District Court Order Rejecting Proposed Class Action Settlement of ERISA Class Action as Unfair not Appealable Ninth Circuit Holds
Plaintiffs, employees of Montana Power and participants in the company’s retirement plan (the “Plan”), filed a class action against the Plan’s trustee and against directors of Montana Power alleging violations of ERISA; the class action complaint asserted that defendants breached fiduciary duties owed to Plan participants and mismanaged the Plan. In re Touch America Holdings, Inc. ERISA Litig., 563 F.3d 903 (9th Cir. 2009) [Slip Opn., at 4713, 4717]. The defendant-directors entered into a proposed class action settlement with plaintiffs; under the terms of the class action settlement the directors would make a payment “of nearly all the funds remaining in the directors’ fiduciary liability insurance policy.” Id., at 4717. The proposed class action settlement also contained two conditions – (1) directors cooperation in the class action claims against the Plan trustee, and (2) obtaining a district court order that “bar[red] suits for contribution or indemnity against the directors.” Id. The district court rejected the proposed class action settlement, id.; in part, the court found the settlement was not fair to the class because the monetary contribution represented only “three cents on the dollar” which it found was “not good in terms of recovery” and characterized as “a pittance…of the total amount of loss,” id., at 4719. The parties appealed, id., at 4717. The Ninth Circuit dismissed the appeal.
The Ninth Circuit noted that the parties did not dispute that the order rejecting the proposed class action settlement was not a “final decision.” In re Touch America, at 4718. The Circuit Court noted also the general rule that, in order to avoid “piecemeal appeals,” only final decisions are reviewable on appeal, id. The parties, therefore, sought interlocutory review of the district court’s order, id. The Ninth Circuit explained that “some disapprovals of class settlements are appealable under the section as orders refusing an injunction.” Id. (citation omitted). And the Court set forth the rule at page 4718 as follows: “To be immediately appealable, orders disapproving class settlements must satisfy three requirements: ‘First, the interlocutory order must have the practical effect of denying an injunction. Second, the order must have “serious, perhaps irreparable, consequence[s].” Finally, the order must be one that can be “effectively challenged” only by immediate appeal.’” (Citation omitted). The Circuit Court dismissed the appeal because it found that the second requirement had not been satisfied – that is, the Court concluded that the district court order would not cause “serious, perhaps irreparable, consequences.”
The Circuit Court rejected the parties’ argument that denying them “their right to compromise their dispute on mutually agreeable terms” constituted “serious, perhaps irreparable” harm. In re Touch America, at 4718. This argument would effectively prohibit district courts from rejecting any proposed class action settlement, in contravention of the court’s statutory obligation to ensure that the terms of the settlement are fair, adequate and reasonable. Id., at 4718-19. The issue here was not whether the district court was precluding the parties from settling “‘on any terms,” rather, the district court simply “denied the right to settle the case on the particular terms of the current proposed consent decree, which the district court found unreasonable.’” Id., at 4719 (citation omitted). The Ninth Circuit explained at page 4719, “While the district court also had reservations about the bar order and cooperation provision, it might have been willing to approve those provisions if the monetary settlement had been larger, or to approve the monetary settlement if the other provisions had been absent. The order left the parties free to negotiate a settlement agreement more favorable to the class.”
The Ninth Circuit also rejected the parties’ second argument – viz., that the insurance policy was “wasting” and “will be depleted by further litigation” jeopardizing the ability of the defendant-directors to fund any settlement. In re Touch America, at 4720. But the Circuit Court found this argument wanting: “This is not adequate to show that the order will have serious, perhaps irreparable consequences; the parties have not shown that the insurance fund is the only source for a settlement or recovery. Indeed, one of the district court’s principal objections to the agreement was that it limited the monetary settlement to the insurance fund, allowing the defendants to ‘walk away from this lawsuit with no personal liability.’” Id. In short, the simple fact that the parties would incur additional litigation costs “is not a serious or irreparable consequence.” Id. Accordingly, the Ninth Circuit dismissed the appeal for lack of jurisdiction. Id.
NOTE: The Ninth Circuit also rejected the parties’ request to treat their appeal as a petition for a writ of mandamus because “the district court’s order did not constitute ‘usurpation of judicial power or a clear abuse of discretion.’” In re Touch America, at 4720 (citation omitted).