Court Opinion

ID: 2976888
Source: CourtListenerOpinion
Date Created: 2015-09-22 17:59:18.117773+00
Date Added: 2024-06-11T15:01:00.338202
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RECOMMENDED FOR FULL-TEXT PUBLICATION
                                     Pursuant to Sixth Circuit Rule 206
                                              File Name: 08a0258p.06

                        UNITED STATES COURT OF APPEALS
                                         FOR THE SIXTH CIRCUIT
                                           _________________

                                                         X
                                                          -
 BERNARD FIDEL, et al., on behalf of themselves and

                              Lead Plaintiffs-Appellees, -
 all others similarly situated,
                                                          -
                                                          -
                                                               No. 06-5550

                                                          ,
 JAMES J. HAYES,                                           >
                                    Plaintiff-Appellant, -
                                                          -
                                                          -
                                                          -
              v.

                                                          -
                                            Defendants. -
 WILLIAM FARLEY, et al.,
                                                          -
                                                         N
                            Appeal from the United States District Court
                      for the Western District of Kentucky at Bowling Green.
                      No. 00-00048—Joseph H. McKinley, Jr., District Judge.
                                           Submitted: June 11, 2008
                                     Decided and Filed: July 18, 2008
         Before: GIBBONS and SUTTON, Circuit Judges; ACKERMAN, District Judge.*
                                              _________________
                                                   COUNSEL
ON BRIEF: Eric A. Isaacson, COUGHLIN, STOIA, GELLER, RUDMAN & ROBBINS, San
Francisco, California, for Appellees. James J. Hayes, Annandale, Virginia, pro se.
                                              _________________
                                                  OPINION
                                              _________________
        JULIA SMITH GIBBONS, Circuit Judge. Plaintiff-appellant James J. Hayes, appearing pro
se, seeks review of the district court’s approval of a settlement in this securities class action brought
against Fruit of the Loom. Hayes, a nonnamed member of a class of Fruit of the Loom shareholders,
contends that the district court erred in approving the settlement because certain class members,
including Hayes, received notice of the settlement after the deadline for objecting to the settlement.
Hayes maintains that the settlement should be set aside and the class renotified. Additionally, Hayes
requests that the attorney’s fees granted by the district court to class counsel be reduced due to the

         *
         The Honorable Harold A. Ackerman, Senior United States District Judge for the District of New Jersey, sitting
by designation.

                                                          1
No. 06-5550                 Fidel, et al. v. Farley, et al.                                                   Page 2

alleged deficiencies in providing notice to the class. In turn, the lead plaintiffs—the appellees in the
instant case—argue that this court should decline to hear Hayes’s appeal because Hayes, as a
nonintervening, nonnamed class member, is not a “party” for purposes of appealing the settlement.
       We conclude that Hayes has the power to bring this appeal, notwithstanding his status as a
nonintervening, nonnamed class member. Nonetheless, we affirm the district court’s order
approving the settlement, as well as the court’s award of attorney’s fees to class counsel.
                                                          I.
        This case arises out of the settlement of two consolidated class action lawsuits alleging that
defendants, Fruit of the Loom and a number of its executives, engaged in fraudulent conduct that
inflated the market price of Fruit of the Loom’s stock. See New England Health Care Employee’s
Pension Fund v. Fruit of the Loom, Inc., 234 F.R.D. 627, 630 (W.D. Ky. 2006). The first case, New
England Health Care Employees Pension Fund v. Farley (“New England”), involves a class of
shareholders who purchased Fruit of the Loom stock between July 24, 1996, and September 5, 1997.
In the second case, Fidel v. Farley (“Fidel”), the class encompasses all shareholders who acquired
Fruit of the Loom stock from September 28, 1998 through November 4, 1999. Hayes is a member
of the class in the Fidel action; however, he is not a named plaintiff.
         Counsel agreed upon a $23.2 million settlement in the New England action and a $19.1
million settlement in the Fidel action. On December 16, 2005, the district court preliminarily
approved the proposed settlements and provided for notice to the class members. Pursuant to the
district court’s order, the claims administrator, Gilardi & Company, LLC, was to mail notice of the
settlement to the class members by December 19,1 2005, and publish notice of the settlement in the
national edition of Investor’s Business Daily. Fruit of the Loom’s transfer agent, Mellon
Investment Services, was unable to identify any potential class members for the claims
administrator. Accordingly, on December 19, the claims administrator sent a cover letter with the
notice and proof of claim to eighty-four entities, most of which were major brokerage houses. The
letter advised the brokerage houses—which hold securities in “street name” for the benefit of their
customers2—of the settlement and requested their cooperation in forwarding notice to their
beneficiaries. Specifically, the letter asked the brokerage houses to either provide the names of class
members or forward a copy of the notice to class members within ten days. In either case, the cost
of providing the notice would be paid by plaintiffs’ counsel.
        Ultimately, claim packages were sent to over 11,568 potential class members in the New
England action and to over 17,717 potential class members in the Fidel action. However, Hayes’s
broker, National Investor Services, did not respond to the claims administrator’s December 19 letter.
The claims administrator thus sent follow-up letters to National Investor Services on January 4,
2006, and January 20, 2006. On February 8, 2006, the claims administrator received a list of 3,663
potential class members from National Investor Services. Eight business days later, on February 21,
2006, the claims administrator mailed the notice to those potential class members.
        Hayes claims that he received the notice on February 27, 2006. The notice, however,
specified that class members had until February 3, 2006, to opt out of the class or object to the
settlement. On March 4, 2006, Hayes penned an objection letter to the district court, in which he

         1
             Notice was also published on the internet.
         2
          Generally, when a customer buys securities through a brokerage firm, the firm holds the securities in its own
name—i.e., “street name”—and not in the customer’s name. The brokerage firm, of course, maintains records indicating
the name of the customer who is the beneficial owner of the securities. See Street Name, U.S. Securities and Exchange
Commission, http://www.sec.gov/answers/street.htm.
No. 06-5550             Fidel, et al. v. Farley, et al.                                                 Page 3

noted that some class members, including Hayes himself, had not received timely notice of the
settlement. Hayes requested that the court either renotify the class or, in the alternative, reduce the
attorney’s fees award granted to plaintiffs’ counsel. The district court received Hayes’s letter on
March 8, 2006—several days after the March 3, 2006 fairness hearing regarding the settlement.
Nonetheless, the court considered and rejected Hayes’s objection on the merits. See New England,
234 F.R.D. at 632 n.2. At the outset, the court observed that Hayes did not appear to object to the
substance of the settlement, but only to the timeliness of notice and the attorney’s fees award. Id.
As to the issue of notice, the court explained that it had received no indication that notice was not
timely received by any other class members and, moreover, the claims administrator averred that
notice was mailed to the brokerage firms by December 19, 2005. Id. The court thus concluded that
“the notices allowed members of the class a full and fair opportunity to consider the proposed
settlement.” Id. The court then affirmed the settlement and awarded attorney’s fees at the rate of
twenty-five percent of the total settlement fund. Id. at 632-35.
       On March 22, 2006, plaintiffs in the Fidel action filed a response to Hayes’s objection.
Hayes, however, simply filed a notice of appeal as to the district court’s order approving the
settlement and awarding attorney’s fees.
                                                      II.
        Generally, non-parties cannot appeal from an order of the district court, unless they have first
sought leave to intervene as party. See Marino v. Ortiz, 484 U.S. 301, 304 (1988) (“The rule that
only parties to a lawsuit, or those that properly become parties, may appeal an adverse judgment,
is well settled.”). Hayes is a nonnamed member of the Fidel class who did not seek leave to
intervene as a party; thus, at first glance, it would seem that Hayes does not have the capacity to
bring this appeal. Recently, however, the Supreme Court recognized that a nonnamed member of
a mandatory Rule 23(b)(1) class who has objected in a timely manner to approval of a settlement
at a fairness hearing has the power        to bring an appeal without first intervening. Devlin v.
Scardelletti, 536 U.S. 1, 14 (2002).3 At the outset, the Court clarified that the question presented
by such an appeal is not one of “standing”; nonnamed class members, the Court explained, satisfy
both the “case or controversy” requirements and the prudential standing requirements. Id. at 6-7.
Rather, “[w]hat is at issue . . . is whether petitioner should be considered a ‘party’ for the purposes
of appealing the approval of the settlement.” Id. at 7. Answering this question affirmatively, the
Court explained,
        What is most important to this case is that nonnamed class members are parties to the
        proceedings in the sense of being bound by the settlement. It is this feature of class
        action litigation that requires that class members be allowed to appeal the approval
        of a settlement when they have objected at the fairness hearing. To hold otherwise
        would deprive nonnamed class members of the power to preserve their own interests
        in a settlement that will ultimately bind them, despite their expressed objections
        before the trial court. Particularly in light of the fact that petitioner had no ability to
        opt out of the settlement, see Fed. Rule Civ. Proc. 23(b)(1), appealing the approval
        of the settlement is petitioner’s only means of protecting himself from being bound
        by a disposition of his rights he finds unacceptable and that a reviewing court might
        find legally inadequate.
Id. at 10-11.

        3
          Devlin abrogated Shults v. Champion Int’l Corp., 35 F.3d 1056, 1061 (6th Cir. 1994), the Sixth Circuit
precedent on this issue.
No. 06-5550                Fidel, et al. v. Farley, et al.                                                         Page 4

           Here, Hayes was a member of a Rule 23(b)(3) class; in other words, Hayes—unlike the
petitioner in Devlin—technically had the opportunity to opt out of the settlement and avoid its
binding effect. Seizing upon this distinction, lead plaintiffs contend that Devlin’s holding should
not be extended to Rule 23(b)(3) class members, and, consequently, Hayes should not be permitted
to appeal the Fidel class action settlement. We disagree. In Churchill Village, L.L.C. v. General
Electric, 361 F.3d 566, 572 (9th Cir. 2004), the Ninth Circuit, applying Devlin, permitted Rule
23(b)(3) class members to appeal the approval of a settlement, even though the appellant class
members could have opted out of the settlement to escape its binding effect. We are persuaded by
this broad reading of Delvin. The reality of class action litigation—wherein each class member is
generally entitled to only a small damages claim—necessitates the application of Devlin to Rule
23(b)(3) class actions. As the Churchill Village court explained, “Because each objector’s claim is
too small to justify individual litigation, a class action is the only feasible means of obtaining relief
. . . . [T]he settlement will effectively bind the objectors. They therefore occupy precisely the status
the Devlin Court sought to protect.” Id.4
       We therefore decline to “deprive nonnamed class members of the power to preserve their
own interests in a settlement that will ultimately bind them,” Devlin, 536 U.S. at 10, and conclude
that Hayes, though a nonintervening, nonnamed class member, is nonetheless a “party” for the
purpose of appealing the district court’s approval of the Fidel class action settlement.
                                                            III.
        Hayes contends that the district court erred in approving the settlement because
approximately 20% of the Fidel class members, including Hayes, received untimely notice. We
review a district court’s approval of a settlement as fair, adequate, and reasonable for abuse of
discretion. Bailey v. Great Lakes Canning, Inc., 908 F.2d 38, 42 (6th Cir. 1990). Hayes, however,
does not appear to quibble with the substance of the settlement agreement, but, rather, with the
adequacy of the notice provided to the class members. “[W]hether a particular class action notice
program satisfies the requirements of Fed. R. Civ. P. 23 and the Due Process Clause is a legal
determination we review de novo.” DeJulius v. New England Health Care Employees Pension
Fund, 429 F.3d 935, 942 (10th Cir. 2005). Factual findings regarding notice are reviewed for clear
error. Id.
        Pursuant to Federal Rule of Civil Procedure 23(e)(1), a district court, when approving a class
action settlement, “must direct notice in a reasonable manner to all class members who would be
bound by the proposal.” Additionally, “[f]or any class certified under Rule 23(b)(3), the court must
direct to class members the best notice that is practicable under the circumstances, including
individual notice to all members who can be identified through reasonable effort.” Fed. R. Civ. P.
23(c)(2)(B). The Due Process Clause, moreover, gives unnamed class members the right to notice
of the settlement of a class action. DeJulius, 429 F.3d at 943-44 (citing Mullane v. Cent. Hanover
Bank & Trust Co., 339 U.S. 306, 313 (1950)); Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 173
(1974)). To comport with the requirements of due process, notice must be “reasonably calculated
to reach interested parties.” Karkoukli’s, Inc. v. Dohany, 409 F.3d 279, 283 (6th Cir. 2005) (quoting
Mullane, 399 U.S. at 318-20); see also DeJulius, 429 F.3d at 944. Due process does not, however,
require actual notice to each party intended to be bound by the adjudication of a representative
action. DeJulius, 429 F.3d at 944 (citing Mullane, 339 U.S. at 313-14); In re Integra Realty Res.,

         4
          We acknowledge that the Arkansas Supreme Court has suggested that Devlin might apply exclusively to
mandatory Rule 23(b)(1) classes and not to opt-out Rule 23(b)(3) classes. See Ballard v. Advance Am., 79 S.W.3d 835,
837 (Ark. 2002) (limiting, under state law, the right of class members to appeal because “[u]nlike the petitioner in Devlin,
appellants had the ability to opt out of the settlement and avoid being bound by it”); see also In re Gen. Am. Life Ins.
Co. Sales Practices Litig., 302 F.3d 799, 800 (8th Cir. 2002) (expressing approval of Ballard’s holding in dicta). We
are nonetheless persuaded by the Ninth Circuit’s reasoning on this issue.
No. 06-5550           Fidel, et al. v. Farley, et al.                                           Page 5

Inc., 262 F.3d 1089, 1110-11 (10th Cir. 2001); Silber v. Mabon, 18 F.3d 1449, 1453-54 (9th Cir.
1994).
        This court has not yet had the opportunity to examine the reasonableness of notice in a
shareholder class action wherein class members hold securities in street name. However, case law
from other courts provides guidance on this issue. Addressing a similar claim to the one presented
here, the Ninth Circuit noted, “the question before us . . . is not whether some individual
shareholders got adequate notice, but whether the class as a whole had notice adequate to flush out
whatever objections might reasonably be raised to the settlement.” Torrisi v. Tucson Elec. Power
Co., 8 F.3d 1370, 1375 (9th Cir. 1993). Indeed, in each case in which a court has confronted this
issue, notice provided to the class members’ nominees—i.e., the brokerage houses—has been
deemed sufficient even if brokerage houses failed to timely forward the notice to the beneficial
owners. See DeJulius, 429 F.3d at 936, 945-47 (finding notice sufficient where appellants, two
beneficial owners, received notice of class settlement two weeks after deadline for filing objections
and on the same day as the final fairness hearing); Torrisi, 8 F.3d at 1374-75 (concluding notice was
sufficient where notice was mailed to some beneficial owners after deadline for filing objections had
passed); Silber, 18 F.3d at 1453-54 (finding notice adequate where, due to late response of brokerage
house, 1000 beneficial owners received notice after the opt-out deadline). Moreover, these decisions
comport with notice principles articulated in the context of corporate law. See, e.g., Enstar Corp.
v. Senouf, 535 A.2d 1351, 1354-55 (Del. 1987) (noting that the “attendant risks” of owning stock
registered in street name, including the risk that the shareholder may not receive notice of corporate
proceedings, are borne by the stockholder); Gilliland v. Motorola, Inc., 859 A.2d 80, 85 (Del. Ch.
Ct. 2004) (holding that obligation to provide notice of merger was satisfied by sending notice to
brokers or fiduciaries holding stock on behalf of beneficial owners); see also In re MCA, Inc.
S’holders Litig., No. 11740, 1993 WL 43024, at *5 (Del. Ch. Ct. Feb. 16, 1993) (applying Enstar
in concluding that notice of class action settlement was sufficient although many shareholders who
held shares in street name did not receive timely notice).
        In the instant case, the claims administrator, having been informed that individual class
members could not be identified by Fruit of the Loom’s transfer agent, mailed notice to eighty-four
brokerage houses and nominees on December 19, 2005—forty-six days prior to the February 3, 2006
deadline to opt out or object to the settlement. This forty-six-day period, as lead plaintiffs note, was
significantly longer than the notice periods approved by the Ninth and the Tenth Circuits in similar
securities class action cases. See DeJulius, 429 F.3d at 940, 946-47 (thirty-two days afforded
between mailing of notice and deadline to opt out or object); Silber, 18 F.3d at 1451-52, 1454 (forty
days afforded between mailing of notice and deadline to opt out or object); Torrisi, 8 F.3d at 1373,
1375 (thirty-one days afforded between mailing of notice and deadline to opt out or object).
         Moreover, when Hayes’s brokerage house, National Investor Services, did not respond to
the initial notice letter, the claims administrator sent two follow-up letters on January 4, 2006 and
January 20, 2006. Summary notice was also published in Investor’s Business Daily, as well as on
the internet. Finally, the manner in which the Fidel claims administrator requested cooperation from
the brokerage houses in forwarding notice to their beneficiaries was substantially similar to that
approved by the DeJulius court: in both cases, the brokerage houses were asked to, within ten days,
either provide a list of beneficial owners to the claims administrator or forward the notice to the
beneficial owners themselves, with all costs being reimbursed by the plaintiffs’ counsel. See
DeJulius, 429 F.3d at 940. Thus, we conclude that the notice scheme in this case was “reasonably
calculated to reach interested parties,” see Karkoukli’s, 409 F.3d at 283, such that it comported with
the requirements of both due process and Rule 23(c)(2)(B). Cf. DeJulius, 429 F.3d at 944 (“The
legal standards for satisfying Rule 23(c)(2)(B) and the constitutional guarantee of procedural due
process are coextensive and substantially similar.”).
No. 06-5550               Fidel, et al. v. Farley, et al.                                                        Page 6

        Finally, we note that individual class members who do not receive timely notice are not
without recourse. “If an individual shareholder later claims he did not receive adequate notice and
therefore should not be bound by the settlement, he can litigate that issue on an individual basis
when the settlement is raised as a bar to a lawsuit he has brought.” Torrisi, 8 F.3d at 1375; see also
DeJulius, 429 F.3d at 947 n.14. Indeed, in the instant action, it does not appear that Hayes himself
suffered prejudice as a result of the untimely notice, as the district court considered and rejected his
objection to the settlement on the merits. See New England, 234 F.R.D. at 632 n.2.
         Accordingly, the district court did not err in approving the settlement.
                                                          IV.
      Because we have determined that the notice provided was adequate, we need not discuss
Hayes’s proposed “remedy”—a reduction of the attorney’s fees award granted to class counsel.5
                                                           V.
         For the foregoing reasons, we affirm the judgment of the district court.

         5
          Hayes also asks the court to apply the relief he requests to the New England class. Hayes, however, does not
claim to be a member of the New England class, nor did he file a notice of appeal in the New England action. We
therefore have no jurisdiction over Hayes’s objections to the New England class settlement. See, e.g., Gnesys, Inc. v.
Greene, 437 F.3d 482, 487 (6th Cir. 2005) (noting that “compliance with the notice of appeal rule is a jurisdictional
prerequisite which this court can neither waive nor extend” (citation and brackets omitted)); see also Tn. Ass’n of Health
Maintenance Orgs., Inc. v. Grier, 262 F.3d 559, 566 (6th Cir. 2001) (holding that, under Federal Rule of Civil Procedure
23(e), non-class members do not have standing to object to alleged lack of notice given to class members).