In re: BankAmerica Corporation Securities Litigation
No. 02-3780
United States Court of Appeals FOR THE EIGHTH CIRCUIT
December 2, 2003
Submitted: June 11, 2003; Corrected 12/8/03
Before MELLOY, HANSEN, and SMITH, Circuit Judges.
MELLOY, Circuit Judge.
In this class action under the Private Securities Litigation Reform Act of 1995,
The plaintiffs in this class action alleged losses caused by misrepresentations and omissions surrounding the 1998 merger of NationsBank and BankAmerica to form Bank of America. After consolidating numerous state and federal actions from multiple jurisdictions, the district court certified four plaintiff classes: the NationsBank and BankAmerica, Holder and Purchaser classes. Membership in the classes depended on whether plaintiffs held or purchased NationsBank or BankAmerica shares during designated periods of time. As required under the Act, the district court appointed lead plaintiffs or lead plaintiff groups who in turn selected class counsel. See
The district court appointed a seven-member lead plaintiff group to represent the NationsBank classes. Members of this group included Earl J. Gates, Robert Hepworth, Pamela Wootton, Appellees Joseph Hempen and Kevin Kloster, and Appellants John M. Koehler and David P. Oetting. The district court appointed a six-member lead plaintiff group to represent the BankAmerica classes. Members of this group included David Fike, Elizabeth Menkes, Patricia A. Thomas, and Appellees Selma Kaiser, Brian Markee, and Walter E. Ryan, Jr. No members of the lead plaintiff groups were large institutional investors nor did they have relationships with one another prior to this litigation. The lead plaintiffs for the NationsBank classes owned, collectively, less than one tenth of one percent of the outstanding shares in NationsBank. Institutional investors owned more than forty percent of NationsBank, but no institutional investor came forward to serve as a lead plaintiff.
In response to a motion for the district court‘s approval of the global settlement, three members of the NationsBank lead plaintiff group, Appellants Oetting and Koehler and Appellee Kloster, filed objections. They alleged that class counsel instructed them to leave the mediation because it was futile, but that class counsel remained and reached the proposed global settlement for an amount far below that which they had authorized. Based on these allegations, they argued that the district court should not approve the global settlement because: class counsel negotiated the settlement without their approval as lead plaintiffs; the settlement provided inadequate compensation to the NationsBank classes; and the settlement improperly structured compensation to be paid in cash rather than stock thus resulting in adverse tax consequences and a depletion of the cash reserves of the new, merged bank (in which most plaintiffs owned shares).
After sending notice to, and soliciting objections from, the hundreds of thousands of eligible class members, the district court received a total of ten objections. No institutional investors objected. The joint objection from Appellants Oetting and Koehler and Appellee Kloster was the only objection filed by any members of the NationsBank lead plaintiff group. Regarding the other NationsBank lead plaintiffs, Appellee Hepworth supported the global settlement; Gates died prior
Faced with the fractured positions of the NationsBank lead plaintiff group, the lack of a singular voice to advocate a position for the group, and the lack of clear guidance in the Act regarding the power of a fraction of one lead plaintiff group to disapprove settlement, the district court looked to cases under
In determining that it had the authority to conduct a fairness/adequacy review and approve the settlement over Appellants’ objections, the district court emphasized its duty to act in the best interest of class members. It noted that Appellants’ estimations of the settlement value of the case were so high as to be “bordering on fantasy.” It expressed concern that, because the global settlement amount far exceeded what had been previously offered to the separate classes, the Appellants potentially were jeopardizing a favorable settlement. The district court was intimately familiar with the case, having spent over three years with the case prior to ruling on the settlement. In light of this familiarity, the district court clearly expressed its opinion that, based on working with the attorneys in the case, this was not the kind of lawyer-driven, lawyer-initiated lawsuit that fails to protect class interest and that Congress targeted with the Act.
Ultimately, the district court approved the settlement as fair and adequate by applying those factors we have listed as relevant in the context of Rule 23 fairness determinations. See Van Horn v. Trickey, 840 F.2d 604, 607 (8th Cir. 1988). In particular, the district court noted the adequacy of the settlement in light of the apparent merits of the plaintiffs’ cases and in light of the risks and the high level of
On appeal, Appellants Koehler and Oetting argue that we should reverse the district court‘s decision and hold that the district court erred as a matter of law in approving the global settlement over their objections. They interpret the Act as prohibiting the district court from approving a settlement unless the district court either receives approval from the lead plaintiff, or lead plaintiff group, or disqualifies the lead plaintiff for acting in a manner inimical to class interests. All parties concede that the Act does not expressly provide for such a requirement, and Appellees argue that we should not read such a requirement into the Act.
Alternatively, Appellees argue that we are not required to address the broader issue of how much power the Act grants to lead plaintiff groups to control and settle litigation. Appellees characterize the narrow issue presented for review as relating only to whether the district court abused its discretion when it acted to approve a settlement over objections from some members of a fractured lead plaintiff group that failed to speak with one voice. In other words, Appellees argue that this case does not concern the relative roles that class counsel, lead plaintiffs and the supervising district court should play under the Act, but rather, is simply a case about how a district court is to deal with a fractured lead plaintiff group.
We note that NationsBank lead plaintiff group member Kloster changed his position after the district court proceedings and now appears before us as an appellee to argue in support of the global settlement. Further, as expressly conceded by Appellants during oral argument, the district court‘s findings of fairness and adequacy are not contested on appeal. Therefore, the only issue on appeal is whether the district court properly determined that it had the authority, over the objections of Koehler and Oetting, to review and approve the settlement.
Congress enacted the Private Litigation Securities Reform Act of 1995 to address problems related to class action securities litigation. In particular, Congress sought to create mechanisms to ensure the protection of class members’ interests in securities litigation that was widely perceived as being lawyer-instituted and lawyer-driven. See In re Cendant Corp. Litig., 264 F.3d 210, 254-68 (3rd Cir. 2001) (providing a discussion of the history behind the adoption of the Act and the potentially conflicting interests of class counsel and class members). One way in which the Act provides this protection is by requiring the district courts to appoint a lead plaintiff or lead plaintiff group to represent aggrieved shareholders and requiring these lead plaintiffs to select counsel. See
While the Act is explicit on the lead plaintiff‘s authority to select and retain counsel, it is silent on the other responsibilities and rights that lead plaintiffs have to
We agree with Appellees that the present case does not squarely present the broad question of whether the Act grants a lead plaintiff or lead plaintiff group sufficient control over litigation to block a district court‘s approval of a proposed settlement. Looking at the narrow issue that is presented, namely, what weight a district court must give to objections from a fraction of a fractured lead plaintiff group, we find no guidance in the Act and find that the district court properly relied on decisions under Rule 23 when it determined that it possessed the necessary authority to approve the settlement.
“Under Rule 23(e) the district court acts as a fiduciary who must serve as guardian of the rights of absent class members.” Grunin v. Int‘l House of Pancakes, 513 F.3d 114, 123 (8th Cir. 1975). It is appropriate for the district court to serve this role as guardian for absent class members because the district court is heavily involved in the management of class actions and, therefore, “‘is exposed to the litigants, and the strategies, positions and proofs.‘” Id. (quoting Ace Heating & Plumbing Co. v. Crane Co., 453 F.2d 30, 34 (3d Cir. 1971)). In light of this exposure to the litigants and litigation, we defer to district courts’ approvals of settlement agreements in class actions under an abuse of discretion standard:
Our review of the settlement approved by the district court in this case is guided by the principle that: Such a determination is committed to the sound discretion of the trial judge. Great weight is accorded his views because he is exposed to the litigants, and their strategies, positions and proofs. He is aware of the expense and possible legal bars to success.
Simply stated, he is on the firing line and can evaluate the action accordingly.
Elliot v. Sperry Rand Corp., 680 F.2d 1225, 1227 (8th Cir. 1982) (per curiam) (internal citations omitted).
We believe this abuse of discretion standard is also appropriate for our review of the district court‘s decision to approve the global settlement over the objection of Appellants Koehler and Oetting. The Act does not expressly divest the district court of its Rule 23(e) authority or discretion by explicitly granting a veto power to lead plaintiffs. Further, it seems clear that the Act was intended to supplement rather than replace Rule 23. This strongly suggests that Congress did not intend to remove discretion from the district courts or usurp the district courts’ traditional responsibility to guard the interests of absent class members.
Reviewing the district court‘s decision only for abuse of discretion, then, we find that the district court, which was intimately familiar with this lengthy and complex matter, did not abuse its discretion in overruling the objections of a fraction of the NationsBank lead plaintiff group. The district court properly determined that it bore a responsibility to safeguard the interests of class members, expressly noted that this case was not lawyer-driven, understood the risks attendant to trial and the strengths and weaknesses of the plaintiffs’ cases, and emphatically noted what it viewed as the unrealistic expectations of the objecting lead plaintiffs. In light of these determinations and the absence of guidance in the Act, it was not an abuse of discretion for the district court to proceed under Rule 23 and approve the settlement over Appellants’ objections. We leave for another day a determination of how much control over litigation the Act confers on a singular lead plaintiff or unified lead plaintiff group.
Accordingly, the judgment of the district court is affirmed.