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2001 Term, Number 5 / December 10, 2001

Today the Supreme Court granted certiorari in one case of potential interest to the business community. Amicus briefs in support of the petitioner are due on Thursday, January 24, 2002, and amicus briefs in support of the respondents are due on Monday, February 25, 2002. Any questions about this case should be directed to Eileen Penner (202-263-3242) in our Washington office.

Class Actions — Non-Intervenor's Standing to Challenge Settlement. The Supreme Court granted certiorari today in Devlin v. Scardelletti, No. 01-417, to resolve a circuit split concerning whether an individual who is not a named party to a class action can appeal a class settlement approved by the district court without first obtaining leave of the district judge to participate in the case as a formal intervenor.

Although the question presented by Devlin is straightforward, the procedural history that gave rise to it is convoluted. In 1990, the trustees of a union pension plan ("Plan") approved an amendment to the Plan to provide cost of living adjustments ("COLAs") to the Plan beneficiaries. That change resulted in increased pension benefits to retired union members beginning on January 1, 1991. In late 1991, the union elected new Plan trustees. In 1993, the new trustees discovered that the old trustees had relied on an incorrect valuation of the Plan's liabilities when they approved the COLA, and therefore that the COLA would increase the Plan's liabilities to an unacceptable degree. Accordingly, the new trustees eliminated the COLA with respect to Plan participants who were not yet retired. Anticipating challenges to the elimination of the COLA, in 1997 the new trustees filed a putative class action in federal district court in Maryland, on behalf of both a subclass of retirees and a subclass of Plan participants who were not yet retired. That action requested a declaratory judgment that the COLA was void as to all Plan participants and a determination that the Plan as rewritten was binding on both retirees and non-retirees.

Meanwhile, Robert Devlin, a retiree, sued to challenge the Plan in federal district court in the Southern District of New York. That court dismissed Devlin's action because of the pending suit in Maryland, and the Second Circuit affirmed. Devlin's attorney then sent two letters to the district court in Maryland informally requesting that Devlin be allowed to intervene in the Maryland action, which was proceeding apace. In August 1999, the Plan trustees filed a motion for preliminary approval of a class settlement of the Maryland action. Some two weeks later, Devlin finally filed a formal motion to intervene in the case, but the district court denied his motion as "absolutely untimely." It then heard Devlin's objections to the proposed settlement at a fairness hearing — treating him as an ordinary, unnamed class member rather than according him intervenor status — and issued an order approving the proposed settlement.

Devlin then attempted once again to derail the settlement by bringing a second action in federal district court in New York. In an unpublished order, the district court in Maryland enjoined that attempt, thus allowing the settlement to go forward. Devlin appealed to the Fourth Circuit, challenging both the denial of his motion to intervene and the settlement itself. He argued that he had standing to appeal the settlement despite the denial of intervenor status because he both unsuccessfully attempted to intervene and objected to the class settlement at the fairness hearing.

On appeal, a divided panel of the Fourth Circuit concluded, among other things, that Devlin lacked standing to challenge the settlement because he had failed properly to intervene in the court below. Scardelletti v. DeBarr, 265 F.3d 195, 210 (4th Cir. 2001). In so doing, the panel majority allied itself with the Sixth Circuit in adopting a rule that a class member may appeal an order settling a class action only if the class member either (a) successfully intervened in the district court proceedings or (b) was improperly denied intervention and subsequently appealed both the ruling on intervention and the class settlement itself. See id. at 208-09; Shults v. Champion Int'l Corp., 35 F.3d 1056, 1061 (6th Cir. 1994). In reaching that conclusion, the panel majority also substantially aligned itself with decisions of the Fifth, Sixth, Seventh, Tenth, and Eleventh Circuits, which employ a strict rule that a class member may appeal the approval of a class settlement only if the class member successfully intervened in the district court. See Cook v. Powell Buick, Inc., 155 F.3d 758 [link 2], 761 (5th Cir. 1999); Felzen v. Andreas, 134 F.3d 873 [link 2] (7th Cir. 1998), aff'd by an equally divided court, 525 U.S. 315 (1999); Gottlieb v. Wiles, 11 F.3d 1004, 1008-09 (10th Cir. 1993); Guthrie v. Evans, 815 F.3d 626 F.2d 626, 628-29 (11th Cir. 1987).

Judge Michael, writing in dissent, was persuaded by the contrary view of the Second, Third, and Ninth Circuits that unnamed class members may appeal a class settlement even if they are not successful intervenors, as long as they either objected to the settlement or attempted unsuccessfully to intervene in the district court proceedings. See In re PaineWebber Inc. Ltd. Partnerships Litig., 94 F.3d 49, 53 (2d Cir. 1996); Carlough v. Amchem Prods., 5 F.3d 707, 710 (3d Cir. 1993); Marshall v. Holiday Magic, Inc., 550 F.2d 1173, 1176 (9th Cir. 1977).

This is not the first time the Supreme Court has sought to address this issue. In 1999, the Supreme Court granted certiorari in Felzen v. Andreas, supra, in part to resolve this longstanding circuit split, but Justice O'Connor recused herself from the case and an equally divided Court affirmed without opinion. See California Pub. Employees' Retirement Sys. v. Felzen, 525 U.S. 315 (1999). Not surprisingly, Felzen attracted substantial interest from amici curiae in the business community. 

The issue presented in Devlin is of substantial interest to members of the business community who face potential class action lawsuits of any type. The Supreme Court's decision will determine whether latecomers to class actions can derail a class settlement by appealing from an order approving that settlement without having properly brought their challenges as intervenors in the district court. The decision in Devlin thus will determine to a great extent whether parties can have confidence in the finality of a district court's order approving a class settlement.

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The Court today also called for the views of the Solicitor General in two related cases of interest to the business community: Dole Food Co. v. Patrick, No. 01-593, and Dead Sea Bromine Co. v. Patrickson, No. 01-594. The question presented by the two cases is whether the Foreign Sovereign Immunities Act, which grants federal jurisdiction over actions brought against an "agency or instrumentality of a foreign state," confers jurisdiction over a corporation only if that corporation is owned directly by a foreign state, or also if it is controlled indirectly by virtue of the fact that the foreign state owns a majority of the shares of the corporation's parent company or a majority of the shares of one or more "tiered subsidiaries" of which the corporation is a part. Decision below: 251 F.3d 795 (9th Cir. 2001).

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