Teresa Speaks v. U. S. Tobacco Cooperative Inc. , 917 F.3d 276 ( 2019 )

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 for the Eastern District of North Carolina, at
Raleigh. James C. Dever, III, District Judge. (5:12-cv-00729-D)
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, WYRICK ROBBINS, Raleigh, North Carolina; Jonathan Cooper,
QUINN EMANUEL URQUHART & SULLIVAN, LLP, Washington, D.C., for Appellee
2
United States Tobacco Cooperative Inc.
3
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 generated 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.
4
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 and
successfully defending against the Cooperative’s appeal challenging certification. Within
two weeks of the North Carolina Supreme Court’s decision affirming class certification,
however, the Speaks parties began their own settlement negotiations. They reached a
tentative settlement for $24 million within five months—a settlement that included the
Fisher-Lewis certified class and extinguished its claims.
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
5
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
Federal Rule of Civil Procedure 23(a), arguing that the Speaks class counsel and class
representatives cannot and did not adequately protect their interests in this case. The
Objectors also challenge the district court’s final approval of the $24 million settlement
as fair, reasonable, and adequate under Rule 23(e). Finally, they argue that the district
court erred in denying certain Fisher-Lewis class members’ attempts to opt out the entire
Fisher-Lewis certified class from Speaks.
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.
6
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 N.C. Gen. Stat. §§ 54-145 to 54-166. The Cooperative’s purpose is to “engage in
any activity involving or relating to the business of receiving, grading, processing,
drying, packing, storing, financing, marketing, selling, and/or distribution, on a
cooperative basis, of flue-cured tobacco or products or by-products derived therefrom of
its members.” J.A. 345.
Under North Carolina law and the Cooperative’s governing documents, the
Cooperative may establish a capital reserve. See N.C. Gen. Stat. § 54-151(5); J.A. 366–
67 (articles of incorporation), J.A. 3200 (1947 bylaws), J.A. 3503–04 (1967 bylaws). In
the 1970s, the Cooperative’s Board of Directors established such a reserve to “prepare for
[] rainy days” in the event federal subsidies ended. J.A. 3963. The plaintiffs in this
lawsuit are a class of current and former members of the Cooperative who brought an
action for dissolution of the Cooperative and distribution of excess capital reserves. 2 J.A.
262–90.
1
Before changing its name in 2008, the Cooperative was called the Flue-Cured
Tobacco Cooperative Stabilization Corporation.
2
The price-support program was established under a series of federal laws that
Congress enacted to protect farmers after the Great Depression. See generally Jasper
(Continued)
7
To become a member of the Cooperative, a flue-cured tobacco producer “paid five
dollars . . . in exchange for one share of [the Cooperative’s common] stock.” Fisher v.
Flue-Cured Tobacco Coop. Stabilization Corp., 794 S.E.2d 699, 703 (N.C. 2016)
(“Fisher-Lewis”). According to the Cooperative’s governing documents, this common
stock could be “purchased, owned or held only by producers who shall patronize the
corporation in accordance with uniform terms and conditions . . . and only such persons
shall be regarded as eligible members of the corporation.” J.A. 346. If the common
stock passed to someone ineligible for membership, that person had “no rights or
privileges on account of such stock,” and the Cooperative could “purchase such stock at
its book or par value, whichever is less.” J.A. 346–47.
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).
8
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
3
Pub. L. No. 97-218, 96 Stat. 197.
9
CCC’s loans to the Cooperative were “non-recourse” because “[t]he Cooperative’s failure
to earn complete repayment funds [from the member growers] would result in a loss to be
absorbed by the CCC: the CCC could sell the collateral [i.e., the growers’ unsold
tobacco] for its own account after the loan had matured, but it otherwise had no recourse
against either the Cooperative or the individual farmers.” Id. This system changed with
passage of the NNC Act, which applied starting with the 1982 crop year and required
member growers to pay an assessment to the Cooperative at the time they delivered their
tobacco to serve as additional collateral for the CCC’s loans to the Cooperative, a
measure intended to limit the federal government’s losses. Fisher-Lewis, 794 S.E.2d at
703–04. The Cooperative later used the surplus funds collected from the NNC
assessments—funds remaining after the CCC loans had been repaid—to redeem unsold
member tobacco from the 1982 crop year that the CCC had held as collateral. Id. The
Cooperative sold this tobacco and put in the reserve the $110 million in profit that it
earned from the sale. The Cooperative did the same for the 1983 and 1984 crop years.
J.A. 3966.
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
10
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.
11
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 of each proceeding through the district
court’s final approval of the Speaks settlement in February 2018.
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
4
See Dan Lewis et al. v. Flue-Cured Tobacco Coop. Stabilization Corp., No. 05
CVS 188 (N.C. Super. Ct.).
12
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 farmers 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
5
See Kay Fisher et al. v. Flue-Cured Tobacco Coop. Stabilization Corp., No. 05
CVS 1938 (N.C. Super. Ct.).
13
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) ultra vires;
(10) breach of contract; (11) breach of contract accompanied by a fraudulent act;
(12) unfair trade practices; (13) dissolution; and (14) judicial dissolution. J.A. 1837–52.
The Cooperative filed a motion to dismiss in July 2009.
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
14
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 tobacco growers represented by
15
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 N.C. Gen. Stat. § 55A-13-02(c), and an alternative statutory claim for
judicial dissolution of the Cooperative under N.C. Gen. Stat. § 55A-14-30. J.A. 52–59,
4460. The proposed Speaks class encompassed the class certified in Fisher-Lewis.
On December 5, 2012, the parties jointly moved for a temporary stay pending the
state court’s decision on the class-certification motion in Fisher-Lewis. J.A. 71–73. The
court granted the stay on December 17, 2012. J.A. 74–75. For the next five years, the
Speaks parties continually sought—and were granted—temporary stays, and they
occasionally provided the court with status reports. The Cooperative never filed an
answer to the complaint, and no adversarial discovery took place. J.A. 9–14. The parties
informed the court during this period that “[r]esolution of the class issues in [Fisher-
Lewis] continues to be relevant to [p]laintiffs in the action before this Court and, if
[d]efendant’s anticipated appeal in [Fisher-Lewis] is rejected or class certification is
upheld on appeal, this federal action may become moot.” J.A. 89.
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.
16
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
17
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,”
concern that Cooperative counsel and Shipman “do not share.” J.A. 4585. Cooperative
counsel also provided the correspondence between Cherry and Shipman as an attachment
to the email.
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 the 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.
18
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
19
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 certified action and the later filed Speaks case, in that the initial counsel in one of
these consolidated actions is now counsel in the Speaks case.” J.A. 1327.
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.
20
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 Cooperative from 1946–
2004 and tied recovery to whether the class member’s patronage resulted in a net gain for
21
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 relative to the total number of years of all class members who
submit this type of claim. J.A. 4730–31. The Speaks class structure thus allows a class
member to share in the recovery of the reserve funds even if he contributed no profits to
the reserve.
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.
6
Lewis’s notice of appeal states that the order denying his motion to intervene was
entered on October 20, 2017, but the docket sheet indicates that the order was in fact
entered on October 2, 2017. See J.A. 16.
22
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 Federal Rule of Civil Procedure 23(a)
because the Speaks representatives and class counsel cannot and did not adequately
represent the distinct interests of the Fisher-Lewis class members. Finally, the Objectors
contend that the district court abused its discretion in approving the class settlement as
fair, reasonable, and adequate under Rule 23(e). We address each contention in turn.
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 court’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 28 U.S.C. § 2107(a); Fed. R. App. P. 4(a)(1)(A). He “may not await final
23
judgment in the underlying action” to do so. United States v. City of Milwaukee, 144
F.3d 524, 528 (7th Cir. 1998).
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 28 U.S.C. § 2107(a), we lack jurisdiction over his untimely appeal and must dismiss it.
See Hamer, 138 S. Ct. at 17 (“Failure to comply with a jurisdictional time prescription
. . . deprives a court of adjudicatory authority over the case, necessitating dismissal[.]”).
B.
Class Certification Under Rule 23(a)
The Objectors contend that the district court abused its discretion in certifying the
Speaks settlement class under Rule 23(a). See Brown v. Nucor Corp., 576 F.3d 149, 152
(4th Cir. 2009) (reviewing a district court’s decision to certify a class for abuse of
discretion).
“Rule 23(a) requires that the prospective class comply with four prerequisites:
(1) numerosity; (2) commonality; (3) typicality; and (4) adequacy of representation.”
24
EQT Prod. Co. v. Adair, 764 F.3d 347, 357 (4th Cir. 2014); Fed. R. Civ. P. 23(a). The
Objectors challenge only the adequacy of representation in this case, arguing that both
Speaks class counsel and the class representatives were inadequate. 1 William B.
Rubenstein, Newberg on Class Actions § 3.52, at 325–26 (5th ed. 2011) (“Although Rule
23(a)(4) provides that a class action may be maintained only if ‘the representative parties
will fairly and adequately protect the interests of the class,’ courts have long used Rule
23(a)(4) . . . to scrutinize the adequacy of class counsel as well as the adequacy of the
class representatives.” (footnote omitted) (quoting Fed. R. Civ. P. 23(a)(4))). 7 The
Objectors also separately challenge the district court’s denial of certain Fisher-Lewis
class representatives’ attempts to opt out the entire Fisher-Lewis certified class from the
Speaks settlement.
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.
7
See 1 Newberg on Class Actions § 3:72, at 394 (noting that Congress in 2003
“adopted Rule 23(g) that creates an explicit textual mooring for the class counsel
analysis[,] but most courts continue to employ the substantive standards generated under
Rule 23(a)(4) prior to Rule 23(g)’s adoption in their analysis of counsel’s adequacy”).
25
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 court stated that the Objectors “essentially
suggest that Judge Bullock was too blind to see collusion at the tip of his nose during the
mediation, or that Judge Bullock was part of the collusion,” arguments that the court
rejected as “insulting” and “baseless.” J.A. 4743. The court emphasized that
Judge Bullock was “an experienced mediator who served with honor and distinction as a
[district judge] for 24 years,” and that he “reviewed briefings submitted by the parties and
facilitated a two-day intense mediation that resulted in the proposed settlement.” J.A.
26
4743. Judge Bullock, in sum, “would not and did not participate in a collusive mediation
or permit one to take place in front of him.” J.A. 4744.
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,
27
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 . . . oversees
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 and interplay with Fisher-Lewis, including in
reference to that litigation’s history and the 2005 settlement offer.” Coop. Br. 16.
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
28
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 Rule 23(a)(4) without sufficiently grappling with the state
court’s detailed order setting forth the allegedly collusive conduct. See In re Payment
Card Interchange Fee & Merch. Disc. Antitrust Litig., 827 F.3d 223, 234–35 (2d Cir.
2016) (“One aspect of the Settlement Agreement that emphatically cannot remedy the
inadequate representation is the assistance of judges and mediators in the bargaining
process.”), cert. denied sub nom. Photos Etc. Corp. v. Home Depot U.S.A., Inc., 137 S.
Ct. 1374 (2017); In re Literary Works in Elec. Databases Copyright Litig., 654 F.3d 242,
252–53 (2d Cir. 2011) (concluding that “an intense, protracted, adversarial mediation,”
with “highly respected and capable” mediators, “does not compensate for the absence of
independent representation”).
29
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
30
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 Rules 4.1 and 4.2. See Oral Arg. 23:46–24:10 (Speaks
class counsel stating that he “totally agree[s]” that the district court did not specifically
mention the ethical violations and conceding that “there is no express discussion about”
the violations in the order). Instead, the district court downplayed the state court’s order,
asserting that the state court “did not have the benefit of the extensive record that this
court has to assess the fairness, reasonableness, and adequacy of the proposed
settlement.” J.A. 4765. The district court also emphasized that the state court’s order is a
“collateral interlocutory order” that is not binding, and that the order includes no
“analysis of the merits of the underlying federal case, which is the most important factor
31
in considering the fairness, reasonableness, and adequacy of the proposed settlement.”
J.A. 4766–67. Addressing the state court’s finding that the class notice was misleading,
the district court stated in a footnote that it “disagrees” without elaborating. J.A. 4778
n.32.
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 Rule 23(a). See Kaufman v. Am. Express
Travel Related Servs. Co., 877 F.3d 276, 283 (7th Cir. 2017) (“[W]e have repeatedly
stated that district courts should act as the fiduciary of the class, subject to the high duty
of care that the law requires of fiduciaries.” (citation and internal quotation marks
omitted)); Maywalt v. Parker & Parsley Petroleum Co., 67 F.3d 1072, 1078 (2d Cir.
1995) (stating that “the district court has a fiduciary responsibility to ensure that the
settlement is fair and not a product of collusion, and that the class members’ interests
were represented adequately” (citation and internal quotation marks omitted)); see also 1
Newberg on Class Actions § 3:72, at 394 (explaining that “judges provide the primary
oversight of class counsel, and they have long utilized the adequate representation
requirement of Rule 23(a)(4) to do so”); 4 William B. Rubenstein, Newberg on Class
Actions § 13:40, at 427–30 (5th ed. 2014) (explaining the court’s fiduciary duty during
settlement).
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
32
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 Rule 23(a). 8
8
The Objectors separately argue that the North Carolina Supreme Court’s decision
affirming class certification in December 2016 should have been granted full faith and
credit—and thus should have barred class certification in Speaks—because the state court
judgment “is final on all issues covered by [] certification.” See App. Br. 30–31. As the
Supreme Court has made clear, however, “[o]rders granting or denying class certification
. . . are ‘inherently interlocutory.’” Microsoft Corp. v. Baker, 137 S. Ct. 1702, 1706
(2017) (citation omitted). Contrary to the Objectors’ assertion, then, the district court did
not err in declining to give such an interlocutory order full faith and credit in this case.
See, e.g., Bryan v. BellSouth Commc’ns, Inc., 492 F.3d 231, 239–40 (4th Cir. 2007)
(holding under North Carolina law that full faith and credit did not require a federal court
to give preclusive effect to a non-final and interlocutory state court order); cf. Matsushita
(Continued)
33
2.
Adequacy of Class Representation
The Objectors also argue that the district court abused its discretion because the
Speaks class representatives cannot adequately represent the class given certain conflicts
of interest between the Speaks class representatives and the Fisher-Lewis class members.
This argument also has merit.
“Under the adequacy requirement of Rule 23(a)(4), a district court may certify a
class only if the class representative ‘will fairly and adequately protect the interests of the
class.’” Ward v. Dixie Nat. Life Ins. Co., 595 F.3d 164, 179 (4th Cir. 2010) (quoting Fed.
R. Civ. P. 23(a)(4)). “The adequacy inquiry . . . serves to uncover conflicts of interest
between named parties and the class they seek to represent.” Amchem Prods., Inc. v.
Windsor, 521 U.S. 591, 625 (1997). “[A] class representative must be part of the class
and ‘possess the same interest and suffer the same injury’ as the class members.” Id. at
625–26 (alteration in original) (quoting East Tex. Motor Freight Sys., Inc. v. Rodriguez,
431 U.S. 395, 403 (1977)). “For a conflict of interest to defeat the adequacy requirement,
‘that conflict must be fundamental.’” Ward, 595 F.3d at 180 (citation omitted). “A
conflict is not fundamental when . . . all class members ‘share common objectives and the
Elec. Indus. Co. v. Epstein, 516 U.S. 367, 369 (1996) (concluding that a federal court
may not “withhold full faith and credit from a state-court judgment approving a class-
action settlement”—a final judgment on the merits—“simply because the settlement
releases claims within the exclusive jurisdiction of the federal courts”).
34
same factual and legal positions [and] have the same interest in establishing the liability
of [defendants].’” Id. (alterations in original) (citation omitted).
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
35
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. Consistent 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 to them in recognition of their contributions.
See N.C. Gen. Stat. § 54-130 (explaining that such associations “are not organized to
make profits for themselves, as such, or for their members, as such, but only for their
members as producers”); id. § 54-126 (stating that the “net earnings or losses shall be
apportioned among the members in accordance with the ratio [of] each member’s
patronage” compared to total patronage and defining patronage as a member’s “amount
of purchases, sales, business, labor, wages or other similar criteria”).
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’
36
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
37
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 thus irrespective of whether they contributed to the
reserve fund. The Speaks settlement indeed proposes to distribute the reserve money to
all members based merely on the number of pounds of tobacco each member marketed to
the Cooperative and the number of years the member marketed and sold tobacco. But as
the Objectors assert, “[m]embership alone has never been the basis for any interest in
Cooperative reserves. It has always been tied pro rata to a member’s individual interest
in either the tobacco marketed [pre-1982] or the NNC assessment paid [post-1982].”
Reply Br. 5 (“Gains have not been paid to, nor interests in the reserve created for, those
whose tobacco or assessments did not produce them. From [the Cooperative’s] inception
in 1946 through 2004, . . . participation in the reserves was restricted to those whose
contributions had created them.”). As the Objectors’ expert explained, the Speaks
distribution plan “actually tak[es] money away from people who have contributed to net
patronage interest” because “[t]he only way that you give money to people who
contributed zero – that have zero patronage interest is by taking a dollar away from
38
people . . . who have generated [a] patronage interest,” a result the expert characterized as
“fairly obviously inequitable.” J.A. 3834.
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
39
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 in all profit that the Cooperative has kept as reserves and
that the Cooperative has deprived them of this 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
40
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
41
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 against permitting group opt-outs in the putative class context are
present here as well—allowing representatives to opt out a group of class members would
deprive those members of their due-process right to make that choice for themselves and
would “completely gut the class action mechanism as objectors could dismantle any class
action by removing groups of plaintiffs.” 3 William B. Rubenstein, Newberg on Class
Actions § 9:49, at 555 (5th ed. 2013).
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
42
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.
Federal Rule of Civil Procedure 23(e) provides that “[t]he claims, issues, or
defenses of a certified class—or a class proposed to be certified for purposes of
settlement—may be settled, voluntarily dismissed, or compromised only with the court’s
approval.” Fed. R. Civ. P. 23(e). Before a court may approve a proposed settlement, it
must conclude that the settlement is “fair, reasonable, and adequate.” Fed. R. Civ. P.
43
23(e)(2). In assessing the adequacy of the proposed settlement, courts consider the
following factors: “(1) the relative strength of the plaintiffs’ case on the merits, (2) the
existence of any difficulties of proof or strong defenses the plaintiffs are likely to
encounter if the case goes to trial, (3) the anticipated duration and expense of additional
litigation, (4) the solvency of the defendants and the likelihood of recovery on a litigated
judgment, and (5) the degree of opposition to the settlement.” In re Jiffy Lube Secs.
Litig., 927 F.2d 155, 159 (4th Cir. 1991). The most important factors in this analysis are
the relative strength of the plaintiffs’ claims on the merits and the existence of any
difficulties of proof or strong defenses. See Berry, 807 F.3d at 614–15.
The Objectors contend only that the district court erred when it concluded that the
Speaks class claims “are weak[] and the likelihood of recovery if plaintiffs litigated this
case to final judgment and final appeal is low.” J.A. 4748–49. Specifically, the
Objectors argue that the district court improperly viewed the weakness of the claims and
the strength of the Cooperative’s defenses by reference to the Speaks class claims without
regard for the much stronger Fisher-Lewis class claims. Although a $24 million
settlement may be reasonable for the Speaks class members, the Objectors assert, this
amount is not reasonable for the Fisher-Lewis class members who form a subset of the
Speaks class and whose separate claims are extinguished as part of this settlement.
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
44
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 N.C. Gen. Stat.
§§ 54-126, 54-130. By retaining a reserve far in excess of what is reasonable—a reserve
that exists because of members’ patronage—the Cooperative deprives the plaintiffs of
their legal interest in the excess portion of the reserve. J.A. 1802 n.44; J.A. 1956 n.7.
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
45
“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 against the Cooperative’s challenge to
certification before the North Carolina Supreme Court. And these victories all occurred
in the wake of the state court’s conclusion that the record did not support a proposed
settlement consisting of $76.8 million in cash and $212 million in book allocations
because such a settlement was not within the ball park of being fair, reasonable, and
adequate for the Fisher-Lewis class members.
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 decision, the Speaks parties started
46
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
47
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 the $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 § 55A-13-02(c)—a statute
authorizing distributions—requires or forces the Cooperative to make distributions to
members. J.A. 4751. Second, FETRA does not provide the plaintiffs with a basis for
relief because the statute’s plain language “makes clear that the Cooperative was entitled
to retain the proceeds from the sale of the loan tobacco” and because the statute does not
create a private right of action. J.A. 4750–51. Third, “[w]ithout statutory or contractual
entitlement to relief, plaintiffs’ claim concerning unreasonable reserves amounts to a
claim that the Cooperative’s Board breached their fiduciary duties in failing to distribute
reserves.” J.A. 4751–52. The plaintiffs have not shown that a fiduciary relationship
existed between them and the Board, the court indicated, but even if they could make
such a showing, the claim would fall within North Carolina’s business-judgment rule.
J.A. 4752–53. Fourth, the statutory claim for judicial dissolution under N.C. Gen. Stat.
48
§ 55A-14-30 is weak because, among other reasons, the Cooperative is still carrying out
its statutory purpose. J.A. 4754–56.
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 N.C.
Gen. Stat. § 55A-13-02(c), which by its terms merely authorizes distributions. See N.C.
Gen. Stat. § 55A-13-02(c) (providing that “a corporation . . . may make distributions to
purchase its memberships” (emphasis added)). The Fisher-Lewis plaintiffs also make no
allegation that FETRA provides a basis for relief. See Def.-Appellant’s Reply Br., Fisher
v. Flue-Cured Tobacco Coop. Stabilization Corp., 2015 WL 275307, at *19 (N.C. filed
Jan. 9, 2015) (“Plaintiffs did not plead any claim under FETRA.”).
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 were 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
49
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 fact, the state court expressly rejected the Cooperative’s
limitations defense at the motion-to-dismiss stage. J.A. 1866. As the Objectors point
out, moreover, if anyone had a statute-of-limitations problem, it was the Speaks plaintiffs.
The two Speaks complaints pleaded equitable tolling based on the 2005 Fisher-Lewis
filings, an acknowledgment that the claims faced a limitations barrier. J.A. 49, 279.
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
50
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 that 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
51
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 claims in Fisher-Lewis,
and the plaintiffs did not recover anything. But the district court relies heavily on Rigby
without giving due regard to the Fisher-Lewis proceedings directly related to this case—
the Fisher-Lewis plaintiffs largely defeated the Cooperative’s motion to dismiss,
including challenges based on the business judgment rule and statute of limitations, the
plaintiffs achieved class certification and beat back the Cooperative’s challenge on
appeal, and they secured summary judgment on the Cooperative’s derivative defense.
52
For these reasons, the Rigby decision does not provide a valid basis on which to conclude
that the $24 million settlement is reasonable and that the $76 million proposed settlement
has no relevance in our analysis.
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 was reasonable, it would follow that
53
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 Rule 23(a) and in approving the final settlement as fair,
reasonable, and adequate under Rule 23(e). We dismiss as untimely Lewis’s appeal of
the order denying his motion to intervene, and we affirm the district court’s denial of the
attempted class opt-outs.
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
54
QUATTLEBAUM, Circuit Judge, concurring:
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).
1
One need not look far or long to find current events that illustrate this point.
Recent news coverage of social media platforms and the opioid crisis underscore the old
truth that innovation can be a double-edged sword.
55
Rule 23 of the Federal Rules of Civil Procedure is a structural safeguard in our
legal system developed to provide the benefits of class actions while simultaneously
avoiding the risks associated with them. As a leading commentator on class actions
explains, the primary function of Rule 23 “is, through its various parts, to ensure the
protection of absent class members’ rights and, hence, the justification of the binding
effect of the resulting judgment.” 1 William B. Rubenstein, Newberg on Class Actions
§ 1:10 (5th ed. 2011). Thus, to appropriately strike this balance of maximizing benefits
and minimizing risks, compliance with Rule 23 is necessary.
In this appeal, Objectors challenge a number of the district court’s decisions,
including several findings regarding the Rule 23 requirements. Addressing those
decisions, the majority affirms the district court’s denial of attempted class wide opt-outs
and dismisses an appeal of an order denying a motion to intervene as untimely. Maj. Op.
at 53. The majority reverses the district court’s certification and settlement approval
decisions, holding that the district court abused its discretion in certifying the Speaks
settlement class under Rule 23(a) and in approving the final settlement as fair, reasonable
and adequate under Rule 23(e). Maj. Op. at 53. I agree that the district court erred on
these issues and, therefore, join with the majority in reversing the district court’s order.
However, I write separately because, although I agree with the result the majority
reaches, I reach those results for different reasons.
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
56
when intra-class conflicts existed regarding the patronage theory of recovery, I join the
majority in finding that the district court abused its discretion in certifying the Speaks
class.
In considering the adequacy of the class representatives, we look to Rule 23(a).
That subsection requires adequacy of class representatives—along with numerosity,
typicality and commonality—for a class to be certified. Although a district court is rightly
afforded wide discretion in its adequacy determination under Rule 23(a), this discretion is
not absolute or unlimited. Amchem Products, Inc. v. Windsor, 521 U.S. 591, 625–28
(1997) and its progeny make clear that a district court abuses its discretion when it finds
class representatives to be adequate despite the presence of intra-class conflicts. The
concerns about intra-class conflicts relate to the same due process concerns identified
above. “The premise of a class action is that litigation by representative parties
adjudicates the rights of all class members, so basic due process requires that named
plaintiffs possess undivided loyalties to absent class members.” Broussard v. Meineke
Disc. Muffler Shops, Inc., 155 F.3d 331, 338 (4th Cir 1998).
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 Rule 23.
521 U.S. at 591. In considering the requirements of Rule 23(a)(4), the Court emphasized
the purpose of the adequacy requirement, noting “[t]he adequacy inquiry under Rule
23(a)(4) serves to uncover conflicts of interest between named parties and the class they
seek to represent. [A] class representative must be part of the class and possess the same
57
interest and suffer the same injury as the class members.” Id. at 625–26 (citing General
Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 157–58 n.13 (1982)) (internal citation omitted)
(internal quotation marks omitted). The Court identified one such intra-class conflict,
finding that “[i]n significant respects, the interests of those within the single class are not
aligned. Most saliently, for the currently injured, the critical goal is generous immediate
payments. That goal tugs against the interest of exposure-only plaintiffs in ensuring an
ample, inflation-protected fund for the future.” Id. at 626. In affirming the decision to
decertify the class in part because of this conflict, the Court concluded “[t]he settling
parties, in sum, achieved a global compromise with no structural assurance of fair and
adequate representation for the diverse groups and individuals affected.” Id. at 627.
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 Rule 23. Id. at 821. In
considering the fairness of the distribution of the settlement fund among class members,
the Supreme Court applied the adequacy principles set out in Amchem and identified two
types of conflicts within the class. First, reiterating its holding in Amchem, the Court
identified a conflict between class members with present injuries and future injuries. Id.
at 856. The Court noted “it is obvious after Amchem that a class divided between holders
of present and future claims . . . requires division into homogenous subclasses under Rule
23(c)(4)(B).” Id. Second, the Court identified a conflict between class members related to
the value of individual class members’ claims. Id. at 857. Noting that some class
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members necessarily had “more valuable claims” than others, the Court found that this
misalignment of interests required subclasses. Id. According to the Court, both types of
conflict were “well within the requirement of structural protection recognized in
Amchem.” Id.
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
59
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 Rule 23(a)(4). In
reaching this conclusion, the district court attempted to distinguish Amchem,
characterizing the differences in class members as mere differences in damages between
class members. Because of that, the district court concluded that the differences in class
members did not create diverging interests or a fundamental conflict. The district court
noted “[a]ny differences between class members only arise with respect to the amount of
damages each member seeks to recover. Such differences do not create adverse or
diverging interests.” J.A. 4738 (citing In re Pet Food Products Liab. Litig., 629 F.3d 333,
345–46 (3d Cir. 2010) and In re Ins. Brokerage Antitrust Litig., 579 F.3d 241, 272–73
(3d Cir. 2009)).
2
In pointing out the Cooperative’s lack of consistency, I note that this
characteristic appears to be contagious in this case. In the parallel state action, the Fisher-
Lewis class was apparently not limited to patronage members, see definition of Fisher-
Lewis class at Fisher v. Flue-Cured Tobacco Coop. Stabilization Corp., 794 S.E.2d 699,
704 (N.C. 2016), but the class nevertheless argued for certification. It is hard to reconcile
that position with the one it takes in this case.
60
It is clear from the record that the district court gave thoughtful consideration to
this issue. However, the district court did not address either Ortiz or Broussard.
Moreover, the pertinent issue—the proper scope of Amchem—ultimately is one of law. 3
The majority in effect concludes that the district court applied Amchem too narrowly. I
agree. In the same way that class certification was improper in Amchem because of
differences in the timing of payments, in Ortiz because of the differences in strength of
the class members’ claims and in Broussard because of inconsistent claims and damages
theories and the individualized issues among class members, the patronage theory4
asserted by some class members makes the class certification improper in this case. 5
In order to satisfy the requirements of Rule 23(a), Amchem and its progeny require
a named class representative to be not only common and typical of those of the entire
3
While we should defer to the district court on matters within its discretion, an
appellate court need not defer to a district court’s error of law. Berry v. Schulman, 807
F.3d 600, 608 (4th Cir. 2015)
4
As described by the majority, the most glaring conflict in the class is the conflict
between class members with traceable patronage interests in the Cooperative’s reserves
and those class members without such interests. Class members with patronage interests
can trace their interest in the Cooperative’s reserves to their individual contributions to
the reserves over time, and class members without those patronage interests cannot.
Patronage interests accrued over time and largely derived from contributions made during
profitable years in the Cooperative’s history and from assessments under the No Net Cost
Act.
5
While typicality and commonality are not specifically raised on appeal, the same
issues about which the Objectors complain in the class representative argument also
apply to those issues. As the Supreme Court has instructed, typicality, commonality and
adequacy of class representative often merge into the same or similar analysis. Gen. Tel.
Co. of Sw. v. Falcon, 457 U.S. 147, 157 n.13 (1982). That was in fact the case in
Broussard.
61
class, but also to adequately represent the interests of all. When those requirements are
not met, the due process rights of the absent class members, as well as defendants, are
prejudiced and classes should not be certified.
II.
Turning next to the district court’s findings regarding the adequacy of class
counsel under Rule 23(g), I agree with the majority that the district court abused its
discretion in finding class counsel to be adequate, but for a different reason. In contrast to
the majority’s approach, if the issue needs to be reached at all, I would simply find that
the district court necessarily abused its discretion because it appointed class counsel for a
class that was improperly certified due to the presence of intra-class conflicts.
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
62
which the district court meaningfully grappled with the North Carolina court’s findings of
collusion. 6
As an initial matter, the district court carefully considered Objectors’ arguments
that the North Carolina court orders were binding on its own analysis of the adequacy of
class counsel. Regarding the North Carolina court’s certification order, the district court
correctly concluded that the certification of the Fisher-Lewis class did not impact the
Speaks action. Likewise, the district court correctly concluded that the North Carolina
case management order could not limit the parties or counsel in the Speaks action. In
reaching this decision, the district court noted that the Objectors offered no case law in
support of their positions. Finally, the district court concluded that the North Carolina
court’s interlocutory order dated January 17, 2018 was not binding on its own analysis.
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
6
While I disagree with the majority on this issue, I in no way minimize the
importance of allegations and findings about ethical violations. Compliance with the
Rules of Professional Responsibility are fundamental to our profession. My concurrence
should not be construed to suggest allegations of ethical misconduct should not be taken
seriously or carefully evaluated in the appropriate forum. They should. However, those
findings were neither binding on the district court nor necessarily relevant to the district
court’s adequacy determination here. See, e.g., W. Morgan-E. Lawrence Water & Sewer
Auth. v. 3M Co., 737 F.App'x 457, 465 n.10 (11th Cir. 2018) (“Although state ethical
rules may be relevant to our determination of whether approval of the settlement was
appropriate, a violation of state ethical rules is neither necessary nor sufficient to
establish a violation of federal Rule 23(g).”). What was and remains relevant is whether
the district court considered the objections and, in doing so, made decisions for which
there is legal and evidentiary support. As noted above, the district did that here.
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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 orders (or lack thereof), the district court nevertheless
considered issues they raised concerning the adequacy of class counsel. Specifically,
64
despite the majority’s contention to the contrary, the district court considered at length
issues raised by the North Carolina court’s interlocutory order dated January 17, 2018.
Admittedly, the court’s treatment of the issues raised by the North Carolina order are not
all contained in the same part of the order. However, when the order is considered as a
whole, it meaningfully grappled with the North Carolina court’s findings cited by the
majority on pages twenty-nine and thirty above.
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
65
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. However, its conclusions regarding
allegations of collusion were not error. 7 On this issue, the district court applied the law
reasonably and based its decision on the record before it.
7
Under the abuse of discretion standard, an appellate court gives “substantial
deference” to a district court’s certification and settlement decisions, “recognizing that a
‘district court possesses greater familiarity and expertise than a court of appeals in
managing the practical problems of a class action.’” Berry¸ 807 F.3d at 608 (quoting
Ward v. Dixie Nat’l. Life Ins. Co., 595 F.3d 164, 179 (4th Cir. 2010)). In applying this
standard, an appellate court may not substitute its own ideas of fairness for the those of
district court. Flinn v. FMC Corp., 528 F.2d 1169, 1172 (4th Cir. 1975). Rather, an
appellate court may reverse a district court’s certification or settlement decision only
when the district court has committed an error of law or a clear error in finding of fact.
Berry, 807 F.3d at 608.
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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 Rule 23 in a subdivision (b)(1)(B) action than in one under subdivision
(b)(3).” Ortiz, 527 U.S. at 858–59. In this limited sense, I join the majority in reversing
the district court’s approval of the settlement. However, I write separately to express my
concerns about the majority’s reasoning for reversing the district court.
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
67
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
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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 appropriate 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
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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.
70