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Bash v. Firstmark Standard Life Insurance Co.

decided: November 7, 1988.


Appeal from the United Stated District Court for the Southern District of Indiana, Indianapolis Division. No. 84 C 1404--S. Hugh Dillin, Judge.

Posner, Flaum, and Manion, Circuit Judges.

Author: Posner

POSNER, Circuit Judge.

This appeal, for the settlement of a class-action suit brought under the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. ยงยง 1001 et seq., with pendent claims under state common law, comes to us with an unusual procedural history.

The case began in 1984 when attorney Jerry Williams filed a complaint on behalf or four named plaintiffs who sought to represent a class consisting of the 53 participants in the pension plan of Standard Life Insurance company of Indiana. The members of the class were former employees of Standard Life. The defendants included Standard, two sucessive corporate purchasers of Standard, and the pension plan's trustees, which included a bank a bank. The pension plan had been a defined-benefits plan; that is, it had specified the pension benefits to which participants would be entitled when they retired. Shortly before the suit was filed, the bank had paid the participants and beneficiaries of Standard's pension plan their accrued benefits--some $1.2 million in all--and had handed over the balance of the plan's assets--another $1 million--to Standard. The plaintiff's principal claim was that this balance, the "surplus assets" as the parties call them, should have been distributed to the participants. In effect they wanted to treat the plan as a defined-contributions plan with a defined-benefits floor.

The district's judge certified the case as a Rule 23(b)(3) class action. After much pretrial discovery, the defendants in 1986 moved for summary judgment, and in 1987 the judge granted their motion in major part. He dismissed one defendant, rejected the "surplus assets" claim, dismissed all the pendent counts, and directed that trial be confined to the issue whether the defendants had computed the class members' accrued benefits correctly. The plaintiffs asked the judge to make his order granting summary judgment a final, appealable order under Rule 54(b) of the Federal Rules of Civil Procedure. He refused--and rightly so. Although he could have entered a final judgment to the extent that his order disposed of one of the parties to the case, it was far more sensible to wind up the litigation in the district court before involving this court in it.

Trial began on June 1, 1987. The next day the parties informed the judge that they had negotiated a settlement agreement. Later, attorney Williams submitted to the court a form of notice on which the parties had agreed, to which was attached a copy of the negotiated settlement agreement. The settlement was nominal; the plaintiffs were to receive just $15,000, all of which would be earmarked for the costs of the suit. The settlement included a provision that none of the four named plaintiffs would appeal.

The judge approved the notice of proposed settlement on October 26, 1987, and shortly afterward (but the date is not in the record) it was mailed together with the agreement to each of the 49 unnamed class members. The notice stated that the judge would hold a hearing on the fairness of the settlement on November 30. In response to the notice, three of the unnamed class members, including O'Brien and Vogt, the appellants in this court, wrote letters to the judge objecting to the terms of the settlement. At the hearing on November 30, Williams, asked by the judge to address the objections that had been submitted, stated that they contained nothing new--they were addressed to issues the judge had resolved in his grant of partial summary judgment. In Williams' words, "We believe the matters raised by Mr. Vogt and Mr. O'Brien in their objections would not be a reason not to approve the settlement today; . . . those had already been presented to the Court before the summary judgment entry." On December 21 the judge approved the settlement in an order that Williams had submitted to him.

Now for the surprise: On the twenty-ninth day after the entry of the final judgment approving the settlement, O'Brien and Vogt--represented by Williams--filed their notice of appeal. Their principal ground for challenging the settlement is that the judge erred in his entry of partial summary judgment for the defendants. They ask us to throw out the settlement and reverse the partial summary judgment.

The defendants defined the reasonableness of the settlement and the soundness of the partial summary judgment. But in addition, and logically prior, to making this defense they argue that Williams had no right to challenge the settlement that he had negotiated, and that the appeal should be dismissed without reaching the merits. These are two points, not as it might seem one. Supposing that Williams acted improperly, it does not follow that the appeal must be dismissed. Alternative sanctions would include simply removing him from the case.

Did Williams act improperly? At first glance his position resembles that of the lawyer who drafts a will and is then retained by an heir to break it. Williams negotiated a settlement on behalf of the class that he represented, and urged the court to approve it. Although tiny (less than $300 per member of a very small class), the settlement may be in the best interests of he named plaintiffs, for they might otherwise have to dig into their own pockets for $15,000 to pay for expenses incurred in the litigation. It might appear, therefore, that Williams has sold these clients down the river, by bringing on behalf of other members of the class an appeal that, even if successful in overturning the settlement, could eventuate in a judgment for the defendants and by doing so simply increase the expenses that the named plaintiff will have to defray. He represents, however, that the named plaintiffs did not object to his bringing this appeal on behalf of the objectors (though the named plaintiffs will have to defray. He represents, however, that the named plaintiffs did not object to his bringing this appeal on behalf of the objectors (though the named plaintiffs did not object to his bringing this appeal on behalf of the objectors (though the named plaintiffs are barred by the terms of the settlement from bringing their own appeal); and although he has proffered no documentation in support of this representation, we have no reason to doubt his truthfulness. The benefits of the settlement to the named plaintiffs--a benefit consisting in avoiding the possibility of having to bear additional expenses of litigation--is conjectural, and may well have an expected value close to zero, since, for all that appears, the vast bulk of these "expense" are Williams' attorney's fees, which presumably were contingent on the success of the suit. Granted, the named plaintiffs agreed not to appeal, but perhaps only because they didn't want to incur any additional expenses in this litigation. As Williams intimates, they may be cheering on the appeal from the sidelines in the hope that if the settlement is invalidated they will benefit eventually.

Williams argues in further defense of his representation of the appellants that with only thirty days to file the notice of appeal, O'Brien and Vogt could not have retained another lawyer; a new lawyer would not have been familiar with the case. But Williams could have filed the notice of appeal on behalf on O'Brien and Vogt and told them to retain counsel of their choice to brief and argue it.

When all is said and done, Williams has represented two sides of the same case--the defense of the settlement before the district judge, and the attack on the settlement in this court. But conflicts of interest are built into the device of the class action, where a single lawyer may be representing a class consisting of thousands of persons not all of whom will have identical interests and views. Recognizing that strict application of rules on attorney conduct that were designed with simpler litigation in mind might make the class-action device unworkable in many cases, the courts insist that a serious conflict be shown before they take remedial or disciplinary action. See, e.g., In re " Agent Orange" Product Liability Litigation, 800 F.2d 14, 18-20 (2d Cir. 1986); Saylor v. Lindsley, 456 F.2d 896 (2d Cir. 1972)(Friendly, J.); Piambino v. Bailey, 757 F.2d 1112, 1143-46 (11th Cir. 1985); In re Corn Derivatives Antitrust Litigation, 748 F.2d 157, 162-66 (3d Cir. 1984)(concurring opinion). Such a conflict has not been shown here. The appeal on behalf of disgruntled class members does not jeopardize a settlement "won" by the named plaintiffs and remaining unnamed class members; the settlement was a cave in.

Williams might be thought to have deceived the district judge. The only plausible interpretation of the transcript of the fairness hearing is that Williams assured the judge that he needn't consider the objections to the settlement--they were old hat, implicitly without merit. If the judge had known that the lawyer for the class believed that the settlement was unreasonable--as Williams now argues to us with great vigor that it was--the judge might have reconsidered his decision or at least have given a fuller statement of his reasons for believing the settlement reasonable. One of the objections to the settlement that williams presses on us is that the judge's statement of reasons was scanty. The judge, however, "is entitled to rely heavily on the opinion of competent counsel," Armstrong v. Board of School Directors, 616 F.2d 305, 325(7th Cir. 1975); see also Gautreaux v. Pierce, 690 F.2d 616, 634 (7th Cir. 1982), as Judge ...

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