Staton v. Boeing Co. - 327 F.3d 938 (9th Cir. 2003)

Rule:

Judges have the responsibility of ensuring fairness to all members of the class presented for certification. Especially in the context of a case in which the parties reach a settlement agreement prior to class certification, courts must peruse the proposed compromise to ratify both the propriety of the certification and the fairness of the settlement. First, the district court must assess whether a class exists; such attention is of vital importance, for a court asked to certify a settlement class will lack the opportunity, present when a case is litigated, to adjust the class, informed by the proceedings as they unfold. Second, the district court must carefully consider whether a proposed settlement is fundamentally fair, adequate, and reasonable, recognizing that it is the settlement taken as a whole, rather than the individual component parts, that must be examined for overall fairness. When the parties have entered into a settlement agreement before the district court certifies the class, reviewing courts must pay undiluted, even heightened, attention to class certification requirements. Moreover, concerns about the fairness of settlement agreements warrant special attention when the record suggests that settlement is driven by fees; that is, when counsel receive a disproportionate distribution of the settlement.

Facts:

In 1989, a class of approximately 15,000 African-American employees of the Boeing Company brought an employment discrimination class lawsuit against the Company. Soon after, class counsel and the company began settlement negotiations, and a proposed consent decree was introduced. The decree required the Company to pay $7.3 million in monetary relief to the class, less reversions and an opt-out credit, in exchange of the release of the Company from race discrimination-related and other claims. The consent further provided for certain injunctive relief, although much of the relief appeared to be largely precatory in nature. Finally, the decree awarded to the lawyers for the class $4.05 million in attorneys’ fees. A group of class members objected to the proposed consent decree, arguing that the class failed to meet the certification requirements of Fed. R. Civ. P. 23(a) ("Rule 23(a)") for class actions and that the settlement contained in the decree was unfair, inadequate and unreasonable under Fed. R. Civ. P. 23(e). The district court certified a settlement class and approved the decree despite the objections. The objectors appealed. 

Issue:

1. Did the district court err in certifying the case as a class action? 
2. Did the district court err in approving the proposed consent decree? 

Answer:

1) No. 2) Yes.

Conclusion:

The instant court concluded that the district court acted within its discretion in certifying the class action pursuant to Fed. R. Civ. P. 23(a). However, the district court should not have approved the settlement agreement under Fed. R. Civ. P. 23(e), because of several considerations relating to the award of attorneys' fees and because of the two-tiered structure of the damages payments established by the decree. The court held that the incorporation of an amount of fees calculated as if there were a common fund as an integral part of the settlement agreement allowed too much leeway for class counsel to spurn a fair, adequate, and reasonable settlement for the clients in favor of inflated attorneys' fees. Further, the record did not reveal sufficient justification for the large differential in the amount of damages awards or payment of damages to a class nonmember.