UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
filed: April 15, 1991.
MARILYN WILEY; LOIS A. REES; ANGIE NUNN; MICHELENE STELLA-OTERY, PLAINTIFFS-APPELLEES,
DELTA AIRLINES, INC.; WESTERN AIR LINES, INC., DEFENDANTS-APPELLEES V. DEBORAH BELCASTRO-BOWEN; MARLEENA REISER; ALICE MOLONEY ADAMS; CRAIG ANDREWS; PAMELA R. BAILEY; JUDITH D. BEAL; PAMELA A. BRENOT; CAROL BUNCE; STEPHANIE COHEN; DEBORAH L. CONNOR-COOK; CONSTANCE S. CRAMER; BARBARA D. DALY; SHEILA J. DICKERSON; WENDY DILLON; JOANNE H. DORAM; DEBRA DUBORD; SANDRA L. FOLEY; CONNIE M. FORDE; ROBERTA MAY FREEMAN; LAWRENCE HAHN; GAIL LOUISE HALLER; EMILY D. HEATH; CAROL A. HOGAN; MARCELLA HUNT-PETERSON; BARBARA JENSEN-AMDJADI; CAROLE LEAVELLE; SHARON LESSINGER; CHRISSIE B. LOVOLD; SUSAN L. MAGLIANO; SHARON D. MILLER; MARY ANN PEARSON; DIANE REILLY; TOBY S. SADASKY; ANABELLE SIMMONS; CYNDEE RAE SINARDI; COLLEEN SMITH; PATRICIA L. SMITH; ELISE STEVENS; PAMELA STEVENS; RHONDA J. JENNIFER TERRIO; JO ANNE UTZ; LARAINE VALDESPINO-POZZO; LINDA JOHNSON WALDEN; JANICE M. WALLER; CYNTHIA WEBER; CHERYL WENDELL; GINA YOUNGREN; SANDY YSLAS-VANDERBURG; KATHI ZABLOCKI, OBJECTORS-APPELLANTS; MARILYN WILEY; LOIS A REES; ANGIE NUNN; MICHELENE STELLA-OTERY; PLAINTIFFS-APPELLEES, DEBORAH BELCASTRO-BOWEN APPELLANT, V. WESTERN AIRLINES, INC; DELTA AIR LINES, INC., DEFENDANTS-APPELLEES
Appeal from the United States District Court for the Northern District of California; D. Lowell Jensen, District Judge, Presiding; DC# C-87-2273-DLJ; DC# CV-87-2273-DLJ.
Beezer and Noonan, Circuit Judges, and Jones*fn** District Judge
On October 1, 1984 Western Airlines, Incorporated (Western) and the Association of Flight Attendants (AFA) entered into an "early-out" agreement which gave permanent flight passes to flight attendants who voluntarily left Western's employment between September 1, 1984 and December 31, 1986 for reasons other than cause. A successor clause in the early-out agreement stated in pertinent part as follows: "Pass and reduced-rate transportation . . . shall mean pass and reduced rate transportation on Western Airlines, Inc. [or] any . . . merged company or companies. . . ."
The agreement split the early-out participants into two groups. Attendants with more than fifteen years of service and their spouses were assigned an F-1 pass -- the same pass which Western issued to its active employees with more than five years service and to its retirees with more than fifteen years of service. The F-1 pass entitled eligible children and parents of the attendants up to eight passes per year, depending on the attendant's length of employment. Attendants with ten to fifteen years of experience and their spouses were given an H-1 pass -- the same pass which Western issued to its active employees with less than five years of service and to its retirees with less than fifteen years of service.
The F-1 and H-1 cards entitled qualifying flight attendants and their spouses to an unlimited number of passes on Western's system. F-1 cardholders had boarding priority behind paying passengers and company officials; boarding among the F-1 cardholders depended upon arrival time at the gate. H-1 cardholders boarded behind all F-1 cardholders; boarding priority among H-1 cardholders also depended upon arrival time at the gate.
On April 1, 1987 Western merged with Delta Airlines, Incorporated (Delta). The pass systems of the two airlines differed significantly so perfect integration was impossible. Delta issued to its active employees an SA-3 pass which gave them boarding priority behind corporate officials. Delta issued to its retirees an SA-3B pass which gave them boarding priority behind active employees. Unlike Western's system, boarding within each Delta class was determined by seniority.
Delta gave all Western employees who became active Delta employees SA-3 passes; Western retirees were given SA-3B passes. Delta did not have any type of early-out arrangement with its employees so Delta created a new pass, the SA-4B pass, for the participants of Western's early-out program. The SA-4B pass entitled the early-outs and their spouses to an unlimited number of passes; parents and children of the early-outs were given up to eight passes a year. However, four distinct characteristics of the SA-4B class gave rise to dispute: (1) early-outs boarded behind all active Delta employees and retirees; (2) tickets could not be obtained at the gate; (3) a service charge was enacted; and (4) travel was restricted to Western's previous route structure.
On May 6, 1987, Marilyn Wiley and three other former Western flight attendants sued Delta in Federal Court in San Francisco, alleging that Delta's modifications to Western's early-out program violated the Employee Retirement Income Security Act (ERISA) and the terms of the early-out agreement. Specifically, the Wiley plaintiffs challenged the four provisions mentioned above. They sought injunctive relief restoring their alleged contractual rights and monetary damages for any travel expenses caused by the modifications. Forty-two former Western attendants filed a similar action, the Eaton action, in Seattle on May 28, 1987.
Both courts summarily determined that the early-out agreement constituted a welfare benefit plan subject to ERISA, 29 U.S.C. § 1002(1). The Wiley court reserved for trial the questions whether Delta's modifications to the early-out program were permissible under ERISA or the early-out agreement, and whether Delta could alter the agreement pursuant to the Railway Labor Act's merger rules. The Wiley court also denied class certification, subject to reconsideration.
On November 21 and 22, 1988, District Judge Lowell Jensen heard the Wiley case. The case was tried pursuant to a forty-six page stipulation of facts which Delta and Wiley's counsel had agreed to on November 8, 1988. Under the stipulation the plaintiffs agreed inter alia that the maximum relief they sought was the boarding priority of Delta's retirees; they further agreed that the merger clause did not require "an acquiring carrier to expand the early-out travel privileges to the carrier's entire route. . . ."
Meanwhile, in Seattle, District Judge William L. Dwyer ordered mediation in the Eaton case. On December 15, 1988, an experienced Seattle labor attorney, H. Clemens Barnes, conducted the mediation which was attended by Delta's attorneys, the Eaton plaintiffs' attorney and five of the Eaton plaintiffs.
On January 31, 1989, while the Wiley court's ruling was still pending, counsel for Delta and counsel for the Eaton and Wiley plaintiffs entered into a tentative settlement agreement. The agreement gave the early-outs and their spouses an unlimited number of passes to travel on Delta's domestic system, which included the continental United States, Alaska, Hawaii, Mexico, Puerto Rico, the Bahamas, and Bermuda, but it denied them access to Delta's trans-Atlantic and trans-Pacific routes; it placed the early-outs in Delta's retiree class; it promised them the same pass privileges as retirees; it dismissed all claims for damages; and it denied any protection under ERISA. The agreement also eliminated the service charge and allowed the early-outs to obtain passes without going through Delta's pass bureau. Finally, the agreement gave plaintiffs' counsel $85,000 in attorneys' fees.
The agreement was subject to both courts dismissing the actions with prejudice and to a class being certified by the Wiley court under Federal Rules of Civil Procedure 23(b)(1) and 23(b)(2). On February 15, 1989 the Wiley court tentatively certified the class and ordered the parties to send notice of the tentative agreement and class settlement to the 612 potential class members. The court set a Rule 23(e) fairness hearing date for May 19, 1989.
Seventy-eight potential class members filed objections with the court prior to the fairness hearing; ten potential class members filed favorable comments. Sixty-four flight attendants organized themselves into a group, the Bowen/Reiser group, to oppose the settlement; the Bowen/Reiser group comprises the objectors who have appealed.
On March 28, 1989 the Bowen/Reiser group filed a motion to suspend the fairness hearing and decertify the class. In particular the motion attacked Frederic Reed's declaration which stated: "All 42 plaintiffs whom I represent endorse the settlement agreement and believe it is a fair and equitable resolution of their claims." The Bowen/Reiser group allegedly learned through conversations with several Eaton plaintiffs that this statement was not true and that the agreement had been entered into without the plaintiffs' approval. On April 26, 1989, the district court held a hearing and denied the motion; the court expressed concern over the hearsay nature of the evidence and stated the Eaton plaintiffs could raise their concerns at the fairness hearing.
At the fairness hearing on May 19, 1989, the court heard oral testimony from twenty-six persons, all opposing the settlement. The court also heard argument from the objectors' attorneys and from the attorneys for the plaintiffs and Delta. On June 28, 1989 the district court entered an order approving of the settlement and certifying the class under Rules 23(a), 23(b)(1) & 23(b)(2).
In the order the court first discussed the requirements of Rule 23(a) and found that they had been satisfied. The court paid particular attention to the adequacy of representation by class counsel. The court also discussed the requirements of Rules 23(b)(1) & 23(b)(2) and determined that they too had been met. The court then discussed whether the settlement was "fundamentally fair, adequate, and reasonable." The court looked at each part of the agreement and described that which the plaintiffs had gained and that which they had lost. The court found that the compromises which each side had made were reasonable and concluded that the agreement was adequate and fair. Judge Jensen explained that he was in a unique position to make this determination because he had "heard the merits of the case fully litigated at trial prior to evaluating the settlement," and was in fact "prepared to issue a ruling on the merits of the action at the time the parties presented the proposed settlement agreement." In the end, Judge Jensen was "doubtful the plaintiffs could have achieved such an outcome" from the court.
On July 5, 1989 the district court entered an order vacating its prior summary adjudication and dismissed the action with prejudice. We affirm.
Appellants contend that the district court abused its discretion in accepting the settlement agreement and in certifying the class. They argue that the district court was required to, but did not, make a specific finding that the settlement was not the product of collusion, fraud or overreaching. They also argue that the district court abused its discretion because it approved of an agreement which had "stripped" appellants of their seniority status and which did not provide for damages, Trans-Atlantic and Pacific travel, or reduced-rate passes for parents. We are not persuaded by these arguments.
A. Standard of Review
"Class certification is a matter within the district court's discretion, and is reviewed to determine whether there has been an abuse of discretion and application of impermissible legal standards." Probe v. State Teachers' Retirement System, 780 F.2d 776, 779 (9th Cir.), cert. denied, 476 U.S. 1170 (1986) (citation omitted). However, because this class was certified after a tentative settlement agreement had been reached, we will examine the fairness of the agreement closely in making our determination whether the district court abused its discretion. Mars Steel Corp. v. Continental Ill. Nat. Bank & Trust Co. of Chicago, 834 F.2d 677, 680-81 (7th Cir. 1987); Weinberger v. Kendrick, 698 F.2d 61, 72-73 (2d Cir. 1982), cert. denied, 464 U.S. 818 (1983).
B. Collusion, Fraud and Overreaching
Relying primarily on Ficalora v. Lockheed California Co., 751 F.2d 995 (9th Cir. 1985), and Officers For Justice v. Civil Service Comm'n of the City and County of San Francisco, 688 F.2d 615 (9th Cir. 1982), cert. denied, 459 U.S. 1217 (1983), appellants contend the district court abused its discretion because it failed to make a specific finding that the agreement was not "the product of fraud or overreaching by, or collusion among the negotiating parties." Appellants misread Officers For Justice and Ficalora.
Officers For Justice explained that a district court should evaluate a proposed class action settlement using the universal standard by which all settlements are judged -- whether the settlement is "fundamentally fair, adequate, and reasonable." Officers For Justice, 688 F.2d at 625 (citation omitted). The court explained that this determination necessarily will involve, depending upon the unique facts of a particular case, "a balancing of several factors which may include, among others, some or all of the following: the strength of plaintiffs' case; the risk, expense, complexity, and likely duration of further litigation; . . . the amount offered in settlement; the extent of discovery completed; and the stage of the proceedings;. . . ." Id (citations omitted).
The court then stated:
The district court's role in evaluating a proposed settlement must be tailored to fulfill the objectives outlined above. In other words, the court's intrusion upon what is otherwise a private consensual agreement negotiated between the parties to a lawsuit must be limited to the extent necessary to reach a reasoned judgment that the agreement is not the product of fraud or overreaching by, or collusion between, the negotiating parties, and that the settlement, taken as a whole, is fair, reasonable and adequate to all concerned.
Ficalora expounded on the standard articulated by Officers For Justice. Ficalora stated: "the district court must reach a reasoned judgment that the proposed agreement is not the product of fraud or overreaching by, or collusion among, the negotiating parties and that the settlement, taken as a whole, is fair, reasonable and adequate to all concerned parties." Ficalora, 751 F.2d at 997 (citing Officers For Justice, 688 F.2d at 625). In Ficalora there were allegations of overreaching and potential conflicts of interest by the negotiating parties, and "the district court record reveal[ed] no inquiry by the court into the questioned activities of plaintiff class counsel with respect to the named plaintiff, Ficalora." Id (emphasis added). Because the record in Ficalora was totally void of any inquiry by the court into the questioned activities by class counsel, this court remanded the case and instructed the district court to determine "the amount of attorney's fees received by plaintiff-class counsel and whether the early closing of the case by settlement sacrificed any interest of the named plaintiff." Id. The district court was instructed to examine the objections in detail and "examine the settlement for possible conflicts of interest. . . ." Id.
Hence, the standard which the district court in the case at bar was required to use in determining whether to accept the proposed class settlement was whether the settlement was "fair, adequate, and reasonable." It must also be clear from the record that the district court "reach[ed] a reasoned judgment that the proposed agreement [was] not the product of fraud or overreaching by, or collusion among, the negotiating parties." Id.
The district court's order satisfies the letter and spirit of Ficalora and Officers For Justice. The court set forth the relevant factors to be considered, examined the agreement in detail, and then explicitly determined that the agreement was fair, reasonable and adequate. The court's order and the record as whole also make clear that the court came to a reasoned judgment that the agreement was not the product of fraud, collusion or overreaching. Not only did the court find the agreement to be fair, reasonable, and adequate, the court also concluded that anything the plaintiffs conceded was done "in the spirit of compromise that is necessary to achieve any settlement." Implicit in these conclusions is that there was no wrongdoing on the part of the negotiators.
Moreover, unlike the record before the Ficalora court, the record before us reveals that the district court did inquire into the questioned activities of class counsel. The court's order responded to the specific allegations of impropriety against David Rosenfeld in its discussion of the adequacy of representation. The court noted that Rosenfeld was "not always gracious and patient when dealing with class members" and did not "respond to all requests for legal advice," but the court concluded that these actions "did not prejudice the case he competently and vigorously presented" to the court. The court made that statement after having observed Rosenfeld at numerous hearings and a two-day trial.
As to the questioned activities of Frederic Reed, the district court reviewed the written allegations, received supplemental declarations from Reed explaining his declaration, held a hearing, and then concluded that his conduct had not "tainted" the decision by the court "to tentatively certify the class and to request a fairness hearing on the proposed settlement." Finally, contrary to appellants' allegations, the court did respond specifically to the objectors' concerns about the attorneys' fees. The district court found the fees to be "reasonable," and noted: "it is sometimes a distasteful reality that the practice of law is a business and that lawyers are entitled to fees for their service."
In sum, the district court did exactly what this court has asked district courts to do when deciding whether to accept a proposed class settlement agreement. The record makes clear that district court came to a reasoned judgment that the agreement was not the product of fraud, collusion, or overreaching, and the district court expressly determined that it was fair, reasonable and adequate to all concerned parties.
D. Appellants' Remaining "Abuse of Discretion" Arguments
Appellants also argue that the district court abused its discretion by approving of a settlement which did not provide for damages, traded away the early-outs' right to international travel, stripped away the seniority status of the early outs, and eliminated reduced-rate passes for parents. These arguments amount to nothing more than a request that this court review the details of the agreement to determine whether it is fair.
The district court was in a unique position to determine the fairness of this particular settlement agreement. The court had conducted a two-day trial and was prepared to issue a ruling on the merits when the parties presented the court with the agreement. The court issued a twenty page order explaining why it found the agreement to be reasonable, adequate, and fair; indeed, the court was "doubtful the plaintiffs could have achieved such an outcome." This court's independent review of the record supports the district court's conclusion. Accordingly, we hold that the district court did not abuse its discretion.