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Plummer v. Chemical Bank

decided: January 5, 1982.


Appeal from an order of the United States District Court for the Southern District of New York (Conner, J. ), denying application for approval of a Title VII compromise settlement. Affirmed without prejudice to renewed application.

Before Lumbard, Moore and Van Graafeiland, Circuit Judges.

Author: Van Graafeiland

Plaintiffs and the defendant both appeal from an order of the United States District Court for the Southern District of New York, Conner, J., 91 F.R.D. 434, denying approval of the proposed settlement of an employment discrimination class action. The appeal which we agreed to expedite is properly before us. Carson v. American Brands, Inc., 450 U.S. 79, 101 S. Ct. 993, 67 L. Ed. 2d 59 (1981). For reasons hereafter stated, we hold that the district judge did not abuse his discretion in rejecting the settlement as it was presented to him. However, we believe that appellants should be given an opportunity to amplify the record where the district judge found support for the settlement to be wanting and to correct any remediable defects that the district court may find to exist. This affirmance is without prejudice therefore to a renewed application by appellants, with such changes, if any, in substance and procedure as court and counsel deem proper*fn1 and with opportunity provided for proponents and objectors to establish such evidentiary matters as the district court deems necessary for making an informed decision.

On December 24, 1980, plaintiffs commenced this Rule 23(b)(2) class action alleging racial discrimination by the defendant Bank. The class which plaintiffs purported to represent consisted of all the black officials, managers, and professionals then employed by the Bank in New York City or who subsequently might become employed by the Bank in New York City. The complaint alleges that the defendant "differentiates between black and white employees with respect to all terms and conditions of employment, providing black employees with less favorable terms and conditions of employment." In addition to declaratory and injunctive relief against the alleged unlawful practices, the complaint demands that class members be promoted or assigned to the positions they would have occupied had there been no discrimination. It demands that the named plaintiffs be made whole for all lost earnings but seeks only salary adjustments for the remaining class members.

Judge Conner quickly discovered that the filing of the complaint signaled, not the start of a journey, but the end of the road. Plaintiffs' attorneys, acting as spokesmen for self-declared representatives of an uncertified class, had been negotiating with the Bank's attorneys for almost two years, and a compromise of their differences was imminent when the complaint was filed. On February 4, 1981, the Bank filed its answer denying all allegations of wrongdoing. On February 10, 1981, plaintiffs' attorneys presented the district court with a proposed settlement decree.

For the purposes of this opinion, a brief summary of the fifty-nine page decree will suffice. The decree adopts the complaint's description of the class, i.e., all blacks currently or subsequently employed in official, managerial, or professional capacities. It sets up three-year affirmative action goals which the Bank must make a good faith effort to meet, requires more intensive recruitment of blacks, validated tests for training programs, career counseling for class members and the appointment of an ombudsman to assist in resolving disputes.

The proposed decree makes no provision, however, for advancement in rank of any of the unnamed class members who, like the named plaintiffs, were allegedly discriminated against. It likewise makes no provision for back pay awards to any of the unnamed discriminatees. It provides instead for "Promotion" and "Scholarship" payments. During the three-year term of the decree, any unnamed class member who is promoted into or within any of certain identified job groups is to be paid a "Promotion Payment" if his years of service at the Bank exceed by two or more years the average total number of years of white employees who had received a similar promotion during the previous year. The amount of the Promotion Payment will vary from a minimum of $1,500 to a maximum of $4,500, depending upon the recipient's length of service in excess of the white average. The Bank's total liability for these payments is not to exceed $300,000. Each unnamed class member who is promoted into or within the official, managerial, or professional job groups, is entitled to a Scholarship Payment not to exceed $1,000, until a fund of $100,000 established by the Bank for this purpose is exhausted.

In contrast to these provisional awards, the decree provides that the four named plaintiffs are to receive immediate payments as follows: Plummer ($8,500), Armorer ($10,000). Moore ($17,500), Caesar ($17,500). In addition, Plummer is to be promoted to Senior Trust Officer/Assistant Vice President, Armorer to Supervising Auditor/Assistant Secretary, Moore to Senior Auditor, and Caesar to Senior Tax Specialist.

The district judge ordered that a hearing on the proposed decree be held and directed that a "Notice of Proposed Settlement" be sent by certified mail to all class members. He also directed that the notice be published in a newspaper of general circulation and that copies be posted on Bank bulletin boards. Although suit on behalf of the class was brought under Rule 23(b)(2), the notice to class members permitted them to opt out by filing a written request with "a brief statement of the reasons therefor."*fn2 Two hearings were held, at neither of which testimony was taken. By the time of the second hearing, twenty-five persons had indicated their opposition to the settlement and another twenty-five had opted out.*fn3

On July 10, 1981, Judge Conner filed an opinion and order denying appellants' motion for approval of the settlement. Influenced in part by the Manual for Complex Litigation's admonishment against pre-certification settlement negotiations, Judge Conner felt that the procedure followed in the instant case required him to take special care to assure himself that the settlement was fair, reasonable, and adequate. He concluded that the record before him was inadequate to support a responsible finding that the settlement was fair, reasonable, and adequate or that the "grossly disparate benefits" awarded the named plaintiffs were justified.

Appellants urge that we either make a de novo examination of the record and reverse the decision below or remand for further proceedings. Because our review of the record satisfies us that Judge Conner's misgivings were warranted at least in part, we adopt the latter alternative.

Although tentative designations of class for settlement purposes are not uncommon, they have been the subject of considerable controversy. See In re Beef Industry Antitrust Litigation, 607 F.2d 167, 173-78 (5th Circuit 1979). Section 1.46 of the Manual for Complex Litigation suggests that ordinarily, before any settlement negotiations occur, there should be a class action determination and that, if settlement has been negotiated before class action determination and the appointment of a class representative, the court must be doubly careful in evaluating the fairness of the settlement. Readers of this opinion, who do not have ready access to the Manual, will find the reasons for its Board of Editors' recommendations set forth in the Appendix of In re Beef Industry Antitrust Litigation, supra, 607 F.2d at 183-84. The recommendations contained in the Manual were of sufficient merit to warrant the district judge's consideration. See McDonald v. Chicago Milwaukee Corp., 565 F.2d 416, 420 (7th Cir. 1977); Ace Heating & Plumbing Co. v. Crane Co., 453 F.2d 30, 33 (3d Cir. 1971).

Because of the limited control exercisable by class members, class settlements are susceptible to abuse. Pettway v. American Cast Iron Pipe Co., 576 F.2d 1157, 1169 (5th Cir.), cert. denied, 439 U.S. 1115, 99 S. Ct. 1020, 59 L. Ed. 2d 74 (1978). "The interest of lawyer and class may diverge, as may the interests of different members of the class, and certain interests may be wrongfully compromised, betrayed, or "sold out' without drawing the attention of the court." Id.; see In re Beef Industry Antitrust Litigation, supra, 607 F.2d at 174. This is more likely to occur in a situation such as we have here, where the plaintiffs have negotiated to the verge of settlement before suit is brought and have then sued under Rule 23(b)(2), which requires no pre-certification notice to class members.

In City of Detroit v. Grinnell Corp., 495 F.2d 448 (2d Cir. 1974), upon which appellants heavily rely, the settlement agreement was reached after more than three years of litigation, in which discovery had been virtually completed, all preliminary motions had been disposed of, and a motion for class certification was pending. Id. at 453. See also, In re Beef Industry Antitrust Litigation, supra, 607 F.2d 167, where "settlement was achieved only after several years of pending litigation", id. at 176, and Brucker v. Thyssen-Bornemisza Europe N. V., 424 F. Supp. 679, (S.D.N.Y.1976), aff'd sub nom., Brucker v. Indian Head, Inc., 559 F.2d 1202 (2d Cir.), cert. denied, 434 U.S. 897, 98 S. Ct. 277, 54 L. Ed. 2d 183 (1977), where "the settlement was not negotiated in the early stages of the dispute, but rather after the parties had engaged in considerable litigation." 424 F. Supp. at 688. While the settlement negotiations in the instant case apparently proceeded on the basis of information voluntarily furnished by the Bank, some of this information was received by plaintiffs' attorneys pursuant to a ...

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