Lazy Oil Co. v. Witco Corp.

Opinions of the United
1999 Decisions States Court of Appeals
for the Third Circuit
2-2-1999
Lazy Oil Co v. Witco Corp
Precedential or Non-Precedential:
Docket 98-3067
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Recommended Citation
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Filed February 2, 1999
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
NO. 98-3067
LAZY OIL CO.; JOHN B. ANDREASSI; THOMAS A.
MILLER OIL COMPANY, on behalf of themselves and all
others similarly situated; CARL B. BROWN, Proprietor;
CARL B. BROWN OIL; WACO OIL & GAS COMPANY;
GASSEARCH CORPORATION; INTERSTATE DRILLING,
INC.; ALAMCO, INC.; R. H. ADKINS COMPANIES;
WYNNEWOOD DRILLING ASSOCIATES
v.
WITCO CORPORATION; QUAKER STATE CORPORATION;
QUAKER STATE OIL REFINING CORPORATION;
PENNZOIL COMPANY; PENNZOIL PRODUCTS COMPANY
LAZY OIL CO.; JOHN B. ANDREASSI;
THOMAS A. MILLER OIL CO.,
Appellants
On Appeal From the United States District Court
For the Western District of Pennsylvania
(D.C. Civ. No. 94-cv-00110E)
District Judge: Honorable Sean J. McLaughlin
Argued: December 11, 1998
Before: BECKER, Chief Judge, STAPLETON, Circuit Judges
and HARRIS, District Judge.*
(Filed: February 2, 1999)
_________________________________________________________________
*Honorable Stanley S. Harris, United States District Judge for the
District of Columbia, sitting by designation.
JOSEPH E. ALTOMARE, ESQUIRE
(ARGUED)
P.O. Box 373
228 East Central Avenue
Titusville, PA 16354
Counsel for Appellants
GEORGE A. PATTERSON, III,
ESQUIRE
BRIAN A. GLASSER, ESQUIRE
Bowles, Rice, McDavid, Graff & Love,
PLLC
P.O. Box 1386
600 Quarrier Street
Charleston, WV 25325-1386
Counsel for Appellees Waco Oil &
Gas Co., Interstate Drilling, Inc.,
Alamco, Inc., R.H. Adkins Companies,
Gassearch Corporation
ARTHUR M. KAPLAN, ESQUIRE
Fine, Kaplan & Black
Suite 2300
1845 Walnut Street, 23rd Floor
Philadelphia, PA 19103
HOWARD J. SEDRAN, ESQUIRE
(ARGUED)
Levin, Fishbein, Sedran & Berman
510 Walnut Street, Suite 500
Philadelphia, PA 19106
SAMUEL D. HEINS, ESQUIRE
DANIEL E. GUSTAFSON, ESQUIRE
Heins, Mills & Olson, P.L.C.
700 Northstar East
608 Second Avenue South
Minneapolis, MN 55402
2
ROBERTA D. LIEBENBERG,
ESQUIRE
Liebenberg & White
The Pavillion, Suite 801
261 Old York Road
Jenkintown, PA 19046
Counsel for Appellee Wynnewood
Drilling, Plaintiff Class
RONALD S. ROLFE, ESQUIRE
(ARGUED)
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019-7475
DAVID L. McCLENAHAN, ESQUIRE
Kirkpatrick & Lockhart, LLP
1500 Oliver Building
Pittsburgh, PA 15222-2312
Counsel for Appellee Witco Corp.
RUFUS W. OLIVER, III, ESQUIRE
G. IRVIN TERRELL, ESQUIRE
(ARGUED)
Baker & Botts, L.L.P.
One Shell Plaza
910 Louisiana Street
Houston, TX 77002-4995
WILLIAM M. WYCOFF, ESQUIRE
Thorp, Reed & Armstrong
One Riverfront Center
Pittsburgh, PA 15222
Counsel for Appellees Pennzoil
Company and Pennzoil Products
Company
3
OPINION OF THE COURT
BECKER, Chief Judge.
This is an appeal from an order of the District Court
approving a class action settlement of an antitrust case.
Ironically, the lead objector, Lazy Oil Co., is also the lead
plaintiff, whose principal, Bennie G. Landers, conceived the
suit but later became disaffected with its management and
direction and ultimately with its fruits--the settlement. All
the objectors are producers of Penn Grade Crude Oil, i.e.,
crude oil drawn from the western side of the Appalachian
Basin within the states of New York, Pennsylvania, Ohio,
and West Virginia.1 The objectors contend that the
settlement is not fair, at least to the producer plaintiffs in
contrast to the investor plaintiffs. The objectors distinguish
between these two types of class members in making their
objections to the settlement, alleging that producer
plaintiffs, as full-time oil-producing enterprises, have
distinct interests and, particularly, unique losses, as
compared to investor plaintiffs, who simply invest funds in
oil-producing businesses.
The objectors maintain that producer plaintiffs lost not
only revenues from the lower prices paid for their oil (a loss
they share with investor plaintiffs), but also suffered the
compounded losses from their inability to invest these lost
funds in drilling new oil wells or upgrading their existing
ones--losses allegedly not applicable to investor plaintiffs.
This alleged distinction is also at the heart of the other two
issues raised by objectors in this appeal. They contend that
the District Court erred in not certifying a subclass of
producer plaintiffs to ensure that their unique interests
were adequately represented. Finally, they contend that the
Class Counsel--originally hired to bring this suit by the
lead plaintiffs, who are now objectors--should have been
disqualified from representing the remaining class
representatives and the entire class once the objectors
chose to attack the settlement.
_________________________________________________________________
1. Titusville, Pennsylvania, home of objectors' counsel, is the situs of
the
Drake Oil Well, the first oil-producing well in the world--drilled in
1859.
4
The District Court conducted three days of hearings
regarding, inter alia, the objectors' claims that the
settlement was not fair, that a subclass of producer
plaintiffs should be certified, and that Class Counsel
should be disqualified from representing the class. On
December 31, 1997, the District Court filed an omnibus
order overruling objections to the settlement, approving the
terms of the settlement, denying objectors' motion to
remove or disqualify Class Counsel, denying objectors'
motion for certification of a subclass, and denying approval
of the plan for allocating the settlement proceeds.
From the objectors' point of view, our opinion should be
devoted largely to a merits analysis of their objections to
the settlement, measured by the standards outlined in
Girsh v. Jepson, 521 F.2d 153 (3d Cir. 1975). However, we
dispose of that aspect of the case summarily, concluding
that the Girsh factors are easily met and that the District
Court did not abuse its discretion in approving the
settlement. Neither do we have difficulty with the District
Court's order refusing to remove or disqualify Class
Counsel, which we also affirm. We do, however, expound on
this point to clarify the standard for adjudicating such
claims in the class action context. More specifically,
drawing on the concurring opinion in In re Corn Derivatives
Antitrust Litigation, 748 F.2d 157, 162 (3d Cir. 1984)
(Adams, J., concurring), we adopt a balancing approach to
motions to remove or disqualify class counsel on conflict-of
interest grounds once former class representatives, i.e.,
former clients of class counsel, become objectors and
therefore adversaries to class counsel's remaining clients.
One other point requires discussion--our appellate
jurisdiction. The District Court, in its December 31, 1997,
order from which this appeal was taken, did not dispose of
all outstanding issues related to the settlement (i.e., it
denied a motion to approve the allocation plan that was
part of the settlement). Therefore, we must determine
whether the rule of Cape May Greene, Inc. v. Warren, 698
F.2d 179 (3d Cir. 1983), that in certain circumstances a
premature appeal may ripen once collateral issues are
disposed of by the district court, confers on us appellate
jurisdiction because an allocation plan has since been
5
approved by the District Court. We decide that Cape May
Greene is both intact and applicable, and that we therefore
have jurisdiction to hear this appeal from the order of the
District Court, which we, in all respects, affirm.
I. Background
The subject of this appeal began as two separate class
actions, each brought in the District Court for the Western
District of Pennsylvania, by sellers of Penn Grade crude
against three purchasers and refiners of this crude, Quaker
State, Pennzoil, and Witco. The plaintiffs in both actions
alleged that the defendants conspired to depress the price
of Penn Grade Crude, in violation of the Sherman Antitrust
Act. The cases were consolidated and, in June 1995, the
District Court certified the consolidated case as a class
action under Rule 23(b)(3), with the class comprising all
"direct sellers of Penn Grade Crude" who sold oil to the
defendants between January 1, 1981, and June 30, 1995.
Shortly thereafter, the plaintiffs settled with Quaker State
for $4.4 million. This settlement was approved by the
District Court, and no issues relating to it are before us.
In early 1997, after several months of negotiations,
plaintiffs reached a settlement with the remaining
defendants, under which Pennzoil would pay approximately
$9.7 million and Witco would pay approximately $4.8
million, with neither defendant admitting any liability or
wrongdoing. Upon presentation of the settlement to the
class representatives, two of them, Lazy Oil Co. and
Thomas A. Miller Oil Co., objected to the settlement.2 At
least 384 class members joined Lazy Oil et al. in objecting
to the terms of the settlement after receiving notice of its
terms.3 Class Counsel thereafter moved to withdraw from
representing the objectors.
_________________________________________________________________
2. A third class representative, John B. Andreassi, later joined Lazy Oil
and Thomas A. Miller in objecting to the proposed settlement. Andreassi
informed Class Counsel of his objections shortly after the settlement
notices had been sent to class members.
3. Other groups of class members objected as well, but did not appeal
from the District Court's orders approving the settlement or the
allocation of the proceeds. Therefore, only the objections of the Lazy Oil
group are before us, and it is to that group we refer when using the term
"objectors."
6
In February 1997, the District Court directed that notice
of the proposed settlement be sent to all class members and
published in local and national newspapers. The objectors
filed motions, inter alia, requesting that the Court
disapprove the settlement, for establishment of a producer
subclass, and for disqualification of Class Counsel. As
noted above, the District Court conducted three days of
evidentiary hearings in April and May 1997. On December
31, 1997, the Court approved the settlement and denied
the objectors' motions. With extensive findings of fact, the
Court found that plaintiffs faced substantial obstacles to
proving that defendants had violated the antitrust laws, as
well as serious problems with their theory of damages. The
Court also found that the notice to class members had been
adequate, and that relatively few class members objected to
the settlement. After evaluating these and the other Girsh
factors, it concluded that the settlement was fair and
reasonable, and that the objectors' primary concern, i.e.,
that producer plaintiffs were not adequately represented or
compensated by the settlement, was based on a speculative
and unsupported argument (that had been raised very late
in the litigation). Therefore, it overruled all of the relevant
objections and approved the settlement. This appeal
followed.
II. Appellate Jurisdiction
As noted above, we must first address the matter of our
appellate jurisdiction, which is, of course, limited to those
cases for which Congress has provided. In general, we may
only hear appeals from final judgments and from certain
prescribed interlocutory orders of the district courts. See 28
U.S.C. SS 1291-1292; Behrens v. Pelletier , 516 U.S. 299,
305 (1996) ("The requirement of finality precludes
consideration of decisions that are subject to revision, and
even of fully consummated decisions that are but steps
towards final judgment in which they will merge." (internal
quotations and brackets omitted)). In this case, the District
Court filed its order approving the settlement and denying
the objectors' motions, on December 31, 1997, but in that
same order, denied a motion to approve an allocation plan
for the settlement proceeds. The objectors filed a notice of
7
appeal within 30 days of this order, on January 29, 1998.
See Fed. R. App. P. 4(a)(1). Following further negotiations
pursuant to an order of the District Court, the parties
submitted a revised allocation plan, which was approved on
April 13, 1998, more than two months after the notice of
appeal had been filed. Final judgment was then entered
and the case closed.
While none of the parties (plaintiffs, defendants, or
objectors) contests our jurisdiction to hear this appeal, we
have an inherent obligation to ensure that we only decide
those cases for which there is a proper ground for appellate
jurisdiction. See Collinsgru v. Palmyra Bd. of Educ., 161
F.3d 225, 229 (3d Cir. 1998). The question we have raised
sua sponte and which we must answer is whether a notice
of appeal, filed within 30 days after a district court's order
approving a class action settlement but before the court
enters a final judgment approving all aspects (including the
allocation) of the settlement, ripens upon the district court's
entry of final judgment or is premature and void.
Our leading case in this area is Cape May Greene, Inc. v.
Warren, 698 F.2d 179 (3d Cir. 1983). In Cape May Greene,
we held that a premature notice of appeal, filed after
disposition of some of the claims before a district court, but
before entry of final judgment, will ripen upon the court's
disposal of the remaining claims. See id. at 184-85. In that
case, the defendants had filed a cross-claim that was not
actually litigated either before or after the entry of the order
from which the appeal was taken. When the district court
entered an order dismissing this claim--after the notice of
appeal had been filed--we held that appellate jurisdiction
existed, as the appellee did not allege any prejudice and "we
had [not yet] taken any action on the merits." Id. at 184.
We believe that exercising jurisdiction in the present case,
in which the District Court disposed of the remaining issue
and entered a final judgment prior to our consideration of
the case, and in which no prejudice is alleged by any party,
is consistent with our decision in Cape May Greene. See
also Welch v. Cadre Capital, 923 F.2d 989, 992 (2d Cir.)
("[A] premature notice of appeal from a nonfinal order may
ripen into a valid notice of appeal if a final judgment has
been entered by the time the appeal is heard and the
8
appellee suffers no prejudice."), vacated on other grounds
sub nom. Northwest Sav. Bank v. Welch, 501 U.S. 1247(1991).
Some courts that have followed a rule similar to ours
have revisited this doctrine in light of the Supreme Court's
1991 decision in FirsTier Mortgage Co. v. Investors Mortgage
Insurance Co., 498 U.S. 269 (1991).4 In FirsTier, the
Supreme Court stated that Federal Rule of Appellate
Procedure 4(a)(2) "permits a notice of appeal from a
nonfinal decision to operate as a notice of appeal from the
final judgment only when a district court announces a
decision that would be appealable if immediately followed
by the entry of judgment." Id. at 276 (first emphasis added).5
Therefore, Rule 4(a)(2) does not support the Cape May
Greene doctrine when the order from which a notice of
appeal is filed is not one that would befinal if followed
immediately by entry of judgment.6 Relying on this
_________________________________________________________________
4. We also acknowledge that some courts refused, even before FirsTier, to
adhere to a rule such as ours. See, e.g., United States v. Hansen, 795
F.2d 35, 37-38 (7th Cir. 1986) (discussing circuit split on the issue,
rejecting Cape May Greene rule, and noting that the appellants,
"anticipating defeat, might as well have filed the notice of appeal
simultaneously with the filing of their counterclaims or their answer to
the [plaintiff's] complaint"). In such cases, these courts of appeals
dismiss the premature appeal, presumably leaving the appellant either
without recourse to challenge the actual final order in the case or forced
to file its notice of appeal again, if a timely one can still be filed
after the
appeal is dismissed.
5. Rule 4(a)(2) provides that, "[a] notice of appeal filed after the court
announces a decision or order but before the entry of the judgment or
order is treated as filed on the date of and after the entry."
6. When asked by us to comment on the jurisdictional issue, the parties
argued that the order of December 31, 1997, was afinal order from
which an appeal could be taken under 28 U.S.C. S 1291, because (they
argued) the allocation issue was simply a separate, ministerial matter
over which the District Court retained jurisdiction after entering a final
order approving the settlement. See Polychrome Int'l Corp. v. Krigger, 5
F.3d 1522, 1544 n.52 (3d Cir. 1993) (holding that jurisdiction exists
when an "order sufficiently disposes of the factual and legal issues and
. . . any unresolved issues are sufficiently ``ministerial' that there
would
be no likelihood of further appeal"). While we need not resolve this issue
in light of our invocation of the rule from Cape May Greene, we question
9
distinction, the Fifth Circuit has recently abrogated its own
version of the Cape May Greene doctrine. See United States
v. Cooper, 135 F.3d 960, 963 (5th Cir. 1998) ("FirsTier
allows premature appeals only where there has been afinal
decision, rendered without a formal judgment."). 7
We do not believe that Cape May Greene has been
overruled by FirsTier. FirsTier simply limited the reach of
Rule 4(a)(2)'s proviso. It did not hold that the Rule 4(a)(2)
situation--announcement of a final decision followed by
notice of appeal and then entry of the judgment--is the only
situation in which a premature notice of appeal will ripen
at a later date. In fact, Rule 4(a)(4) was amended in 1993
_________________________________________________________________
whether the District Court's order approving the settlement was a "final
order." See In re Chicken Antitrust Litig. , 669 F.2d 228, 235 (5th Cir.
Unit
B 1982) ("As long as a matter such as [allocation of settlement proceeds]
remains open, unfinished, or inconclusive, an order will not be
considered final regardless of its characterization, and there may be no
intrusion by appeal."); see also Hoots v. Pennsylvania, 587 F.2d 1340,
1346-48 & n.42 (3d Cir. 1978) (holding that an "order [that] expressly
invited ``any party to submit further plans or proposals and evidence in
support thereof' " in a desegregation case was considered nonfinal and
nonappealable); Fireman's Fund Ins. Co. v. Joseph J. Biafore, Inc., 526
F.2d 170, 173 (3d Cir. 1975) (holding that an order granting plaintiff's
motion for summary judgment, with only the computation of interest
remaining to be done, was not a final order).
The District Court, in its opinion and order, addressed the merits of
the allocation plan and specifically refused to grant a motion to approve
this aspect of the settlement. The plan that was eventually approved
differed from that included in the settlement approved on December 31.
Before this Court, the objectors in their brief specifically refer to (and
criticize) "the allocation plan submitted by Class Counsel." Appellants'
Br. at 30. Therefore, we question the characterization of this issue as
simply "ministerial" and separate from the primary issues of liability and
damages. As noted, however, we need not decide this question.
7. Cooper was actually a criminal case, in which Rule 4(b), the
counterpart to Rule 4(a)(2), was involved. Yet, the court in Cooper noted
that the language of the two provisions is "almost identical" and should
"be given the same meaning." 135 F.3d at 962. We have likewise read
these provisions consistently, and found jurisdiction when a premature
notice of appeal is filed in certain criminal cases. See United States v.
Hashagen, 816 F.2d 899, 906 (3d Cir. 1987) (en banc)."
10
to provide that a premature notice of appeal would later
ripen if it was filed after entry of a judgment, but while
post-trial motions were pending. Such a premature notice
of appeal ripens upon "entry of the order disposing of the
last such motion outstanding." Fed. R. App. P. 4(a)(4).8
Thus, in a number of factual situations, a premature notice
of appeal will become effective at a later date.
Finally, Rule 2 of the Federal Rules of Appellate
Procedure permits a court of appeals to "suspend the
requirements or provisions" of any rule of appellate
procedure. See Fed. R. App. P. 2. The purpose of the Rule
is to ensure that justice is not denied on the basis of a
mere technicality. See id. advisory committee's note ("The
rule also contains a general authorization to the courts to
relieve litigants of the consequences of default where
manifest injustice would otherwise result."). For us to
decline jurisdiction in this appeal would elevate a mere
technicality above the important substantive issues here
involved, as well as the right of the parties in this case to
have their dispute resolved on its merits.9
In this case, a notice of appeal was filed following final
disposition of the key elements of the dispute: liability and
_________________________________________________________________
8. Prior to the amendment, the Rule had provided that "[a] notice of
appeal filed before the disposition of any of the[post-trial] motions
shall
have no effect." Fed. R. App. P. 4(a)(4) (1979). The Supreme Court had
interpreted this provision as making such a notice of appeal a "nullity,
. . . as if no notice of appeal were filed at all." Griggs v. Provident
Consumer Discount Co., 459 U.S. 56, 61 (1982). No similar provision of
Rule 4 currently provides an explicit command that a notice of appeal
filed under the circumstances here "shall have no effect." To the
contrary, we find that our rule from Cape May Greene is fully consistent
with the principles embodied in current Rules 4(a)(2) and 4(a)(4), which
essentially hold a premature notice of appeal in abeyance until such
time as it would be appropriately filed and effective.
9. We are, of course, mindful of the fact that the authority of Rule 2
cannot be utilized to expand the jurisdiction of the Court. See, e.g.,
Torres v. Oakland Scavenger Co., 487 U.S. 312, 315 (1988) (noting that
Rule 2 authority does not permit "a court to``enlarge' the time limits for
filing a notice of appeal"). Giving effect to a previously filed notice of
appeal upon the district court's disposition of outstanding claims does
not extend the time limits imposed on our jurisdiction.
11
the amount of damages. The appellees, both plaintiffs and
defendants, were on notice that the objectors would be
appealing the approval of the settlement and the denial of
their motions by the District Court. No prejudice is claimed
or apparent. Long before we considered any aspect of this
case, the outstanding issue of allocation was resolved, a
final judgment was entered, and the case was closed.
Compare Praxis Properties, Inc. v. Colonial Sav. Bank,
S.L.A., 947 F.2d 49, 54 n.5 (3d Cir. 1991) ("Arguably RTC's
appeal, even if it was filed prematurely, ripened once the
remaining claims in this case (the impediments tofinality)
were settled and dismissed." (citing, inter alia, Cape May
Greene and FirsTier)), with United States v. Davis, 924 F.2d
501 (3d Cir. 1991) (dismissing appeal when notice of appeal
was filed prematurely and appellants' allegations of error
remained before the district court). Finding our precedent
in Cape May Greene both intact and applicable to this case,
we hold that we have jurisdiction to hear this appeal.
III. Standard of Review
Our scope of review of a challenge to the district court
approval of a class action settlement is limited. We will
reverse a settlement approval only when the district court
has committed a "clear abuse of discretion." In re Prudential
Ins. Co. of Am. Sales Practices Litig., 148 F.3d 283, 299 (3d
Cir. 1998) (internal quotations omitted), cert. denied, No.
98-819, 1999 WL 16241 (U.S. Jan. 19, 1999), and cert.
denied, No. 98-888, 1999 WL 16242 (U.S. Jan. 19, 1999).
We review a district court's decision not to certify a
subclass for abuse of discretion. See Pennsylvania Dental
Ass'n v. Medical Serv. Ass'n, 745 F.2d 248, 255 (3d Cir.
1984). A district court's denial of a motion to disqualify
counsel is also reviewed for abuse of discretion. See
Kroungold v. Triester, 521 F.2d 763, 765 & n.2 (3d Cir.
1975). However, to the extent that the questions underlying
the disqualification motion are purely legal (e.g., whether
class counsel who represented objectors when the latter
were class representatives can continue to represent the
class), our review is plenary. See Kramer v. Scientific Control
Corp., 534 F.2d 1085, 1088 (3d Cir. 1976).
12
IV. Settlement of the Class Action
The leading case establishing the requirements for
evaluating a class action settlement is Girsh v. Jepson, 521
F.2d 153 (3d Cir. 1975). Here, the District Court
appropriately analyzed the settlement under the nine Girsh
factors, issuing a 113-page opinion with 74 pages of lucid
factual findings and a thorough analysis of each aspect of
the settlement and of the appellants' objections. Wefind the
District Court's opinion to be persuasive and its factual
findings to be fully supported by the record. They are
certainly not clearly erroneous. The Court's work product
easily meets the standard of In re General Motors Corp. Pick-
Up Truck Fuel Tank Products Liability Litigation, 55 F.3d
768 (3d Cir. 1995): "In order for the determination that the
settlement is fair, reasonable, and adequate to survive
appellate review, the district court must show it has
explored comprehensively all relevant factors." Id. at 805(internal quotations omitted).
We note specifically that the plaintiffs faced a not
insignificant risk of losing a summary judgment motion if
this case was not settled; of the possible exclusion of their
damages experts following a Daubert10 hearing; and of an
adverse verdict if the case reached trial.11 We also note that
the settlement followed over two years of extensive
discovery, including more than eighty depositions,
substantial document review, and the production of expert
reports. We agree with the District Court that the stage of
proceedings indicates that both sides were adequately
informed of the strengths and weaknesses of the case, and
strongly favors approval of the settlement. See Bell Atl.
Corp. v. Bolger, 2 F.3d 1304, 1314 (3d Cir. 1993) ("[P]ost-
discovery settlements are more likely to reflect the true
value of the claim and be fair."). Given the risks of
establishing liability and damages, the complexity of the
_________________________________________________________________
10. Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 592-93 (1993).
11. The objectors concede that there is no direct evidence of a price-
fixing conspiracy, and that, therefore, they must present evidence both
of conscious parallelism and of "plus factors" to make out a price-fixing
case. They present only "three evidentiary artifacts" to meet the plus-
factor requirement; all three are weak at best.
13
case, the stage of the proceedings, and the lack of
substantial opposition to the settlement, we find no abuse
of discretion in the District Court's approval of the
settlement.
We likewise find no abuse of discretion in the District
Court's denial of the objectors' motion for certification of a
subclass. This issue arises from the objectors' claim that
producer plaintiffs suffered distinct and greater damages
than those endured by so-called investor plaintiffs. The
District Court found that this purported distinction was
unsupported by the facts of the case, was not relevant to
the class claims (which were brought on behalf of"sellers,"
not producers or investors), and was raised at an extremely
late point in the litigation. We agree.
V. Disqualification of Class Counsel
The objectors contend that Class Counsel should be
disqualified because they are now representing a party (i.e.,
the plaintiffs) adverse to one they previously represented
(i.e., the objectors), creating an impermissible conflict of
interest. This contention raises an interesting threshold
question as to the standard a district court should apply to
the conflict determination.
The most extensive discussion of the conflict-of-interest
issue within our jurisprudence is found in In re Corn
Derivatives Antitrust Litigation, 748 F.2d 157 (3d Cir. 1984).
In Corn Derivatives, we granted a motion to disqualify an
attorney who had formerly represented several class
representatives; some of the class representatives approved
of a proposed settlement and others did not. Unlike the
present case, in Corn Derivatives counsel had withdrawn
from representing the parties approving of the settlement
and sought only to represent one objector on appeal. After
consulting the relevant portions of the ABA's Model Rules of
Professional Conduct and Model Code of Professional
Responsibility,12 we concluded that the prejudice to the
_________________________________________________________________
12. Currently, the ABA's Model Rules of Professional Conduct provide
that "[a] lawyer who has formerly represented a client in a matter shall
not thereafter represent another person in the same or a substantially
14
former clients would be too great to justify counsel's
continued representation of the objector. See id. at 162. We
focused on the policies underlying the rules against an
attorney representing a party in a matter in which a former
client is now an adversary, including preventing"even the
potential that a former client's confidences and secrets may
be used against him"; maintaining "public confidence in the
integrity of the bar"; and upholding the duty of loyalty that
a client has the right to expect. Id.Our opinion also discussed countervailing considerations,
such as whether the counsel at issue represented the entire
class (which was not the case in Corn Derivatives, but is
true here), and the interest of the party who wishes to
retain the counsel in avoiding increased costs and keeping
"counsel who has extensive familiarity with the factual and
legal issues involved." Id. Overall, however, we analyzed the
situation no differently than we would have a non-class
action case in which "two clients retained the same law firm
to file suit, and where, later, that law firm chose to
represent one of those clients against the other in the
course of the same litigation." Id. at 161.
In his concurring opinion, Judge Adams more explicitly
endorsed a balancing approach to attorney-disqualification
motions in the class action context. Judge Adams argued
that the rules for attorney disqualification could not be
"mechanically transpose[d]" to the class action context and
that the more appropriate means of addressing such issues
was through "a balancing process." Id. at 163 (Adams, J.,
concurring). After discussing the rationale behind these
points, he noted that, "[i]f a class attorney is automatically
prevented from continuing to represent the named parties
or a majority of a class which supports a settlement, the
minority dissenting class members might obtain
considerable leverage in the litigation by being able to force
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related matter in which that person's interests are materially adverse to
the interests of the former client unless the former client consents after
consultation." Model Rules of Professional Conduct Rule 1.9(a) (1983);
see also id. cmt. ("The underlying question is whether the lawyer was so
involved in the matter that the subsequent representation can be justly
regarded as a changing of sides in the matter in question.").
15
the majority to seek new counsel." Id. at 164 (Adams, J.,
concurring).
We agree with Judge Adams's concerns. In many class
actions, one or more class representatives will object to a
settlement and become adverse parties to the remaining
class representatives (and the rest of the class). If, by
applying the usual rules on attorney-client relations, class
counsel could easily be disqualified in these cases, not only
would the objectors enjoy great "leverage," but many fair
and reasonable settlements would be undermined by the
need to find substitute counsel after months or even years
of fruitful settlement negotiations. "Moreover, the conflict
rules do not appear to be drafted with class action
procedures in mind and may be at odds with the policies
underlying the class action rules." Bruce A. Green, Conflicts
of Interest in Litigation: The Judicial Role, 65 Fordham L.
Rev. 71, 127 (1996).
As the Second Circuit noted, in a case factually similar to
Corn Derivatives:
Automatic application of the traditional principles
governing disqualification of attorneys on grounds of
conflict of interest would seemingly dictate that
whenever a rift arises in the class, with one branch
favoring a settlement or a course of action that another
branch resists, the attorney who has represented the
class should withdraw entirely and take no position.
Were he to take a position, either favoring or opposing
the proposed course of action, he would be opposing
the interests of some of his former clients in the very
matter in which he has represented them.
. . . . [W]hen an action has continued over the course
of many years, the prospect of having those most
familiar with its course and status be automatically
disqualified whenever class members have conflicting
interests would substantially diminish the efficacy of
class actions as a method of dispute resolution.
In re "Agent Orange" Prod. Liab. Litig. , 800 F.2d 14, 18-19
(2d Cir. 1986) (citations omitted). The court then concluded
"that the traditional rules that have been developed in the
course of attorneys' representation of the interests of clients
16
outside of the class action context should not be
mechanically applied to the problems that arise in the
settlement of class action litigation." Id. at 19. Rather, it
held, a balancing approach like that advocated by Judge
Adams in Corn Derivatives was more appropriate in the
class action context.
The Agent Orange court listed a number of relevant
factors in this balancing inquiry, including some from
Judge Adams's opinion: the information in the attorney's
possession, the availability of the information elsewhere,
the importance of this information to the disputed issues,
actual prejudice that could flow from the attorney's
possession of the information, the costs to class members
of obtaining new counsel and the ease with which they
might do so, the complexity of the litigation, and the time
needed for new counsel to familiarize himself with the case.
See Agent Orange, 800 F.2d at 19.
We are persuaded by the well-reasoned opinions in Agent
Orange and Corn Derivatives. We therefore hold that, in the
class action context, once some class representatives object
to a settlement negotiated on their behalf, class counsel
may continue to represent the remaining class
representatives and the class, as long as the interest of the
class in continued representation by experienced counsel is
not outweighed by the actual prejudice to the objectors of
being opposed by their former counsel. In making this
determination, the district court may consider the factors
discussed in Agent Orange and in both the majority and
concurring opinions in Corn Derivatives.
Turning to the present case, we note that the situation
here differs from that in Corn Derivatives in that counsel
there sought to represent only one party, an objector, and
not the remaining class members. In a case such as the
present one, the balance weighs heavily in favor of denying
a motion for disqualification of class counsel that is made
on the basis of nothing more than the fact that the
objectors include former clients (in the same case) of class
counsel, without any showing of impropriety or prejudice.
See also Bash v. Firstmark Standard Life Ins. Co. , 861 F.2d
159, 161 (7th Cir. 1988) ("Recognizing that strict
application of rules on attorney conduct that were designed
17
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 will take remedial or
disciplinary action."); cf. Saylor v. Lindsley, 456 F.2d 896,
900 (2d Cir. 1972) (noting that plaintiff's counsel in a
derivative action "remains bound . . ., if the client has
objected [to a settlement], to inform the court of this when
presenting the settlement, so that it may devise procedures
whereby the plaintiff, with a new attorney, may himself
conduct further inquiry if so advised").
Objectors contend that Class Counsel in this case did not
adequately represent all of the class members because they
failed to consider the unique interests and damages of the
producer plaintiffs.13 Given our agreement with the District
Court that the objectors' distinction between producer and
investor plaintiffs is not supported by the record in this
case, we find no clear error in the District Court's finding
that Class Counsel adequately represented the interests of
all class members, even if some class members and some of
the class representatives are unsatisfied with the results of
Class Counsel's efforts. See Walsh v. Great Atl. & Pac. Tea
Co., 726 F.2d 956, 964 (3d Cir. 1983) ("Class counsel's
duty to the class as a whole frequently diverges from the
opinion of either the named plaintiff or other objectors.").14
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13. We also note that the objectors' brief discusses not the ethical
problems involved in the events that transpired, but the alleged
shortcomings of Class Counsel while they represented the objectors. See
Appellants' Br. at 38-41. Their claims sound less like an ethical breach
requiring disqualification than like a hint of possible malpractice. See
also id. at 42-45 (blaming Class Counsel for objectors' failure to raise
their damages theory until late in the litigation and labeling this "an
actionable breach of the professional standard of care under extant
Pennsylvania law").
14. See also Laskey v. International Union, UAW, 638 F.2d 954, 957 (6th
Cir. 1981) ("That the class counsel proposed a settlement which the
named representatives opposed does not prove that the interests of the
class were not protected."); Kincade v. General Tire & Rubber Co., 635
F.2d 501, 508 (5th Cir. Jan. 1981) ("Because the``client' in a class action
consists of numerous unnamed class members as well as the class
representatives, and because ``[t]he class itself often speaks in several
voices . . ., it may be impossible for the class attorney to do more than
18
Applying the standard we have outlined above, we are
satisfied that the District Court weighed the competing
interests appropriately and did not abuse its discretion in
denying the motion for disqualification of Class Counsel.
VI. Conclusion
For the foregoing reasons, the District Court's order
approving of the settlement in this class action and denying
objectors' motions for subclass certification and
disqualification of Class Counsel will be affirmed.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
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act in what he believes to be the best interests of the class as a whole
. . . .' " (citation omitted) (alteration and omissions in original));
Maywalt
v. Parker & Parsley Petroleum Co., 155 F.R.D. 494, 497 (S.D.N.Y. 1994)
("In the absence of concretely alleged acts of impropriety by the duly
certified Class Counsel, or a showing abridgment of a significant
minority of the Class' rights, this Court will not grant the hasty
application of the Moving Representative Plaintiffs to replace Class
Counsel on the eve of the Settlement Hearing."), aff'd, 67 F.3d 1072,
1079 (2d Cir. 1995).
19