Opinion ID: 774669
Heading Depth: 1
Heading Rank: 1

Heading: facts

Text: 4 This appeal arises from Integra's December 1988 spinoff of ShowBiz Pizza Time, Inc. to its shareholders. Integra, which owned a ninety-percent stake in ShowBiz, issued shareholders a dividend of 0.429 ShowBiz shares for each share of Integra owned by the recipient. At the time of the spinoff, Integra was controlled by the Hallwood Group Inc. (Hallwood), a merchant banking firm that owned fourteen percent of Integra's common stock and which appointed a majority of Integra's directors. See In re Integra Realty Resources, Inc., 198 B.R. 352, 354 (Bankr. D. Colo. 1996). 5 ShowBiz began trading as a separate public corporation in January 1989 at a price of $5.50 per share, traded for at least $5 per share throughout the relevant period, and, adjusting for stock splits, eventually traded for as much as $53.75 per share. Integra, on the other hand, consistently traded below $2 per share, continually lost money after the spinoff, and filed for Chapter 11 bankruptcy in the District of Colorado in 1992. In 1994, the bankruptcy court approved both Integra's Chapter 11 plan of reorganization (Reorganization Plan) and the formation of a trust to act on behalf of unsecured creditors (the Trust). Pursuant to the Reorganization Plan, the bankruptcy court assigned to the trust a variety of potential claims that Integra had against Hallwood and its former officers and directors, and Hallwood and the former directors paid $9 million to settle these claims. In 1994, 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. 3 6
7 Plaintiff Jeffrey A. Weinman (Trustee) filed the present suit in 1994, in his capacity as Trustee for the unsecured creditors' Trust, seeking to recover the value of the ShowBiz shares for Integra's estate in bankruptcy. The defendants were all beneficial recipients of ShowBiz shares following the 1988 spinoff. The Trustee asserted a variety of claims, alleging that the spinoff constituted a fraudulent transfer pursuant to the Texas Fraudulent Transfer Act, Texas Bus. & Com. Code Ann. 24.001-.012, and in addition sought relief pursuant to several provisions of the United States Bankruptcy Code, 11 U.S.C. 105, 544, 550, 1123, and 1145. The Trustee attempted service of the complaint on more than 800 known defendants by first-class mail, and he then filed a motion to have the action certified as a defendant class action. After conducting a hearing to consider objections from putative class members, the bankruptcy court certified a defendant class of ShowBiz stock recipients under Rule 23(b)(1). 8 In addition, the bankruptcy court designated seven representative defendants. These representatives consisted of Fidelity, three other institutional investors, two individual investors, and the Unofficial Protective Committee of ShowBiz Stockholders (Unofficial Committee), 4 which is made up of clients represented by attorney I. Walton Bader (Bader). The Unofficial Committee appears in the caption in appeals numbered 99-1344, 99-1416, 99-1468, and 99-1546. 5 Although not listed elsewhere in the record, Bader alleges that the Appellants in case number 99-1344 are members of the committee. The same individuals appear in case number 99-1416. 9 The bankruptcy court then ordered the class representatives to meet, discuss the appointment of class counsel, and report their selection back to the court. Further, the court designated procedures for notifying defendants of the action, and approved a form of notice which was mailed in June 1995. 10 The class representatives were unable to agree on who should serve as class counsel. Fidelity was the largest recipient of ShowBiz shares in the spinoff, receiving 377,520 shares of ShowBiz stock, or approximately ten percent of the total. Fidelity had initially requested to be excluded from serving as a representative party out of concern that its duties to shareholders might conflict with its responsibilities to the class members. In addition, Fidelity informed the court that its exposure differed significantly from that of many of the other class members, both because of the large number of shares it received and because it sold its ShowBiz stock at the relatively high average price of $37.65 per share. Nevertheless, the three remaining institutional investors ultimately nominated Fidelity to act as the sole class representative to appear on behalf of the class. 6 Although Fidelity had opposed designation of the class, it told the court it would vigorously protect its own interests, and that by doing so it believed it would protect interests it had in common with other class members. However, Fidelity disclaimed any acceptance of fiduciary duties to the members of the class. 11 The Unofficial Committee proposed that a committee of attorneys representing different groups of defendants appear on behalf of the class. Fidelity objected to this arrangement, arguing it would be impossible for it to work effectively with Bader and submitting seven reported cases detailing what it believed to be questionable or unethical conduct by Bader. Fidelity stated that it had no objections to sharing defense time so that Bader could appear before the court on behalf of the Unofficial Committee, however. 12 Ultimately, the bankruptcy court rejected the proposal for a committee of class counsel. Bader then petitioned the court for the Unofficial Committee members to be relieved from their status as representative defendants and to proceed exclusively and independently under Bader's representation, and the court rejected this request as well. The court also denied Bader leave to file an interlocutory appeal of his request to proceed independently from the class. 7 Following Fidelity's designation as lead counsel, the district court withdrew the suit from the bankruptcy court. The case was nevertheless remanded to the bankruptcy court for pretrial matters. 13 Fidelity began its defense of the class by filing a preliminary dispositive motion raising the statute of limitations and other threshold defenses. See In re Integra, 198 B.R. at 353. The bankruptcy court denied the motion as well as a subsequent motion for leave to appeal. See id. at 365. Fidelity then entered into settlement negotiations. The parties eventually submitted a proposed settlement to the court that would have held each class member liable for the lesser of either: (1) $7.00 per share; or (2) the amount the class member received when and if they sold the stock. The proposed settlement also established procedures for class members to raise a limited number of individual defenses and to litigate issues which were not common to class members. 14 The district court approved a form notifying class members of the settlement's provisions and instructing them how to file objections. The vast majority of defendants filed no objections. Many of those that did were concerned by the absence of a right to opt out of the settlement. After additional negotiation with Fidelity, the Trustee consented to modify the agreement to provide for such rights. The district court did not order that class members be notified of this new provision prior to approving the settlement, however. 15 The district court conducted a fairness hearing pursuant to Fed. R. Civ. P. 23(e) in March 1998, and Bader appeared on behalf of his clients and objected that the settlement was excessive and unfair. The remaining Appellants in this case apparently did not appear to object to the settlement or otherwise seek to intervene in the action to protect their rights. Despite Bader's objections, the district court approved the settlement agreement, and entered individual judgments against those class members who neither opted out of the settlement nor raised individual defenses. The district court also entered a minute order stating that Fidelity could take immediate possession of any settlement funds paid by settling defendants. 8
16 Because of the intricate rules governing standing to appeal from a class action settlement, it is necessary to discuss each of the individual cases in some detail before beginning our analysis of the case. 17
18 The Trustee alleges that all of the appellants in cases numbered 99-1344 and 99-1416 opted out of the settlement and have pressed forward with their defenses before the district court. Case numbers 99-1344 and 99-1416 were brought by the Unofficial Committee and a number of individual defendants represented by attorney Bader whom the Unofficial Committee claims as members. The Trustee filed a motion with this court to dismiss 99-1416, arguing that the appellants in that case had opted out of the settlement and thus lacked standing to bring an appeal objecting to the settlement. The trustee also asserts that no final judgment existed as to those appellants. The Trustee repeated these arguments in its answer brief to the court with respect to case number 99-1344. 19 A few of the individual litigants involved in these cases have clearly opted out of the settlement. 9 The record is less clear with respect to the majority of those whom Bader claims as members of the Unofficial Committee. Bader filed notice of appeal to the settlement on September 15, 1999. Rodney J. Axtell, a member of the Unofficial Committee, and fifty-seven other Appellants, filed a motion the following day purporting to exclude themselves from the class and objecting to the requirement that they opt-out because of the pendency of their appeal. The record, however, does not show whether the remaining members of the Unofficial Committee formally opted out or whether judgments were entered against them pursuant to the settlement. The Unofficial Committee is listed as a party in case number 99-1546. Our analysis of the Unofficial Committee members' standing thus extends to these cases as well. 20
21 Case numbers 99-1468, 99-1477 and 99-1546 also include appeals by individual Appellants represented by Bader. Although these appeals were consolidated with the appeals by the Unofficial Committee, there is no allegation that these individuals are members of the Committee themselves, and therefore we do not treat them as such. 10 22 The remaining appeals are brought by Vanguard Group, Inc. and a number of individual recipients of ShowBiz stock. All of these Appellants appear as unnamed 11 class members who accepted the settlement and had judgments entered against them by the district court according to its terms. 12