Court Opinion

ID: 34677
Source: CourtListenerOpinion
Date Created: 2010-04-25 19:19:04+00
Date Added: 2024-06-11T09:37:44.688764
License: Public Domain

UNITED STATES COURT OF APPEALS
                                For the Fifth Circuit

                     Consolidated Nos. 94-20930 & 95-20230

7547 PARTNERS, ON ITS OWN BEHALF AND ON BEHALF OF UNITHOLDERS OF
                KELLEY OIL & GAS PARTNERS, LTD.,

                                                                     Plaintiff-Appellant,

                                             VERSUS

      THEODORE J. FISTEK, LOUIS F. CAMARDELLA, ETHEL WEISHAUPT,

                                                                   Plaintiffs-Appellees.
                                               and

  KELLEY OIL CORP., DAVID L. KELLEY, KELLEY OIL & GAS PARTNERS,
LTD., KEMPER SECURITIES, INC., JOE M. BRIDGES, BROMLEY DEMERRITT,
  FAIR COLVIN, JR., WILLIAM J. MURRAY, ALAN N. SIDNAM, FRANK G.
       LYON, RALPH P. DAVIDSON, and JOHN J. CONKLIN, JR.,

                                                                  Defendants-Appellees.

               Appeals from the United States District Court
                     For the Southern District of Texas
                           (H-94-CV-3378 & CA-H-94-3381)
                                       April 29, 1997

         Before GARWOOD, BARKSDALE, and DENNIS, Circuit Judges

DENNIS, CIRCUIT JUDGE.*

       This appeal arises from the fallout of a consolidation of

        *
          Pursuant to Local Rule 47.5, the court has determined that this opinion should not be
published and is not precedent except under the limited circumstances set forth in Local Rule 47.5.4.
defendant    appellees,     Kelley   Oil     and    Gas    Partners     (“Kelley

Partners”), and Kelley Oil Corporation (“Kelley Oil”).                    Kelley

Partners was a publicly traded limited partnership.                 Its general

partner was Kelley Oil.     In the summer of 1994, Kelley Oil proposed

the consolidation of Kelley Partners and Kelley Oil into a new

corporation.      Shortly    after   the    terms   of     the    proposal   were

announced,     four   groups   of    unitholders      of     Kelley    Partners

(Camardella, Weishaupt, Fistek, and 7547 Partners) filed separate

actions in state court in Texas to enjoin the consolidation.

Kelley Oil successfully removed all of the actions to federal

court.       Sometime   thereafter,        Kelley   Oil     began     settlement

negotiations with all four groups of unitholders.                Eventually, all

four actions were consolidated.             By early November 1994, the

Camardella, Weishaupt, and Fistek Partners, plaintiffs-appellees

here (“settling plaintiffs”), informally agreed to a settlement

with Kelley Oil.      On March 3, 1995, the district court entered a

final order and judgment approving the settlement and dismissing

the suit. 7547 Partners have appealed the judgment contending that

the district court lacked subject matter jurisdiction to issue a

settlement order, that the 7547 Partners were denied due process,

and that the settlement was unfair.            We find the 7547 Partners’

contentions unpersuasive and affirm the judgment of the district

court.

                                Background

     Kelley Partners was a limited partnership engaged in the

                                      2
development of oil and natural gas properties, acquisition of

interests in additional producing properties and other related

activities.     Ownership    interests   in   Kelley   Partners   were

represented by units, which were publicly traded on the American

Stock Exchange.1    Kelley Partners’ managing general partner was

Kelley Oil and defendant appellee, David L. Kelley, the chairman

and chief executive of Kelley Oil, was the special general partner

of Kelley Partners.   Kelley Oil was a publicly-traded corporation

engaged primarily in managing, developing, acquiring and operating

oil and gas properties.     Other defendants-appellees in the case,

Joe M. Bridges, Bromley DeMerritt, Fair Colvin, Jr., William J.

Murray, Alan N. Sidnam, Frank G. Lyon, Ralph P. Davidson, and John

J. Conklin, Jr. are Kelley Oil’s remaining directors.         Also a

defendant-appellee in this action is Kemper Securities, Inc., a

Delaware corporation that issued a fairness opinion pursuant to a

consolidation or roll-up of the 1991 Development Drilling Program

(1991 “DDP”), an oil and gas drilling limited partnership, into

Kelley Partners.2   The consolidation of the 1991 DDP was proposed

      1
       As of September 30, 1994, according to Kelley Oil’s proxy
statement filed pursuant to Schedule 14a of the Securities Exchange
Act of 1934, Kelley Partners’ total partnership equity was over $74
million and its assets totaled $216 million; Kelley Oil’s
shareholder equity totaled $53 million and its assets were valued
at $111 million.
          2
        In October 1993, Kelley Partners filed a registration
statement with the SEC covering a proposed exchange of units in
Kelley Partners for interests in the assets and liabilities in the
1991 DDP. The fourth amendment to that registration statement was
filed on August 17, 1994 and the registration statement became

                                  3
by Kelley Oil.   Kelley Oil was the majority shareholder of the 1991

DDP before the consolidation into Kelley Partners.

     In early 1994, Kelley Oil’s Board of Directors (“Board”) began

considering the consolidation of Kelley Oil and Kelley Partners.

In May of 1994, the Board retained Smith Barney to serve as its

financial advisor for the consolidation, and formed a special

committee to determine whether the proposed consolidation was fair

to the public unitholders.      The non-management directors on the

Board selected defendants-appellees Conklin and Davidson to serve

on the special committee. Conklin and Davidson were non-management

directors of Kelley Oil who owned significant interests in Kelley

Partners.3   The special committee hired its own financial and legal

advisors who were different from the ones retained by Kelley Oil.

     On August 24, 1994, Kelley Oil presented the special committee

with a consolidation proposal (“Original Consolidation Proposal”).

The Original Consolidation Proposal provided that unitholders of

Kelley Partners, other than Kelley Oil (“public unitholders”) would

receive one share of common stock of the successor corporation for

each unit owned in Kelley Partners.      Shareholders of Kelley Oil

common stock would receive 1.13 shares of common stock in the

successor corporation for each share owned in Kelley Oil.       The

exchange ratios allocated 45% of the new corporation’s voting stock

effective on August 24, 1994.
     3
      Together they owned 121,669 units of Kelley Partners which
constituted .52% of the outstanding units in Kelley Partners.

                                  4
to the public unitholders and 55% to Kelley Oil shareholders.

Additionally, public unitholders could elect to exchange 50% of

their units for preferred stock of the successor corporation which

would pay an 8% dividend and would automatically convert into

common stock of the successor corporation after four years unless

redeemed at the successor’s option after three years.

     The following week four separate suits were filed in state

district court.    The 7547 Partners filed a derivative action on

August 26, 1994, seeking to enjoin the 1991 DDP roll-up and the

Original Consolidation Proposal.      The Weishaupt class action was

filed on August 29, 1994, and sought the same relief as the 7547

Partners.4   On August 30, 1994, the Fistek    and Camardella groups

filed class actions seeking to enjoin the Original Consolidation

Proposal only.    All four actions were later removed   by Kelley Oil

to the United States District Court for the Southern District of

Texas and the Fistek, Camardella, and Weishaupt actions were

voluntarily consolidated.

     Beginning in late September 1994, counsel for and principals

of Kelley Oil commenced settlement negotiations with all four

plaintiffs and their lawyers and investment advisors.     On October

25, 1994, face-to-face settlement negotiations were held between

     4
      Weishaupt was the only plaintiff to name Kemper Securities,
Inc., as a defendant.     Weishaupt did not name the individual
members of the Board of Directors of Kelley Oil as defendants. The
other three plaintiffs named Kelley Oil, the individual members of
the Board of Directors of Kelley Oil, and Kelley Partners as
defendants.

                                  5
Kelley Oil and its representatives and the settling plaintiffs and

their         representatives.5             Meanwhile,     Kelley        Oil     negotiated

separately with the special committee in an attempt to modify the

Original Consolidation             Proposal.       The above negotiations produced

a revised consolidation proposal (“Revised Consolidation Proposal”)

which provided that the public unitholders in Kelley Partners would

receive a 53% stake in the successor corporation instead of the 45%

stake         they     would   have     received     pursuant       to     the    Original

Consolidation Proposal.                Additionally, the Revised Consolidation

Proposal contained a provision whereby Kelley Oil would not vote

its units in Kelley Partners in the Kelley Oil/Kelley Partners

consolidation,           unless    a   majority     of   Kelley     Partners’s      public

unitholders approved the consolidation.6

          Following the Revised Consolidation Proposal, the parties

engaged        in     discovery.       On    November     22,   1994,      the    settling

plaintiffs filed an amended complaint that included class and

derivative claims against defendants-appellees. A hearing was held

the   next       day    concerning      procedures       relating    to    the    proposed

settlement set forth by the terms of the Revised Consolidation

Proposal.            At the hearing, the district court entered an order

approving the class certification for purposes of settlement and

      5
     The 7547 Partners and their representatives were invited, but
refused to attend the October 25, 1994 negotiations.
          6
      Kelley Oil owned approximately 16% of the units of Kelley
Partners.

                                               6
scheduled a fairness hearing for February 17, 1995 (“Scheduling

Order”).     Additionally, the Scheduling Order enjoined the 7547

Partners from commencing any other actions.     Also at the hearing,

Chief Judge Black, pursuant to Fed.R.Civ.Proc. 42, granted a motion

to consolidate the 7547 Partners’ action with the previously

consolidated actions (“Consolidation Order”).     Rather than file a

motion to deconsolidate as Judge Black invited them to do, 7547

Partners filed an interlocutory appeal, assigned No. 94-20930, with

this court contesting both the Consolidation and Scheduling Orders

because of their vagueness and overbreadth.     A different panel of

this court decided that this appeal should be carried with the

case.7   Lastly, at the November 23, 1994, hearing the court ordered

that notice of the action and of the proposed settlement evidenced

by the terms of the Revised Consolidation Proposal be sent to all

class members of all classes no less than 45 days before the

fairness hearing set for February 17, 1995.

     On February 7, 1995, at a        special meeting called for the

purposes of voting on the Revised Consolidation Proposal, Kelley

Partners’s public unitholders (non Kelley Oil unitholders) approved

the Revised Consolidation Proposal by a margin of 71% for the

consolidation to 28% against and 1% abstaining.8

         7
        The interlocutory appeal and the appeal of the final
settlement order dismissing the case, assigned No. 95-20230, were
consolidated by the Clerk of this Court.
    8
     This outcome was subject to an aggressive proxy fight mounted
by the 7547 Partners.

                                  7
     Pursuant to the Scheduling Order of November 23, 1994, a

fairness hearing was held on February 17, 1995.        All parties,

including 7547 Partners attended the hearing and presented their

arguments to the court.       On March 3, 1995, the district court

entered a final order and judgment which (1) granted leave nunc pro

tunc for the filing of the amended complaint; (2) certified the

consolidated cases as Rule 23(a), 23(b)(1)and Rule 23(b)(2) class

actions and as a derivative action under Rule 23.1; and (3)

approved the settlement in accordance with the terms of the Revised

Consolidation Proposal and dismissed the action.    7547 appeals the

final order and judgment.

                           Standard of Review

     The question of federal jurisdiction is subject to de novo

review.    In re U.S. Abatement Corp., 39 F.3d 563, 566 (5th Cir.

1994).    All other issues involving the approval of a settlement of

a class action are governed by the abuse of discretion standard.

See Reed v. General Motors Corp., 703 F.2d 170, 172 (5th Cir.

1983).

                                Analysis

I.   Appeal No. 95-20230

     A.    Jurisdiction

            1.   Diversity of Citizenship

     We find that the district court had jurisdiction over this

action pursuant to Article III of the United States Constitution

                                   8
and 28 U.S.C. § 1332.    In cases that are removed to federal court

from state court, such as this one, diversity of citizenship must

exist both at the time of filing in state court and at the time of

removal to federal court.    See, e.g., Coury v. Prot, 85 F.3d 244,

249 (5th Cir. 1996).    The lack of subject matter jurisdiction may

be raised at any time during   pendency of the case by any party or

by the court.    Fed.R.Civ.Proc. 12(h)(3).      Moreover, the Supreme

Court has held that a party cannot waive the defense and cannot be

estopped from raising it.      E.g., Insurance Corp. of Ireland v.

Compagnie des Bauxites de Guinee, 456 U.S. 694, 102 S. Ct. 2099, 72
L. Ed. 2d 492   (1982); Owen Equip. & Erection Co. v. Kroger, 437 U.S.
365, 98 S. Ct. 2396,    57 L. Ed. 2d 274 (1978).

     In order to determine whether diversity of citizenship exists

as required by § 1332, we must ascertain the domicile of each party

in all four separate actions when they were originally filed in

state court.9   Appellants, 7547 Partners, a Florida partnership,

concede that there is complete diversity between themselves and

Kelley Oil, the members of the Board of Kelley Oil, and Kelley

Partners, the defendant-appellees named in the suit originally

filed in state court. Likewise, there is no contention of improper

    9
     In this case it is unnecessary to reexamine the domiciles of
the parties at the time of removal because no changes occurred
between the time the petitions were originally filed in state court
and the time the defendants removed the actions to federal court,
i.e., no claims or parties were added and no one’s domicile
changed.

                                  9
jurisdiction over the Fistek action because Fistek is a citizen of

Ohio and the defendants are identical to the ones in the 7547

Partners    action.10     However,   for      the   purposes    of   determining

diversity in the other actions the domiciles of the parties are the

following: (1) Kelley Oil:       a Texas Corporation with its principal

place of business in Texas; (2) Kelley Partners:                Kelley Partners

is a nominal party with no real interest in the dispute.                    See,

e.g., Navarro Savs. Ass’n v. Lee, 446 U.S. 458 (1980); Wolff v.

Wolff, 768 F.2d 642 (5th Cir. 1985).                Therefore, in determining

whether complete diversity exists Kelley Partners will be ignored.

(3) Defendants David L. Kelley, Joe M. Bridges, Fair Colvin, Jr.,

and William J. Murray are Texas citizens.              (4) Defendants Bromley

DeMerritt and Frank G. Lyon are citizens of                    Connecticut; (5)

Defendant John J. Conklin is a citizen of New Jersey.                        (6)

Defendant Ralph P. Davidson is a citizen of the District of

Columbia; (7) Defendant Alan N. Sidnam is a citizen of New York.

     7547 Partners do contend however, that complete diversity is

lacking in the Weishaupt and Camardella actions.                     As for the

Weishaupt    action,    the   appellant’s     contention    is     disingenuous.

Weishaupt is a citizen of New York who sued Kelley Oil, a Texas

Corporation,    David    L.    Kelley,    a    Texas    citizen,     and   Kemper

     10
        For the purposes of class actions, the citizenship of the
representative plaintiff and not of all class members is
dispositive. Snyder v. Harris, 394 U.S. 332, 340 (1969); WRIGHT ET
AL., FEDERAL PRACTICE AND PROCEDURE § 3606, at 424 (2d ed. 1984).

                                     10
Securities, Inc., a corporation registered in Delaware with its

principal place of business in Illinois.        Obviously, there is

complete diversity of citizenship.    As noted above, in cases that

have been removed to federal court diversity of citizenship is

required at two specific time periods only, when the action is

originally filed in state court and at the instant the case is

removed.   If diversity is established at the commencement and

removal of the suit, it will not be destroyed by subsequent events.

Freeport-McMoRan, Inc. v. K N Energy, Inc., 498 U.S. 426 (1991)

(the addition or substitution of a nondiverse party pursuant to

Fed.R.Civ.Proc. 25(c) does not destroy jurisdiction of the court).

Cf. Wichita R.R. & Light Co. v. Public Util. Comm’n of Kansas, 260
U.S. 48, 54 (1922); Grisham Park Community Park Organization v.

Howell, 652 F.2d 1227 (5th Cir. 1981) (a subsequent change in

citizenship of a party does not divest a court of jurisdiction).

See also 1 J. MOORE, MOORE'S FEDERAL PRACTICE, § 0.74[1] (1996).   The

consolidation that occurred after removal of the four actions to

federal court is a “subsequent event” and as such has no effect on

the court’s jurisdiction.

     As for the Camardella action, the appellant’s argument that

complete diversity is lacking because plaintiff-appellee Camardella

and defendant-appellee Alan N. Sidnam are New York citizens is

superficial.   In the original state court action Camardella named

Kelley Oil, Kelley Partners, and the members of the Board of

                                 11
Directors of Kelley Oil, including New York citizen Alan N. Sidnam

as defendants.       Nevertheless, the removal of the Camardella action

was proper on the grounds of diversity of citizenship because

Sidnam, the only “non-diverse” defendant, was a person whose

citizenship should not have been considered for the purposes of

determining diversity of citizenship.

      The   law    in     this   circuit     is   that    if   a   plaintiff   cannot

establish a cognizable cause of action against a non-diverse

defendant in state court that defendant’s citizenship will be

disregarded for the purposes of diversity of citizenship.                      Burden

v. General Dynamics Corp., 60 F.3d 213, 217 (5th Cir. 1995).

Analogously, in determining whether a party has been fraudulently

joined to defeat diversity jurisdiction “[a] court is to pierce the

pleadings to determine whether, under controlling state law, the

nonremoving       party    has   a   valid      claim    against   the   non-diverse

parties.”     LeJeune v. Shell Oil Co., 950 F.2d 267, 271 (5th Cir.

1992) (citing Carriere v. Sears, Roebuck and Co., 893 F.2d 100 (5th

Cir.), cert. denied, 111 S. Ct. 60 (1990)).                 See also, WRIGHT,   ET AL.,

FEDERAL PRACTICE   AND   PROCEDURE § 3602 at 375 (2d ed. 1984).           Therefore,

it must be determined whether an action would lie against Sidnam

under Texas law.

      Sidnam’s relationship to Camardella is as follows:                   Sidnam is

a non-management member of the Board of Directors of the general

partner (Kelley Oil), of a limited partnership (Kelley Partners) of

                                           12
which the plaintiff is a limited partner.       In Grierson v. Parker

Energy Partners, 737 S.W.2d 375 (Tex. App.-Houston [14th Dist.]

1987, no writ), a similar relationship existed between Grierson,

president of a corporation, Parker Energy Technology Corporation,

that was the general partner of Parker Energy Partners.            Parker

Energy Partners sued the corporation and Grierson for breaching

fiduciary duties owed to the partnership.       First, the Texas court

acknowledged that under Texas Law, when a corporation serves as a

general partner it owes fiduciary duties to the partnership and the

limited   partners.       Grierson, 737 S.W.2d   at    377   (citing

Tex.Civ.Stat.Ann. art. 6132a, §10 (Vernon 1970); Tex.Civ.Stat.Ann.

art. 6132b § 21 (Vernon 1970)). However, the court recognized that

corporate officers such as members of the Board of Directors, only

owe fiduciary duties to the shareholders of the corporation they

are elected to represent and to the corporation itself and not to

third parties such as a partnership and its limited partners, with

one exception.   Id. (citing Castleberry v. Branscum, 721 S.W.2d
270, 271-72 (Tex. 1986); Bell Oil & Gas Co. v. Allied Chemical

Corp., 431 S.W.2d 336, 340 (Tex. 1968)).        The exception is that

corporate officers may not knowingly participate in the breach of

a fiduciary duty toward third parties even if the act is committed

while serving as an agent of the corporation.              Id. at 377-78

(emphasis added).     In Grierson, the court could not find any proof

in the pleadings and evidence indicating that Grierson knowingly

                                  13
participated       in   the     breach     of    fiduciary      duties   toward    the

partnership and accordingly held that Grierson was not liable for

breach of a fiduciary duty.

       Therefore as mandated by Texas law, we must determine whether

Sidnam knowingly participated in the breach of fiduciary duties

owed to Kelley Partners.           Camardella’s complaint does not allege

any facts demonstrating that Sidnam knowingly participated in

Kelley Oil’s breach of fiduciary duties. Moreover, the record does

not indicate that Sidnam knowingly participated in Kelley Oil’s

alleged breach of fiduciary duties.                   We thus conclude that under

Texas law, Camardella could not have sustained a cause of action

against Sidnam and consequently Sidnam’s citizenship will not be

considered        for   the     purposes        of    ascertaining     diversity    of

citizenship.

             2.    Amount in Controversy

       Our analysis is not at an end in determining whether the court

properly     exercised        jurisdiction       until   we    determine   that    the

jurisdictional amount is satisfied.                  In addition to requiring that

the parties to an action be diverse, 28 U.S.C. § 1332 necessitates

that   the   amount     in     controversy       be   more    than   $50,000.      This

determination is more nebulous in cases like the present which

primarily seek injunctive relief.                “The amount in controversy, in

an action for declaratory or injunctive relief, is the value of the

right to be protected or the extent of the injury to be prevented.”

                                           14
Webb v. Investacorp, Inc., 89 F.3d 252, 257 (5th Cir. 1996)(quoting

Leininger v. Leininger, 705 F.2d 727 (5th Cir. 1983)).                           The value

of the right sought to be protected, by each of the four actions

filed, was to preserve Kelley Partners, an entity with $216 million

in assets, from being consolidated with Kelley Oil.                           There is no

need    to    do    empirical      calculations          or    seek   evaluations       from

investment         bankers   to    determine       the    financial     impact     of   the

consolidation because it is obvious that the value of enjoining a

merger of such large entities easily exceeds $50,000. Accordingly,

the district court properly exercised jurisdiction over the parties

pursuant to 28 U.S.C. 1332.

       B.    7547 Partners’ Due Process Arguments

              1.     Was the Consolidated Class Action Properly Certified

Under       Sections    (b)(1)      &     (b)(2)     and       Not    Under    (b)(3)    of

Fed.R.Civ.Proc. 23?

       In order to systematically address whether the appellant was

denied due process because it was not allowed to opt out and was

not given adequate notice, we must first determine whether this

action was properly certified under Rule 23(b)(1)&(b)(2) and not

under 23(b)(3).          It is not contested that this action may be

certified       pursuant      to        23(b)(1).             Rule    23(b)(1)     permits

certification of a class action if the prosecution of separate

actions might result in inconsistent or varying adjudications that

                                            15
would “establish incompatible standards of conduct for the party

opposing     the     class.”         Fed.R.Civ.Proc.       23(b)(1)(A);    or    if

prosecutions of separate actions “would create a risk of                    . . .

adjudications with respect to individual members of the class which

would   . . .       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.Proc.

23(b)(1)(B).        Both provisions of Rule 23(b)(1) obviously apply to

the present case.

      Appellant does contest, however, that the class should not

have been certified under 23(b)(2).               Rather, it asserts that the

class action should have been certified under 23(b)(3).                         Rule

23(b)(2) provides that a class action is appropriate when “the

party opposing the class has acted or refused to act on grounds

generally applicable to the class,” and the representatives are

seeking “final injunctive relief              . . . ” (emphasis added).          The

basis for the appellant’s contention is that the relief sought by

the settling plaintiffs was primarily for money damages thereby

making Rule 23(b)(2) inapplicable.             This contention is misplaced.

It is true that the settling plaintiffs in the amended complaint

did   assert    a    claim   for     incidental    money   damages.       However,

requesting      incidental     money     damages    does     not    preclude    the

certification of this case under Rule 23(b)(2) if the primary

relief sought is injunctive. Forbush v. J.C. Penney Co., Inc., 994

                                         16
F.2d 1101, 1105 n.3 (5th Cir. 1993); Parker v. Local Union No.

1466, 642 F.2d 104, 107 (5th Cir. 1981); Johnson v. General Motors

Corp., 598 F.2d 432, 437 (5th Cir. 1979); Jones v. Diamond, 519
F.2d 1090, 1100 n.17 (5th Cir. 1975) (“So long as the predominant

purpose of the suit is for injunctive relief, the fact that a claim

for damages is also included does not vitiate the applicability of

23(b)(2).”)     The primary relief sought in the present case was

undoubtedly to enjoin the consolidation of Kelley Partners and

Kelley Oil.    All four of the original actions filed in state court

primarily sought injunctive relief.          Likewise, in the settling

plaintiffs’ amended complaint, the first type of relief sought is

injunctive.     The prayer for incidental monetary damages follows

five paragraphs after the claim for injunctive relief.           Therefore,

we find that the district court did not abuse its discretion in

finding that the action was one primarily seeking injunctive relief

and certifying the class under Rules 23(b)(1)&(b)(2).

     Moreover, we also find that the district court did not abuse

its discretion     in   declining   to   certify   this   case   under   Rule

23(b)(3).     “Unlike subdivisions (b)(1) and (b)(2), which provide

for the bringing of a class action based on the type or effect of

the relief being sought, Rule 23(b)(3) authorizes a class action

when the justification for doing so is the presence of common

questions of law or fact and a determination that the class action

is superior to other available methods for resolving the dispute

                                    17
fairly and efficiently.” 7A WRIGHT et al., FEDERAL PRACTICE AND            PROCEDURE

§ 1777 (2d ed. 1986).11 However, if a class action can be certified

under       23(b)(2),   then   it   should   not   also    be    certified   under

23(b)(3).       Bing v. Roadway Express, Inc.,        485 F.2d 441, 447 (5th

Cir. 1973)(“Although this suit arguably could have been brought as

a (b)(3) action, (b)(2) actions generally are preferred for their

wider res judicata effects.”); DeBoer v. Mellon Mort. Co., 64 F.3d
1171 (8th Cir. 1995), cert denied, sub nom. Crehan v. DeBoer, 116
S. Ct. 1544 (1996) (“When either subsection (b)(1) or (b)(2) is

applicable, however, (b)(3) should not be used, so as to avoid

unnecessary         inconsistencies      and       compromises        in     future

litigation.”); 7A WRIGHT et al. FEDERAL PRACTICE          AND   PROCEDURE § 1775 at

491.

       A significant effect of certifying an action pursuant to

23(b)(1) and (b)(2) and not (b)(3) is that class members have no

       11
            Rule 23(b)(3) states:

       [An action may be maintained as a class action if] 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. The matters pertinent to the
       findings include: (A) the interest of members of the class in
       individually controlling the prosecution or defense of
       separate actions; (B) the extent and nature of any litigation
       concerning the controversy already commenced by or against
       members of the class; (C) the desirability or undesirability
       of concentrating the litigation of the claims in the
       particular forum; (D) the difficulties likely to be
       encountered in the management of a class action.

                                        18
opt out rights.       See Phillips Petroleum Co. v. Shutts, 472 U.S.
797, 811 n.3 (1985) (Opt out rights are “limited to those class

actions which seek to bind known plaintiffs concerning claims

wholly or predominantly for money damages.”); Kincade v. General

Tire & Rubber Co., 635 F.2d 501, 507 (5th Cir. 1981)(“For several

reasons we    find that the right to opt out, which is denied when a

Rule 23(b)(2) case is      tried, also need not be provided when such

a case is settled.”).     See also In re Asbestos Litigation, 90 F.3d
963, 987 & n.16 (5th Cir. 1996).

     Another effect of not being certified under 23(b)(3)is that

notice need not comport with the requirements of Fed.R.Civ.Proc.

23(c)(2),     which   requires   that    notice   be    the   “best     notice

practicable under the circumstances. . . .”            Instead, for classes

certified under sections (b)(1) or (b)(2) of Fed.R.Civ.Proc. 23,

notice   is    within   the   complete    discretion     of   the     court.

Fed.R.Civ.Proc. 23(d)(2)(“notice be given in such manner as the

court may direct....”).       Here, the Scheduling Order issued by the

district court on November 23, 1994, provided that notice be given

to members of the class:

     No later than 45 days prior to the date of the Settlement
     Hearing [February 17, 1995], Kelley Oil, at its expense shall
     mail, by first class mail, postage prepaid, a Notice of
     Pendency of Class Actions, Proposed Settlement of Class and
     Derivative Actions and Settlement Hearing . . . to all Class
     members and current Unit owners shown on the transfer records
     maintained by or on behalf of Kelley [Partnership] to have
     been record or beneficial holders of the Units ....      Upon
     request by a record holder who is a Class member or current
     Unit owner, Kelley Oil shall provide, at its expense,

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      additional copies of the Notice to record holders to be
      forwarded to beneficial owners who are Class members or
      current Unit holders who were not mailed the Notice, or
      alternatively, shall mail the Notice to such beneficial owners
      identified by record holders for this purpose....

      The district court found that Kelley Oil complied with the

above:

      [T[he prescribed notice was sent on December 29, 1994, by
      first class mail, postage prepaid, to all record holders of
      units in Kelley Partners during the period of time from August
      25, 1994, through December 23, 1994. Pursuant to the express
      terms of the notice, all record holders who were not
      beneficial owners were instructed to transmit the notice to
      the beneficial holders of units in Kelley Partners.
      Furthermore, an additional 14,091 copies of the notice were
      mailed or delivered on December 29, 1994, to all persons and
      institutions which held units of Kelley Partners on behalf of
      the beneficial owners during the period of time from August
      25, 1994, through the date of the mailing, who were also
      instructed to forward the notice by first class mail at Kelley
      Oil’s expense to the beneficial owners.

      The appellant makes two contentions on appeal: (1) the way in

which notice was sent to the beneficial owners who were not owners

of Kelley Partners units as of December 23, 1994, was improper; and

(2) notice by publication would have been preferable. We find both

of these contentions unpersuasive.      We conclude that the district

court did not abuse its discretion in finding that mailing or hand

delivering 14,091 copies of the notice to the proxy departments of

all   banks,   brokers,   nominees,    and   other   institutions   with

instructions to forward to beneficial owners of Kelley Partners

units at Kelley Oil’s expense was sufficient. The record indicates

that at least 212 institutions holding in excess of 14.7 million

units received copies of the notice.           One institution, whose

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clients held approximately three-fourths of all units, attested

that it mailed 9320 copies of the notice to all of their clients’

beneficial holders of units in Kelley Partners.             Additionally, the

appellant has not submitted affidavits from any of Kelley Partners

unitholders attesting to the fact that they did not receive notice;

appellant merely speculates that some beneficial owners may not

have received notice.

     We also find that the district court did not abuse its

discretion    in    failing   to    require    that     notice   be   published.

Appellant adduces no proof that publication of the class action and

possible settlement would have provided more unitholders with

notice.   As one commentator points out               individual notices “are

[generally]    more     effective    in     eliciting    responses     than   are

published notices.” NEWBERG & CONTE, NEWBERG      ON   CLASS ACTIONS, § 8.38 (3d

ed. 1992). The same commentator, citing empirical data, notes that

in contrast, “the average citizen will not see or read a class

settlement notice, even when it is published (usually in fine

print) on the financial pages of a newspaper such as the New York

Times or Wall Street Journal or in papers of general circulation,

as is the common practice.”         Id.

          2.       Was the Permanent Injunction in the District Court’s

Final Order and Judgment Overbroad?

     Appellant asserts without any support, that the district court

abused its discretion in releasing all present and future claims

                                       21
against defendants in its final order and judgment.                 We find the

appellant’s assertion unpersuasive and that the district court did

not abuse its discretion in           enjoining all present and future

claims relating to the subject matter of the settled actions or the

consolidated complaint against defendant-appellees.               Although the

case    involved     a   bankruptcy     reorganization         instead    of     a

consolidation,      we   find   the   reasoning    of    the   Second    Circuit

persuasive in finding that the district court did not abuse its

discretion in this case:

       In turn, the injunction [against future claims] is a key
       component of the Settlement Agreement. As the district court
       noted, the injunction limits the number of lawsuits that may
       be brought against Drexel's former directors and officers.
       This enables the directors and officers to settle these suits
       without fear that future suits will be filed. Without the
       injunction, the directors and officers would be less likely
       to settle. Thus, we hold that the district court did not
       abuse its discretion in approving the injunction.

In re Drexel Burnham Lambert Group, Inc., 960 F.2d 285, 293 (2d

Cir. 1990).

       Likewise, the injunction in the present case is important to

the settlement in that the defendant-appellees were able to settle

the case without the fear of future litigation.            By the same token,

the district court did not abuse its discretion in issuing the

consolidation and scheduling orders.

            3.   Were the Unitholders Adequately Represented?

       Similarly, appellant makes groundless assertions that the

district    court    abused     its   discretion    in    finding     that     the

                                       22
unitholders     were     adequately    represented.          In     this    circuit

representation is adequate if the representatives have common

interests     with     the   unnamed   members   of    the        class    and   the

representatives vigorously prosecute the interest of the class

through qualified counsel.        Gonzales v. Cassidy, 474 F.2d 67 (5th

Cir. 1973).    There are no facts in this case that indicate that the

above criteria were not met.            Obviously all unitholders were

interested in seeking the best possible return on their investment;

either by maintaining their position in Kelley Partners or by

receiving     the    greatest    interest   possible     in        the     successor

corporation.    Additionally, each representative retained competent

counsel whose vigorous prosecution led to the decidedly improved

terms of the Revised Consolidation Proposal.

     C.   Did the District Court Abuse its Discretion in Approving

the Settlement as Fair, Reasonable, and Adequate?

     A district court’s determination that a settlement should be

approved as fair, reasonable, and adequate must be upheld unless it

is found to have constituted a “clear abuse of discretion.”                      Ruiz

v. McKaskie, 724 F.2d 1149, 1152 (5th Cir. 1984).                 Appellant cites

several errors made by the district court allegedly constituting

clear abuses of discretion.        None, however, are persuasive.

     First, the appellant asserts that the settlement was a product

of fraud or collusion in that the defendant-appellee, Kelley Oil,

and the settling plaintiffs systematically excluded 7547 Partners

                                       23
from the litigation that resulted in the settlement.           Such a claim

is unfounded because at the fairness hearing on February 7, 1995,

counsel for 7547 Partners unambiguously stated that 7547 Partners

voluntarily excluded themselves from the settlement negotiations:

     Mr. Pecht [counsel for Kelley Oil] never intended to cut me
     out of any settlement.     He was more than happy that I
     participate. But I would not participate - I could not in
     good consciousness [sic] participate at the levels I knew the
     other plaintiff’s [sic] would accept.

     Next, appellant contends that the discovery conducted failed

to establish the propriety of the settlement and that they were

deprived     of   discovery   regarding    the   settlement   negotiations.

Appellant cites no authority in support of this contention. On the

contrary, it has been held in the class action context that formal

and/or voluminous discovery is unnecessary and that determining

whether or not to grant discovery requests is well within the

discretion of the court.         Cotton v. Hinton, 559 F.2d 1326, 1331-

1333 (5th Cir. 1977).12       Accordingly, we conclude that the district

     12
          In Cotton, this court stated:

     It is true that very little formal discovery was conducted and
     that there is no voluminous record in this case. However, the
     lack of such does not compel the conclusion that insufficient
     discovery was conducted. At the outset, we consider this an
     appropriate occasion to express our concern over the common
     belief held by many litigators that a great amount of formal
     discovery must be conducted in every case.

     Discovery in its most efficient utilization should be a
     totally extra-judicial process, informality in the discovery
     of information is desired. It is too often forgotten that a
     conference with or a telephone call to opposing counsel may
     often achieve the results sought by formal discovery.

                                      24
court did   not   abuse   its   discretion   in   denying    7547   Partners

discovery requests and in approving the settlement based on the

discovery conducted.

   After full consideration, we find the appellant’s remaining

contentions regarding the fairness, reasonableness and adequacy of

the settlement to be manifestly without merit.              Accordingly, we

conclude that the district court did not abuse its discretion in

finding that the settlement was fair, reasonable, and adequate to

all parties.

                                Conclusion

     For the foregoing reasons, the final judgment and order of the

district court approving the settlement and dismissing the case is

AFFIRMED.   Motions denied as moot.

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