corporation, ShowBiz Pizza Place,

Inc., in which Brock had a 57% stock ownership interest. In 1985 ShowBiz Pizza

Place purchased most of the assets of a competitor and changed its name to

ShowBiz Pizza Time, Inc. (“ShowBiz”). In 1986 Hallwood Group, Inc.

(“Hallwood”), a publicly traded merchant banking firm, entered the picture. It

implemented a financial restructuring plan through which, in addition to the

restructuring of Brock’s debt, Hallwood acquired 14% of Brock’s stock, placed

five Hallwood directors on Brock’s seven-person board, and caused Brock to

increase its ownership of ShowBiz stock to 90%.

In 1987 Brock, through a wholly-owned subsidiary, BHC Acquisition Corp.

(“BAC”), bought most of the assets of Monterey House, Inc. (Tex-Mex

restaurants). The financial burden of that acquisition led to a negative cash flow

at Brock and reliance on ShowBiz for varying degrees of financial support.

In 1988 Brock was renamed “Integra - a Hotel and Restaurant Company,”

and continued trading as such on the New York Stock Exchange. At the

beginning of the year Integra, pursuing its two lines of business, owned and

operated thirty-eight hotels in twenty-two states and, through ShowBiz and BAC,
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183 restaurants in twenty-one states. ShowBiz had 125 of the restaurants and

BAC had fifty-eight.

In July 1988 Integra and ShowBiz, with Hallwood’s continuing

involvement, undertook further corporate and financial restructuring. Integra sold

BAC to ShowBiz, which then owned Integra’s entire restaurant operation. A

complex series of debt and securities transactions also took place. Most pertinent

to this case, Integra, ShowBiz, and Hallwood agreed to a plan whereby Integra

would spin off its 90% stake in ShowBiz to Integra shareholders in December

1988. The spinoff was to be tax free under § 355 of the Internal Revenue Code,

26 U.S.C. § 355, and required no vote by or compensation from the Integra

shareholders. The plan contemplated that the ShowBiz stock would be listed and

traded on the NASDAQ.

As indicated above, it is alleged that Integra was experiencing financial

difficulties that would be exacerbated by the distribution of its restaurant business

to its shareholders. Significantly in that regard, prior to the spinoff ShowBiz

mailed to each shareholder of Integra or ShowBiz a prospectus containing the

following warning, which also appeared in the registration statement filed with

the SEC:

If . . . Integra is unable to satisfy its future cash requirements, a

recipient of the [ShowBiz] Common Stock in the Integra Distribution

might be required to surrender to a trustee in bankruptcy, or
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creditors, of Integra the shares of the [ShowBiz] Common Stock

received in the Integra Distribution, or the value thereof.

In re Integra Realty Res., Inc., 198 B.R. at 355 (quoting ShowBiz prospectus)

(emphasis added).

The closing took place on December 30, 1988, at which time Integra

delivered 3,822,230 shares of ShowBiz common stock to be distributed to the

5,415 record owners of Integra common stock at a final distribution ratio of .429

ShowBiz shares for each share of Integra. On January 3, 1989, one day before

public trading in ShowBiz stock began, the closing price of Integra was $4 7/8

($4.88) per share. The next day, January 4, 1989, Integra closed at $1 3/4 ($1.75)

per share and ShowBiz closed at $5 1⁄2 ($5.50) per share, amounting, when

combined, to a paper loss of $0.77 per Integra share as a result of the spinoff.

After distributing its restaurant business to its shareholders, Integra went

straight downhill. Within one year, its stock was at $0.25 per share. The NYSE

halted trading in the stock on December 6, 1991, with the price at $0.125 per

share. On July 14, 1992 Integra filed a voluntary petition for reorganization

under Chapter 11 of the Bankruptcy Code, continuing the chain of events which

began with the 1988 spinoff and which underlies these appeals.

Meanwhile, ShowBiz stock prospered. It was trading at $51.75 per share

(split adjusted) on the date Integra filed its petition in bankruptcy. By December

1, 1997, the date of the amended class settlement agreement between class
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counsel and the Trustee, ShowBiz shares were at $75.39 (split adjusted) and, by

March 6, 1998, a few weeks prior to the fairness hearing on the class action

settlement in district court, the stock price reached $101.25 per share (the last

quote available in the record). In sum, the aggregate market value of the

3,822,230 shares of ShowBiz stock went from $21,022,265 on the first day of

trading after the spinoff to $387,000,787 at the time of the settlement fairness

hearing. The aggregate total settlement which the district court was asked to

approve, and which is before us (assuming, hypothetically, that all shareholders

were to settle at $7.00 per share, without taking into account those who settled

separately before class certification) amounts to $26,755,610.

Commencement of the Adversary Proceeding

In 1994 the bankruptcy court approved Integra’s First Amended Chapter 11

Plan of Reorganization (the “Plan”). The Plan canceled the equity interests of the

approximately 7,000 shareholders still holding Integra common stock and

approved the formation of a trust to act on behalf of Integra’s unsecured creditors

(the “Trust”). Pursuant to the Plan the bankruptcy court assigned to the Trust a

variety of potential claims, including all claims against any person or entity

arising from the December 1988 distribution by Integra of the ShowBiz stock.
-11-

The Plan also incorporated a settlement agreement between Integra, the

Trust and various Hallwood-related individuals and entities with respect to claims

that Integra might assert against Hallwood and the five Hallwood-appointed

directors. Hallwood paid $9 million directly to the Trust in settlement, and

another $1 million to Integra to purchase all of the newly-issued reorganized

Integra stock, which amount Integra then assigned to the Trust. Pursuant to the

agreement and payment, the bankruptcy court released the settling parties from

further liability for Integra’s claims, which are defined as follows: “[A]ll Core

Claims and Claims . . . which Integra and the Bankruptcy Estate ever had or now

has or may have at the Effective Date, including without limitations Claims held

in Integra’s corporate capacity and Claims arising in or under Chapter 5 of the

Bankruptcy Code.” Integra I, 262 F.3d at 1097. In accord with the settlement,

the bankruptcy court also issued an injunction barring suits by “All Persons”

against or affecting any of the settling parties with respect to these claims. 

Appellants’ App. Vol. 1 at 281-83.

Subsequently, the plaintiff in this case, Jeffrey A. Weinman, as Trustee for

the unsecured creditors’ Trust, filed this adversary proceeding against Fidelity

and all other beneficial recipients of the ShowBiz shares distributed in the 1988

spinoff. The suit sought to recover those shares or their value for the benefit of

the Trust beneficiaries. The Trustee’s theory was that the distribution was a
-12-

fraudulent transfer pursuant to the Texas Fraudulent Transfer Act, Texas Bus. &

Com. Code Ann. §§ 24.001 -.012, or an unlawful dividend pursuant to the

Delaware Code, Del. Code Ann. tit. 8, §§ 160, 173 and 174(a). The complaint

sought relief pursuant to several provisions of the United States Bankruptcy Code,

11 U.S.C. §§ 105, 544, 550, 1123 and 1145.

Certification of a 23(b)(1) Defendant Class

The original complaint, filed by the Trustee on July 11, 1994, listed over

800 individual shareholders as defendants. This list was expanded to include

approximately 6000 defendants by the time of the fourth amended complaint, filed

August 30, 1996. The original complaint also requested, pursuant to Fed. R.

Bankr. P. 7023, which incorporates Fed. R. Civ. P. 23, that the court certify a

defendant class of all spinoff shareholders and designate all 800 defendants listed

as class representatives. 

On February 5, 1995, the bankruptcy court granted the Trustee’s motion

and certified a defendant class under Rule 23(b)(1) of “all persons or entities that

were the beneficial recipients of the December 1988 transfer of 3,822,230 shares

of ShowBiz Pizza Time, Inc. stock from Integra (except those with whom

settlement has been reached).” In re Integra Realty Res., Inc., 179 B.R. at 272. 

However, the court limited the number of class representatives to seven, including
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Fidelity, which was the largest recipient of ShowBiz shares in the spinoff, and E.

Thomas Spengler, one of the appellants in the present appeal. Id. After a

hearing, the court, in an order dated May 19, 1995, designated Fidelity’s counsel

as sole class counsel, reasoning that Fidelity’s counsel had demonstrated

competence to act in that capacity while other attorneys representing other class

representatives “have not consistently displayed the same capability or familiarity

with the local pleading practice, case management practice and indeed the law in

this jurisdiction.” Appellants’ App. Vol. 2 at 378. Subsequently, in response to

the motion of defendants seeking a jury trial, the district court on July 27, 1995

withdrew the reference of this adversary proceeding to the bankruptcy court, but

remanded for the administration of all pretrial matters.

Fidelity’s Preliminary Dispositive Motion and Subsequent Settlement

Acting on behalf of the class, Fidelity filed a preliminary dispositive

motion in the bankruptcy court seeking dismissal of the action on three

dispositive grounds: that the distribution constituted a settlement payment and

thus under 11 U.S.C. § 546(e) was not subject to recovery by the Trustee; the

fraudulent conveyance claim is governed by Delaware law and is therefore barred

by Delaware’s three-year statute of limitations; and the Delaware unlawful

dividend statute does not provide creditors with a claim against shareholders. In
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re Integra Realty Res., Inc., 198 B.R. at 353. Fidelity also argued that postdistribution creditors were barred from recovery. Id. at 363. The court decided all

four issues against Fidelity. Id. at 363-65. In an order dated August 8, 1996, the

district court denied Fidelity’s motion for leave to pursue an interlocutory appeal

from that decision.

Thereafter, Fidelity and the Trustee engaged in extended settlement

negotiations, reaching an initial agreement in May 1997. In light of this

agreement, the district court on November 12, 1997 withdrew its remand of the

adversary proceeding to the bankruptcy court. In December 1997 the Trustee and

Fidelity submitted an amended agreement to the district court. Under the terms of

this agreement, each class member would pay the Trustee the lesser of $7 per

share of ShowBiz stock received or the amount obtained for the stock if it had

been sold.

In accord with Rule 23(e)’s provisions regarding class action settlements,

the district court scheduled a fairness hearing for March 24, 1998. The court

ordered notice of the settlement and the hearing to be mailed to each known

defendant class member at the address according to the Trustee’s records. The

notice informed class members that the court had set February 24, 1998 as the

deadline by which those who wished to submit written comments on the

settlement must submit them, and those who wished to object at the fairness
-15-

hearing must file a Notice of Intention to Appear and Object together with

supporting documents. The notice included the court’s warning that class

members who did not file the requisite notice of intention to appear and object

would not be “entitled in any way to contest the approval of the Settlement” at the

fairness hearing. Trustee’s App. Vol. 3 at 2136. 

The vast majority of the class members submitted neither comments nor a

notice of intention to appear and object. Among those who did were appellant

Dominic Gioioso, who filed written objections, and attorney I. Walton Bader, who

filed a notice of intent to appear and object along with written objections on

behalf of an informal committee of ShowBiz shareholders as well as a list of

individual class members that included appellants Spengler and Thomas R. Ulie

as Custodian for Alexander James Ulie. 

On March 23, 1998, the day before the settlement fairness hearing was

scheduled to take place, the Trustee acquiesced to the demand, expressed in some

of the filed objections, that class members be allowed to opt out of the settlement

in order to continue litigating their defenses against the Trustee’s claims. The

Trustee and Fidelity then amended the settlement agreement to include such an

opt-out provision.

At the fairness hearing on March 24, 1998, those making appearances in

order to object to the settlement included Mr. Bader, on behalf of both the
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committee and the list of individual class members that included Mr. Spengler and

Mr. Ulie as Custodian. The objectors, essentially raising the issues now pursued

on appeal, argued that the class certification was improper; that Fidelity had not

adequately represented the class; that for various reasons the settlement

agreement was not fair and reasonable; that the bankruptcy court erred in denying

Fidelity’s preliminary dispositive motion; and that the class action notices that

had been issued in the case were inadequate to satisfy either the requirements of

due process or of Rule 23. In response to the objectors’ concern that many class

members may not have received the notice of the settlement and hearing, the court

ordered the Trustee to submit a report on the deliverability of that notice. 

The Trustee did so on April 24, 1998. His report indicates that notice of

the settlement and hearing was mailed to the 6,423 known members of the class. 

Of these, approximately 1,455 notices, representing 296,292 shares, were returned

as undelivered. Appellants’ App. Vol. 3 at 829.

Following the hearing and the Trustee’s submission of this report, the

district court on July 7, 1999 issued an order and final judgment approving the

settlement agreement with the opt-out provision. Pursuant to the court’s order,

the Trustee gave defendant class members notice of the court’s approval both by

mail, as before, and by publication. The notice included the deadline—September

15, 1999—by which each class member must either accept the settlement without
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individual defenses; accept the settlement subject to individual defenses or

objections as to the number of shares held; or opt out of the settlement and remain

a defendant in the adversary proceeding. Class members who did nothing before

the deadline would have individual final judgments entered against them three

days after the deadline. Class members who raised individual defenses or

objections would not have a final judgment entered against them until their

individual issues were judicially resolved. Id. at 843.

According to the Trustee, only some 250 of the more than 6,000 defendants

opted out of the settlement—approximately 4-1/2 percent. Plaintiff-Appellee’s

Resp. Br. at 10. Additionally, of course, some of the appellants in Integra I, and

all of those in this appeal, did not opt out, choosing, instead, to appeal. 

Individual final judgments have been entered against each of the appellants in this

case. Appellant Spengler originally asserted an individual defense but then

withdrew it and consented to the entry of final judgment.

DISCUSSION

A.

Standing / Right to Appeal

In Integra I we dismissed the appeals for lack of standing. We reasoned

first that appellants who had opted out of the settlement lacked standing to contest
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the settlement on appeal. Integra I, 262 F.3d at 1103. Next, applying our rule in

Gottlieb v. Wiles, 11 F.3d 1004 (10th Cir. 1993), we held that unnamed class

members who had judgments entered against them but who had failed to file

intervention motions in the district court, pursuant to Fed. R. Civ. P. 24(a), lacked

standing to appeal. Integra I, 262 F.3d at 1103.

As indicated above, the Supreme Court subsequently ruled in a class action

without opt-out rights that an unnamed class member is not required to seek

intervention in the district court in order to appeal, although “object[ion] during

the fairness hearing” in the district court remains a requirement. Devlin, 536 U.S.

at 11. The Court also clarified that the issue relating to whether a class member

can appeal from a district court’s approval of a class settlement is not one of

Article III jurisdiction or of prudential standing, as we characterized it in Integra

I. Rather, the issue is “whether [the appellants] should be considered a ‘party’ for

the purposes of appealing the approval of the settlement.” Id. at 7. The Court

explained that “[n]onnamed class members . . . may be parties for some purposes

and not for others. The label ‘party’ does not indicate an absolute characteristic,

but rather a conclusion about the applicability of various procedural rules that

may differ based on context.” Id. at 9-10. The Court articulated the issue in

terms of “the right to appeal.” Id. at 7. Accordingly, we proceed on that

characterization.
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All of the individuals involved in the five appeals now before us were

named as defendants at the outset of the suit, prior to class certification. All but

three of them neither filed written objections to the settlement nor moved to

intervene; nor did they appear at the fairness hearing. One of the remaining three,

Mr. Gioioso, filed a written objection but did not file notice of his intent to

appear and object and did not appear at the fairness hearing. As indicated above,

two others, Mr. Ulie in his custodial capacity and Mr. Spengler, did file notices of

intention to appear and object and did appear at the fairness hearing through

counsel, Mr. Bader. As further indicated above, none of the appellants (including

Ulie in his capacity as custodian) opted out of the settlement, and all had final

judgments entered against them pursuant to the terms of the settlement.

In asserting their right to appeal, the appellants rely on the fact that they

were all originally individually named as defendants in this action. They argue

that as named defendants having individual judgments entered against them, they

have the right to appeal these judgments. In their view, certification of the case

as a class action with named class representatives did not diminish their status as

named parties. In so arguing, they necessarily contend that our opinion in Integra

I was wrong when it classified the originally-named defendants as unnamed

members of the class following class certification. See Integra I, 262 F.3d at

1104 n.14. In support, they argue that Devlin not only changed the intervention
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rules we applied in Integra I, it clarified how we should treat named parties as

well. In any event, they argue, Spengler, Ulie and Gioioso have the right to

appeal.

At the outset we note that nothing in Devlin overrides the conclusion we

reached in Integra I that “[d]espite having been named in the complaint,

Appellants nonetheless appear now as unnamed class members, because the

district court certified the case as a class action and designated representative

defendants. . . .” Id. Accordingly, we reject the argument here, as we did in

Integra I, that the appellants have the right to appeal judgments entered against

them simply because they were originally named as parties.

Additionally, Devlin reinforces the proposition that an unnamed class

member who does not opt out and desires to appeal a class settlement must at

least object in the district court. Devlin, 536 U.S. at 11. A motion to intervene

pursuant to Rule 24(a) serves the same purpose. Since all but three of the

appellants in these appeals neither objected nor sought to intervene in the district

court, we hold that they have no right to appeal.

That leaves appellants Gioioso, Ulie and Spengler, who did object, either

directly or through counsel, and who did not opt out. As to them, we first address

the Trustee’s threshold argument that where the option to opt out of a settlement

exists, that forecloses any right to appeal the settlement. Plaintiff-Appellee’s
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Resp. Br. at 19-21. Contrary to the Trustee’s assertions, we did not so hold in

Integra I. Rather, our analysis of the intervention requirement necessarily

proceeded on the premise that failure to opt out of the settlement was not itself a

bar to appeal. While Devlin involved a non-opt out class, the Court’s reasoning

also suggests that the right of an objecting class member to appeal must be

recognized. We now make explicit what we implicitly held in Integra I and hold

that a class member who does not opt out of a settlement but objects at the

fairness hearing and against whom a final judgment is entered has the right to

appeal the district court’s approval of the settlement. See Thompson v. Metro.

Life Ins., 216 F.R.D. 55, 70 (S.D.N.Y. 2003). This answers the question we left

open in Rutter & Wilbanks Corp. v. Shell Oil Co., 314 F. 3d 1180, 1185 n.2 (10th

Cir. 2002), as to whether Devlin applies to opt-out class settlements.

Under that rule, it would appear that all three objecting class members,

Gioioso, Ulie and Spengler, qualify as parties having the right to appeal. But, on

further analysis, we cannot reach that conclusion as to Mr. Gioioso because his

written objection does not meet the district court’s stated requirements for

objecting at the fairness hearing. The district court allowed class members to file

comments on the settlement agreement in writing without making an appearance

at the fairness hearing. However, it specified that in order to preserve a right to

contest the approval of the settlement at the fairness hearing, a class member must
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file a Notice of Intention to Appear and Object. This requirement was included in

the Notice of Proposed Class Settlement and Rights of Class Members that was

mailed to all known class members. Mr. Gioioso presumably received this Notice

since he filed written objections in response. We hold that Mr. Gioioso did not

take the procedural steps necessary to have “objected during the fairness hearing”

as required by Devlin, 536 U.S. at 11. 

Messrs. Ulie as custodian and Spengler, however, have the right to appeal. 

Both, through counsel, filed the required notice of intent and appeared at the

fairness hearing. But there is an overriding and dispositive reason as to

Mr. Spengler.

As indicated above, Mr. Spengler was designated by the bankruptcy court

as one of the seven class representatives when the court certified this suit as a

defendant class action. In re Integra Realty Res., Inc., 179 B.R. at 272. As an

alternative to our holding that objecting unnamed class members have the right to

appeal an opt-out settlement, we also hold that an objecting class representative,

who has not opted out of the settlement, is a party having the right to appeal. We

implied as much in Integra I, 262 F.3d at 1103. Thus, we reject the Trustee’s

argument that opting out of the settlement was the only permissible avenue for

Mr. Spengler to take. In effect, the Trustee’s position, unsupported by any direct

authority, is that a class action settlement with an opt-out provision can never be
2We note that the caption in Integra I lists E. Thomas Spengler among one

group of defendant-appellants. It seems that Spengler was included in the caption

as a member of the Ad Hoc Protective Committee for ShowBiz Stockholders and

thus did not bring his status as class representative to the attention of the court. 

See Integra I, 262 F.3d at 1097-98 nn. 4, 5. More to the point, Mr. Spengler’s

separate appeal is before us here.

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appealed, even by a class representative. We disagree. Likewise, we reject the

argument that Spengler’s consent to a judgment forfeited his right to appeal. A

final judgment is a prerequisite to appeal, and was so as to Mr. Spengler. In

short, Mr. Spengler is a proper party to appeal, and his appeal is sufficient to

bring before us the issues outlined above.2

Because Mr. Spengler’s appeal is sufficient, and since, as the following

discussion shows, we rule for the Trustee on the merits, the other appellants’

arguments in support of their right to appeal are, as a practical matter, moot in

any event.

B.

Integra I — Law of the Case

Adequacy of Class Representative and Notice to Class Members

The division of appeals in this case between those considered in Integra I

and those now before us was for administrative, not for substantive reasons. The

case in the district court is common to all appeals, and the central issues, briefs

and counsel in the appeals here duplicate those in Integra I. Accordingly, as the
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appellants recognize, Defendants-Appellants’ Reply Br. at 21-22, the issues raised

and decided in Integra I, which are raised again here, are subject to the law of the

case doctrine.

“The law of the case doctrine posits that when a court decides upon a rule

of law, that decision should continue to govern the same issues in subsequent

stages in the same case.” United States v. LaHue, 261 F.3d 993, 1010 (10th Cir.

2001) (further quotation omitted). It “applies to issues previously decided, either

explicitly or by necessary implication.” Octagon Res., Inc. v. Bonnett Res. Corp.

(In re Meridian Reserve, Inc.), 87 F.3d 406, 409 (10th Cir. 1996) (further

quotation omitted). And, “‘when a rule of law has been decided adversely to one

or more codefendants, the law of the case doctrine precludes all other

codefendants from relitigating the legal issue.’” LaHue, 261 F.3d at 1010

(quoting United States v. Aramony, 166 F.3d 655, 661 (4th Cir. 1999)). The same

applies to the claims of fellow class members on direct appeal. 

We have emphasized that exceptions to this rule are rare:

[W]e will depart from the law of the case doctrine in three

exceptionally narrow circumstances: (1) when the evidence in a

subsequent trial is substantially different; (2) when controlling

authority has subsequently made a contrary decision of the law

applicable to such issues; or (3) when the decision was clearly

erroneous and would work a manifest injustice.

Id. at 1010-11 (further quotation omitted). 
-25-

In Integra I we directly considered and decided two major issues raised by

the appellants here: “whether Fidelity provided adequate representation for the

class members, and whether notice afforded to the appellants was adequate to

satisfy the dictates of the Due Process Clause.” Integra I, 262 F.3d at 1107.

The appellants urge that we reexamine those issues. They invoke the

above-described exceptions to the law of the case rule, arguing that Devlin’s

holding on the right to appeal tainted all the issues we decided in Integra I, that,

in any event, we only narrowly considered those issues, and that fundamental

fairness dictates that we take a “fresh look” at the issues in question. DefendantsAppellant’s Reply Br. at 21-22. We reject these arguments, as discussed below.

1. Adequacy of Fidelity’s Representation

In seeking to avoid our holding in Integra I on the adequacy of Fidelity’s

representation, the appellants accuse the Integra I court of “failing to appreciate

the seriousness” of the issue and treating it only narrowly. DefendantsAppellants’ Br. at 48. In support they cite Wright & Miller’s criticism of

Integra I. 15A Charles Alan Wright, et al., Federal Practice and Procedure

§ 3902.1 at 105-06 & nn.6-7 (Supp. 2003). And, as indicated above, they also

invoke the perceived impact of Devlin and manifest injustice.
-26-

In particular the appellants contend first that “Fidelity was not typical of

the class members because it was the largest recipient of ShowBiz stock as a

result of the Spin-Off and had sold those shares at a price [$37 per share] higher

than practically all other class members.” Defendants-Appellants’ Br. at 46. 

Second, they argue that, as a large mutual fund, Fidelity’s primary duties to its

shareholders conflicted with the interests of the members of the class. Id. at 45-

46. And, third, they assert that the agreement for the payment of Fidelity’s

attorneys’ fees out of the settlement fund both created and demonstrated a conflict

of interest as to members of the class. Id. at 47. In short, the appellants contend

that Fidelity was not an adequate representative because it was atypical of

members of the class and had irreconcilable conflicts, thus violating the

requirements of Rule 23(a) and due process.

Each of those arguments, and others, regarding the adequacy of Fidelity’s

representation, were presented to and considered by us in Integra I. See

Defendants-Appellants’ Br. (Docket Nos. 99-1483, 99-1498 and 99-1523) at 33-

38. We held, in part:

Fidelity’s purported conflicts did not render it inadequate to

represent the class either at the beginning of the proceedings or at

any later stage of the litigation. Although we recognize that

Fidelity’s potential liability far exceeded that of any other class

member, its interests were aligned with those of the other class

members in that all concerned wished to limit their liability to the

lowest possible amount. Moreover, Fidelity’s ownership of a large

block of shares would have created a greater incentive to bring the
-27-

per-share costs of settlement down to the lowest possible level. For

similar reasons, although Fidelity had fiduciary duties to its

shareholders in addition to its responsibilities to the class, we do not

believe those duties were in conflict because Fidelity’s duty to each

was vigorously to litigate the class issues and to reduce the class

liability as much as possible.

Likewise the settlement agreement’s provision for partial

payment of Fidelity’s expenses in litigating the suit, while potentially

troubling, does not in and of itself render Fidelity inadequate. . . . .

In this case, the district court did not abuse its discretion in

concluding that Fidelity remained an adequate representative

notwithstanding that the settlement agreement created a pool to offset

some of their litigation costs.

Integra I, 262 F.3d at 1112.

We are unpersuaded that Integra I either failed to consider and decide the

issues on representation raised by the appellants here, or that Devlin compels us

to revisit those issues, or, finally, that any sufficient basis exists to justify

ignoring the law of the case established by Integra I: Fidelity was an adequate

representative of the class.

2. Whether Notice to the Class Members Satisfied Due Process 

In Integra I we considered (1) whether the pre-certification notice that was

given violated due process such that class certification following such notice was

improper; (2) whether due process in the context of a defendant class requires that

all class members receive actual notice; and (3) whether due process required that

new notice of the class settlement be given after the opt-out provision was added
-28-

and before the fairness hearing took place. Integra I, 262 F.3d at 1108-11. 

Because the Appellants here focus their arguments on the second of these issues,

we limit our discussion to whether Integra I’s holding on that issue is the law of

the case. 

The Integra I appellants, like the Appellants here, argued that “all of the

members of the defendant class are entitled to actual notice before they can be

bound to a judgment.” Id. at 1110. We rejected this argument, relying on the

Supreme Court’s holding that notice satisfies due process when it is “‘reasonably

calculated, under all the circumstances, to apprize interested parties of the

pendency of the action and afford them an opportunity to present their

objections.’” Id. (quoting Mullane v. Cent. Hanover Bank & Trust Co., 339, U.S.

306, 314 (1950)). We held that the notice given here satisfied that requirement,

even though, for example, 1455 of the 6423 notices sent regarding the settlement

fairness hearing were not actually received. Id. at 1110-11. We emphasized that

the Integra I appellants had made “no showing . . . that some better method of

notification offered a practicable means of notifying the class.” Id. at 1111.

Appellants add little to the arguments of their fellow class members in

Integra I. They suggest that, at least in regard to the final notice of the

settlement, where the district court was aware that the prior notice of the hearing

had failed to reach 1455 class members, “the district court should have required
-29-

greater efforts to reach [those] defendants.” Defendants-Appellants’ Br. at 52. In

support of this claim, they cite one case in which the court had ordered the nonclass party to remail notices that were returned by the postal service and to “retain

an address research firm to research any returned notices that do not include a

forwarding address.” In re The Prudential Ins. Co. of Am. Sales Practices Litig.,

177 F.R.D. 216, 222 (D.N.J. 1991). That court, however, recognized that its

notice instructions “far exceeded the requirements of Rule 23 and due process.” 

Id. at 232. Here, while the district court did not require the use of an address

research service after receiving the Trustee’s report on the results of the hearing

notice, it did order that notice of the settlement’s approval be given by

publication as well as by mail. In the absence of a showing by the appellants that

another reasonable method of supplementing the Trustee’s mailing list would

have significantly increased the number of notices actually received, we adhere to

Integra I’s holding that the notice given satisfied due process.

In reaching this conclusion, we are cognizant of the concern that, in some

isolated instances, individual class members may have a judgment entered against

them without having received actual notice of the opportunity to raise objections

or individual defenses before the expiration of the deadline for doing so. See also

Herbert B. Newberg & Alba Conte, 2 Newberg on Class Actions §§ 4:70, :71 (4th

ed. 2002) (raising the concern that defendant class members without notice may
-30-

be bound by a settlement even after the statute of limitations for the original

claim has run). We are nonetheless persuaded to adhere to Integra I based on two

of its points in particular. First, we recognized that imposing a requirement of

actual notice to every class member would place an impossible constraint on

defendant class action litigation. Integra I, 262 F.3d at 1110 (citing Mullane, 339

U.S. at 313-14). Second, we noted that individual class members may “challenge

the binding effect of the settlement as to themselves in a collateral action.” Id. at

1111 n.18; see 4 Newberg & Conte, supra, § 11:64. Based on these

considerations, we see no basis for deviating from the law of the case doctrine

with regard to the appellants’ notice claims.

C.

Whether the Bankruptcy Court’s Certification 

of this Action as a Defendant Class Action was Proper

We turn now to the first of the two major issues on the merits raised in this

appeal and not previously considered in Integra I. The appellants contend that we

must vacate the settlement agreement because it is based upon an erroneous class

certification. We agree that the appropriateness of class certification lies at the

heart of this case. Class action settlements are premised upon the validity of the

underlying class certification. Moreover, a trial court overseeing a class action
-31-

retains the ability to monitor the appropriateness of class certification throughout

the proceedings and to modify or decertify a class at any time before final

judgment. See Fed. R. Civ. P. 23(c)(1). 

We therefore reject the Trustee’s argument that the bankruptcy court’s

certification order is unreviewable because it was interlocutory and thus was

made moot by the settlement. Plaintiff-Appellee’s Br. at 26. Rather, we hold that

the appellants’ objections to class certification at the settlement fairness hearing

were “sufficient to preserve the right of the objectors to contest the class

certification on appeal.” Petrovic v. Amoco Oil Co., 200 F.3d 1140, 1145 (8th

Cir. 1999); see also Namoff v. Merrill Lynch, Pierce, Fenner & Smith (In re

Dennis Greenman Sec. Litig.), 829 F.2d 1539, 1542-43 (11th Cir. 1987) (“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 or to the

nature of the class certification.”) (citation omitted).

We review the bankruptcy court’s certification of a defendant class

pursuant to Rule 23(b)(1) for an abuse of discretion. J.B. ex rel. Hart v. Valdez,

186 F.3d 1280, 1287 (10th Cir. 1999). “There is no abuse of discretion when the

trial court applies the correct criteria [under Rule 23] to the facts of the case.” Id.

(further quotation omitted). We reject the appellants’ argument that the

heightened scrutiny dictated by Amchem Prods., Inc. v. Windsor, 521 U.S. 591,
3

(a) Prerequisites to a Class Action. One or more members of a class

may sue or be sued as representative parties on behalf of all only if (1) the class is

so numerous that joinder of all members is impracticable, (2) there are questions

of law or fact common to the class, (3) the claims or defenses of the

representative parties are typical of the claims or defenses of the class, and (4) the

representative parties will fairly and adequately protect the interests of the class.

Fed. R. Civ. P. 23(a).

-32-

620-21 (1997), for settlement-only certifications applies to this case since here,

unlike in Amchem, the class was certified before settlement negotiations began

and the designated class counsel acted as the negotiator for the class. See

Petrovic, 200 F.3d at 1145-46.

Under Rule 23, a trial court determining whether class certification is

appropriate must first find that a proposed class meets the four prerequisites of

numerosity, commonality, typicality, and fair and adequate representation set

forth in Rule 23(a).3

 Of these, Appellants challenge only the fourth, claiming that

Fidelity and its counsel failed to “fairly and adequately protect the interests of the

class” as required by Rule 23(a)(4). As we determined above, the law of the case

doctrine applies to and resolves the issue of Fidelity’s adequacy as a class

representative.

Rule 23 also requires the trial court to find that the plaintiff’s claim is

maintainable as a class action under one of the three categories of suits described
4

(b) Class Actions Maintainable. An action may be maintained as a class

action if the prerequisites of subdivision (a) are satisfied, and in addition:

 (1) the prosecution of separate actions by or against individual

members of the class would create a risk of

(A) 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, or

(B) adjudications with respect to individual members of the

class which would as a practical matter be dispositive of the interests

of the other members not parties to the adjudications or substantially

impair or impede their ability to protect their interests; or

. . . . .

 (3) the court finds that the questions of law or fact common to the

members of the class predominate over any questions affecting only

individual members, and that a class action is superior to other

available methods for the fair and efficient adjudication of the

controversy.

Fed. R. Civ. P. 23(b).

5

(c) Determination by Order Whether Class Action to be Maintained;

Notice; Judgment; Actions Conducted Partially as Class Actions.

. . . .

 (2) In any class action maintained under subdivision (b)(3), the

(continued...)

-33-

in Rule 23(b).4

 Adamson v. Bowen, 855 F.2d 668, 675 (10th Cir. 1988). Here, as

indicated above, the bankruptcy court, on motion of the Trustee, concluded that

the Trustee’s claim could be maintained under either (b)(1) or (b)(3) and certified

a defendant class of spinoff shareholders under (b)(1). In re Integra Realty Res.,

Inc., 179 B.R. at 272. 

Appellants argue this was error, and the defendant class should have been

certified under 23(b)(3), which allows class members to opt out of the class,

rather than 23(b)(1), which requires no such opt-out right.5 They maintain that
5

(...continued)

court shall direct to the members of the class the best notice

practicable under the circumstances, including individual notice to all

members who can be identified through reasonable effort. The notice

shall advise each member that (A) the court will exclude the member

from the class if the member so requests by a specified date; (B) the

judgment, whether favorable or not, will include all members who do

not request exclusion; . . .

Fed. R. Civ. P. 23(c)(2).

6Subsection (1)(A) focuses on the risk of separate adjudications to the

nonclass party, here the Trustee, and is satisfied when separate actions would

result in “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.” Fed. R. Civ. P. 23(b)(1)(A). Subsection (1)(B)

focuses on the risk of separate actions to the individual potential class members,

here the spinoff shareholders, and applies when “adjudications [against]

individual members of the class . . . would as a practical matter be dispositive of

the interests of the other members not parties to the adjudications or substantially

impair or impede their ability to protect their interests.” Fed. R. Civ. P.

23(b)(1)(B); see 7A Wright, et al., supra, §§ 1773, 1774 (2d ed. 1986).

-34-

had the class been certified under (b)(3), Fidelity would have been in a stronger

bargaining position vis-a-vis the Trustee when negotiating the settlement. The

question, then, is whether the bankruptcy court applied the correct criteria when it

determined that 23(b)(1) was the most appropriate category for class certification

in this case.

The appellants and the Trustee are at odds in regard to which subsection of

Rule 23(b)(1)6 the bankruptcy court applied. The appellants strongly assert that

the bankruptcy court applied subsection (A), evidently believing that certification

under subsection (A) would clearly be improper for a suit seeking to recover
7Compare In re Integra Realty Res., Inc.,179 B.R. at 271 (invoking

subsection (A)’s concern with the effect of failing to certify on the non-class

party by comparing the case here to a prior non-class action where “differing

interpretations of the law assured a right of recovery by the trustee in some cases

and denied it against other defendants who were similarly situated”); with id.

(invoking subsection (B)’s concern with the effect of failing to certify on

potential class members by noting that if it did not certify a class, “a judge in a

later case could be constrained by stare decisis to apply previously adopted rules

to different defendants,” with the result that “as a practical matter the first suit

could be dispositive of the class interests”); id. at 272 (concluding that “[c]lass

certification will assure that the rights of absent parties are adequately protected

and not summarily dealt with by the application of stare decisis from a case to

which they were not a party”).

-35-

monetary damages. However, the bankruptcy court failed to specify which

subsection of (b)(1) it was applying. Rather, the court’s language suggests that it

considered both subsections applicable.7

 We conclude that the bankruptcy court

certified the class under both subsection (A) and subsection (B) and may therefore

uphold the certification under either subsection.

We uphold the bankruptcy court’s certification under subsection (B) rather

than under subsection (A). A widely-recognized limitation on (b)(1)(A)

certification requires that there be “more than the mere possibility that

inconsistent judgments and resolutions of identical questions of law would result

if numerous actions are conducted instead of one class action.” Nat’l Union Fire

Ins. Co. v. Midland Bancor, Inc., 158 F.R.D. 681, 687 (D. Kan. 1994); see 2

Newberg & Conte, supra, § 4:4. Here, it is not clear that recovery of some

ShowBiz shares but not others would require the Trustee to fulfill mutually
-36-

conflicting obligations. Because we are uncertain regarding the applicability of

subsection (A) to this case, we turn to review the bankruptcy court’s certification

under subsection (B).

We hold that the bankruptcy court properly certified the class under Rule

23(b)(1)(B), based on the court’s conclusion that, in the absence of class

certification, the Trustee’s first suit against a defendant or group of defendants

could be dispositive of all remaining suits. This first suit would thus decide the

rights of absent shareholders without the class action’s assurance that they be

adequately represented. 

We believe that the particular context of this case distinguishes it from that

in which the First Circuit recently held, agreeing with the “vast majority of courts

confronted with the question,” that “the certification of a class under Rule

23(b)(1)(B) cannot rest solely on an anticipated stare decisis effect.” Tilley v.

TJX Cos., 345 F.3d 34, 42 (1st Cir. 2003). The First Circuit reasoned that if the

“mere possibility” of a stare decisis effect on future actions were sufficient to

justify a (b)(1)(B) class, “it would render the other categories under Rule 23(b)

superfluous” because Rule 23(a)(2) already requires that all class actions have

“questions of law or fact common to the class.” Id. at 41-42. 

Here, we are convinced that litigation of the Trustee’s fraudulent transfer

and unlawful dividend claims against one defendant shareholder would present
-37-

more than the “mere possibility” of a stare decisis effect on future defendants. 

For one thing, the issue of whether the ShowBiz spinoff constituted a fraudulent

transfer or an unlawful dividend is entirely independent of the identity of the

defendant shareholder. There is no allegation that any of the shareholders

participated in any fraudulent or unlawful activity. As a mere passive recipient of

the ShowBiz stock, a defendant here has only a small number of possible

individual defenses, such as the claim that he only acted as a conduit for the

actual recipients of the stock, or that he had a smaller number of shares than

alleged. In such circumstances, a court’s conclusions regarding the primary legal

and factual issues in the first case would not only form the basis for the

application of stare decisis in subsequent cases; they would almost inevitably

prove dispositive in those cases. See Lynch Corp. v. MII Liquidating Co., 82

F.R.D. 478, 483 (D.S.D. 1979) (certifying defendant class of shareholders under

(b)(1)(B)); Guy v. Abdulla, 57 F.R.D. 14, 18 (N.D. Ohio 1972) (holding that

(b)(1)(B) certification of a defendant class is appropriate for the purpose of

deciding common issues in a bankruptcy trustee’s action to recover voidable

preferences and fraudulent conveyances).

Also significant is the fact that, were the Trustee to proceed against the

defendants individually rather than as a class, he would likely do so in a single

forum, the Bankruptcy Court of the District of Colorado, pursuant to that court’s
-38-

jurisdiction under 28 U.S.C. § 1334. This probability further increases the

likelihood that the first case would prove dispositive.

Appellants argue that “due process requires the provision of opt-out rights

in a money damages class action,” and that therefore the bankruptcy court’s

certification of a mandatory (non-opt-out) (b)(1) class is inappropriate in this

case. Defendants-Appellants’ Br. at 40. For this proposition Appellants rely on

the Supreme Court’s decision in Phillips Petroleum Co. v. Shutts, 472 U.S. 797

(1985), which addressed the due process rights of absent plaintiff class members

as to whom the forum state court lacked personal jurisdiction. The question

remains open as to class actions in federal court. See Ticor Title Ins. Co. v.

Brown, 511 U.S. 117, 121 (1994) (dismissing a writ of certiorari as improvidently

granted and thus refraining from deciding whether an opt-out right in monetary

damages cases in federal court was constitutionally required). Moreover, Shutts

expressly limited its holding “to those class actions which seek to bind known

plaintiffs concerning claims wholly or predominately for money judgments.” 

Shutts, 472 U.S. at 811 n.3 (emphasis added). The Ninth Circuit’s Brown

decision, applying Shutts to federal court actions, also dealt with a plaintiff class. 

Brown v. Ticor Title Ins. Co., 982 F.2d 386, 392 (9th Cir. 1992), cert. dismissed,

Ticor Title Ins. Co. v. Brown, 511 U.S. 117 (1994). Essentially, these decisions

allow potential plaintiffs to take their chances in regard to whether a class action
-39-

or an individual suit would be most effective in maximizing the amount of

damages they might recover.

Regardless of whether Shutts’ reasoning would apply in the general context

of defendant class actions in federal court where the plaintiff seeks primarily

monetary damages, we do not think it applies here. “The fact that a judicial

remedy may require one party to pay money to another is not a sufficient reason to

characterize the relief as ‘money damages.’” Bowen v. Massachusetts, 487 U.S.

879, 893 (1988). The Trustee’s action, under § 550 of the Bankruptcy Code, was

an attempt to “recover . . . property transferred, or if the court so orders, the value

of such property.” 11 U.S.C. § 550(a). This provision “[n]owhere . . . speak[s] in

terms of ‘liability’ for a wrongful act or in terms of ‘money damages.’” Branch v.

F.D.I.C., 825 F. Supp. 384, 419 (D. Mass 1993). “‘The legislative theory’” in

such an action “‘is cancellation [of the transfer], not the creation of liability for

the consequences of a wrongful act.’” Id. (quoting Robinson v. Watts Detective

Agency, Inc., 685 F.2d 729, 738 (1st Cir. 1982)).

This distinction is relevant for our due process analysis because, unlike the

typical class action damage case, where “the individual circumstances of each

class member are typically of material importance,” it is “virtually never the case”

that the proceeds of a single fraudulent transfer or unlawful dividend would be

recoverable from one defendant shareholder but not from another. Turner v.
-40-

Bernstein, 768 A.2d 24, 33 (Del. Ch. 2000). This is certainly true here because

the Trustee’s right to recover the ShowBiz stock or its value depends entirely on

the propriety of Integra’s spinoff under applicable bankruptcy and other law. The

culpability of individual defendants is of no consequence in this analysis. In the

event that a court had declared the spinoff a fraudulent transfer or unlawful

dividend, judgment against each defendant would be calculated according to “a

common formula or guideline,” 2 Newberg & Conte, supra, § 4:49, based on the

amount of ShowBiz stock each defendant had received, and subject only to

limited individual defenses, which are not waived as a result of class certification. 

In such a context, certification of a mandatory defendant class does not violate

due process as long as the class is adequately represented. Hansberry v. Lee, 311

U.S. 32, 43 (1940). We thus hold that in the circumstances of this case,

certification of a mandatory defendant class was not barred simply because the

Trustee sought to recover the ShowBiz stock or its monetary value. 

Consequently, as indicated above, we conclude that the bankruptcy court

did not abuse its discretion by certifying a mandatory defendant class under Rule

23(b)(1)(B) rather than an opt-out class under Rule 23(b)(3). The court’s decision

was in accord with a general preference for certifying defendant classes under

23(b)(1) or (b)(2) rather than (b)(3) in order to promote judicial economy and

prevent the class action device from becoming ineffective as a result of numerous
-41-

opt-outs by individual defendants. See 2 Newberg & Conte, supra, § 4:64. 

Because we uphold the bankruptcy court’s 23(b)(1)(B) certification, we need not

reach the issue of whether settlement negotiations were prejudiced by the alleged

inappropriate certification.

D.

Whether the Settlement Was Fair, Reasonable, and Adequate

Appellants also challenge the fairness, reasonableness, and adequacy of the

settlement agreement itself. The district court approved the settlement agreement

as fair, reasonable, and adequate based on the four factors outlined in Jones v.

Nuclear Pharmacy, Inc., 741 F.2d 322, 324 (10th Cir. 1984). The court found that

(1) the settlement was fairly and honestly negotiated, (2) serious legal and factual

questions placed the litigation’s outcome in doubt, (3) the immediate recovery

was more valuable than the mere possibility of a more favorable outcome after

further litigation, and (4) the Trustee and Fidelity believed the settlement was fair

and reasonable. Appellants’ App. Vol. 3 at 837. 

We review a district court’s approval of a class action settlement agreement

for an abuse of discretion. Rutter & Wilbanks Corp., 314 F.3d at 1186. We will

not disturb the district court’s approval “absent a distinct showing it was based on
-42-

a clearly erroneous finding of fact or an erroneous conclusion of law or manifests

a clear error of judgment.” Id. at 1187 (further quotation omitted).

We first address the appellants’ claim that the terms of the settlement are 

excessive. Essentially, the appellants argue that the settlement, by requiring

defendant class members to pay up to $7 per share of ShowBiz stock, is inherently

unfair because even if the Trustee could have succeeded in litigation on the

merits, the maximum amount he could have recovered was $5.50 per share. In

other words, they contend that the value of the ShowBiz stock, for purposes of 11

U.S.C. § 550(a), could not be more than its price at the time of the spinoff. We

reject the appellants’ argument because, as discussed below, the amount actually

recoverable by the Trustee if he had prevailed on the merits is far from clear. 

In the case of a fraudulent transfer, § 550(a) allows a bankruptcy trustee to

recover “the property transferred, or if the court so orders, the value of such

property.” 11 U.S.C. § 550(a). “‘Section 550(a) is intended to restore the estate

to the financial condition it would have enjoyed if the transfer had not occurred.’” 

Hirsch v. Steinberg (In re Colonial Realty Co.), 226 B.R. 513, 525 (Bankr. D.

Conn. 1998) (quoting Hirsch v. Gersten (In re Centennial Textiles, Inc.), 220 B.R.

165, 176 (Bankr. S.D.N.Y. 1998)). Normally this is achieved by allowing the

trustee to recover the actual property transferred. See id. However, where the
-43-

property is unrecoverable, “courts allow the trustee to recover the value of the

property.” Id. 

This is where the difficulty in our case begins because § 550(a) “‘does not

define “value,” nor indicate at what time “value” is to be determined.’” Id.

(quoting Gennrich v. Montana Sport U.S.A., Ltd. (In re Int’l Ski Serv., Inc.), 119

B.R. 654, 658 (Bankr. W.D. Wis. 1990)). The court in In re Colonial identified as

a general rule that “the market value of the property at the time of transfer, less

the consideration received, is the proper measure of recovery under § 550.” Id. It

thus rejected the trustee’s argument that the bankruptcy estate should recover the

appreciated value of transferred stock.

Our own review of fraudulent transfer cases has revealed no such general

rule, however, particularly where the property in question has, as here,

appreciated since the time of the transfer. The cases cited by In re Colonial and

by the appellants in support of this rule all deal with instances where the

transferred property had decreased in value since the time of the transfer. See

Kepler v. Sec. Pac. Hous. Servs. (In re McLaughlin), 183 B.R. 171, 176-77

(Bankr. W.D. Wis. 1995); Shape, Inc. v. Midwest Eng’g (In re Shape, Inc.), 176

B.R. 1, 3 (Bankr. D. Me. 1994); Official Creditors Comm. v. Agri Dairy Prods.,

Inc. (In re James B. Downing & Co.), 74 B.R. 906, 911 & n.6 (Bankr. N.D. Ill.

1987). The rationale behind the rule in those cases is to avoid the inequity to the
-44-

bankruptcy estate that would result if the court ordered the return of the actual

property at issue. See Tidwell v. Chrysler Credit Corp. (In re Blackburn), 90 B.R.

569, 573 (Bankr. M.D. Ga. 1987) (“Because of the depreciable nature of the

property involved [here], the Court finds that Trustee is entitled to recover the

value of the property at the time of transfer.”). As the In re Colonial court

recognized, “‘the proper focus in [§ 550(a)] actions is not on what the transferee

gained by the transaction, but rather on what the bankruptcy estate lost as a result

of the transfer.’” In re Colonial Realty Co., 226 B.R. at 525 (quoting Gill v.

Maddalena (In re Maddalena), 176 B.R. 551, 557 (Bankr. C.D. Cal. 1995)). 

Rather than In re Colonial’s rule, we believe the only generally applicable rule in

regard to § 550(a) valuation is that “the time at which the value is measured

depends upon the circumstances of each individual case.” Pritchard v. Brown (In

re Brown), 118 B.R. 57, 60 (Bankr. N.D. Tex. 1990) (quoting In re Blackburn, 90

B.R. at 573 (citing 4 Collier on Bankruptcy ¶ 550.02 n.6 (15th ed. 1987))).

Cases in which the value of transferred property appreciated after the

transfer are rare. We are aware of only one case other than In re Colonial dealing

with such circumstances, and there the bankruptcy court ordered the return of

transferred stock that had appreciated since the transfer. Cooper v. Ashley

Communications, Inc. (In re Morris Communications NC Inc.), 75 B.R. 619, 629

(Bankr. W.D.N.C. 1987), rev’d on other grounds by Cooper v. Ashley
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Communications, Inc. (In re Morris Communications), 914 F.2d 458 (4th Cir.

1990).

We therefore reject the appellants’ assertion that the settlement imposed a

cost on shareholders higher than they would ever have to pay if the case

proceeded in litigation. As charted in Fidelity’s memorandum to the district court

in support of the settlement agreement, the value of ShowBiz shares on the stock

market since the time of the spinoff ranged from approximately $5.50 to $101.25

per share. Appellants’ App. Vol. 4 at 1367. If the lower courts had held that the

spinoff constituted a fraudulent transfer or unlawful dividend, defendant class

members may have been ordered to return their stock. Alternatively, they may

have been ordered to pay an amount somewhere between $5.50 and $101.25 per

share. The only way to determine precisely what the outcome would have been

was to litigate the case to conclusion (which, we note, defendant class members

had the option of doing by opting out of the settlement). We therefore conclude

that the terms of the settlement, limiting the Trustee’s recovery to the lesser of $7

per share or the amount for which the stock was ultimately sold, are not inherently

unfair.

The appellants’ remaining arguments revolve around the form of the district

court’s opinion. The appellants argue that the district court “did not adequately

support its approval of the Settlement” by explaining the reasons for its approval
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and for its rejection of the objections that were raised. Defendants-Appellants’

Br. at 54-55 (citing Maher v. Zapata Corp., 714 F.2d 436, 455 (5th Cir. 1983)). 

To be sure, “‘a reviewing court [must] have some basis for distinguishing

between well-reasoned conclusions arrived at after a comprehensive consideration

of all relevant factors, and mere boilerplate approval phrased in appropriate

language but unsupported by evaluation of the facts or analysis of the law.’” 

Newman v. Stein, 464 F.2d 689, 692 (2d Cir. 1972) (quoting Protective Comm.

for Indep. Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414,

434 (1968)). However, while more extensive explanation by the district court

may have been helpful to our review, we will not overturn the district court’s

decision on the basis of a “merely formal” deficiency as long as the decision finds

support in the record. Protective Comm., 390 U.S. at 437.

The bulk of the appellants’ arguments contesting the settlement’s fairness

concern the district court’s alleged failure to take into account various issues and

facts in its holding. These include Fidelity’s alleged conflict of interest, the

propriety of class certification, the likelihood of defendants’ success in litigation

based on the defenses raised in the preliminary dispositive motion, the Trustee’s

prior settlement with Hallwood and Hallwood’s consequent release from liability

related to the spinoff, and the number of objections to the settlement. All of these

arguments essentially restate the appellants’ contention that the district court
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erred by failing to explain its holding in sufficient detail, with reference to these

facts and issues. We agree with the appellants that all of these factors should

have been part of the mix in the district court’s consideration of the settlement’s

fairness. However, for the same reasons explained above, we disagree that the

district court’s failure to refer to these factors in its order constitutes definitive

proof that it failed to consider them in reaching its decision. 

The district court claimed, in its order and final judgment, to have

considered all prior proceedings in the case and all objections and submissions

that were made in connection with the proposed settlement, and, in the absence of

evidence to the contrary, we assume that it did so. Appellants’ App. Vol. 3 at

836. The materials before the district court included the memoranda in support of

the settlement submitted by both the Trustee and Fidelity, each of which were

supplemented by substantial evidentiary appendices that focused primarily on the

history of Integra, its involvement with Hallwood, and the factual details of the

spinoff; Integra’s financial condition before and after the spinoff; the fluctuating

value of ShowBiz stock after the spinoff; and the bankruptcy court’s approval of

Integra’s reorganization plan. The materials also included all written objections

to the settlement. At the settlement fairness hearing, the district court heard from

the Trustee’s counsel and Fidelity’s counsel in support of the settlement, then

heard objections presented by Mr. Greenbaum, an attorney appearing on his own
8As we noted in Integra I, we express no opinion in regard to whether the

Trustee’s settlement with Hallwood prevents defendant class members from

seeking indemnification from Hallwood. 262 F.3d at 1097 n.3.

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behalf, and Walton Bader, representing a number of defendant class members, and

also heard individual issues raised by a number of other attorneys and pro se

defendants. Appellants’ App. Vol. 3 at 699-792. The district court also had

before it the bankruptcy court’s prior opinions on class certification and Fidelity’s

preliminary dispositive motion. The record thus indicates that the district court

was aware of all the issues that appellants now argue should have been considered

when determining the settlement’s fairness.

Having carefully reviewed the record, in light of the four Jones factors

listed above, we believe that the district court did not abuse its discretion by

approving the settlement. What is clear from the record is that this litigation

involved a number of contentious issues that could not have been decided on the

merits without extensive further proceedings. We are unwilling to overturn the

settlement of this drawn-out case based on the mere possibility that Fidelity and

the defendant class could have prevailed, or that Hallwood could have been

forced to indemnify all defendant class members,8 if the case had been tried to its

conclusion.
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E.

Whether the Bankruptcy Court Erred 

by Denying Fidelity’s Dispositive Motion

In their final argument, the appellants urge us to review the bankruptcy

court’s denial of Fidelity’s dispositive motion and conclude that the court’s legal

conclusions were in error. Such a review would require us to consider the merits

of the ShowBiz shareholders’ legal arguments in regard to the Trustee’s

fraudulent transfer and unlawful dividend claims. The lower courts never reached

a final judgment on these issues. Rather, the case has now been resolved, as far

as these appellants are concerned, by a settlement agreement, which takes the

place of a final judgment on the merits. Significantly, the settlement agreement

itself does not preserve the rights of settling parties to appeal the merits of the

case. We believe that allowing settling parties to appeal the merits, after the

settlement agreement has been upheld, would effectively negate the presumed

intent of the settling parties to end their litigation without reaching the merits. 

We therefore hold that the appellants’ claims in regard to the dispositive motion

are moot. See 13A Wright, et al., supra, § 3533.2, at 233 (2d ed. 1984)

(“Settlement moots an action. . . .”). Here, had the appellants wished to preserve

their right to appeal the bankruptcy court’s denial of the dispositive motion, they

could have done so by opting out of the settlement and receiving a judgment on

the merits in the district court.
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CONCLUSION

For the foregoing reasons, the decision of the district court upholding the

settlement agreement is AFFIRMED.