DeJulius v. New England Health Care Employees Pension Fund

F I L E D
United States Court of Appeals
Tenth Circuit

October 28, 2005
PUBLISH

UNITED STATES COURT OF APPEALS Clerk of Court

TENTH CIRCUIT

FRANKLIN LEE DEJULIUS and
SUSAN M. DEJULIUS,

Movants-Appellants,

v.

NEW ENGLAND HEALTH CARE
EMPLOYEES PENSION FUND, on
behalf of itself and all others similarly
situated, AMALGAMATED BANK, as
Trustee for the Longview Collective
Investment Fund, EMPLOYER-
TEAMSTER LOCAL NOS. 175 & 505
PENSION TRUST FUND, PACE
INDUSTRY UNION-MANAGEMENT
PENSION FUND, PLUMBERS & No. 04-3091
PIPEFITTERS NATIONAL PENSION
FUND, and UNITED
BROTHERHOOD OF CARPENTERS
PENSION FUND,

Plaintiffs-Appellees,
v.

SPRINT CORPORATION, WILLIAM
T. ESREY, RONALD T. LEMAY,
KEVIN E. BRAUER, ARTHUR B.
KRAUSE, ANDREW J. SUKAWATY,
JOHN E. BERNDT, THEODORE H.
SCHELL, THOMAS E. WEIGMAN,
DON A. JENSEN, BRUCE
BRANYAN, WILLIAM E.
 McDONALD, MARTIN J. KAPLAN,
GENE M. BETTS, JAMES RICHARD
DEVLIN, MICHAEL B. FULLER,
LEN J. LAUER, JOHN P. MEYER,
ARTHUR ALLAN KURTZE, I.
BENJAMIN WATSON, III, LINDA
KOCH LORIMER, DUBOSE
AUSLEY, WARREN L. BATTS,
MICHAEL BON, IRVINE O.
HOCKADAY, JR., HAROLD S.
HOOK, CHARLES E. RICE, LOUIS
W. SMITH, RON SOMMER, and
STEWART TURLEY,

Defendants-Appellees.

Appeal from the United States District Court
for the District of Kansas
(D.C. No. 01-CV-04080-CM)

Kenneth E. Nelson, Nelson Law Firm, P.C., Kansas City, Missouri, for Movants-
Appellants.

Joseph D. Daley, (William S. Lerach, Keith F. Park, and Randall J. Baron; David
R. Scott, Scott & Scott, LLC, Colchester, Connecticut, with him on the brief)
Lerach Coughlin Stoia Geller Rudman & Robbins LLP, San Diego, California, for
Plaintiffs-Appellees.

Eric J. Gorman, (Christina M. Tchen and Russell S. Jones, Jr., Shughart
Thompson & Kilroy P.C., Kansas City, Missouri; J. Emmett Logan, Stinson
Morrison & Hecker LLP, Kansas City, Missouri, with him on the brief) Skadden
Arps Slate Meagher & Flom LLP, Chicago, Illinois, for Defendants-Appellees.

Before EBEL, HOLLOWAY and LUCERO, Circuit Judges.

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EBEL, Circuit Judge.

This case deals with the legal and constitutional sufficiency of the class

action notice program under Fed. R. Civ. P. 23 and the Due Process Clause.

Appellants are unnamed class plaintiffs in an action against Appellee Sprint

Corporation. The class action concerns alleged instances of securities fraud

surrounding Sprint’s failed merger attempt with WorldCom, Inc. Appellants

received notice of a class settlement two weeks after the deadline for filing

objections to the settlement and on the same day as the final fairness hearing on

the settlement. After the district court approved the settlement between Sprint

and its shareholders, Appellants moved to intervene, arguing that the attorneys’

fees to be paid to class counsel pursuant to the settlement were excessive and that

the notice afforded to class members of the settlement was insufficient under the

Due Process Clause and Fed. R. Civ. P. 23. Appellants claim that since they held

their shares in “street name” (meaning that they held only beneficial title to the

shares while legal title was vested in their broker’s name), the thirty-two-day

period between the initial mailing of the settlement notice and the deadline for

objections did not sufficiently account for the delays involved in forwarding

notice packets to beneficial stock owners.

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 The district court held that the notice program was sufficient under Rule 23

and due process and denied the motion to intervene. For the reasons outlined

below, we AFFIRM the judgment of the district court.

BACKGROUND

I. The parties

Defendant-Appellee Sprint Corporation (“Sprint”) is in the

telecommunications business, offering hardline and wireless long-distance

service. 1 At the relevant time, Sprint was the third largest long-distance carrier in

the United States and had annual revenues in excess of $17 billion. Sprint’s

common stock (“FON”) and its wireless tracking stock (“PCS”) are publicly held.

Lead Plaintiff-Appellee 2 New England Health Care Employees Pension

Fund (“New England”) is a large institutional investor that purchased publicly-

traded Sprint securities. Pursuant to Section 101(b) of the Private Securities

1
The class action complaint also names as defendants several high-level
officers at Sprint and members of its Board of Directors. For the purposes of this
opinion, when we use the term “Sprint,” we are referring to all three categories of
Sprint defendants: directors, officers, and the corporate entity. In addition, the
complaint named WorldCom, Inc., and its former Chief Executive Officer,
Bernard Ebbers, as defendants. The suit against WorldCom, Inc., was stayed
pending the company’s bankruptcy, and the claims against Ebbers were
voluntarily dismissed.
2
Plaintiffs and Defendants are on the same side for purposes of this appeal;
both argue that the district court correctly denied Appellants’ motion to intervene.

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Litigation Reform Act of 1995, 3 the district court appointed New England to be

the lead plaintiff in a consolidated class action against Sprint seeking damages

suffered by investors as a result of Sprint’s failed merger attempt with

WorldCom, Inc. See In re Sprint Corp. Sec. Litig., 164 F. Supp. 2d 1240, 1242,

1244 (D. Kan. 2001) (“Sprint I”). Sprint and New England eventually reached a

$50 million settlement, which the district court approved.

Movants-Appellants Franklin and Susan DeJulius are members of the class

who filed a motion to intervene, claiming that the notice of settlement to class

members was inadequate and that the fee requested by class counsel was

excessive.

II. Factual background

On October 4, 1999, after several months of intense negotiations, Sprint

and WorldCom, Inc., agreed to the terms of a merger whereby WorldCom would

acquire Sprint for $129 billion. See In re Sprint Corp. Sec. Litig., 232 F. Supp.

2d 1193, 1201 (D. Kan. 2002) (“Sprint II”). At the time, both companies had

massive market shares in the domestic and international telecommunications

markets: Sprint was the nation’s third largest provider of long distance telephone

services while WorldCom was the second largest provider of international long

3
Pub. L. No. 104-67, 109 Stat. 737 (codified in relevant part at 15 U.S.C.
§ 78u-4(a)(3)).

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distance lines to American customers and the largest provider of domestically-

connected international private voice and data lines. Id. The combination of the

two companies was to be the largest corporate merger in history. Id.

Sprint and WorldCom shareholders approved the merger proposal on April

28, 2000. Id. However, on June 27, 2000, the Justice Department filed an

antitrust suit to block the merger; the European Commission followed suit the

next day. Id. By July 13, 2000, Sprint and WorldCom officially terminated the

merger agreement. Id. at 1201-02.

Although the announcement of the merger initially had a positive impact on

the value of PCS and FON shares, once the deal fell apart, stock values

significantly decreased, causing investors to lose billions of dollars. Id. at 1210.

Some investors felt that the proposed merger was simply a ruse designed to allow

certain Sprint executives prematurely to exercise stock options. Id. at 1202.

Under Sprint’s long-term compensation plan, certain high-level executives were

given stock options to buy millions of shares of Sprint FON/PCS common stock at

prices well below market value. Id. In 1998, however, most of these options had

not yet vested, which meant that Sprint executives could not yet exercise them.

Id. According to Plaintiffs, Sprint executives were worried that Sprint stock

prices would continue to fall, further decreasing the potential value of their

unvested options. Id.

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 The incentive plan did, however, provide that should Sprint undergo a

“change-in-control,” the options would immediately vest and become exercisable.

Id. Thus, the plaintiff class alleges that Sprint executives pushed for the

WorldCom merger with full knowledge that it would never ultimately stand up to

an antitrust challenge. Id. Once the shareholders approved the merger, stock

prices would rise, the options would vest, and the executives could cash in their

stock options at a substantial profit. Id. In fact, this is exactly what happened.

William T. Esrey, the chairman and CEO of Sprint (and a named individual

defendant in this suit), made over $300 million alone from his stock options. Id.

The plaintiff class alleges that the total windfall for all stock option participants

was in excess of $1.7 billion. Id. The downside was that once the merger failed,

Sprint share prices tumbled. Id. at 1210. PCS shares dropped to $33.25, a forty-

nine percent decrease from its high point of $65.50 after the merger agreement

was announced. Id. Similarly, FON shares fell to $26.81, a sixty-one percent

decrease from its high point of $68.76 after the merger agreement was announced.

Id.

III. Procedural history

A. Consolidated complaint and dismissal of some claims

These events gave rise to three separate shareholder class actions, which

were later consolidated into one complaint over which New England was the lead

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plaintiff. The consolidated complaint alleged that Sprint made false and

misleading statements in connection with the WorldCom merger, in violation of

Section 10(b) of the Securities and Exchange Act of 1934 (“the Act”), 15 U.S.C.

§ 78j(b) (2000), and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5 (2000), promulgated

thereunder. The complaint also alleged Sprint and WorldCom violated Section

20(a) of the Act (codified at 15 U.S.C. § 78t(a)), a provision which provides for

joint and several liability for any person who controls another that has violated

the Act or any regulation promulgated thereunder.

Prior to class certification, Sprint filed a motion to dismiss the suit. Sprint

II, 232 F. Supp. 2d at 1199. In a lengthy opinion, the district court agreed to

dismiss nearly all of the plaintiff class’ allegations, except for three paragraphs in

the complaint dealing with misstatements and omissions made to the Department

of Justice and the European Commission. Id. at 1230.

B. Settlement agreement

After the district court dismissed the bulk of the claims against Sprint, the

parties entered into negotiations and, on April 7, 2003, agreed to settle the claims

for $50 million. Under the terms of the agreement, the $50 million would be

placed in a common settlement fund for class members and would be distributed

to class members after attorneys’ fees and other expenses were deducted. On

October 29, 2003, the district court preliminarily approved the agreement,

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conditionally certifying a settlement class and scheduling the final settlement

hearing for December 16, 2003.

C. Notice & dismissal

The district court’s preliminary approval mandated a number of procedures

aimed at notifying absent class members of the settlement agreement and their

rights to opt-out, object, or intervene in the proceedings before the settlement

became final.

Along with their settlement agreement, the parties submitted several draft

documents that would notify class members of the settlement and enable them to

obtain their share of compensation from the settlement fund: (1) a Notice of

Pendency and Proposed Settlement of Class Action (the “Notice”); (2) a Proof of

Claim and Release; and (3) a Summary Notice. The Notice and Proof of Claim

and Release (“the notice packet”) were to be mailed directly to class members,

while the Summary Notice would be published in newspapers and on the internet.

Those documents specifically stated that any class member wishing to opt-out or

raise an objection to the settlement must do so before December 2, 2003, two

weeks before the final settlement hearing.

The district court approved the proposed materials and ordered certain

notice procedures that it found to be “the best notice practicable” under the

circumstances. Specifically, the court ordered that notice packets should be

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mailed to all Sprint shareholders in the class within ten days, to the extent those

persons were identifiable by Sprint records. In addition, the district court ordered

that the summary notice be published on two separate occasions within twenty

days of its order in the national edition of Investor’s Business Daily and The

Kansas City Star. To facilitate class notice and claim processing, the court

appointed Gilardi & Co., LLC (“Gilardi”) as the settlement administrator and

ordered it to place all of the notice materials on its Web site.

With regard to the individual notice to class members, the district court

recognized a potential problem since it appeared that many of the shareholders

reflected in Sprint records were brokerage houses and it was thus likely that these

entities held the shares only as “nominees” while the entities’ clients held the

beneficial title to the shares, also known as holding shares in “street name.” The

following background is useful:

The practice of registering securities in the records of issuers in other
than the name of the beneficial owner is commonly referred to as
“nominee” and “street” name registration. Nominee name
registration refers to arrangements used by institutional investors
(insurance companies and investment companies among others) and
financial intermediaries (brokers, banks and trust companies) for the
registration of securities held by them for their own account or for
the account of their customers who are the beneficial owners of the
securities. Street name registration, a specialized type of nominee
name registration, refers to the practice of a broker registering in its
name, or in the name of its nominee, securities left with it by
customers or held by it for its own account.

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Securities and Exchange Commission, The Street Name Study, 4 1 (1976),

reprinted in Robert W. Hamilton & Jonathan R. Macey, Cases and Materials on

Corporations Including Partnerships and Limited Liability Companies 674 (8th ed.

2003) (footnote omitted). The primary benefit of this practice is to permit

beneficial owners easily and quickly to transfer ownership of their shares without

meeting the issuer’s often cumbersome requirements, such as endorsing the back

of the stock certificate. Id. at 675. The downside, of course, is that the issuer’s

records would not always reflect the true owners of the shares. See id.

In order to address this problem, the district court in the instant case issued

special procedures for nominees who held shares on behalf of their clients during

the class period. If a particular shareholder reflected in Sprint’s records was a

nominee, that entity had two options. The nominee could provide Gilardi with a

list of names and addresses of its clients who were the beneficial owners of the

Sprint shares. Gilardi would then forward individual notice packets to each

investor. Alternatively, the nominee could simply request the appropriate number

of notice packets from Gilardi and then forward the notices itself to the actual

owners. Any costs associated with the mailing would be reimbursed from the

4
The full name of this study is: Final Report of the Securities and Exchange
Commission on the Practice of Recording the Ownership of Securities in the
Records of the Issuer in Other Than the Name of the Beneficial Owner of Such
Securities. For convenience, most commentators simply refer to it as “The Street
Name Study.” See Hamilton, infra, at 674 n.30.

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settlement fund. In any event, the nominee was required to complete this process

within ten days of receiving the initial notice package from Gilardi.

On October 31, 2003 (just two days after the district court gave preliminary

approval for the settlement), Gilardi obtained a list of shareholders from Sprint

and mailed 37,081 notice packets to various individuals and entities. As

predicted, many of these packets were sent to nominees. 5 Following the

procedures set forth above, an additional 89,426 notice packages were sent out

sometime before December 3, 2003, one day after the deadline for opt-

out/objection deadline and nearly two weeks prior to the settlement hearing. 6 Of

these packages, 56,078 packages were mailed by Gilardi directly to potential class

members (presumably from lists provided by nominees), and 33,342 packages

were sent in bulk to nominees (for the nominees to forward on to their clients). 7

No objections to the settlement were filed prior to the December 2, 2003,

deadline, and as scheduled, the district court held a final settlement hearing two

5
The record also indicates that Gilardi took the initiative to send copies of
the notice package to several major brokerage houses whose clients commonly
hold stock in street name.
6
The record contains no information as to precisely when these additional
packets were sent directly to investors or to the nominees for forwarding. All we
know for certain is that as of December 3, 2003 (one day after the deadline to file
objections), Gilardi had sent out an additional 89,426 notice packets.
7
All of the required notice-by-publication apparently took place as required
under the district court’s preliminary approval of the settlement.

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weeks later on December 16, 2003. At the conclusion of the hearing, the district

court approved the settlement and dismissed the suit against Sprint.

D. The motion to intervene

On December 18, 2003, Appellants filed a motion to intervene for the

limited purpose of filing a motion for leave to file late objections to the

settlement approved by the district court just two days earlier. Appellants sought

their intervention both permissively and as of right. See Fed. R. Civ. P. 24(a)-(b).

In a document attached to their motion, Appellants maintained that they did not

receive notice of the class settlement until December 16, 2003, the very day of the

fairness hearing and a full two weeks after the deadline for filing objections had

passed. Appellants sought to object to the settlement on two grounds: (1) that the

attorneys’ fees requested by class counsel were unreasonable and excessive; 8 and

(2) that the notice to the class was inadequate and constitutionally defective.

The district court held that the notice scheme, on the whole, was

constitutionally adequate even though Appellants themselves did not receive

timely notice of the settlement. It also noted that the issue regarding the fairness

of the attorneys’ fees had already been taken up and ruled upon at the final

8
Class counsel requested, and the district approved (at the settlement
hearing) an award of attorneys’ fees not to exceed 17.5% of the settlement fund
plus up to $375,000 in expenses.

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settlement hearing. Accordingly, the district court denied the motion to intervene.

This appeal followed.

As to the attorneys’ fees, Appellants have not raised this issue in their

opening brief and it is therefore waived. See State Farm Fire & Cas. Co. v.

Mhoon, 31 F.3d 979, 984 n.7 (10th Cir. 1994). Thus, the only remaining basis for

intervention that Appellants assert on appeal is the notice issue. 9

9
In its brief, Sprint raises an additional waiver argument. Sprint observes
that while Appellants’ opening brief discusses extensively the adequacy of notice,
it does not argue that the district court erred by failing to allow them to intervene.
According to Sprint, “Appellants’ failure to appeal the denial of intervention
should deprive them of standing on appeal to assert the merits of the objection
they sought to raise.” Apparently, Sprint believes that Appellants should have
included two issues in their brief: (1) whether the denial of intervention was
inappropriate under Fed. R. Civ. P. 24; and (2) whether the notice to absent class
members was inadequate.
This argument ultimately fails. When the district court ruled on the motion
to intervene, it did not specifically discuss the legal standards under Rule 24 for
permissive intervention or intervention as of right. Instead, the court focused on
the issues of adequate notice and attorneys’ fees. In other words, the court looked
to the merits of the objections that Appellants would have filed if granted
intervention. Finding those objections meritless, it then denied intervention.
Putting aside the attorneys’ fees issue, the only issue before the court when it
decided the motion to intervene was whether notice was adequate to absent class
members. By challenging the district court’s holding that notice was adequate,
Appellants are therefore impliedly challenging the court’s decision to deny
intervention.

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 DISCUSSION

I. Jurisdiction

On December 16, 2003, the district court approved the settlement order and

dismissed the suit. Two days later, Appellants filed a motion to intervene

permissively and as of right. The district court denied that motion on February

24, 2004. Our appellate jurisdiction arises under 28 U.S.C. § 1291. See Coalition

of Ariz./N.M. Counties for Stable Economic Growth v. Dep’t of the Interior, 100

F.3d 837, 839 (10th Cir. 1996) (holding that “[a]n order denying intervention is

final and subject to immediate review if it prevents the applicant from becoming a

party to the action” and taking jurisdiction under § 1291). 10

II. Standard of Review

Our review of rulings on motions to intervene as of right is de novo, and

we review a denial of permissive intervention for abuse of discretion. City of

Stilwell v. Ozarks Rural Elec. Coop. Corp, 79 F.3d 1038, 1042 (10th Cir. 1996).

10
In Coalition for Stable Economic Growth, intervention was sought prior
to the district court’s final judgment in the case. See 100 F.3d at 839. Here, in
contrast, the motion to intervene was filed two days after the district court entered
a final judgment. The notice of appeal here was filed in late February, so it could
not have been timely filed in relation to the final judgment, which was entered in
mid-December. We believe, however, that if a denial of a motion to intervene is
final for § 1291 purposes before judgment is entered in the action, then it should
also be final if brought as a post-judgment motion. See Guthrie v. Evans, 815
F.2d 626, 628 (11th Cir. 1987) (noting that denial of an unnamed class member’s
motion to intervene is appealable).

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The underlying question of whether a particular class action notice program

satisfies the requirements of Fed. R. Civ. P. 23 and the Due Process Clause is a

legal determination we review de novo. See Rutter & Wilbanks Corp. v. Shell Oil

Co., 314 F.3d 1180, 1186 (10th Cir. 2002) (stating that due process issues, which

call for legal conclusions, are subject to de novo review); Torrisi v. Tuscon Elec.

Power Co., 8 F.3d 1370, 1374 (9th Cir. 1993) (applying de novo review to due

process and Rule 23 issues regarding class action notice program). However, the

district court’s findings of fact regarding notice are reviewed under the clearly

erroneous standard. See Fed. R. Civ. P. 52(a).

III. Intervention

Although this case arose in the context of Appellants’ post-judgment

motion to intervene, the district court, in its order denying the motion, never

specifically mentioned the legal standards for intervention, which are laid out in

Fed. R. Civ. P. 24. Instead, the district court proceeded directly to the merits of

the two objections Appellant sought to raise if granted intervenor status:

sufficiency of the notice and appropriateness of the attorneys’ fees. Finding both

of these objections to be without merit, the district court simply denied the motion

to intervene.

Although our analysis ultimately turns on the merits of Appellants’ putative

objection to the notice procedures, we must first determine if the threshold

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requirements of Rule 24 have been met. Fed. R. Civ. P. 24 provides, in relevant

part:

(a) Intervention of Right. Upon timely application anyone shall be
permitted to intervene in an action. . . when the applicant claims an
interest relating to the property or transaction which is the subject of
the action and the applicant is so situated that the disposition of the
action may as a practical matter impair or impede the applicant's
ability to protect that interest, unless the applicant’s interest is
adequately represented by existing parties.

(b) Permissive Intervention. Upon timely application anyone may
be permitted to intervene in an action . . . when an applicant’s claim
or defense and the main action have a question of law or fact in
common. . . . In exercising its discretion the court shall consider
whether the intervention will unduly delay or prejudice the
adjudication of the rights of the original parties.

Here, Appellants do not challenge the adequacy of the named class

representatives to protect their interests. The only asserted basis for intervention

is the adequacy of class notice procedures, an entirely separate issue from

adequacy of representation. 11 Compare Fed. R. Civ. P. 23(a)(4) (adequacy of

representation), with Fed. R. Civ. P. 23(c)(2)(B) (requiring notice in actions

certified under Rule 23(b)(3)). Thus, intervention as of right is not available to

Appellants. See 7B Charles Alan Wright, Arthur R. Miller & Mary Kay Kane,

Federal Practice & Procedure § 1799, at 246 (3d ed. 2005) (“If the court

As noted above, the other ground asserted below for intervention—the
11

excessive nature of attorneys’ fees—has not been raised on appeal and is thus
waived.

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determines that the absent class members are adequately represented, intervention

as of right under Rule 24(a) should be unavailable. Intervention in this situation

should be a matter that is left to the court’s discretion under the standards for

permissive intervention in Rule 24(b)(2).”).

As for the standards for permissive intervention, it is clear that Appellants

meet the requirement that their claim “have a question of law or fact in common”

with the main action. Fed. R. Civ. P. 24(b). Where, as here, a class action is

certified under Fed. R. Civ. P. 23(b)(3), it is required that “questions of law or

fact common to the members of the class predominate over any questions

affecting only individual members . . . .” However, in deciding whether to permit

intervention, the court is also required to consider whether the intervention will

“unduly delay or prejudice” the adjudication of the rights of existing litigants.

Fed. R. Civ. P. 24(b). The district court’s conclusion that the notice procedures

in this case were adequate (and therefore that Appellants’ putative objection was

meritless) can be read as a conclusion that the intervention Appellants sought

would cause undue delay to the final disposition of the class settlement.

While our overall review of a motion to intervene permissively is for an

abuse of discretion, here the district court rested its ruling on a legal conclusion:

that the notice procedures were adequate under the Due Process Clause and Rule

23. An abuse of discretion occurs when a district court bases its ruling on an

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erroneous conclusion of law. Kiowa Indian Tribe v. Hoover, 150 F.3d 1163, 1165

(10th Cir. 1998). Thus, if we conclude—under a de novo standard of

review—that the district court incorrectly held the notice procedures to be

adequate, we must reverse the district court’s ruling on Appellants’ motion to

intervene.

IV. Adequacy of the class notice procedures

A. Applicable law

Under Fed. R. Civ. P. 23(e)(1)(B), a district court approving a class action

settlement “must direct notice in a reasonable manner to all class members who

would be bound by a proposed settlement, voluntary dismissal, or compromise.”

According to the advisory committee’s note, “[r]easonable settlement notice may

require individual notice in the manner required by Rule 23(c)(2)(B)[, the rule

governing class-certification notice,]” particularly when, as here, individual class

members are required to file claims to collect from the settlement fund. Advisory

Committee’s Note, 2003 Amendments, Fed. R. Civ. P. 23, reprinted in Federal

Civil Judicial Procedure and Rules 132-33 (West 2005 ed.). Rule 23(c)(2)(B)

provides, in relevant part:

For any class certified under Rule 23(b)(3), the court must direct to
class members the best notice practicable under the circumstances,
including individual notice to all members who can be identified
through reasonable effort.

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 In addition to the requirements of Rule 23, the constitution’s Due Process

Clause also guarantees unnamed class members the right to notice of certification

or settlement. See U.S. Const. amend. V; Mullane v. Cent. Hanover Bank &

Trust Co., 339 U.S. 306, 313 (1950); Eisen v. Carslisle & Jaquelin, 417 U.S. 156,

173 (1974).

Many controversies have raged about the cryptic and abstract words
of the Due Process Clause but there can be no doubt that at a
minimum they require that deprivation of life, liberty or property by
adjudication be preceded by notice and opportunity for hearing
appropriate to the case.

Mullane, 339 U.S. at 313.

In Mullane, the Court addressed whether publication notice (rather than

mailed individual notice) to known beneficiaries of a common trust fund as part

of a judicial settlement of accounts was constitutionally sufficient. Id. at 307.

Observing that notice and an opportunity to be heard were fundamental requisites

of procedural due process, the Court held that notice must be “reasonably

calculated, under all the circumstances, to apprise interested parties of the

pendency of the action and afford them an opportunity to present their

objections.” Id. at 314; see also Eisen, 417 U.S. at 173 (concluding that some

form of individualized notice is mandatory under Rule 23 and the Due Process

Clause). The Court continued:

But when notice is a person’s due, process which is a mere gesture is
not due process. The means employed must be such as one desirous

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 of actually informing the absentee might reasonably adopt to
accomplish it. The reasonableness and hence the constitutional
validity of any chosen method may be defended on the ground that it
is in itself reasonably certain to inform those affected . . . .

Mullane, 339 U.S. at 315. The Court held that publication notice could not

satisfy due process where the names and addresses of the beneficiaries were

known. Id. at 320.

Nevertheless, this due process right does not require actual notice to each

party intended to be bound by the adjudication of a representative action. See id.

at 313-14 (“A construction of the Due Process Clause which would place

impossible or impracticable obstacles in the way could not be justified.”); accord

In re Integra Realty Res., Inc., 262 F.3d 1089, 1110-11 (10th Cir. 2001) (“Integra

I”) (holding Rule 23 and Due Process requisites satisfied where the record

indicated that only seventy-seven percent of class members actually received

notice of the settlement).

For due process purposes, rather than looking at actual notice rates, our

precedent focuses upon whether the district court gave “the best notice practicable

under the circumstances including individual notice to all members who can be

identified through reasonable effort.” Integra I, 262 F.3d at 1110 (citing Eisen,

417 U.S. at 174) (quotation omitted). The legal standards for satisfying Rule

23(c)(2)(B) and the constitutional guarantee of procedural due process are

coextensive and substantially similar. Compare Integra I, 262 F.3d at 1110 with

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Fed. R. Civ. P. 23(c)(2)(B); see also Advisory Committee’s Note, 1966

Amendments, Fed. R. Civ. P. 23, reprinted in Federal Civil Judicial Procedure and

Rules 130 (West 2005 ed.) (“This mandatory notice pursuant to subdivision (c)(2)

. . . is designed to fulfill requirements of due process to which the class action

procedure is of course subject.”).

Although the Tenth Circuit has not yet dealt with the appropriate method of

sending settlement notices in a shareholder class action to class members who

hold their shares in street name only, two decisions from the Ninth Circuit offer

helpful guidance. In Torrisi, the Ninth Circuit held that notice provided to

shareholders thirty-one days before the deadline for written objections and forty-

five days before the fairness hearing was adequate under the Due Process Clause

and Rule 23, despite the fact that nearly one-third of the 113,000 class members

held their shares in street name. 8 F.3d at 1373, 1375. In so doing, the court

noted that

the question before us today is not whether some individual
shareholders got adequate notice, but whether the class as a whole
had notice adequate to flush out whatever objections might
reasonably be raised to the settlement. If an individual shareholder
later claims he did not receive adequate notice and therefore should
not be bound by the settlement, he can litigate that issue on an
individual basis when the settlement is raised as a bar to a lawsuit he
has brought. 12

12
We expressly left open the possibility of individual class members
(continued...)

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Torrisi, 8 F.3d at 1375. As further support, the Torrisi court pointed out that a

number of “street name” shareholders actively participated in the litigation, filing

objections and participating in the settlement hearing, tending to indicate that

street name shareholders received fair notice despite the fact that only thirty-one

days elapsed between the initial mailing and the objection deadline. Id. at 1375

n.2.

Similarly, the Ninth Circuit has also concluded that due process and Rule

23 were satisfied even when it was undisputed that a nominee forwarded nearly

one-sixth of the settlement notices to beneficial owners after the opt-out deadline.

See Silber v. Mabon, 18 F.3d 1449, 1452, 1454 (9th Cir. 1994). In Silber, the

initial round of settlement notices were sent out to approximately 1,000 individual

shareholders (identifiable in the company’s records) forty days prior to the opt-out

deadline. Id. Based on information from nominees, the settlement administrator

then sent out over 5,000 additional notice packets to beneficial owners, either

directly or by providing the packets to nominees for forwarding. Id. One of the

nominees, PaineWebber, did not even request notice packets until just eight days

before the opt-out deadline. Id. The settlement administrator sent these packets

12
(...continued)
bringing a due process claim based on lack of individual notice in a collateral
effort to challenge the binding effect of the settlement as to them. Integra I, 262
F.3d at 1111 & n.18.

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to PaineWebber on the day of the opt-out deadline, which then sent them to the

beneficial owners. Id. While the objector in Silber received his notice after the

opt-out deadline, he did receive notice approximately eleven days prior to the

fairness hearing at which he appeared and unsuccessfully requested to opt-out. 13

Id. Holding the notice procedures sufficient under due process and Rule 23, the

court noted that

[w]hile [the objector] was fortuitously unable to exercise his right to
opt out in a timely fashion, that fact alone does not mean that the
best practicable notice under the circumstances was not given to
absent class members. As the procedures in this case for notice to
beneficial owners through brokerage houses conformed to [prior
precedent], we affirm the judgment.

Id. at 1454.

B. Analysis

Appellants’ central claim on appeal is that the record indicates that 70.7%

of the class members received fewer than thirty-two days’ notice. This fact, while

supported in the record, however, does not render the instant notice program

deficient under the Due Process Clause or Rule 23.

Appellants derive the “70.7%” figure from the following facts: (1) An

initial mailing of 37,081 notice packets was sent on October 31, 2003 (thirty-two

days before the deadline) to various individuals and entities; (2) then, at some

13
See fn. 14, infra.

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point before December 2, 2003 (the opt-out deadline), an additional 89,426 notice

packages were sent out to beneficial owners. Therefore, a total of 126,507 notice

packages were mailed to shareholders with 89,426 (or 70.7%) of them sent

sometime after the initial wave of mailings on October 31, 2003 but before

December 3, 2003, one day after the deadline for opt-outs and written objections

and nearly two weeks before the settlement hearing. Of these 89,426 packages,

we also know that 56,078 packages were mailed by Gilardi directly to potential

class members (presumably from lists provided by nominees), and 33,342

packages were sent in bulk to nominees (for the nominees to forward on to their

clients).

Notably absent from the record, however, is any evidence indicating

whether anyone other than Appellants received their notice after the deadline for

objections and opt-outs or the settlement hearing. Indeed, Appellants conceded

below (and thus would be bound to concede here) that it was possible for

beneficial owners of nominee accounts to have received the notice as many as

fourteen days prior to the objection deadline.

Appellees rely heavily on Torrisi, arguing that since a thirty-one-day notice

period was deemed appropriate even though there were a substantial number of

beneficial shareholders there who had to have notice passed on to them, the

thirty-two-day period in the instant case must also be permissible. However, it is

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worth pointing out that the percentage of beneficial owners in Torrisi is

substantially less than it is here. In Torrisi, only one-third of the class members

were contacted after the initial mailing based on names provided by nominees. 8

F.3d at 1374-75. Here, in contrast, the vast majority of shareholders (indeed

70.7% of them) held their shares beneficially. But like Torrisi, “the question

before us today is not whether some individual shareholders got adequate notice,

but whether the class as a whole had notice adequate to flush out whatever

objections might reasonably be raised to the settlement.” 8 F.3d at 1375.

In Silber, the proportion of beneficial owners not included in the initial

mailing was closer to eighty-three percent. See 18 F.3d at 1452 (initial mailing

sent to approximately 1,000 shareholders, and an additional 5,000 mailings were

sent to beneficial owners sometime thereafter). Thus, even when a substantial

number of class members hold their shares in street name only, courts have found

a notice scheme similar to the one in the instant case sufficient and have not

required a sixty- or ninety-day notice period, as Appellants suggest.

Accordingly, we believe that in the instant case, particularly given the

absence of any evidence that anyone other than Appellants received their notice

after the deadline for objections or the settlement hearing, the initial and

secondary rounds of mailings were sufficient to flush out any objections that

might arise to the fairness of the settlement. Indeed, the only substantive

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argument Appellants sought to raise if permitted to intervene—that the attorneys’

fees were excessive—was specifically considered and rejected at the settlement

hearing.

Furthermore, even if we accept as true Appellants’ unsubstantiated

assertion that “thousands of class members received their notice packet too late to

respond,” this does not necessarily mean that the notice program violated Rule 23

or the Due Process Clause. In Silber, the court found the notice scheme to be

sufficient even when it was undisputed that 1,000 of the notices, or approximately

seventeen percent, were sent out after the opt-out deadline. 18 F.3d at 1453-54.

Here, it is undisputed that all of the notices were sent out nearly two weeks prior

to the settlement hearing, and it is likely that a large number of the notices were

sent out much earlier than that.

CONCLUSION

We hold that the instant class action notice program satisfies the

requirements of the Due Process Clause and Rule 23. Because the district court

correctly reached this conclusion, it was not an abuse of discretion for the court to

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deny Appellants’ motion to intervene. 14 We AFFIRM.

14
We note that the instant case deals only with class-wide determinations of
fairness and due process. Appellants here do not seek individually to opt-out of
the settlement or in any other way attempt to avoid its binding effect. If this were
Appellants’ objective, the lack of actual notice as to them may have some due
process implications. We express no view, however, as to whether individual
members of the class might be able to establish a lapse in due process because
they lacked actual notice of the action, such that they might successfully
challenge the binding effect of the settlement against them in a collateral action.
See Integra I, 262 F.3d at 1111 n.18. Relevant to any such analysis might be the
fact that the stockholders who chose to hold their share in street name do so at
their own volition in reliance upon the nominee to protect their interests. This is
not to suggest that the class representative can ignore that fact, but it may be a
factor to consider in the mix.

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