Hill v. State Street Corporation ( 2015 )

United States Court of Appeals
For the First Circuit
No. 15-1193
No. 15-1597
TIMOTHY W. HILL, on behalf of himself and all others similarly
situated; PUBLIC EMPLOYEES' RETIREMENT SYSTEM OF MISSISSIPPI;
UNION ASSET MANAGEMENT HOLDING AG; PENSION FUND GROUP,
Plaintiffs, Appellees,
v.
STATE STREET CORPORATION; GOLDMAN, SACHS & CO.; MORGAN STANLEY &
CO, INC.; CREDIT SUISSE SECURITIES (USA), LLP; LEHMAN BROTHERS
INC.; UBS SECURITIES, INC.; KENNETT F. BURNES; PETER COYM; NADER
F. DAREHSHORI; AMELIA C. FAWCETT; DAVID P. GRUBER; LINDA A.
HILL; CHARLES R. LAMANTIA; MAUREEN J. MISKOVIC; RICHARD P.
SERGEL; RONALD L. SKATES; GREGORY L. SUMME; ROBERT E. WEISSMAN;
RONALD E. LOGUE; EDWARD J. RESCH; PAMELA D. GORMLEY; ERNST &
YOUNG, LLP,
Defendants, Appellees,
CHARLES F. FRANZ; NITA W. FRANZ,
Interested Parties, Appellants.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. George A. O'Toole, Jr., U.S. District Judge]
Before
Thompson, Lipez, and Kayatta,
Circuit Judges.
John C. Browne, Bernstein Litowitz Berger & Grossman LLP,
William H. Narwold, and Motley Rice LLC on brief for lead
plaintiffs-appellees Public Employees' Retirement System of
Mississippi and Union Asset Management Holding AG.
Christopher T. Cain and Scott & Cain on brief for interested
parties Charles F. Franz and Nita W. Franz.
July 24, 2015
KAYATTA, Circuit Judge. This appeal arises out of the
settlement of a securities class action brought on behalf of all
who purchased the common stock of State Street Corporation during
a period of just over three years. In settling the case, the lead
plaintiff and plaintiff's counsel agreed with defendants that some
class members would be deemed uninjured, and that others who were
injured in amounts less than $10.00 would be paid nothing. They
justified this sacrifice of the claims of small investors as
reducing transaction costs in the interests of "the class as a
whole," meaning in fact the interests of those class members with
larger claims, class counsel, and defendants.1
The lead plaintiffs began distributing notice of the
settlement (including the allocation plan, the right to opt out,
and the right to object) on August 18, 2014, by mailing notice
packets to over 7,000 potential class members and the nominee
owners who held potential members' stock in street name. The
notice plan was implemented in a manner that ensured that all large
investors got ample notice of their right to opt out, and their
1 Suppose a settlement is predicated on a twenty percent risk
that defendants lose at trial. A class member with a harm of
$1 million should get $200,000, and 10,000 class members each with
a $40 harm should get $8. Assume further that it costs at least
$5 to send a check to each class member. By setting a $10 "minimum
allocation," the deal frees up $130,000 to be argued over by the
remaining parties while still delivering to defendants releases
covering what would be a liability of $450,000 in judgment and
costs should the case have been tried to a verdict in favor of the
class.
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right to object. For many small investors, though, there were
foreseeable delays in forwarding the notices from the nominee
owners to the investors.2 On September 4, 2014, the district court
pushed back the final settlement hearing from October 27 to
November 20. Nevertheless, the notices thereafter distributed
continued to publish an objection deadline of October 6 and a
hearing date of October 27. As a result, lead plaintiffs' counsel
did not send individual notices directly to many small investors
until a few days before, and in many cases after, the published
deadline for opting out and for objecting.
Par for the course, virtually no one (even those who may
have actually opened, read, and understood the notices) objected
to the settlement. See generally Am. Law Inst., Principles of the
Law: Aggregate Litigation § 3.05 cmt. a (2010) (hereinafter "ALI
Principles") ("[A] settlement may raise serious fairness issues,
but the amounts involved per class member may be so small that no
class member has a sufficient incentive to object.").
Surprisingly, the only ones who both objected and appealed the
rejection of the objection raise no complaint about the substance
of the settlement, including either the allocation formula or the
2 Almost all securities that most investors purchase through
brokerage companies are held in the name of the companies. See
U.S. Securities & Exchange Commission, Fact Answers: Street Name
(Oct. 5, 2005), http://www.sec.gov/answers/street.htm (last
visited July 16, 2015).
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minimum allocation threshold, each of which has the effect of
causing many class members to release their claims in return for
no consideration of any type. Instead, the objectors who appeal
voice only two complaints: (1) they were given too little time
to register objections with the district court; and (2) the
district court should not have approved the amount of attorneys'
fees awarded to class counsel.
The district court rejected these objections in full.
It was also sympathetic to the argument of the lead plaintiffs
that any appeal would increase the costs of plaintiffs' counsel
(who have received $10.2 million plus interest as part of the
settlement) and postpone distribution of the proceeds to the class
members. Citing our 1987 decision in Sckolnick v. Harlow, 820
F.2d 13 (1st Cir. 1987), the district court used Federal Rule of
Appellate Procedure 7 to bar objectors from appealing unless they
posted a bond in the amount of $75,300. To justify this order,
the district court determined that any appeal from its rulings on
the objections would be frivolous, and the bond amount would ensure
there would be funds available to pay plaintiffs' counsel for their
fees defending the frivolous appeal.
In Sckolnick, before allowing the bond requirement to
stand, our court also conducted a "preliminary examination of the
merits," concluding that "we cannot say that the district court
abused its discretion in judging [the appeal] to be frivolous."
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Id. at 15. Such a preliminary review is crucial in protecting
against the possibility that a district court could effectively
immunize its decisions from review by declaring any appeal
frivolous. Cf. Azizian v. Federated Dep't Stores, Inc., 499 F.3d
950, 961 (9th Cir. 2007) ("[T]he question of whether, or how, to
deter frivolous appeals is best left to the courts of
appeals . . . . Allowing district courts to impose high Rule 7
bonds . . . risks impermissibly encumber[ing] appellants' right to
appeal and effectively preempt[ing] this court's prerogative to
make its own frivolousness determination." (second and third
alterations in original) (citation and internal quotation marks
omitted)). Here, a preliminary review left us less comfortable
with any pre-judgment that the appeal would be frivolous. We
therefore stayed the order to post a bond, but also stayed
appellees' need to file any opposition to the appeal, and
considered on an expedited basis whether to summarily dismiss the
appeal on the merits under First Circuit Local Rule 27.0(c).
Having now fully reviewed objectors' brief on the merits
of their appeal, we find that the district court was well within
its discretion in rejecting the objections that are now pressed on
this appeal. As far as the time given objectors to object, it
does seem that the delivery of a notice on or around October 4
informing objectors that they had until October 6 to object was
likely unreasonable. This was not a mailing gone awry. Rather,
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plaintiffs knowingly mailed notices with the wrong objection
deadline to at least half of the class members, justifying the
decision as a cost-saving move. As for plaintiffs' argument that
small investors, most of whom necessarily hold stock in street
name, assume the risk of late notice, it is not clear why such a
routine and known practicality of investing common to small
investors should mean that those investors get late or no notice.
It was apparently feasible to send the notice directly to them
once names and addresses were obtained from the investment
intermediaries.
In this case, though, we need not decide whether the
notice was defective. Rather, the district court remedied any
defect (as far as it concerned objectors) by delaying the hearing
and allowing objectors to make their objections notwithstanding
the published deadline.3 Objectors received written notice on or
around October 4, and they filed their objections in writing on
Any harm caused by the erroneous dates in the mailed notice
3
may have been mitigated to some extent by the fact that plaintiffs
established a publicly available website detailing the settlement
information on August 18, 2014. See
https://www.statestreetclassactionsettlement.com (last visited
July 16, 2015). The mailed notice provided the website address
and stated that "any related orders entered by the Court will be
posted on the website." The website's homepage currently contains
the correct hearing date. Plaintiffs claim in their brief that
the hearing date was updated on the website after the district
court's rescheduling order. However, the complete settlement
notice document that is available on the website still contains
the October 6 and 27 dates for the objection deadline and hearing,
respectively. Id. (follow "Important Documents" hyperlink).
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November 4. The district court then held its rescheduled approval
hearing on November 20 to consider all objections on the merits.
The district court even gave objectors' counsel the right to appear
at the approval hearing by telephone. Thus, we find that the
objectors here had notice in fact and a sufficient opportunity to
have any of their objections heard by the court before it approved
the settlement.
That leaves objectors' complaint about the attorneys'
fee award. Plaintiffs point out that class counsel secured from
defendants an agreement "not to take a position on any such
application for an award of attorneys' fees and/or Litigation
Expenses." Objectors reason, not implausibly, that defendants
must have thought that they received something for gagging
themselves in this manner. On the other hand, it is hard to see
why defendants would have cared very much how the money they paid
was divided. In any event, again we need not decide the merits
of this objection. Because objectors take nothing at all under
the allocation formula, and because they do not appeal that
formula, no decrease in the portion of the $60 million settlement
amount that is paid to counsel will in any way benefit objectors.
This is another way of saying that they have no standing to
complain about the fee award. See Friends of the Earth, Inc. v.
Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 185 (2000) ("[A]
plaintiff must demonstrate standing separately for each form of
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relief sought."); cf. Silverman v. Motorola Solutions, Inc., 739
F.3d 956, 957 (7th Cir. 2013) (concluding that an objector who did
not file a claim "lack[ed] any interest in the amount of fees,
since he would not receive a penny from the fund even if counsel's
take should be reduced to zero"); Knisley v. Network Assocs., Inc.,
312 F.3d 1123, 1126 (9th Cir. 2002) ("[W]here a class member
refuses to participate in the settlement and appeals only the fee
award, . . . . [t]he court must closely scrutinize the terms of
the settlement agreement to determine whether modifying the fee
award would actually benefit the objecting class member. If not,
the appeal would not redress his injuries, and he would lack
standing to proceed.").4
We therefore summarily dismiss pursuant to Local Rule
27.0(c) objectors' appeal from the court orders approving the
settlement and the award of counsel fees. We also dismiss as moot
objectors' appeal from the stayed order that they post a bond as
a condition of proceeding further with the merits appeal.
Finally, while we award costs to appellees for both the
bond appeal and the merits appeal as is customary pursuant to
4 Objectors claim that class counsel failed to adequately
protect the interests of the class members who received late
notice. But in relying on, in effect, objectors' lack of
individual standing, we note that they did not ask to be certified
as representatives of other similarly situated class members who
received the belated notice, and those thousands of other class
members voiced no objection to the timing of the notice or the fee
award.
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Federal Rule of Appellate Procedure 39(a), we decline to award any
further sanctions. The manner in which plaintiffs' counsel
knowingly sent to a large block of class members notices containing
stale deadlines, and the need plaintiffs apparently felt to muzzle
any possible opposition to the fee request by defendants, created
subjects for at least some inquiry, especially in a case in which
class counsel traded releases for nothing at all on behalf of many
class members. And the basis on which we reject the challenge to
the attorneys' fee award was not even relied upon by the district
court.
Thus, although we easily conclude, for the reasons
already stated, that objectors' arguments with respect to the
notice and fee rulings lack merit, we decline to impose a sanction
against objectors' counsel for filing a frivolous appeal. See ALI
Principles § 3.08 cmt. c (2010) (in considering awards of costs
and fees for improper objections to a class settlement, "the court
should err on the side of not ordering such awards unless the
abusive conduct is clear"). We employ instead our summary
dismissal procedure to end the appeal much more quickly without
full briefing by plaintiffs, or argument.5
5 We note that the settlement funds were deposited into an
escrow account and invested in United States Treasury bills before
the district court issued final approval of the settlement, with
all earned interest reinvested into the account. Any harm to the
class members caused by the delay in releasing the account funds-
-even as condensed by the expedited nature of our disposition--
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These appeals are dismissed.
has therefore likely been mitigated to some extent by the interest
earned on the escrow account during the delay.
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