PROF'L FIREFIGHTERS ASS'N OF OMAHA v. Zalewski

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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Nos. 11-1817/3253
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Professional Firefighters Association of *
Omaha, Local 385; Omaha Police *
Officers Association, Local 101; *
Omaha Civilian Employees *
Association, Local 251; Civilian *
Management, Professional and *
Technical Employees Council; Jim *
Anderlik; Michael Piernicky; Bill Love; *
Terry Leahy, *
*
Plaintiffs/Appellees, *
*
Rick Bergholz; Mark Allen Lloyd; * Appeals from the United States
Stephen Bosilevac; Stephen B. Tyler; * District Court for the
Dale A. Gruber, * District of Nebraska.
*
Intervenor Plaintiffs/Appellees, *
*
City of Omaha, a Municipal *
Corporation; Jim Suttle, Omaha Mayor, *
each in their official capacity; Ben *
Gray, Omaha City Council Member, *
each in their official capacity; Pete *
Festersen, Omaha City Council *
Member, each in their official capacity; *
Chris Jerram, Omaha City Council *
Member, each in their official capacity; *
Jean Stothert, Omaha City Council *
Member, each in their official capacity; *
Franklin Thompson, Omaha City *
Council Member, each in their official *
capacity; Thomas Mulligan, Omaha *
City Council Member, each in their *
official capacity, *
*
Defendants/Appellees, *
*
v. *
*
James Conrad Zalewski, *
*
Interested Party/Appellant. *
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Submitted: November 17, 2011
Filed: May 7, 2012
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Before RILEY, Chief Judge, BEAM and BYE, Circuit Judges.
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RILEY, Chief Judge.

James Conrad Zalewski (appellant), as counsel for a group of sixty-four retired
City of Omaha (city) firefighters and their families, appeals the district court’s1
approval of a class-action settlement agreement between the city and a certified class
of active and retired city firefighters, police officers, civilian employees, and their
unions. Appellant argues the district court abused its discretion in “fail[ing] to
properly apply and interpret” Fed. R. Civ. P. 23 to “adequately address the conflict of
interest” resulting from the same class counsel representing both active and retired
employees. We disagree and affirm.

1
The Honorable Joseph F. Bataillon, United States District Judge for the District
of Nebraska.

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I. BACKGROUND
The city reports it faces a severe long-term financial crisis caused, in part, by the
rising cost of healthcare benefits for various active and retired city employees. Before
May 18, 2010, an assortment of collective bargaining agreements (CBAs) and
ordinances required the city to offer thirty-four different benefit plans to active and
retired employees. Under those plans, 84% of retirees paid no premium for healthcare
coverage for themselves or their dependents.

On May 18, 2010, the Omaha City Council (city council) passed Ordinance No.
38733, which (1) required retirees to pay premiums for healthcare calculated as a
percentage of their city pension, and (2) reduced the number of healthcare plans from
thirty-four to three—one for police, one for firefighters, and one for civilians.
Beginning July 1, 2010, retirees would receive the same healthcare benefits as active
employees. The city expected to reduce its annual administrative fees by $419,400,
reduce other yearly administrative costs by $473,000, and receive more than three
million dollars per year in premium payments from retirees.

The day the ordinance passed, four labor organizations2 and four individual
retirees3 (collectively, plaintiffs) filed a nine-count declaratory judgment action against
the city, Mayor Jim Suttle, and the members of the city council, seeking to enjoin them
from enforcing the ordinance. The plaintiffs sought class certification for all active and
retired city employees who received health benefits from the city. The city answered,
asserting various affirmative defenses and counterclaims.

2
The labor organizations were (1) Professional Firefighters Association of
Omaha, Local 385; (2) Omaha Police Officers Association, Local 101; (3) Omaha
Civilian Employees Association, Local 251; and (4) Civilian Management,
Professional and Technical Employees Council (CMPTEC) (collectively, unions).
3
The four retirees were Jim Anderlik, a retired firefighter; Michael Piernicky,
a retired police officer; Bill Love, a retired member of Local 251; and Terry Leahy,
a retired member of CMPTEC.

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 On June 10, 2010, the district court entered a preliminary injunction enjoining
the city from enforcing the ordinance. On June 28, 2010, the district court permitted
five retired firefighters represented by Maynard H. Weinberg to intervene and
participate to protect their interests. On July 16, 2010, the district court certified the
proposed class under Rule 23(b)(3) and adopted three subclasses identified by
plaintiffs in the complaint:

(1) all former city employees who separated from employment for any
reason and are entitled to and were receiving group healthcare coverage
as city retirees as of May 18, 2010;

(2) all individuals who received group health coverage from the city
because they were, or will be “covered dependents” or spouses or
survivors of covered retirees; and

(3) all individuals who, as of May 18, 2010, were employed in positions
within the city covered by CBAs or ordinances which entitle them to
group health coverage when they retire or separate from city
employment.

The certified class consisted of 10,286 active and retired city employees and
their family members. The district court appointed Michael P. Dowd, John E.
Corrigan, and Timothy S. Dowd of the law firm of Dowd, Howard & Corrigan, LLC
as class counsel. In certifying the class, the district court found the unions and the
individual retirees “are adequate class representatives and are appointed to represent
the class of individuals meeting the class definition.” The district court did not enter
any specific findings on the need for separate counsel for the identified subclasses.
Class counsel represented both active and retired employees, and Weinberg continued
to represent the intervenors. The district court ordered class counsel to mail notice to
each known class member advising them of their right to have the district court exclude
them from the class. After receiving notice, several retirees opted out of the class.

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 On August 30, 2010, the morning trial was scheduled to begin, the city, the
plaintiffs, and the intervenors announced they had agreed on a tentative class-wide
settlement. After a hearing regarding the tentative agreement, the district court
continued the trial to allow the parties to negotiate the specific written terms of the
settlement. The city, the plaintiffs, and the intervenors participated in extensive
negotiations.

On October 5, 2010, the parties and their counsel participated in a settlement
conference mediated by United States Magistrate Judge F.A. Gossett. The conference
dealt extensively with protecting the rights of the retirees. The settlement conference
resulted in a tentative settlement agreement subject to approval by the class
representatives, the city, and the intervenors.

The settlement agreement resolved three primary issues related to the healthcare
benefits provided by the city: (1) current retirees’ health insurance premiums were held
at the rates the retirees were paying on the date the ordinance passed; (2) the city could
reduce the number of healthcare plans to three by transferring retirees to the current
plan available for active employees in the same bargaining unit; and (3) because
retirees generally share the same plan as their active counterparts, retirees in each class
received the right to elect a representative to represent them in future collective
bargaining negotiations related to any potential changes to the health plans for such
class. The retiree representative received the right to object to proposed changes to the
applicable health plan negotiated by the unions and, upon a vote of the affected
retirees, request that a neutral arbitrator review a claim that a proposed change is not
“fair and reasonable to the retirees.” If the arbitrator finds a proposed change is not fair
and reasonable, the applicable union may not approve the tentative CBA and must
renegotiate.

On October 20, 2010, the district court approved notice of the settlement and
ordered the parties to provide the class with notice of the settlement agreement and

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advise the class members of their rights to (1) object to the settlement agreement in
writing and at the fairness hearing, and (2) opt out of the case and exclude themselves
from the class. Of the 10,286 class members, only seventeen opted out—five of whom
were retirees. Only 4% of the class objected to the proposed settlement, including
appellant. All of the plaintiffs and intervenors approved the settlement agreement.

On December 6, 2010, the district court held a fairness hearing on the proposed
settlement agreement. At the hearing, the district court allowed the objecting class
members, including appellant, to voice their objections. Appellant objected to the
settlement agreement, arguing there was an inherent conflict of interest between active
and retired employees and the arbitration provisions were inadequate to protect the
retirees’ interests. The district court considered each of the objections to the settlement
agreement, including appellant’s assertion that there was “a conflict of interest between
current and retired employee representation [and] the possibility of the active members
being able to change the contracts on a whim to their benefit and to the detriment of
the retirees.”

On January 3, 2011, after “review[ing] the evidence and consider[ing] all
objections,” the district court approved the settlement agreement with some
administrative modifications, finding “the proposed settlement is in the best interests
of the plaintiff class and the intervenors, based on the claims and defenses in this
action, its procedural posture, the anticipated time and expense of protracted litigation,
. . . the fact that the available funds by the [c]ity are very limited, and failure to affirm
this settlement may cause dire consequences for the [c]ity.” The district court also
found “that although there are some conflicts within the classes, e.g., retired versus
current employees, the parties have been well represented during this process.”

On January 24, 2011, the district court reiterated its finding that the settlement
agreement was “fair and reasonable,” but clarified its findings were (1) not final until
expiration of the notice period required by 28 U.S.C. § 1715, and (2) “not intended to

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be factual findings as to the effect of any provisions of the [s]ettlement [a]greement.”
On April 12, 2011, the district court entered a final consent decree, again finding the
settlement agreement was “fair, reasonable, and adequate.” Appellant appeals the
district court’s class certification and approval of the settlement agreement.

II. DISCUSSION
A. Standard of Review
“The district court is accorded broad discretion to decide whether certification
is appropriate, and we will reverse only for abuse of that discretion.” Rattray v.
Woodbury Cnty., Ia., 614 F.3d 831, 835 (8th Cir. 2010). We also review the district
court’s approval of the settlement agreement as “fair, reasonable, and adequate” for an
abuse of discretion. See Reynolds v. Nat’l Football League, 584 F.2d 280, 282 (8th
Cir. 1978). “Only upon the clear showing that the district court abused its discretion
will this court intervene to set aside a judicially approved class action settlement.” Id.
at 283. We afford the district court’s views “[g]reat weight” because the district court
“is exposed to the litigants, and their strategies, positions and proofs. [It] is aware of
the expense and possible legal bars to success.” Id. (quoting Grunin v. Int’l House of
Pancakes, 513 F.2d 114, 123 (8th Cir. 1975)).

B. Class Certification and Appointment of Class Counsel
Appellant contends “[t]he district court abused its discretion by certifying this
case as a class action” because “the same counsel cannot represent active and retired
employees under [Fed. R. Civ. P.] 23(a)(4).” Appellant also contends the district court
failed properly to apply Fed. R. Civ. P. 23(c) and (g) “to protect the interests of the
class members” and “to make sure that the subclasses had proper representation.”

Rule 23(a)(4) permits certification of a class action only if the
representative “will fairly and adequately protect the interests of the
class.” Fed. R. Civ. P. 23(a)(4). . . . The district court must decide
whether Rule 23(a)(4) is satisfied through balancing “the convenience
of maintaining a class action and the need to guarantee adequate

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 representation to the class members.” Wright v. Stone Container Corp.,
524 F.2d 1058, 1061 (8th Cir. 1975).

Rattray, 614 F.3d at 835.

Appellant acknowledges the district court was “aware of the conflict issue” and
took steps to address the potential conflict and ensure the class representatives, class
counsel, and the intervenors would “fairly and adequately protect the interests of the
class.” Fed. R. Civ. P. 23(a)(4). But appellant contends “[t]he [district] court erred as
a matter of law in failing to provide independent counsel for the retiree subclasses.”
We disagree.

Although we have noted the potential for conflict between the interests of active
and retired employees, see Anderson v. Alpha Portland Indus., 752 F.2d 1293, 1297
(8th Cir. 1985) (en banc) (citing Allied Chem. & Alkali Workers of Am. v. Pittsburgh
Plate Glass Co., 404 U.S. 157, 181-82 (1971)), appellant fails to support his contention
that such conflict requires separate counsel as a matter of law. See Reynolds, 584 F.2d
at 286 (explaining “theoretical conflicts of interest [between active and retired football
players] did not require subclassification, disqualification of the named parties and
class counsel, or disapproval of the settlement”).

According to appellant, the Supreme Court’s decision in Ortiz v. Fibreboard
Corp., 527 U.S. 815 (1999), “dictates that separate counsel be utilized.” In support,
appellant quotes the Supreme Court’s statement that

[I]t is obvious after Amchem [Prods., Inc. v. Windsor, 521 U.S. 591
(1997)] that a class divided between holders of present and future claims
(some of the latter involving no physical injury and attributable to
claimants not yet born) requires division into homogeneous subclasses
under Rule 23(c)(4)(B), with separate representation to eliminate
conflicting interests of counsel. See Amchem, 521 U.S. at 627, 117 S. Ct.

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 22[5]1 (class settlements must provide “structural assurance of fair and
adequate representation for the diverse groups and individuals affected”).

See Ortiz, 527 U.S. at 856. But appellant does not provide any supporting analysis.

Appellant’s cursory argument fails to persuade us the Supreme Court’s decision
in Ortiz compels the conclusion that the district court in this case abused its discretion
by not appointing separate counsel for the retirees, particularly absent a motion
requesting separate counsel. Ortiz and Amchem were massive tort “class action[s]
prompted by the elephantine mass of asbestos cases” that “defie[d] customary judicial
administration.” Ortiz, 527 U.S. at 821. The Supreme Court found the exceedingly
divergent interests of present and future claim holders in those cases required separate
counsel to address adequately the conflict. Id. at 855. But the need for separate
representation under the atypical circumstances of Ortiz and Amchem does not make
appointing separate counsel the only acceptable means of “addressing any conflicting
interests of class members,” id. at 821, and providing “structural assurance of fair and
adequate representation” for the entire class, Amchem, 521 U.S. at 627.

The circumstances that favored separate counsel in Ortiz are not present here.
Ortiz “turn[ed] on the conditions for certifying a mandatory settlement class on a
limited fund theory under Federal Rule of Civil Procedure 23(b)(1)(B).” Ortiz, 527
U.S. at 821. In contrast, this case is a relatively straightforward declaratory judgment
action seeking injunctive relief under Rule 23(b)(3). Rather than binding the retirees
to a mandatory settlement and resolving their “legal rights . . . regardless of either their
consent, or . . . their express wish to the contrary,” Ortiz, 527 U.S. at 847 (footnote
omitted), the district court provided two opportunities for the retirees to opt out of the
case—once before the parties settled, and once after the parties explained the
settlement terms to the class.

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 As we noted in Petrovic v. Amoco Oil Co., 200 F.3d 1140, 1145-46 (8th Cir.
1999),

Amchem, 521 U.S. at 601-02, 117 S. Ct. 2231, and Ortiz, 119 S. Ct. at
2305, each involved a situation in which the parties agreed upon a class
definition and a settlement before formally initiating litigation, and then
presented the district court with the complaint, proposed class, and
proposed settlement. The difficulty inherent in such a situation is that the
district court “lack[s] the opportunity, present when a case is litigated, to
adjust the class, informed by the proceedings as they unfold.” Amchem,
521 U.S. at 620, 117 S. Ct. [2248].

....

The difficulties associated with settlements like those in Amchem
and Ortiz—the possibility of “collusion between class counsel and the
defendant . . . [and] the need for additional protections when the
settlement is not negotiated by a court designated class representative,”
Hanlon v. Chrysler Corporation, 150 F.3d 1011, 1026 (9th Cir.
1998)—are therefore not present here.

“We also do not believe . . . the stark conflicts of interest that the Supreme Court
discerned in Amchem and Ortiz are present here.” Petrovic, 200 F.3d at 1146. Though
not entirely consistent, the interests of the active and retired city employees aligned in
many significant ways, not the least of which was their driving interest to enjoin the
city’s enforcement of the ordinance. The conflicts appellant describes are far from the
“extraordinarily various” injuries that sharply divided the interests of present and
future asbestos claim holders in attempting to allocate the limited funds available in
Amchem and Ortiz. Id. Indeed, as prospective retirees, the active employees shared
an interest in protecting retiree rights.

Expressly cognizant of the potential conflicts in this case, the district court
appointed individual retirees as class representatives and subdivided the class to

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mitigate those potential conflicts. To further protect the interests of retirees, the district
court permitted five retired firefighters to intervene with separate counsel and
participate in settlement negotiations that focused extensively on protecting the
retirees’ interests. Those negotiations yielded significant safeguards built into the
settlement agreement that the district court reasonably found adequate to protect the
retirees from a future potential conflict, including a retiree representative during
collective bargaining and a detailed arbitration process.

Throughout the class action, the district court monitored the efforts of the class
representatives, class counsel, and the intervenors to ensure fair and adequate
representation. After considering all of the objections to the settlement, the district
court found “that although there are some conflicts within the classes, e.g., retired
versus current employees, the parties have been well-represented during this process.”
The district court was aware of the potential conflict and took reasonable steps to
address the retirees’ concerns. Given the nature of this case and the potential conflict
at issue, the district court did not abuse its discretion in certifying the class or by
ensuring fair and adequate representation for the entire class by means other than
appointing separate counsel for each subclass.

C. Settlement Agreement
Appellant also argues the district court, acting as a fiduciary, abused its
discretion in accepting the settlement agreement under Rule 23(e) because it failed to
protect the retirees’ contractual right to “guaranteed insurance to age 65.” “In
approving a class settlement, the district court must consider whether it is fair,
reasonable, and adequate.” DeBoer v. Mellon Mortg. Co., 64 F.3d 1171, 1176 (8th Cir.
1995) (quoting Van Horn v. Trickey, 840 F.2d 604, 606 (8th Cir. 1988) (internal
quotation marks omitted)); see Fed. R. Civ. P. 23(e)(2).

To make that determination, the district court must consider “(1) the merits of
the plaintiff’s case, weighed against the terms of the settlement; (2) the defendant’s

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financial condition; (3) the complexity and expense of further litigation; and (4) the
amount of opposition to the settlement.” In re Wireless Tel. Fed. Cost Recovery Fees
Litig., 396 F.3d 922, 932 (8th Cir. 2005). “The most important consideration in
deciding whether a settlement is fair, reasonable, and adequate is ‘the strength of the
case for plaintiffs on the merits, balanced against the amount offered in settlement.’”
Id. at 933 (quoting Petrovic, 200 F.3d at 1150).

After examining the evidence and considering the objections, the district court
approved the settlement agreement, finding the agreement “in the best interests of the
plaintiff class and the intervenors, based on the claims and defenses in this action, its
procedural posture, the anticipated time and expense of protracted litigation, . . . the
fact that the available funds by the [c]ity are very limited, and failure to affirm this
settlement may cause dire consequences for the [c]ity.” In approving the settlement,
the district court made some administrative modifications to further protect the
interests of the retirees.

The city contends the settlement agreement is fair, reasonable, and adequate
because all of the employees faced substantial risk in going to trial and received what
the district court aptly described as “major concessions” from the city, including the
retirees avoiding benefit reductions and three million dollars per year in premium
payments. The city also emphasizes (1) its credible argument that the plain language
of the CBAs permitted the changes contemplated by the ordinance; (2) the possibility
the city’s dire financial situation would allow it to avoid any vested rights the
employees might have had, see White Motor Corp. v. Malone, 599 F.2d 283, 287 (8th
Cir. 1979) (“In the legitimate exercise of its police power a State may ‘impair’ by
‘altering’ the terms of a private contract, and the legislative action may either lighten
or increase the obligations of the contractual obligor.”); (3) the “very rich benefit plan”
the retirees received; and (4) the “substantial broad support for the agreement” from
the entire class, with only a small number of class members objecting or opting out.

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 Appellant maintains the retirees “had a contractual promise of health insurance
coverage until they became eligible for Medicare” and “were deprived of that right
without proper representation.” According to appellant, class counsel’s conflict of
interest led them to compromise unnecessarily the retirees’ rights in the settlement
agreement, making the agreement unfair and inadequate. Appellant’s argument is
unavailing.

The district court did not abuse its discretion in approving the settlement
agreement. Appellant’s argument to the contrary essentially boils down to his belief
that compromise was unnecessary because he would have prevailed at trial. Appellant
ignores the substantial risk the plaintiffs would not prevail and the city would enforce
the ordinance, dramatically changing the retirees’ health benefits. Appellant falls far
short of establishing the settlement agreement was unfair or inadequate simply because
the retirees did not get as much as they believed they should. The settlement agreement
specifically addressed many of the concerns retirees shared with active employees and
established specific procedures to protect the retirees where those interests may
diverge. The district court’s conclusion that the agreement was a fair, reasonable, and
adequate settlement for all of the class members was well within its discretion.

D. Special Hearing
Notwithstanding appellant’s extensive discussion of the potential conflict
between active and retired employees at the fairness hearing, appellant argues the
district court abused its discretion under Rule 23(d) by failing to hold a special hearing
on the ability of class counsel to represent the subclasses. Appellant’s argument fails
for two reasons. First, appellant fails to show anything in the language of Rule 23(d)
that would require such a hearing. See Fed. R. Civ. P. 23(d). Second, appellant admits
he did not ask for a special hearing or object when the district court did not hold one.
Appellant waived any purported right to a special hearing he now claims to possess.
See Corn Plus Coop. v. Cont’l Cas. Co., 516 F.3d 674, 680 (8th Cir. 2008) (explaining

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“arguments raised for the first time on appeal are generally not considered” because
they are waived).

Appellant’s remaining arguments are without merit. See 8th Cir. R. 47B.

III. CONCLUSION
We affirm.
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