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In re Fine Paper Litigation

decided: October 2, 1980.



Before Weis, Van Dusen and Higginbotham, Circuit Judges.

Author: Weis


After notice of the partial settlement of consolidated class actions, one putative class member objected because the class representative had not requested certification of the class specified in the complaint. The district court rejected the objections to the settlement and dismissed the settling defendants. We remand so that the court may rule on the status of the class as defined in the complaint and entertain a motion by the putative class member to intervene. In another phase of the litigation, a partial assignee of some of the claims presented by a class sought to opt out of the settlement. The district court refused to allow the assigned claims to be withdrawn. We remand so that the district court may consider joinder of the partial assignee as an additional class member.

The opinion will treat the appeals separately.



On July 29, 1977, the State of Connecticut filed a complaint in the United States District Court for the District of Connecticut alleging that defendant manufacturers had violated the antitrust laws in connection with the sale and distribution of fine paper. The suit was brought as a class action in which Connecticut purported to represent "all state and local governmental purchasers of fine paper in the United States." Suits also were brought in other federal district courts by various distributors and other purchasers, including a number of states. Before any motions for class certification were ruled on by the Connecticut district court, the Judicial Panel on Multi-District Litigation ordered that 15 fine paper actions pending in eight federal districts be consolidated for pretrial proceedings in the Eastern District of Pennsylvania. In re Fine Paper Antitrust Litigation, 446 F. Supp. 759 (J.P.M.D.L.1978) (per curiam).

In one of the first orders issued by the transferee court, the plaintiffs were given the opportunity to file amended complaints. Connecticut did so on May 12, 1978, and again purported to represent a national class of governmental entities. Six days later, the state moved for certification of a class consisting only of itself and governmental units within its borders. Four other states-Illinois, Kansas, Minnesota, and South Dakota (collectively with Connecticut the "minority states")-asked for similar class certifications in separate suits they had filed. In addition, 15 states (the "majority states") sought class certification for intrastate governmental units on complaints alleging the existence of antitrust conspiracies among the paper producers and various distributors. On February 16, 1979, the district court granted the certifications requested by Connecticut and the other four minority states, but refused to certify classes requested by the majority states because of a lack of commonality. There was no ruling on the national class originally requested by Connecticut.

On March 5, 1979, the plaintiff merchant houses, distributors of paper produced by the manufacturers, representing a nongovernmental national class, and the five minority states representing statewide classes, moved for preliminary approval of a proposed settlement agreement with six of the defendants.*fn1 The proposed settlement was to include the five state classes and "such other statewide governmental entity classes" that might elect to participate in the settlement by agreement of the settling parties. Two states with pending suits decided to become parties to the settlement, and three others filed suit so they, too, could join in the agreements.

On May 11, 1979, the district court tentatively approved the proposed settlement. In its order, the court decreed that notice be sent to members of the settling classes by July 1, 1979, and any request for exclusion from the class was to be postmarked no later than August 16, 1979. A hearing was scheduled for September 10, 1979, to entertain objections to the proposed settlements.

The State of New York had not filed suit and, on August 2, 1979, formally objected to the settlement. Alleging that it had relied upon the assertion in the complaint of a national governmental class, New York contended that Connecticut had compromised that class by its failure to move for certification and its subsequent participation in the settlement. New York argued that the court should not approve the settlement unless and until steps were taken by Connecticut to include the national governmental class in the agreement. As New York saw it, Connecticut had violated a fiduciary duty to the putative members by failing to seek certification of the national class described in the complaint.

The district court held that since it was not part of any certified class that joined in the settlement, New York had no standing to object. Moreover, the court could discern no prejudice to New York since none of its rights would be compromised by the settlement-not being a member of any certified class, New York would be free to file a separate action. In this context, the court reasoned that under American Pipe & Construction Co. v. Utah, 414 U.S. 538, 94 S. Ct. 756, 38 L. Ed. 2d 713 (1974), the statute of limitations would be tolled, at the very least, through the date of the court's class certification order, February 16, 1979. Declining to treat New York's objections as a bar to the settlement, the court approved it and dismissed the settling defendants from the case.

On appeal, New York contends that, since it was a putative member of the class that Connecticut initially purported to represent, it has standing to contest the settlement. New York's objections focus on the allegedly deficient procedures employed by the district court in permitting Connecticut to settle its claim without probing that state's apparent abandonment of the nationwide class. Specifically, New York asserts that notice under Fed.R.Civ.P. 23(e)*fn2 should have been given to members of the nascent national class.

Connecticut challenges New York's characterization of its standing, contending that the latter occupies the position of any other nonparty that objects to a settlement. As to the crux of New York's objections-the challenge to the procedures utilized by the district court-Connecticut asserts that the circumstances existing in the precertification stage of this case made notice of the settlement and dismissal unnecessary.

An assessment of the district court's rejection of New York's challenge requires a brief review of the background. Connecticut filed its complaint in 1977. By the time the statewide class was certified some two years later, there had been a number of suits filed by other states on their own behalf and on behalf of other governmental entities. These suits, moreover, asserted other, more complex theories of liability, and it was the lack ...

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