Appeal from the United States District Court for the Northern District of Illinois, Eastern Division Nos. 73 C 2280, 73 C 2382 and 73 C 2720 THOMAS R. MCMILLEN, Judge.
Hastings, Senior Circuit Judge, Sprecher and Bauer, Circuit Judges.
This appeal is brought by certain named individuals on behalf of themselves and other individuals similarly situated raising objections to a class action settlement. The sole question on appeal is whether the trial judge abused his discretion in approving the settlement. We affirm the trial court's approval of the settlement.
Appellants-objectors*fn1 are members of a class of plaintiffs who over a two-year period deposited money ultimately totalling approximately $9,700,000 with Rawlin L. Stovall and his company, American Cash Commodities of Missouri, Inc., both defendants herein, for investment by them in cash commodities for deferred delivery. In September, 1973, immediately prior to the defendants' indictment on charges arising out of their misuse of these funds, numerous suits were filed seeking class status, an accounting of the depositors' funds, and a recession of all contracts between the depositors and the defendants.
Shortly after the criminal indictments were returned against both defendants, plaintiffs requested the court to enjoin the transfer of $6,500,000 on deposit in the defendants' bank accounts. Although no injunction order was entered, the money remained on deposit at the Continental Bank. On February 6, 1974, a proposed settlement was presented to the trial court and counsel for both sides requested leave to present the settlement to the class members.
Appellants, through independent counsel, filed numerous objections both to the substance of the settlement and to the procedures followed in preparing the settlement proposal for submission to the court. With one exception, appellants' objections and suggestions were overruled; the class was certified, the proposed settlement was approved for submission to the class, and notice of the class certification and the proposed settlement was sent to the class. Appellants filed objections to the form of the notice and again asserted their objections to the proposed settlement itself. On February 20, 1975, the trial court overruled all objections, approved the settlement, and authorized a distribution of part of the sequestered funds to the class.*fn2
It appears that the major stimulus for the defendants' civil settlement of the actions against Stovall was the government's agreement to accept a plea of nolo contendere to all counts in the indictment, except for one perjury count, to which Stovall pled guilty. Judge Marovitz received the pleas and sentenced Stovall to two concurrent five year sentences, which were immediately suspended in favor of probation under 18 U.S.C. § 3651. Judge Marovitz was fully informed of the terms of the civil settlements. On February 28, 1974, at the time of defendant's sentencing, the judge announced that the disposition of the defendants, admittedly quite lenient under all the facts and circumstances, was based in part on his intention of ordering further restitution out of settlement monies in fund "B" (discussed infra pp. 114-115) pursuant to the court's power under the restitution statutes. This point was again restated by the court on September 20, 1974. Nevertheless, the language of the settlement agreement reached by the parties states that any money remaining in fund "B" will be turned over to Stovall's company. Depositors who were reimbursed out of fund "A" are barred from claiming or receiving further amounts from fund "B". Thus Judge Marovitz' intention to order further restitution appears to conflict with the language of the settlement agreement.
We believe that this apparent conflict must be interpreted in favor of the depositors. Since Judge Marovitz' handling of the criminal proceedings greatly influenced the settlement of the civil cases we do not believe that the wording of the agreement should be read to usurp his power to order restitution*fn3 - an action which he clearly indicated he would take on two separate occasions. If in the future, he should decide that as a condition of probation defendants must make restitution by paying out of money left over in fund "B" in the criminal case such an order would not violate the settlement agreement reached in the civil suit. Thus the most compelling argument of objectors that Stovall still remains a millionaire, despite his nefarious activities in defrauding depositors, his criminal conviction, and the multiple lawsuits filed against him, is not really valid since Judge Marovitz still retains the power to order restitution to depositors from any funds remaining with Stovall or his company in fund "B".
As the Court of Appeals we have no power to rewrite a settlement agreement reached by the parties. However, we do have the authority to approve or disapprove a class action settlement after considering any objections raised. Our approval in this case is based upon our interpretation of the agreement entered into after the parties were made aware of Judge Marovitz' intentions.*fn4
Our approval is also based upon the principle that an appellate court will only intervene and upset a settlement upon a clear showing that the trial court committed an abuse of its discretion. State of West Virginia v. Chas. Pfizer & Company, 440 F.2d 1079, 1085 (2d Cir. 1971); Newman v. Stein, 464 F.2d 689, 692 (2d Cir. 1972); United Founders Life Insurance v. Consumers Nat'l. Life Insurance, 447 F.2d 647, 655 (7th Cir. 1971). Courts of review generally will consider the facts of a settlement in a light favorable to promoting settlements. As the Court of Appeals for the Fifth Circuit stated in Florida Trailer and Equipment Co. v. Deal, 284 F.2d 567 (1960):
"Of course, the approval of a proposed settlement does not depend on establishing as a matter of legal certainty that the subject claim or counterclaim is or is not worthless or valuable. The probable outcome in the event of litigation, the relative advantages and disadvantages are, of course, relevant factors for evaluation. But the very uncertainties of outcome in litigation, as well as the avoidance of wasteful litigation and expense, lay behind the Congressional infusion of a power to compromise. This is a recognition of the policy of the law generally to encourage settlements. This could hardly be achieved if the test on hearing for approval meant establishing success or failure to a certainty. Parties would be hesitant to explore the likelihood of settlement apprehensive as they would then be that the application for approval would necessarily result in a judicial determination that there was no escape from liability or no hope of recovery and [thus] no basis for a compromise."
In light of this standard we shall review each of the major objections to the settlement raised by this appeal.
Appellant-objectors submit that the proponents of the settlement agreement did not create a sufficient factual record to permit the trial court to make a proper determination that the agreement was fair, reasonable and adequate. Specifically they argue that they were denied sufficient discovery before the settlement which would have enabled them to evaluate Stovall's claims for commissions, the potential costs of a trial, and the probability of multiple appeals. In addition they question the defendants withdrawing their motion to dismiss for want of jurisdiction. Since the question of jurisdiction can never be ...