SHARP FARMS; ROBERT W. MAY; TUCKER FARMS INC.; WORTHINGTON FARMS, INC. v. TERESA M. SPEAKS; TOBY SPEAKS; STAN SMITH; EDDIE BROWN; ROBERT POINDEXTER; MIKE MITCHELL; ROY L. COOK; ALEX SHUGART; H. RANDLE WOOD; ROBIN ROGERS; DANIEL LEE NELSON, аnd U. S. TOBACCO COOPERATIVE INC., f/k/a Flue-Cured Tobacco Cooperative Stabilization Corporation; DAN LEWIS v. TERESA M. SPEAKS; TOBY SPEAKS; STAN SMITH; EDDIE BROWN; ROBERT POINDEXTER; MIKE MITCHELL; ROY L. COOK; ALEX SHUGART; H. RANDLE WOOD; ROBIN ROGERS; DANIEL LEE NELSON, and U. S. TOBACCO COOPERATIVE INC., f/k/a Flue-Cured Tobacco Cooperative Stabilization Corporation
Nos. 18-1316, 18-1325
United States Court of Appeals for the Fourth Circuit
February 28, 2019
PUBLISHED
PUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 18-1316
SHARP FARMS; ROBERT W. MAY; TUCKER FARMS INC.; WORTHINGTON FARMS, Inc.,
Objectors - Appellants,
v.
TERESA M. SPEAKS; TOBY SPEAKS; STAN SMITH; EDDIE BROWN; ROBERT POINDEXTER; MIKE MITCHELL; ROY L. COOK; ALEX SHUGART; H. RANDLE WOOD; ROBIN ROGERS; DANIEL LEE NELSON,
Plaintiffs - Appellees,
and
U. S. TOBACCO COOPERATIVE INC., f/k/a Flue-Cured Tobacco Cooperative Stabilization Corporation,
Defendant - Appellee.
No. 18-1325
DAN LEWIS,
Potential Intervenor - Appellant,
v.
TERESA M. SPEAKS; TOBY SPEAKS; STAN SMITH; EDDIE BROWN; ROBERT POINDEXTER; MIKE MITCHELL; ROY L. COOK; ALEX SHUGART; H. RANDLE WOOD; ROBIN ROGERS; DANIEL LEE NELSON,
Plaintiffs - Appellees,
and
U. S. TOBACCO COOPERATIVE INC., f/k/a Flue-Cured Tobacco Cooperative Stabilization Corporation,
Defendant - Appellee.
Appeal from the United States District Court
Argued: October 31, 2018
Decided: February 28, 2019
Before GREGORY, Chief Judge, THACKER, and QUATTLEBAUM, Circuit Judges.
Affirmed in part, reversed and remanded by published opinion. Chief Judge Gregory wrote the opinion, in which Judge Thacker and Judge Quattlebaum joined. Judge Quattlebaum wrote a concurring opinion.
ARGUED: Charles Alan Runyan, RUNYAN & PLATTE, Beaufort, South Carolina, for Appellants. Gary K. Shipman, SHIPMAN & WRIGHT, LLP, Wilmington, North Carolina, for Appellees Teresa Speaks, et al. Derek L. Shaffer, QUINN EMANUEL URQUHART & SULLIVAN, LLP, Washington, D.C., for Appellee United States Tobacco Cooperative Inc. ON BRIEF: Andrew S. Platte, RUNYAN & PLATTE, Beaufort, South Carolina, for Appellants Sharp Farms, Robert W. May, Tucker Farms, Inc., and Worthington Farms, Inc. John L. Coble, MARSHALL, WILLIAMS & GORHAM, LLP, Wilmington, North Carolina, for Appellant Dan Lewis. William G. Wright, SHIPMAN & WRIGHT, LLP, Wilmington, North Carolina; Namon Leo Daughtry, DAUGHTRY, WOODARD, LAWRENCE & STARLING, Smithfield, North Carolina, for Appellees Teresa Speaks, et al. Lee M. Whitman, Tobias S. Hampson,
United States Tobacco Cooperative Inc.
GREGORY, Chief Judge:
This appeal of a class-action settlement concerns a longstanding dispute between U.S. Tobacco Cooperative, Inc., an agricultural cooperative of flue-cured tobacco growers in North Carolina, and a class of plaintiffs consisting of current and former Cooperative members. From its inception in 1946, the Cooperative administered a federal price-support program designed to stabilize tobacco prices for member growers through purchasing their unsold tobacco at a guaranteed minimum price and marketing the tobacco to buyers. With a mixed record of success, the price-support program ultimately came to an end in 2004, when Congress enacted the Fair and Equitable Tobacco Reform Act (“FETRA“). By this point, the Cooperative had accumulated a capital reserve fund of hundreds of millions of dollars genеrated from the tobacco the members delivered or the fee assessments they paid to the Cooperative as members participating in the price-support program.
On October 31, 2012, the plaintiffs (“Speaks plaintiffs“) filed a class-action complaint against the Cooperative, seeking a declaratory judgment, distribution of the reserve funds to members, and judicial dissolution of the Cooperative as an alternative form of relief. They argued that after Congress enacted FETRA and the price-support program ended, the Cooperative‘s primary purpose ceased to exist, and it should be forced to distribute the reserve funds and be judicially dissolved. The parties eventually mediated the case in May 2017 and moved for the district court to certify the class and approve their $24 million settlement as fair, reasonable, and adequate for the class members. The district court did so.
But this is not the whole picture. At the time the Speaks plaintiffs filed their complaint in October 2012, a parallel class action against the Cooperative was making its way through North Carolina state court. That case was brought several years earlier, and it included a class of member growers (the “Fisher-Lewis plaintiffs“) who form a subset of the Speaks class in this appeal but whose claims to the reserve fund are arguably much stronger than the claims of the Speaks plaintiffs. Indeed, a North Carolina court, reviewing a proposed settlement for the Fisher-Lewis plaintiffs in 2006, concluded that $76.8 million in relief was not even in the “ball park” of being fair, reasonable, and adequate for class members.
The Speaks plaintiffs filed their October 2012 complaint just as the Fisher-Lewis plaintiffs were gathering momentum—they had substantially survived a motion to dismiss and moved for class certification before the state court. Acknowledging that the preexisting Fisher-Lewis proceedings could affect their case, the Speaks plaintiffs then stayed the case for several years while those proceedings played out. During this time, the Fisher-Lewis plaintiffs met with more success, achieving class certification аnd successfully defending against the Cooperative‘s appeal challenging certification. Within two weeks of the
Before this Court are the Objectors-Appellants—Fisher-Lewis class members who objected to the Speaks settlement—and would-be intervenor Dan Lewis. Lewis contends
that the district court abused its discretion in denying his motion to intervene in Speaks. Because he filed his appeal with this Court far beyond the 30-day appeal deadline prescribed by statute, we must dismiss his appeal for lack of jurisdiction.
The Objectors claim, at bottom, that they got a raw deal. They first contend that the district court abused its discretion in certifying the Speaks settlement class under
We affirm the district court‘s denial of the attempted group opt-out. But after a careful review of this record—which spans nearly 15 years and 5,000 pages—we cannot agree that the Objectors’ interests were adequately protected or that a $24 million settlement is fair, reasonable, and adequate for the class. For this reason, we reverse the district court‘s order certifying the class and granting final approval of the class-action settlement and remand for further proceedings consistent with this opinion.
I.
A.
Historical Background
Created in 1946, U.S. Tobacco Cooperative, Inc. is an agricultural cooperative of flue-cured tobacco growers organized under the North Carolina Cooperative Marketing Act.1
Under North Carolina law and the Cooperative‘s governing documents, the Cooperative may establish a capital reserve. See
From 1946-2004, the Cooperative administered a federal price-support program for flue-cured tobacco for the benefit of its member growers. Under this program, tobacco producers who could not sell their flue-cured tobacco delivered it to a warehouse, where the Cooperative graded the tobacco and tried to sell it at auction. Fisher-Lewis, 794 S.E.2d at 703. “The auction was subject to a minimum price established annually by the United States Department of Agriculture, and the tobacco would not be sold for less than that price.” Id. If the Cooperative could not sell the tobacco, it “would process and store it, while advancing the minimum price less an administrative fee to the tobacco producer.” Id. The Cooperative paid the tobacco producers with loans from the
Womach, Cong. Research Serv., Tobacco Price Support: An Overview of the Program (Dec. 31, 2005), http://nationalaglawcenter.org/wp-content/uploads/assets/crs/95-129.pdf (saved as ECF opinion attachment; viewed 02/28/2019).
Commodity Credit Corporation (“CCC“), an entity owned and operated by the federal government that assisted in administering the price-support program. Id. Any unsold tobacco served as collateral for the CCC‘s loans. Id.
During the lifetime of the price-support program, the Cooperative accumulated a reserve of hundreds of millions of dollars from three main sources: (1) the 1967-73 crop years; (2) the 1982-84 crop years; and (3) the Fair and Equitable Tobacco Reform Act of 2004 (“FETRA“), Pub. L. No. 108-357, 118 Stat. 1418. See Fisher-Lewis, 794 S.E.2d at 704.
First, during the 1967-73 crop years, the Cooperative “received and stored tobacco . . . and eventually sold the tobacco at a price higher than necessary to repay the loans from the CCC,” earning a profit on the resale. Fisher-Lewis, 794 S.E.2d at 704. The Cooperative distributed some of these profits to its members in cash and held on to the remainder—about $26.8 million—as reserve funds. Id. The Cooperative issued certificates of interest in the reserve on a pro rata basis to members whose tobacco had created the surplus during those years. Id.
The second source of the Cooperative‘s reserve money was the 1982-84 crop years. The Cooperative‘s profits from this period stem from the passage of the No Net Cost Tobacco Program Act of 1982 (“NNC Act“),3 which fundamentally changed the structure of the federal price-support system. See Leaf Tobacco Exporters Ass‘n, Inc. v. Block, 749 F.2d 1106, 1109 (4th Cir. 1984). Before Congress enacted this law, the
CCC‘s loans to the Cooperative were “non-recourse” because “[t]he Cooperative‘s failure to earn complete
Third, the Cooperative added to its reserve fund after Congress enacted FETRA in October 2004 and ended the federal price-support program. See Fisher-Lewis, 794 S.E.2d at 704. In implementing FETRA, the CCC called the Cooperative‘s outstanding loans and took title to the tobacco that had been pledged as collateral for the loans. J.A. 4014. The CCC repaid the loans through selling some of the tobacco as well as taking possession of the NNC assessments and applying them to the loan balance. J.A. 3966-67. The CCC returned the remaining tobacco—about 83 million pounds—to the
Cooperative, and the Cooperative eventually sold the tobacco for $81 million, adding this sum to its reserve fund. J.A. 3966-67; see also Fisher-Lewis, 794 S.E.2d at 704.
When the price-support program ended in 2004, the Cooperative began culling its membership rolls as part of an effort to develop a business plan that would enable it to remain financially viable and to continue providing benefits for members at a time when its primary function—administering price supports—had ceased to exist. J.A. 4708-09. This membership reduction occurred in two phases. First, the Cooperative removed about 713,072 members listed on the membership rolls who it determined were deceased, had stopped farming by 1984, or had no financial relationship with the Cooperative. J.A. 1781, 4709. Second, the Cooperative removed 89,994 of the remaining 90,840 members who elected not to sign a marketing agreement with the Cooperative for 2005. J.A. 1781, 2384. In a letter to members, the Cooperative explained that members who decided to withdraw their membership by declining to sign the marketing agreement were no longer entitled to a share of the capital reserve.
In 2004, the Cooperative had about 800,000 members. J.A. 4378. By the time it finished culling the rolls, the Cooperative had eliminated 99% of its membership, reducing the number of members from 803,912 to 846. J.A. 1781. This reduction caused the reserve—consisting of more than $300 million—to increase from $427.00 per member to $365,000 per member. J.A. 1761.
B.
Parallel Litigation
There are two main lawsuits relevant to this appeal. First is the Fisher-Lewis proceeding in North Carolina state court. The second—this case—is the Speaks proceeding in North Carolina federal court. To provide the background necessary for disposing of this appeal, we trace the history
1.
Fisher-Lewis (State Court)
In January 2005, a group of current and former Cooperative members, including appellant and would-be intervenor Dan Lewis, filed a putative class action in North Carolina Superior Court after the Cooperative cancelled their memberships and extinguished their accrued interest in the reserve when they failed to enter into the marketing agreement with the Cooperative (”Lewis“).4 J.A. 4451-52. The plaintiffs argued that the Cooperative “expelled hundreds of thousands” of members and asserted control over the reserve fund in a deliberate attempt “to create a ‘last man standing’ scenario in which a few hundred remaining member[s] potentially have the benefit of hundreds of millions of dollars in assets which have been created through the efforts of all members[s], including [p]laintiffs.” J.A. 1827. The plaintiffs were represented by
Gary K. Shipman and William G. Wright, counsel for the Speaks plaintiffs in this case. J.A. 59, 4713.
One month later, in February 2005, another group of fаrmers filed a similar lawsuit in North Carolina state court (”Fisher“).5 These plaintiffs were represented by C. Alan Runyan and Philip Isley, counsel for Objectors and would-be intervenor Lewis. J.A. 4713.
In September 2005, almost nine months after Lewis was filed, the Lewis plaintiffs, represented by Shipman and Wright, entered into a preliminary settlement agreement with the Cooperative for $76.8 million in cash and $212 million in book allocations. J.A. 311. But the Fisher plaintiffs, who would be included in the settlement, objected to these settlement terms, and the state court in May 2006 denied preliminary approval of the settlement without prejudice on the basis that the record was insufficiently developed to resolve outstanding concerns and that the evidence that had been presented “does not support a finding or conclusion that the proposed Settlement is within the necessary ‘ball park’ of being fair, reasonable and adequate.” J.A. 311-12. Given the inadequacy of the record, the court ordered the parties to engage in additional discovery on the merits of the proposed settlement. J.A. 311-12. A few days later, the Cooperative filed a preliminary notice of intent to terminate the proposed settlement. J.A. 4455.
In September 2007, Shipman and Wright moved to withdraw as counsel for the Lewis plaintiffs because of disagreements with co-counsel. J.A. 4714. The court granted
this motion on October 8, 2007. J.A. 4458. Also in October, the Lewis and Fisher plaintiffs made a settlement offer for both cases, and the parties began settlement negotiations that extended through July 2008 and included at least one mediation. J.A. 4458.
The Fisher and Lewis cases were consolidated in May 2009 (”Fisher-Lewis“). J.A. 4458. The plaintiffs at this time filed a second amended and consolidated complaint alleging the following fourteen claims for relief: (1) conversion; (2) breach of contract; (3) imposition of a constructive trust; (4) accounting; (5) distribution; (6) declaratory judgment; (7) fraud; (8) in the alternative, fraud in the inducement; (9)
On March 30, 2012, the North Carolina Superior Court granted the motion to dismiss on three of the fourteen claims: fraud, fraud in the inducement, and breach of contract accompanied by a fraudulent act. J.A. 1860-68. The court otherwise denied the Cooperative‘s motion. On July 9, 2012, the Fisher-Lewis plaintiffs filed a third amended and consolidated complaint, dropping the three claims that had been dismissed and removing the claims for dissolution and judicial dissolution. J.A. 1918-52.
Also on July 9, 2012, the Fisher-Lewis plaintiffs filed a motion for class certification under Rule 23 of the North Carolina Rules of Civil Procedure. J.A. 1869-1916. The court granted the motion and certified the Fisher-Lewis class in February 2014. J.A. 2463-78. The Cooperative appealed this decision, and the North Carolina
Supreme Court affirmed the amended certification order on December 21, 2016. See Fisher-Lewis, 794 S.E.2d at 703. The certified Fisher-Lewis class consisted of the following:
All individuals, proprietorships, partnerships, corporations, or their heirs, representatives, executors or assigns, and other proper entities that have been members/shareholders of the Flue-Cured Tobacco Cooperative Stabilization Corporation . . . at any time from its inception through the end of crop year 2004, and any heirs, representatives, executors, successors or assigns, and;
(a) had not requested cancellation of their membership and whose membership was cancelled by Stabilization without a hearing, and/or
(b) were issued a certificate of interest in capital reserve by Stabilization for any of the tobacco crop years between and including 1967-1973, and/or
(c) delivered, consigned for sale, or sold flue-cured tobacco and paid an assessment for deposit into the No Net Cost Tobacco Fund or No Net Cost Tobacco Account during any tobacco crop years between and including 1982-2004.
Fisher-Lewis, 794 S.E.2d at 704 (alteration in original).
In upholding class certification, the North Carolina Supreme Court concluded that there were no conflicts among this class that would prevent class certification because “each class member‘s share of recovery could be determined fairly based upon that member‘s patronage interests in [the Cooperative]“—i.e., each member‘s profit contribution to the Cooperative‘s reserve fund. Id. at 708.
2.
Speaks (Federal Court)
On October 31, 2012, three months after the Fisher-Lewis plaintiffs’ motion for class certification in state court, a different group of tobаcco growers represented by
Shipman and Wright—former Lewis counsel who withdrew in 2007—filed this lawsuit, a putative class action against the Cooperative in the Eastern District of North Carolina. J.A. 32-70. The Speaks plaintiffs brought claims for a declaratory judgment, distribution to members under
The North Carolina Supreme Court affirmed class certification in Fisher-Lewis in late December 2016, and about two weeks later, on January 4, 2017, the Cooperative‘s counsel contacted Shipman, counsel for the Speaks plaintiffs, about scheduling a conference call to discuss next steps in the Speaks case given the recent decision in Fisher-Lewis. J.A. 4464.
The conference call took place on January 9, 2017, and the discussions led to an agreement to mediate the Speaks case. J.A. 4464. In the months following the conference call—while the Fisher-Lewis parties were developing the notice plan—the Cooperative‘s counsel and Shipman discussed selection of a mediator and possible dates for mediation, developed a list of relevant documents and exchanged them, and set a date to submit position papers to the mediator. J.A. 4465-68. The parties ultimately selected the Honorable Frank Bullock, a retired federal judge, to mediate a session that would take place on May 11-12, 2017. J.A. 4716.
On April 20, 2017, the Cooperative‘s local counsel explained in an email to the Speaks parties that he had communicated a “courtesy ‘heads-up’ to Philip Isley [plaintiffs’ counsel in Fisher-Lewis]” that the parties had scheduled a mediation in Speaks for May 11-12 with Judge Bullock. J.A. 4583. Local counsel further stated in his email that “[w]e will let you know if anything gets filed by the [Fisher-Lewis] plaintiffs with [the Speaks court] concerning the mediation,” and he asked the parties to “please let us know if you hear from the [Fisher-Lewis] plaintiffs as well.” J.A. 4583. This courtesy “heads up” was the first time the Speaks parties informed Fisher-Lewis counsel that Speaks was going to be mediated.
On May 5, 2017, Bob Cherry, counsel for the Fisher-Lewis plaintiffs, wrote a letter to Shipman, counsel for the Speaks plaintiffs, stating that he had been informed that a mediation had been set for May 11 and reminding Shipman that certain class representatives in Fisher-Lewis were Shipman‘s former clients to whom he owed continuing duties under professional-conduct rules. J.A. 720. Cherry indicated that his
letter served as “formal notice” that Shipman‘s former clients did not consent to his representing the Speaks plaintiffs because such a representation “could be materially adverse” to the interests of the Fisher-Lewis class. J.A. 720-21. Shipman responded that the mediation would occur as planned, that parallel state-federal class actions are “not unique,” and that “both the [Fisher-Lewis] case and the Speaks case are free to proceed until there is a final judgment in one of them.” J.A. 725.
On May 10, the day before the mediation, Cooperative counsel sent an email to Judge Bullock noting the parallel state and federal class actions and stating that Fisher-Lewis counsel sent a letter “voicing some concern over the upcoming mediation,”
After two days of mediation, the parties reached a settlement in principle. J.A. 4350. The Cooperative agreed to pay $24 million in exchange for a release of all claims by the class, including the Fisher-Lewis claims. J.A. 204.
On September 7, 2017, the Speaks plaintiffs filed a motion to certify the class action and for preliminary approval of the proposed class-action settlement. J.A. 122-92. The plaintiffs amended thе motion on September 8, filing a stipulation and agreement of class-action compromise, settlement, and release. J.A. 193-250. Five days later, on September 13, 2017, the district court preliminarily approved the settlement and the notice plan and scheduled a final fairness hearing for January 19, 2018. J.A. 251-61.
In the months before the hearing, some class members objected to the settlement, including the Objectors-Appellants Sharp Farms, Robert May, Tucker Farms, and Worthington Farms. The Objectors are members of the Fisher-Lewis certified class who were included in the proposed Speaks settlement class.
3.
Fisher-Lewis Challenges to Speaks Settlement
As the parties in the Speaks proceedings moved closer to a final settlement in late 2017, the Fisher-Lewis plaintiffs protested the Speaks settlement and the manner in which it was reached.
On September 15, 2017, a week after preliminary approval in Speaks was requested and two days after it was granted, Fisher-Lewis class representative Dan Lewis moved to intervene in Speaks, contending that the settlement was inadequate primarily because of the earlier settlement valued at $76.8 million in cash and more than $212 million in book allocations, “three times the current settlement amount” in Speaks. J.A. 305. On October 2, 2017, the district court denied Lewis‘s motion to intervene as untimely. The court explained that Lewis had been aware of this lawsuit since at least 2014, and that he knew about the mediation no later than May 5, 2017, but waited to move to intervene until after the court preliminarily approved the settlement. J.A. 1296-99. Lewis subsequently opted himself out of the Speaks class as well as purported to opt out the entire Fisher-Lewis certified class. J.A. 1603-04.
The Fisher-Lewis plaintiffs separately filed several motions in state court challenging Speaks. On September 22, 2017, the plaintiffs filed an order to show cause
or for sanctions, arguing that the Cooperative‘s counsel in mediating Speaks had violated the court‘s case management order from April 2017, North Carolina Rule of Civil Procedure 23, and the North Carolina Rules of Professional Conduct. J.A. 744-58. On October 13, the state court denied the motion but nevertheless ordered the Cooperative‘s counsel to produce to Speaks counsel “all communications between it . . . and any member of the class in these consolidated cases.” J.A. 1327-28. In explaining this directive, the court noted that “this action has been finally upheld as a certified class by the North Carolina Supreme Court and is now proceeding to trial,” and indicated that it was “concerned that the integrity of the class and the administration of justice has been called into question given the history of the case, the unusual facts of representation of both the cеrtified action and the later filed Speaks case, in that the initial counsel in
On November 28, 2017, the Fisher-Lewis plaintiffs filed a motion under North Carolina Rule of Civil Procedure 23(c) for an order finding that “the settlement reached in Speaks, insofar as it attempts to bind and preclude this certified [] class, is not approved,” and finding that the settlement “was reached in a collusive manner to avoid the jurisdiction of th[e] court to promote an inadequate settlement.” J.A. 4499. On January 17, 2018, two days before the final fairness hearing in the Speaks case, the Fisher-Lewis state court issued a lengthy opinion granting in part the Rule 23(c) motion. J.A. 4447-90. The court concluded that the Speaks settlement was not fair, reasonable, and adequate for the Fisher-Lewis class, and that counsel for both parties in Speaks had violated Rules 4.1 and 4.2 of the North Carolina Rules of Professional Conduct. J.A.
4477–89. The state court found in particular “ample evidence of collusion between the parties in Speaks to (a) exclude counsel in [Fisher-Lewis] from participation in the settlement of the claims for the class members whom they represent, and [to] [b] mislead the members of the [Fisher-Lewis] class as to the true facts of this matter.” J.A. 4487–89.4.
Speaks Settlement Approval
The final fairness hearing in Speaks took place on January 19, 2018. On February 20, the district court issued an 82-page opinion certifying the Speaks settlement class and granting final approval of the class-action settlement on the basis that it was fair, reasonable, and adequate for class members. A week later, on February 27, the court issued an amended final judgment clarifying the opt-out list.
Under the terms of the settlement, the Cooperative will pay into the settlement fund $24 million—less attorneys’ fees, costs, and incentive awards, capped at $2 million—over a five-year period to be held in escrow on behalf of the class. J.A. 4730. The final settlement class encompasses the following:
all individuals, proprietorships, partnerships, corporations, and other entities that are or were shareholders and/or members of [the Cooperative] at any time during the Class Period [i.e., June 1, 1946, through the effective date of the settlement in 2018], without any exclusion, including any heirs, representatives, executors, powers-of-attorney, successors, assigns, or others purporting to act for or on their behalf with respect to [the Cooperative] and/or the Settled Claims.
This class definition is broader than the definition of the class certified in Fisher-Lewis. That class included current or former members of the Coopеrative from 1946–2004 and tied recovery to whether the class member‘s patronage resulted in a net gain for the Cooperative and thus contributed to the reserve. By contrast, the Speaks settlement, which extinguishes the Fisher-Lewis class claims, entitles all current or former Cooperative members from 1946–2018 to a portion of the Cooperative‘s reserve funds irrespective of whether they produced net gains for the reserve. Each member‘s share of the recovery in Speaks is indeed based on two factors unrelated to the patronage concept. See J.A. 4730–31 (describing “Group 1” and “Group 2” claims). The first factor is the number of pounds of tobacco that the member marketed to the Cooperative from 1946–2018 relative to the total number of pounds from all class members who submit this type of claim (subject to a $15,000 cap). The second factor is the number of years the member marketed and sold tobacco
On March 21, 2018, the Objectors, represented by Fisher-Lewis counsel, appealed the district court‘s final order approving the settlement and the amended final judgment clarifying the opt-out list. J.A. 4797–99. On the same day, Lewis appealed the district court‘s order denying his motion to intervene, an order that was entered on October 2, 2017.6 J.A. 4801–03.
II.
Analysis
This case presents three main claims of error. First, would-be intervenor Dan Lewis contends that the district court abused its discretion in denying his motion to intervene. Second, the Objectors argue that the district court abused its discretion in certifying the Speaks settlement class under
A.
Lewis‘s Motion to Intervene
In his appeal (No. 18-1325), would-be intervenor Lewis, a Fisher-Lewis class representative, contends that the district court abused its discretion in denying his motion to intervene in Speaks. Because Lewis‘s appeal of the order denying his motion is untimely, we must dismiss the appeal.
The district cоurt‘s denial of a motion to intervene is “treated as a final judgment that is appealable.” Bridges v. Dep‘t of Md. State Police, 441 F.3d 197, 207 (4th Cir. 2006); see also Scott v. Bond, 734 F. App‘x 188, 189 n.2 (4th Cir. 2018). Once the district court enters the order denying intervention, a party has 30 days to file a notice of appeal. See
Lewis filed his notice of appeal on March 21, 2018, about 170 days after the district court denied his motion to intervene on October 2, 2017. As the Supreme Court recently made clear, “a provision governing the time to appeal in a civil action qualifies as jurisdictional [] if Congress sets the time.” Hamer v. Neighborhood Hous. Servs. of Chi., 138 S. Ct. 13, 17 (2017); see also Bowles v. Russell, 551 U.S. 205, 211–12 (2007) (observing “the jurisdictional distinction between court-promulgated rules and limits enacted by Congress“); United States v. Urutyan, 564 F.3d 679, 685 (4th Cir. 2009) (recognizing “the jurisdictional nature of statutory time constraints“). Because Lewis‘s appeal of the order denying his motion is governed by the 30-day time period prescribed in
B.
Class Certification Under Rule 23(a)
The Objectors contend that the district court abused its discretion in certifying the Speaks settlement class under
”
For the reasons that follow, we conclude that the district court abused its discretion in certifying the settlement class because Speaks class counsel and the class representatives cannot and did not adequately represent the Fisher-Lewis certified class. We therefore reverse that part of the district court‘s order certifying the settlement class. We hold, however, that the district court did not err in denying the attempted opt-out of the entire Fisher-Lewis class, and we therefore affirm the district court‘s order in this respect.
1.
Adequacy of Class Counsel
First, the Objectors contend that the district court abused its discretion in certifying the class because Speaks class counsel—Shipman and Wright—did not adequately and fairly represent the Fisher-Lewis class members who became members of the Speaks settlement class. The Objectors argue in particular that the district court “erroneously refused to consider” the Fisher-Lewis state court‘s findings that counsel in Speaks colluded to exclude Fisher-Lewis class counsel from participating in the settlement mediation and to mislead the Fisher-Lewis class members into believing that any Speaks settlement would not preclude the Fisher-Lewis class claims. We agree.
In its order approving the settlement, the district court concluded that Speaks class counsel “fully and adequately represents the settlement class” primarily because “counsel has over twenty-years[‘] experience litigating class actions and has expended significant resources investigating and pursuing the claims in this action.” J.A. 4741–42. Addressing the collusion argument,
The district court‘s reasoning in rejecting the Objectors’ collusion argument rests on two flawed premises. First, the court appears to have regarded the allegations of collusion as an attack on the mediator himself and his integrity and intelligence. See, e.g., J.A. 4743 (stating that “[i]f the parties were going to collude or attempt to collude, the last person they would have asked to serve as a mediator is Judge Bullock“); id. (asserting that “Judge Bullock is as smart and honorable as the universe is large“); id. n.18 (explaining that Judge Bullock “is one of the most highly respected lawyers, judges, and mediators in North Carolina‘s history“); see also Oral Arg. 35:45–36:05 (Cooperative counsel stating that “there were some traces of that, frankly,” in response to this Court‘s assertion that the district court seemed to believe that “the mediator was being accused of collusion when the mediator really didn‘t have the information in front of him“). The extent of the district court‘s comments defending the mediator‘s character suggests that this mistaken assumption was a driving force in the court‘s rejection of the serious collusion allegations.
Second, the district court‘s analysis erroneously assumes that the mediator had all the relevant information on the collusion allegations at the time he presided over and facilitated the mediation in May 2017. As an initial matter, and as counsel for the Speaks plaintiffs acknowledged at oral argument, the mediator did not have the benefit of the state court‘s January 2018 order extensively documenting what it deemed counsel‘s improper and unethical conduct, some of which allegedly occurred after the mediation, during the summer and fall of 2017. See generally J.A. 4477–90; see also Oral Arg. 24:16–24:37 (Speaks class counsel acknowledging that “the mediation was conducted prior to the time of [the state court‘s] order” and agreeing with this Court‘s statement that “the mediator was not aware” of the violations identified in the order); id. at 35:00–35:07 (Cooperative counsel recognizing the same). Without the state court‘s order, the mediator could not consider in his assessment the full extent of the collusion allegations and necessarily relied only on information that the parties conveyed before and during the mediation about events preceding the mediation. That the mediator was present during the settlement negotiations thus cannot provide the sole basis on which to reject the Objectors’ charges of collusion.
Defending the district court‘s reasoning, the Cooperative emphasizes that a “strong presumption against collusion” applies “[w]hen a reputable mediator . . . ovеrsees settlement negotiations.” Coop. Br. 33 (citing Jones v. Singing River Health Servs. Found., 865 F.3d 285, 295–96 (5th Cir. 2017), and D‘Amato v. Deutsche Bank, 236 F.3d 78, 85 (2d Cir. 2001)). In this regard, the Cooperative asserts that “[d]uring the mediation, the parties discussed with Judge Bullock the propriety of proceeding in the face of the relevant correspondence
Even if we could look past the fact that the mediator could not assess the extensive state court findings at the time of the mediation, the record reveals little about the extent to which the mediator understood and evaluated the Fisher-Lewis class members’ concerns about collusion. Unlike in the cases the Cooperative cites, for example, the mediator did not testify by affidavit or at the fairness hearing in this case. See Jones, 865 F.3d at 295 (affidavit); D‘Amato, 236 F.3d at 85 (testimony at the fairness hearing). And the primary evidence the Cooperative marshals in support of its position consists of an email from May 10, the evening before the mediation, in which Cooperative counsel notified the mediator of the parallel proceedings, indicated that Fisher-Lewis counsel had sent a letter to Speaks class counsel “voicing some concern over the upcoming mediation,” and explained that neither Speaks class counsel nor Cooperative counsel “share[d] those concerns.” J.A. 4585. On this record, the Cooperative cannot successfully argue that the mediator‘s presence ensured that there was no collusion or other improper conduct during the settlement of this case.
For these reasons, the district court abused its discretion in rejecting the possibility of collusion based on the presence of the mediator and concluding that Speaks class counsel was adequate under
The state court‘s order, which was before the district court at the time it approved the settlement and is part of the record, found that counsel for both the Speaks plaintiffs and the Cooperative committed a series of violations in settling this case. Specifically, the order concluded in part the following:
- The Speaks parties “intentionally and deliberately negotiated a settlement that was intended to resolve the claims of the [Fisher-Lewis] class after specifically being advised by the only counsel authorized to represent the interests of that class that the Speaks plaintiffs did not have the authority to do so nor did they have permission to do so.” J.A. 4470 ¶ 71.
- Counsel for the Speaks plaintiffs and the Cooperative “violated Rules 4.1 and 4.2 of the North Carolina Rules of Professional Conduct in their communications with the [Fisher-Lewis] class members.” J.A. 4480 ¶ 103. See
N.C. Rule of Prof‘l Conduct 4.2(a) (providing that “a lawyer shall not communicate about the subject of the representation with a person the lawyer knows to be represented by another lawyer in the matter“);N.C. Rule of Prof‘l Conduct 4.1 (providing that “a lawyer shall not knowingly make a false statement of material fact or law to a third person“). -
In drafting the class-action complaint and the amended complaint, Speaks class counsel, with Cooperative counsel‘s knowledge, attempted to “manipulate facts in order to construct and present to the Speaks court and public a false narrative as to” the circumstances surrounding the state court‘s denial of the proposed $76.8 million settlement on the basis that there was insufficient evidence that the settlement was fair, reasonable, and adequate. J.A. 4483 ¶¶ 110–11. - Counsel for the Speaks class, with assistance from Cooperative counsel, drafted and edited “the Long Form Notice in such a way as, at best, to ambiguously state the impact of the settlement on the [Fisher-Lewis] class and at worst to intentionally misrepresent” the preclusive effect of the Speaks settlement, a violation of
Rule 4.1 . J.A. 4484–85 ¶ 114. - The Speaks parties’ actions in setting up and conducting the mediation without sufficiently notifying Fisher-Lewis class counsel “demonstrate a deliberate attempt to exclude [Fisher-Lewis counsel] from having any meaningful participation in the settlement of their clients’ claims.” J.A. 4485-86 ¶ 115.
- “[G]iven the apparent inactivity in Speaks, even after the last of the stays in Speaks, the Speaks case served as a convenient placeholder for [the Cooperative], so as to be able to negotiate with someone other than [Fisher-Lewis counsel]. Simply put, . . . [the Cooperative‘s] counsel has engaged in attorney shopping.” J.A. 4488 ¶ 121.
- “[T]here is ample evidence of collusion between the parties in Speaks to (a) exclude counsel in [Fisher-Lewis] from participation in the settlement of the claims for the class members whom they represent, and [to] [b] mislead the members of the [Fisher-Lewis] class as to the true facts of this matter.” J.A. 4489 ¶ 126.
- In light of these considerations, “the Speaks settlement is not reasonable, fair and adequate” for the Fisher-Lewis class members. J.A. 4490.
In approving the settlement, the district court acknowledged the state court‘s order but did not meaningfully grapple with the court‘s extensive findings or its conclusions that the Speaks parties had engaged in collusive conduct to the detriment of the Fisher-Lewis class members and violated
The district court, in failing to engage sufficiently with the merits of the state court‘s findings, did not act as a fiduciary of the class and thus abused its discretion in certifying the Speaks settlement class under
In arguing that the district court did not abuse its discretion, the Cooperative asserts that the state court‘s findings are not dispositive on collusion. As the Objectors point out, however, “[t]he issue here is not whether the district court was bound by the findings of collusion by the state court . . . but whether the district court failed to require closer scrutiny especially given those findings” and given its duty as a fiduciary to the absent class members. See Kaufman, 877 F.3d at 283. The Cooperative further argues that, in any event, the district court “expressly considered the state court‘s decision, properly found it both legally and factually deficient, and rightly declined to follow it.” Coop. Br. 36. To the contrary, the district court‘s rejection of the state court‘s order consisted largely of conclusory statements and evinced little sustained evaluation of the serious charges of collusion.
The Cooperative also challenges the state court‘s order on the merits, arguing that the order “is misconceived in multiple respects.” None of these asserted deficiencies, however, undermines our core conclusion that the district court improperly rejected the collusion argument based on the mere presence of the mediator and without adequately addressing the state court‘s findings.
Under these circumstances, we hold that the district court abused its discretion in certifying the Speaks settlement class under
2.
Adequacy of Class Representation
The Objectors also argue that the district court abused its discretion because
“Under the adequacy requirement of
The Objectors first contend that conflicts of interest exist between the Speaks class representatives and the Fisher-Lewis class members because the Fisher-Lewis members’ interest in the Cooperative‘s reserve “is tied and traceable to their patronage gains” while in the Speaks class all members are entitled to a portion of the reserve funds irrespective of whether they contributed to the reserve through their patronage. See Fisher-Lewis, 794 S.E.2d at 708 (stating that “each class member‘s share of recovery could be determined fairly based upon that member‘s patronage interests in defendant“). The Objectors thus argue that a conflict exists because the legal theory in the Speaks case is not tied to each member‘s patronage interest and would provide broader relief to the settlement class at the expense of the Fisher-Lewis class members with identifiable patronage interests in the reserve. The Objectors separately argue that a conflict exists because the members’ legal claims are different. Unlike the Fisher-Lewis class, the Speaks class seeks recovery based on two weak statutory claims, and these weaknesses, say the Objectors, prejudice the Fisher-Lewis class members given their much stronger claims.
We agree with the Objectors, and conclude that the district court abused its discretion in certifying the Speaks settlement class given the fundamental conflicts between the Speaks class representatives and the Fisher-Lewis class members. These conflicts stem from the Cooperative‘s structure, the manner in which the reserve was established, and the divergent legal theories in which the Fisher-Lewis class and the Speaks class ground their respective claims.
The vast reserve at the center of these lawsuits exists because of certain members’ patronage during the periods of the Cooperative‘s history from 1946–2004 when the price-support program was profitable. Cоnsistent with the statutory framework for North Carolina agricultural cooperatives, the Cooperative‘s governing documents recognize that this subset of productive members in effect created the reserve, and the Cooperative thus specifically gave these members a patronage interest in the reserve through providing that any excess reserves would be distributed
For the 1967–73 crop years, a member‘s interest in the reserves was based on a percentage of his gain. J.A. 2396 (acknowledging that individual member growers contributed the reserves and stating that any excess shall be paid “ratably” to patron contributors); J.A. 2397 (explaining that the “contribution to [reserves]” would be “just the same as if the total of each member‘s allocation of profit was delivered to him in cash and he returned the established percentage to [the Cooperative] as his pro[-]rata contribution to” the reserve). Because the Cooperative was able to sell the members’ tobacco for a profit during these years, it “distributed a portion of the net gains to the growers of these crops . . . as cash patronage distributions” and kept the remaining $26.8 million for the reserve while issuing certificates of interest to these members for their pro rata portion of the undistributed net gains. J.A. 2458.
After the No Net Cost Act became law in 1982, a member‘s interest in the reserve was based on the individual NNC assessments he paid relative to the total assessments paid during the post-1982 period in which the Cooperative was profitable and building its reserve. J.A. 859. At oral argument on the proposed Fisher-Lewis settlement in 2005-2006, counsel for the Cooperative acknowledged that each member‘s patronage interest was the driving force of this lawsuit. J.A. 1789 (“In this cooperative, as in most cooperatives, any interest in the equity of the co-op, other than upon dissolution, is determined by each member‘s patronage with the co-op over time, and more importantly, whether that patronage resulted in profits to the co-op.“); J.A. 4608 (Cooperative counsel stating in 2010 that the class members’ “argument is that these reserves were derived from their patronage, so whether any individual grower has an interest in any particular pot of money depends on whether the grower contributed to growing the tobacco in question that generated those proceeds“).
This patronage interest in the reserve fund serves as the Fisher-Lewis class members’ theory of their case. Their patronage resulted in profits for the Cooperative, they contend, and their corresponding patronage interest was unlawfully extinguished—in violation of statutory cooperative legal principles as well as common law principles like breach of contract—when the Cooperative undertook the membership purge in 2004-2005. The members’ patronage interests in fact provided the basis on which the state court in Fisher-Lewis concluded that there were no conflicts of interest within the class. See Fisher-Lewis, 794 S.E.2d at 708 (“The trial court did not find that conflicts of interest divide the members of the class. Instead, the court concluded that each class member‘s share of recovery could be determined fairly based upon that member‘s patronage interests . . . .“).
The Speaks class representatives, by contrast, represent a class consisting of all Cooperative members from 1946–2018 irrespective of whether the members produced any profits for the Cooperative—and
The Cooperative suggests, and the district court found, that no conflict exists because both classes seek to recover “excess” reserves. Coop. Br. 31–32; J.A. 4737. But this reasoning obscures the key distinction between the two classes—the Fisher-Lewis class members have taken the position that the Speaks class can claim no legal entitlement or recognized interest in any “excess” reserves because they have no earned patronage interest in the reserve based on any profit contribution. Cf. Ward, 595 F.3d at 180 (stating that “[a] conflict is not fundamental when . . . all class members ‘share common objectives and the same factual and legal positions‘” (emphasis added) (citation omitted)). The Fisher-Lewis class members indeed assert a fundamentally different interest and a different injury from the Speaks class representatives: they claim an interest in the reserve tied specifically to the profits they produced for the Cooperative, and an injury tied directly to the deprivation of their patronage interest as a result of the 2004-2005 membership purge. Cf. Amchem, 521 U.S. at 625 (stating that a “class representative must be part of the class and ‘possess the same interest and suffer the same injury’ as the class members” (citation omitted)). A settlement involving all Cooperative members would vitiate this interest through awarding to noncontributing members a portion of the reserve funds that the Fisher-Lewis class members created.
That the Fisher-Lewis class members and the Speaks representatives are pursuing different legal claims only underscores the conflict of interest between the two. “Adequacy does not require complete identity of claims or interests between the proposed representative[s] and the class,” but there must be “sufficient similarity of interest such that there is no affirmative antagonism between the representative[s] and the class.” 1 Newberg on Class Actions § 3:58, at 342–44. The different claims of the Speaks representatives and the Fisher-Lewis class members reflect their different theories of the case, and these theories are in tension. The Speaks class members are pursuing claims for voluntary distribution or, alternatively, dissolution precisely because—unlike the Fisher-Lewis class members—they can likely claim no legal entitlement to the reserve funds on common law and statutory theories that are grounded in the notion that members’ patronage gives them an interest
For these reasons, we hold that the district court abused its discretion in certifying the Speaks settlement class in this respect as well.
3.
Fisher-Lewis Classwide Opt-Out
The Objectors contend that the district court abused its discretion when it certified the class after rejecting the attempts of certain Fisher-Lewis class representatives to opt out the entire Fisher-Lewis class from this case. Finding no merit to this argument, we affirm the district court‘s denial of the class opt-out.
In holding that the Fisher-Lewis representatives could not opt out the entire class, the district court first noted that its preliminary approval order “expressly prohibited group or class-wide opt-outs.” J.A. 4740. The court then went on to explain that the Due Process Clause prohibits classwide opt-outs because due process “requires that class
members be provided notice and an individual choice to proceed as a class member or to opt-out and avoid being bound by a judgment.” J.A. 4740. For this proposition the court cited several cases. See Sloan v. Winn Dixie Raleigh, Inc., 25 F. App‘x 197, 198 (4th Cir. 2002) (“[C]lass representatives cannot opt out on behalf of other putative class members.“); Hanlon v. Chrysler Corp., 150 F.3d 1011, 1024 (9th Cir. 1998) (“There is no class action rule, statute, or case that allows a putative class plaintiff or counsel to exercise class rights en masse, either by making a class-wide objection or by attempting to effect a group-wide exclusion from an existing class. Indeed, to do so would infringe on the due process rights of the individual class members, who have the right to intelligently and individually choose whether to continue in a suit as class members.“); Berry Petroleum Co. v. Adams & Peck, 518 F.2d 402, 412 (2d Cir. 1975) (prohibiting the plaintiff from opting out prospective class members in shareholder suit before they had been given an opportunity to opt out and stating that “[t]he only way to avoid such chaos is to require that opting out of a class action, like the decision to participate in it, must be an individual decision“), abrogated on other grounds by Menowitz v. Brown, 991 F.2d 36 (2d Cir. 1993).
The Objectors recognize that courts have generally held that representatives of a putative class cannot opt out individual members on due-process grounds, but contend that this rule does not apply here because the Fisher-Lewis class is no longer putative and has already received notice and been certified. The Objectors argue that “[s]ince the members of the [Fisher-Lewis] class had exercised their rights and [chose] to remain in [Fisher-Lewis], the class representatives can act to bind those absent class members” and opt out of Speaks on their behalf. App. Br. 49-50. According to the Objectors, the class representatives in fact had “the fiduciary duty to represent the legal interests of [Fisher-Lewis] absent class members once they had exercised their due process choice to be part of the [Fisher-Lewis] certified class.” App. Br. 46.
The Objectors cite no authority for the proposition that the Fisher-Lewis members’ status as a certified class creates an exception to the settled rule that the Due Process Clause reposes only in “individual class members ... the right to intelligently and individually choose whether to continue in a suit as class members.” Hanlon, 150 F.3d at 1024 (emphasis added). Even though the Fisher-Lewis class is certified, the policy concerns that militate
In the absence of any authority or policy justification, we see no basis on which to conclude that the representatives of the Fisher-Lewis certified class can opt out of the Speaks case on behalf of the absent Fisher-Lewis class members. See 3 Newberg on Class Actions § 9:49 at 556-57 (“Courts have permitted representative opt-outs only in very rare circumstances, such as when a government official or political subdivision requests to opt out on behalf of its constituents.“). As the Cooperative notes, moreover, the Objectors’ position presents an unworkable scenario because four of the Fisher-Lewis class representatives declined to opt out of Speaks. Compare J.A. 2463 (Fisher-Lewis representatives), with J.A. 4794 (Speaks opt-outs). Certain Fisher-Lewis representatives thus attempted to opt out the entire Fisher-Lewis class from Speaks even while other representatives elected to remain in Speaks.
For these reasons, the district court did not abuse its discretion in rejecting the Fisher-Lewis representatives’ efforts to opt out the entire Fisher-Lewis class from this case.
C.
Final Settlement Approval Under Rule 23(e)
Finally, the Objectors challenge the district court‘s approval of the $24 million Speaks class settlement as fair, reasonable, and adequate. This Court affords the district court‘s decision “substantial deference, reversing only ‘upon a clear showing that the district court abused its discretion in approving the settlement.‘” Berry v. Schulman, 807 F.3d 600, 614 (4th Cir. 2015) (quoting Flinn v. FMC Corp., 528 F.2d 1169, 1172 (4th Cir. 1975)). We agree with the Objectors that the district court abused its discretion under these circumstances. We therefore also reverse that part of the district court‘s order approving the Speaks class settlement as fair, reasonable, and adequate.
A high-level comparison of the two cases provides a useful starting point for our analysis. The Fisher-Lewis claims arose in 2004-2005, when the Cooperative drastically reduced its membership rolls by 99%—from 803,912 members to 846 members—through removing all members who did not appear on sales bills from 1984-2003 or who declined to sign a marketing agreement with the Cooperative for 2005. J.A. 1781. As the Cooperative stated in a letter to members, anyone whose membership was cancelled lost all accrued interest in the reserve. See Fisher-Lewis, 794 S.E.2d at 704. The membership reduction caused the reserve to increase from $427.00 per member to $365,000 for each of the remaining 846 members. J.A. 1761.
Based on these events, the Fisher-Lewis plaintiffs brought a consolidated suit in May 2009 alleging a variety of common law and statutory claims against the Cooperative, including breach of contract, conversion, ultra vires, and unfair trade practices. J.A. 1837-54. According to the Fisher-Lewis plaintiffs, two related legal theories undergird their claims. The first, as we have explained, relies on cooperative legal principles. J.A. 1802 n.44. The plaintiffs contend that a cooperative, by its nature, cannot make profits for itself and must distribute all net earnings pro rata to members based on their patronage, or profit contribution, to the cooperative. See
The Fisher-Lewis plaintiffs’ second legal theory is tied specifically to the Cooperative‘s 2004-2005 membership purge and its decision to expel members who refused to sign the new marketing agreement. See Fisher-Lewis, 794 S.E.2d at 704. The plaintiffs argue that the Cooperative “systematically disenfranchise[d] [p]laintiffs and other [members] by purging the membership rolls and eliminating” the plaintiffs as members without a hearing. J.A. 1827. Through these actions, the Cooperative “expelled hundreds of thousands” of members and took control of the reserve in an attempt “to create a ‘last man standing’ scenario in which a few hundred remaining [members] potentially have the benefit of hundreds of millions of dollars in assets which have been created through the efforts of all” members. J.A. 1827. According to the plaintiffs, this campaign to eliminate members deprived them of their right to participate in the “net earnings” derived from their patronage because the Cooperative took the position that expelled members would lose any accrued interest they had in the reserve. J.A. 1802 n.44.
As the record shows, the Fisher-Lewis plaintiffs met with considerable success from 2012-2016. The plaintiffs largely survived a motion to dismiss, achieved class certification, and successfully defended
It was only after the Fisher-Lewis plaintiffs survived the motion to dismiss and moved for class certification that the Speaks plaintiffs filed their complaint in October 2012. Within two months, however, the Speaks suit was stayed in deference to the ongoing class-certification proceedings in Fisher-Lewis, and the Speaks case remained stayed until the North Carolina Supreme Court issued its decision in December 2016 affirming class certification. Shortly after this dеcision, the Speaks parties started settlement negotiations, and they reached a tentative settlement within five months, after having conducted essentially no adversarial discovery and without the Cooperative even having filed an answer to the Speaks complaint—a stark contrast to the extensive multiyear process in Fisher-Lewis, as the state court properly recognized. See J.A. 4488 (observing that the Fisher-Lewis plaintiffs filed “two complaints, three amended complaints, participated in class discovery, defended class discovery and merits discovery, substantially survived a motion to dismiss, obtained class certification and successfully defended the same” while the Speaks plaintiffs “filed one complaint and, with the input of the [Cooperative], filed an amended complaint, obtained approximately 8 stays of their case, submitted a number of status reports, reviewed documents voluntarily provided by the [Cooperative] then mediated and settled their claims“). The Speaks settlement amount was $24 million—another stark contrast with Fisher-Lewis, where a $76.8 million settlement was deemed as being not even in the ball park of fair and adequate.
The Speaks case also involved claims and legal theories different from—and arguably weaker than—the claims in Fisher-Lewis. The Speaks plaintiffs contend primarily that after Congress enacted FETRA in 2004 and ended the federal price-support program, the Cooperative‘s principal function ceased to exist, and it was thus unreasonably and unlawfully failing to distribute to members hundreds of millions of dollars in excess reserves that were not necessary to the Cooperative‘s continued functions and activities in a post-FETRA environment. The Speaks plaintiffs do not assert the Fisher-Lewis common law and statutory claims for relief based on the Cooperative‘s 2004-2005 membership purge and members’ lost patronage interest.
Given this history and the differences between the two cases, we agree with the Objectors that the strength of the Fisher-Lewis case drove the Speaks settlement negotiations, and that the district court erroneously relied on the weaknesses of the Speaks claims to justify the $24 million settlement as reasonable for the class when that amount is plainly inadequate for the Fisher-Lewis class members.
In evaluating the adequacy of thе $24 million settlement, the district court concluded that the Speaks claims were weak for the following reasons. First, the Speaks plaintiffs provided no authority for the proposition that
Despite the district court‘s thorough analysis of the claims before it, many of the weaknesses identified do not apply to the claims of the Fisher-Lewis class members. The Fisher-Lewis plaintiffs did not request judicial dissolution of the Cooperative, for example, nor did they seek to force distribution of the Cooperative‘s reserves under
The district court also reasoned in its analysis that, without a statutory or contractual entitlement to relief, the Speaks plaintiffs can allege only a breach-of-fiduciary-duty claim, which would fall within the business-judgment rule. This assessment also proves problematic as applied to Fisher-Lewis. First, the Fisher-Lewis plaintiffs alleged several statutory and contractual claims for relief not present in Speaks, and these claims survived a motion to dismiss—including a business-judgment-rule defense—and were part of the certified case. Second, the state court later ruled that the Fisher-Lewis claims werе not derivative in nature and expressly left open the question whether the business-judgment rule would apply to the surviving claims. J.A. 4609, 4614 & n.1 (granting partial summary judgment to the plaintiffs on the Cooperative‘s twelfth affirmative defense, which argued that “plaintiffs’ claims are barred for failure ... to satisfy the requirements of the North Carolina statutes applicable to derivative actions“). For these reasons, the district court‘s business-judgment-rule analysis applies with considerably less force to the Fisher-Lewis claims.
In concluding that the $24 million settlement was adequate, the district court also indicated that the Cooperative‘s defenses were strong, noting in particular that the “statute of limitations is a substantial barrier to large swaths of plaintiffs’ claims.” J.A. 4756. Again, this reasoning applies with less force to the Fisher-Lewis claims. Those plaintiffs filed suit in early 2005, shortly after being notified in late 2004 of the Cooperative‘s plan to terminate most of its members and retain their accrued patronage interests. The claims indeed arose precisely because of the Cooperative‘s 2004-2005 membership purge—the moment when the expelled members lost their interest and the reserve increased to an unreasonable $365,000 per member—and the claims substantially survived a motion to dismiss. J.A. 1866-67 (dismissing only three of the 14 claims, all involving fraud allegations). In
The district court, in approving the $24 million settlement as reasonable, also relied on several faulty premises concerning the proposed $76 million settlement. First, the court asserted that the state court “did not find that the proposed settlement was unreasonable” but rather denied preliminary approval “without prejudice” based on certain plaintiffs’ objection that discovery on the merits of the settlement was necessary. J.A. 4759-60. Although the state court did deny approval without prejudice, the court indicated in no uncertain terms thаt the record before it “d[id] not support a finding or conclusion that the proposed Settlement is within the necessary ‘ball park’ of being fair, reasonable and adequate” at only $76 million. J.A. 311-12.
Second, the district court, relying on Federal Rule of Evidence 408 and our decision in Fiberglass Insulators, Inc. v. Dupuy, 856 F.2d 652 (4th Cir. 1988), concluded that a settlement offer does not reflect the relative strength of the plaintiffs’ claims on the merits, and that such an offer cannot establish the Cooperative‘s liability at trial. J.A. 4760. But the $76 million figure was not merely a settlement offer made in the course of the parties’ negotiations. Cf. Fiberglass Insulators, 856 F.2d at 653 (holding that Rule 408 requires excluding “statements made by attorneys in the course of settling prior related litigation between the same parties“). The figure instead was the basis on which the court, after briefing and argument, denied preliminary approval for the settlement as not fair, reasonable, and adequate for class members. Neither the district court nor the Cooperative points to any authority suggesting that this Court cannot consider the state court‘s denial in our review of the Speaks settlement.
Third, the district court deemed the $76 million proposed settlement from 2005-2006 outdated and irrelevant—and thus an improper benchmark by which to gauge the reasonableness of the Speaks settlement—both because the Cooperative‘s “business strategy from 2005 to 2017 has proven reasonable and beneficial” to members and because the litigation risks “have substantially changed in the Cooperative‘s favor since 2005.” J.A. 4768.
As an initial matter, even assuming the Cooperative can now—in 2018-2019—justify its large pool of reserves based on an evolving business strategy undertaken over the last fifteen years, the Fisher-Lewis case turns on the reasonableness of the reserve in 2004-2005, when the Cooperative eliminated 99% of members and extinguished their accrued interest in the reserve. That the Cooperative‘s circumstances may have changed in more recent years has little relevance for the Fisher-Lewis class members and their claims.
As to the increased litigation risks for the Fisher-Lewis plaintiffs, the district court cited the Georgia state court‘s 2014 opinion in Rigby as proof that the Speaks plaintiffs have a weak case on the merits and would be unlikely to recover more than $24 million if the case were litigated to judgment. See Rigby v. Flue-Cured Tobacco Coop. Stabilization Corp., 755 S.E.2d 915 (Ga. Ct. App. 2014); see also Rigby v. Flue-Cured Tobacco Coop. Stabilization Corp., 794 S.E.2d 413 (Ga. Ct. App. 2016). Rigby is another case against the Cooperative, with claims similar to the
In conclusion, the district court stated that although the Fisher-Lewis class asserted many state law causes of action not present in Speaks, counsel has failed to explain how these causes of action would enable the plaintiffs to obtain relief greater than $24 million “given that each of these claims appears to rest on the same fundamentally flawed allegation that the Cooperative unlawfully retained reserves.” J.A. 4768. But as we have explained, the Fisher-Lewis claims do not rest on the “same fundamentally flawed allegation,” and the Fisher-Lewis plaintiffs have detailed at length their separate theory of the case based specifically on the events in 2004-2005.
The Cooperative, for its part, protests that the Fisher-Lewis class members have failed to identify the amount of reserves that the Cooperative may reasonably retain for the members’ benefit. But any lack of clarity in the record on the exact amount of reasonable reserves is hardly surprising given that this issue was not contested in Speaks and full merits discovery in Lewis had commenced only in April 2017, a month before the Speaks parties mediated the case and arrived at the $24 million figure. J.A. 4465. The Cooperative also seizes on a statement from the Objectors’ counsel, made at the fairness hearing in a colloquy with the court, that the recovery could be “zero” if at trial the Cooperative‘s entire reserve is deemed reasonable. J.A. 4674. Viewed in its proper context, this statement was nothing more than an acknowledgment from counsel that, if plaintiffs’ expert determined that the entire reserve wаs reasonable, it would follow that the plaintiffs could not recover any excess reserves. As counsel made clear in the subsequent exchange—in which he argued vigorously for a robust recovery—this remark was not a concession that the expert would find that the entire reserve was reasonable.
Under these circumstances, we conclude that the district court abused its discretion in approving the $24 million settlement as fair, reasonable, and adequate.
III.
Conclusion
To sum up, we hold that the district court abused its discretion in certifying the Speaks settlement class under
For the foregoing reasons, we reverse the district court‘s order certifying the class and approving the final settlement and remand for further proceedings consistent with this opinion.
AFFIRMED IN PART, REVERSED AND REMANDED
Modern class actions are an important innovation in our legal system. They are a rare departure from “a principle of general application in Anglo-American jurisprudence that one is not bound by a judgment in personam in a litigation in which he is not designated as a party or to which he has not been made a party by service of process.” Hansberry v. Lee, 311 U.S. 32, 40 (1940). When properly employed, class actions efficiently provide consistent outcomes in resolving large numbers of disputes involving common questions of law or fact.
As with many innovations, however, these benefits come with risks.1 The very features of class actions that provide efficiency and consistency at the same time present serious risks, including the risk of due process violations. For a plaintiff class, absent class members’ grievances are litigated not directly by the class members themselves but by class representatives. Defendants in those actions can be sued by a class of hundreds or thousands of people who are relieved of their normal responsibility to file and prosecute their own case. For a defendant class, concerns are arguably even greater with the very real possibility that judgments can be entered against absent defendants without those defendants receiving notice of the underlying action itself. See 1 Joseph M. McLaughlin, McLaughlin on Class Actions § 4:46 (15th ed. 2018).
In this appeal, Objectors challenge a number of the district court‘s decisions, including several findings regarding the
I.
I first address the district court‘s finding regarding the adequacy of the class representatives. Because the district court found the class representatives to be adequate when intra-class conflicts existed regarding the patronage theory of recovery, I join the majority in finding that the district
In considering the adequacy of the class representatives, we look to
Decisions from the Supreme Court and this Court provide guidance on the issue of intra-class conflicts. In Amchem, the Supreme Court considered whether a settlement class consisting of victims of asbestos exposure satisfied the requirements of
Ortiz v. Fibreboard, 527 U.S. 815, 856-58 (1999) affirmed the principle established by Amchem and further explained its meaning. In yet another asbestos case, the Supreme Court in Ortiz considered whether a mandatory settlement class certified under a limited fund theory satisfied the requirements of
After Ortiz, it is clear that Amchem extends beyond conflicts between current and future damages. Our Court, a year earlier, recognized this in Broussard v. Meineke Disc. Muffler Shops, Inc., 155 F.3d 331 (4th Cir 1998). There, this Court followed Amchem in determining a nationwide class of franchise holders was improperly certified. Broussard, 155 F.3d at 337-39. According to this Court, the putative class of franchise holders contained “manifest conflicts of interests,” largely driven by class members’ diverging interests in the amount and type of recovery. Id. at 338. This Court noted, “The interest of former franchisees in damages and of many EDP franchisees in restitution reveals an obvious initial schism within the putative class regarding the appropriate remedy for [the defendant‘s] alleged wrongdoing.” Id. In describing the prejudice caused by these conflicts of interests, this Court observed that the “three distinct groups have potentially divergent aims” and that the remedy sought by the plaintiffs “is consistent with—and only with—the aims [of one of the groups].” Id. at 339 (internal quotation marks omitted).
Broussard also suggests that intra-class conflicts infringe the due process rights not only of absent plaintiff class members but also of defendants. In that case, the presence of intra-class conflict forced the defendant to respond to inconsistent legal theories and damages claims some of which involved individualized considerations. See id. at 338 (“[O]ne group of [absent plaintiffs] sought to intervene below and appear as amici on appeal, claiming their ongoing business relationship with [the defendant] and their interests in the long-term financial health of the company were imperiled by plaintiff‘s efforts to wring a large damage award out of defendants.“). While the defendant in this case did not raise these issues below or on appeal, in the parallel state proceeding it argued that the differences in arguably a less diverse class prevented class certification.2
Here, the district court concluded that there were no intra-class conflicts in this case that precluded certification or necessitated subclasses under
It is clear from the record that the district court gave thoughtful consideration to this issue. However, the district
In order to satisfy the requirements of
II.
Turning next to the district court‘s findings regarding the adequacy of class counsel under
Instead of relying upon the inadequacy of class representatives to conclude that counsel was therefore inadequate, the majority questions the manner in which the district court evaluated the adequacy of class counsel. The majority finds that “the district court improperly rejected the collusion argument based on the mere presence of the mediator” and “did not meaningfully grapple” with the North Carolina court‘s findings about collusion. Maj. Op. at 30, 32. Respectfully, the record does not support this conclusion, and affording the findings of the district court appropriate deference, I cannot agree that the district court erred in its findings regarding collusion. I write separately on this issue to address my disagreement with the majority‘s analysis and to illustrate the ways in which the district court meaningfully grappled with the North Carolina court‘s findings of collusion.6
These decisions are not surprising since, in advancing these arguments, the Objectors fundamentally mischaracterized the relationship between the two parallel actions. It is well settled that a parallel action has no effect on a competing action until a final judgment is reached. See 3 William B. Rubenstein, Newberg on Class Actions §10:33 (5th ed. 2011). That is even true for the certification decision. “A common misunderstanding is that certification of a class in one suit somehow forestalls other related cases; in fact, only the preclusive effect of a final judgment can formally achieve that end and a decision simply certifying a class is not itself a final judgment.” Id. Simply put, the North Carolina court‘s interlocutory decisions did not apply to the Speaks case.
Turning now to issues raised in the majority‘s analysis, the record reveals that the district court did not improperly reject the collusion argument based on the mere presence of the mediator and did meaningfully grapple with the North Carolina court‘s findings about collusion. Regarding the role of the mediator, the district court admittedly viewed the mediator as a factor in rejecting the collusion arguments. As the court noted, the Speaks settlement was reached after a mediation led by a well-respected North Carolina mediator. The court correctly cited to authority that stands for the proposition that the presence of an unbiased mediator is some evidence against the presence of collusion. See Jones v. Singing River Health Servs. Found., 865 F.3d 285, 295 (5th Cir. 2017), cert. denied sub nom. Almond v. Singing River Health Sys., 138 S. Ct. 1000 (2018) (“The involvement of an experienced and well-known mediator is also a strong indicator of procedural fairness.“) (internal quotation marks omitted).
However, the district court‘s decision on alleged collusion was based on more than the involvement of the mediator. Despite the district court‘s conclusion about the legal effect of the North Carolina court
Regarding notice, the district court considered the issue of whether the Fisher-Lewis class was adequately notified of the Speaks mediation. For the same reasons set forth in the preceding paragraphs, the court found that it was. Specifically, the court rejected “the contention that the Fisher/Lewis class members have some interest, separate and apart, from the interests of the other class members in this case.” J.A. 4742.
The district court also considered the issue of whether the notices issued in the Speaks case adequately described the effect of the Speaks settlement on the Fisher-Lewis claims. It reviewed the contents of the actual notices and found the short form notice, the settlement website and the long form notice contained the necessary information about the effect of the settlement. See J.A. 4779 (“The long form notice also clearly details how the Speaks action affects the Fisher/Lewis action . . . . The settlement website, which is listed on the short form notice and the media publications, provides additional information about the settlement and the Fisher/Lewis action . . . .“).
The district court also considered the relative inactivity in Speaks prior to the settlement. It found that while admittedly there was less formal discovery in the Speaks case than the Fisher-Lewis case, there was extensive information discovery and information exchange. See J.A. 4764 (“Here, the parties engaged in informal discovery and class counsel received numerous documents from the Cooperative . . . . The mediation process provided class counsel with sufficient information about the merits of the case.“)
Last, the district court considered whether the record contained evidence of collusion. After reviewing the oral arguments made at two hearings and the extensive briefing on this issue, the district court assessed whether actual evidence of collusion had been offered. The court concluded that there was no evidence presented of collusion besides the timing of the Speaks settlement.
In sum, the record reveals that the district court erred in appointing class counsel but not in the way the majority suggests. The district court erred in appointing class counsel for a settlement class that should not have been certified to begin with because the class representatives were not adequate. Howеver, its conclusions regarding allegations of collusion were not error.7 On this issue, the
III.
I turn last to the district court‘s finding that the settlement was fair, reasonable and adequate. Since the class representatives in this case were not adequate, approval of the settlement was not appropriate in these circumstances. The Supreme Court has found “[a] fairness hearing under subdivision (e) can no more swallow the preceding protective requirements of
Like a district court‘s certification decision, a district court‘s approval of a class action settlement is afforded substantial deference and should be reversed only upon a clear showing that the district court abused its discretion. Berry, 807 F.3d at 614.
Significantly, the majority does not find fault with the legal factors the district court considered in reaching its decision. And it does not find fault with the district court in determining the most important of those factors are the relative strength of the plaintiffs’ claims and the existence of difficulties of proof or strong defenses. It also does not object to the way the district court evaluated those issues as they relate to the Speaks class. Indeed, the majority describes the district court‘s analysis as thorough.
Instead, the majority finds the district court abused its discretion because, to the majority, many of the weaknesses the district court found with the Speaks class claims do not apply to the Fisher-Lewis class claims or at least apply with less force. Specifically, the majority contends that the statute of limitations and business judgment rule defenses are less compelling as to the Fisher-Lewis class claims than the district court found. The majority then criticizes the district court‘s reasoning as to why the $76 million settlement offer from 2005 in the Fisher-Lewis action did not make the settlement here inadequate and as to why the failure of a case in Georgia with claims very similar to the Fisher-Lewis class claims suggested weaknesses of the claims in this case.
In my view, the majority here deviates from reviewing the district court‘s decisions under the abuse of discretion standard. Instead, it substitutes its judgment for the district court‘s. The district court evaluated each claim for relief. It considered the defenses faced by the plaintiffs, including the statute of limitations and business judgment rule defenses. It considered and found persuasive a nearly identical action brought in Georgia resulting in no recovery. It considered the $76 million settlement offer in the North Carolina state case in 2005, determining that offer did not mean the settlement here was inadequate because, in its view, the litigation risks surrounding the claims have changed significantly since 2005 in favor of the Cooperative.
The district court also considered the differences between the Speaks class claims and the Fisher-Lewis class claims. Specifically, the court reasoned:
[C]ounsel . . . failed to explain at the fairness hearing or anywhere else how
including these additional causes of action would provide a route for the Fisher/Lewis plaintiffs to litigate that case through final judgment and final appeal and recover any greater relief than $24 million, given that each of these claims appears to rest on the same fundamentally flawed allegation that the Cooperative unlawfully retained reserves.
J.A. 4768. The court then added “[a]t the fairness hearing, this court asked counsel . . . to discuss the strength of plaintiffs’ claims in Fisher/Lewis and Speaks and explain how plaintiffs in either case could recover anything approaching $24 million if they litigated to final judgment and final appeal.” J.A. 4770. The district court found the absence of a meaningful response significant.
Reasonable minds could of course differ on the strengths and weaknesses of the Speaks class claims. Indeed, if one hundred judges or lawyers were asked their views about the strengths and weaknesses of the claims here and about an appropriate value of the case, there would likely be one hundred different responses. That is why it is critical that we steadfastly adhere to the applicable standard of review. Under the abuse of discretion standard, our inquiry is simply whether the district court identified and applied the apрropriate legal principles and whether it based its decision based on evidence in the record. Here, the district court did that. When that occurs, an appellate court should not substitute its judgment for the district court‘s.
As noted above, I agree with the majority that the order approving the class settlement should be reversed. However, my agreement is based on the adequacy of the class representative issue as described above. My agreement is not based on the district court‘s evaluation of the fairness and adequacy of the settlement. In my view, the district court carefully considered the appropriate legal issues and based its decision on a reasonable interpretation of the record.
IV.
In conclusion, I join the majority in affirming the district court‘s denial of attempted class wide opt-outs and in dismissing the appeal of the order denying the motion to intervene. I also join the majority in reversing the district court‘s order certifying the class and approving the final settlement. While in the end, the majority and I arrive at the same destination, I arrive by a different path.