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Sharail Reed et al v. United Teachers Los Angeles

August 10, 2012

SHARAIL REED ET AL., PLAINTIFFS AND RESPONDENTS,
v.
UNITED TEACHERS LOS ANGELES, DEFENDANT AND APPELLANT; LOS ANGELES UNIFIED SCHOOL DISTRICT ET AL., DEFENDANTS AND RESPONDENTS.



APPEAL from a judgment of the Superior Court of Los Angeles County. William F. Highberger, Judge. (Los Angeles County Super. Ct. No. BC432420)

The opinion of the court was delivered by: Ashmann-gerst, J.

CERTIFIED FOR PUBLICATION

Reversed and remanded.

United Teachers Los Angeles (UTLA) appeals a judgment entered upon a consent decree after the trial court conducted a fairness hearing and gave the consent decree final approval.*fn1 The consent decree was reached between the Los Angeles School District (District), the Partnership for Los Angeles Schools (Partnership) and students (Students) from three of the District's schools (Three Schools)*fn2 to resolve claims that teacher lay-offs had disproportionately and adversely impacted the Students' constitutional and statutory rights to equal educational opportunities, and that additional lay-offs would exacerbate the harm. According to UTLA, the consent decree potentially abrogates the seniority rights of its members and it is entitled to a decision on the merits of the Students' claims as a matter of federal due process. In the alternative, it contends that the trial court lacked the authority under Code of Civil Procedure section 664.6 to enter the judgment. We agree on both counts. The judgment is reversed and the matter is remanded for further proceedings.

FACTS

The Education Code and the collective bargaining agreement between the District and its teachers generally require that when the District reduces its teaching force for budgetary reasons, lay-offs must be based on seniority.*fn3 In the summer of 2009, the District faced a budget shortfall and implemented a reduction in force (RIF) and laid-off temporary and probationary teachers. Because the Three Schools employed a high number of new teachers, the 2009 RIF caused the Three Schools to lose up to two-thirds of their teachers. Other schools in the District did not suffer the same fate. For the 2009-2010 school year, vacancies at the Three Schools were filled with substitute teachers. In the spring of 2010, the District again faced a budget shortfall. It proposed a second RIF that would include permanent as well as probationary teachers.

The Students sued the District and the State of California on the theory, inter alia, that RIFs deny them the constitutional right to equal educational opportunities.*fn4 UTLA and the Partnership were joined as indispensable parties and named as defendants. To prevent further lay-offs at the Three Schools, the Students requested a preliminary injunction. After hearing evidence, the trial court found that "[h]igh teacher turnover devastates educational opportunity" and that RIFs have a "real and appreciable impact on [the Students'] fundamental right to equal educational opportunity." The District was preliminarily enjoined from laying off teachers at the Three Schools.

The Students, the District and the Partnership (settling parties) negotiated a consent decree entitled "Intervention Program For Targeted Schools" (consent decree). It contained the following salient terms: (1) targeted schools are defined as (a) 25 schools to be identified by the District using various statistics, (b) up to 20 schools that the District "determines are likely to be negatively or disproportionately affected by teacher turnover," and (c) the Three Schools;*fn5 (2) in the event of a RIF, the District will skip teachers at the targeted schools; and (3) to minimize negative consequences at other schools as a result of skipping teachers at the targeted schools, the District will ensure that no other school is impacted greater than the District average.

Over UTLA's objection, the trial court approved the consent decree after conducting a fairness hearing and finding that the consent decree was fair, reasonable and adequate. Judgment was rendered pursuant to the terms of the written order of final approval.

This timely appeal followed.

DISCUSSION

UTLA and the settling parties agree that the trial court did not decide the merits of the Students' claims and that, for purposes of this appeal, the consent decree potentially affected the seniority rights of UTLA's members. While UTLA argues that it was entitled to a decision on the merits, the settling parties argue that due process was satisfied by the fairness hearing.

The law supports UTLA.

I. Due process requires a decision on the merits.

The United States Supreme Court has instructed that the contract, statutory or constitutional rights of a party who intervenes or is joined in a lawsuit are entitled to no less respect than the rights asserted by the persons who originated a lawsuit. (Flight Attendants v. Zipes (1989) 491 U.S. 754, 765 (Zipes).) Thus, in W. R. Grace & Co. v. Rubber Workers (1983) 461 U.S. 757, 771 (W.R. Grace), the court held that "[a]bsent a judicial determination," the Equal Employment Opportunity Commission and an employer could not "alter [a] collective-bargaining agreement without" an affected union's consent. (W.R. Grace, supra, at p. 771.) The court noted that "[p]ermitting such a result would undermine the federal labor policy that parties to a collective-bargaining agreement must have reasonable assurances that their contract will be honored. [Citation.] Although the ability to abrogate unilaterally the provisions of a collective-bargaining agreement might encourage an employer to conciliate with the Commission, the employer's added incentive to conciliate would be paid for with the union's contractual rights." (Ibid.) Then, in Firefighters v. Cleveland (1986) 478 U.S. 501, 529 (Local Number 93), the court held that a trial court's "approval of a consent decree between some of the parties therefore cannot dispose of the valid claims of non-consenting intervenors; if properly raised, these claims remain and may be litigated by the intervenor."*fn6 In our view, these cases ineluctably establish that neither a consent decree nor a trial court's approval of a consent decree can abrogate a third party's rights. The only permissible inference from these holdings is that a third party is entitled to a decision on the merits. There is no other way for the courts to provide equal respect to settling parties' rights and the rights of non-settling intervenors as the Supreme Court has mandated by its decision in Zipes. Our understanding of Supreme Court precedent is bolstered by Martin v. Wilks (1989) 490 U.S. 755 (Martin). In Martin, the court cited Local Number 93 as support for this statement: "A voluntary settlement in the form of a consent decree between one group of employees and their employer cannot possibly 'settle,' voluntarily or otherwise, the conflicting claims of another group of employees who do not join in the agreement. This is true even if the second group of employees is a party to the litigation." (Martin, supra, 490 U.S. at p. 768.)

W.R. Grace, Local Number 93 and Zipes represent the trend regarding the dictates of procedural due process under the federal Constitution. (People v. Bradley (1969) 1 Cal.3d 80, 86; Moon v. Martin (1921) 185 Cal. 361, 366.) That trend is amplified by lower federal decisions.

In U.S. v. City of Hialeah (11th Cir. 1998) 140 F.3d 968, 983 (Hialeah), the United States negotiated a consent decree with a city to remedy alleged racial discrimination in the hiring of firefighters and police officers. (Hialeah, supra, at p. 971.) The parties to the settlement sought approval based on a prima facie showing of discrimination. The respective unions objected and the district court refused to approve the consent decree because it contained retroactive seniority provisions that conflicted with the employees' contractual seniority rights. (Ibid.) The Eleventh Circuit affirmed. It held that case law does not allow "an objecting party's rights to be dispensed with upon nothing more than a prima facie showing of discrimination. Proof at trial is required." (Id. at p. 978.)

When deciding Hialeah, the Eleventh Circuit relied on the en banc decision of the former Fifth Circuit in United States v. City of Miami, Fla. (5th Cir. 1981) 664 F.2d 435 (City of Miami). City of Miami held that "a decree disposing of some of the issues between some of the parties may be based on the consent of the parties who are affected by it but that, to the extent the decree affects other parties or other issues, its validity must be tested by the same standards that are applicable in any other adversary proceeding." (Id. at p. 436.) It added that a "party potentially prejudiced by a decree has a right to a judicial determination of the merits of its objections" and that those "who seek affirmative remedial goals that would adversely affect other parties must demonstrate the propriety of such relief." (Id. at p. 447.) The court reversed the portion of a consent decree that affected the rights of an objecting party and remanded "for trial of the complaint." (Id. at p. 436.)*fn7

The consent decree in City of Miami contained numerous provisions impacting a city's employees. But the lead opinion left most of those provisions intact because there was no objection or they did not affect the employees represented by the appellant, the Fraternal Order of Police (FOP). Per the lead opinion, the FOP had limited standing to challenge a provision in the consent decree pertaining to promotions. (City of Miami, supra, 664 F.2d at p. 445.) Thus, the lead opinion stated: "The provisions of the court's decree shall be modified to provide that it does not affect the promotion of members of the Police Department. As thus restricted, we affirm its re-entry upon remand. The case is remanded, in addition, for further proceedings, consistent with this opinion, to determine whether the United States has the right to claim any relief concerning police promotion. If, at trial, the United States can prove that the City has discriminated against black, Spanish-surnamed, or female police officers, or that the City has so discriminated in its employment policy as to prejudice their opportunities for promotion, and that affirmative action in favor of the affected class is appropriate remedial action, the United States may seek such relief, including reimposition of the contents of paragraph 5(c) [of the consent decree]. The FOP shall, of course, be afforded the opportunity either to contend that discrimination, the necessary predicate for relief, has not been proved, or to show that the type of relief embodied in paragraph 5(c) is, in this instance, unnecessary, inadvisable, or unconstitutional." (Id. at p. 448.)

Eleven judges concurred in the lead opinion. But they dissented insofar as the lead opinion did not grant the broader relief of reducing the consent decree to a preliminary injunction pending a trial on the merits. In other words, the concurring and dissenting opinion agreed that the FOP was entitled to a trial regarding the promotion provision but disagreed that the rest of the consent decree could be confirmed based on the FOP's lack of standing or objection.*fn8 (City of Miami, supra, 664 F.2d at pp. 448-453 (conc. & dis. opn. of Gee, J.).)

Both Hialeah and City of Miami require a decision on the merits.

The Ninth Circuit is in accord. In U.S. v. City of Los Angeles, Cal. (9th Cir. 2002) 288 F.3d 391, 400 (City of Los Angeles), the Ninth Circuit cited W.R. Grace, Local Number 93, City of Miami and Hialeah and stated: "Except as part of court-ordered relief after a judicial determination of liability, an employer cannot unilaterally change a collective bargaining agreement as a means of settling a dispute over whether the employer has engaged in constitutional violations." (See also U.S. v. State of Oregon (9th Cir. 1990) 913 F.2d 576, 582, fn. 4 (Oregon) ["If a remedy is sought against a non-consenting party, the matter must be remanded for trial"].)*fn9 The Tenth Circuit has followed suit, as demonstrated by Johnson v. Lodge # 93 of Fraternal Order of Police (10th Cir. 2004) 393 F.3d 1096, 1109 (Johnson). The Johnson court cited Hialeah and City of Miami with approval and stated: "[A] non-consenting intervenor may block approval of a consent decree only if the decree adversely affects its legal rights or interests. [Citations.]" (Johnson, supra, 393 F.3d at p. 1107.) Previously, in Sanguine, Ltd. v. U.S. Dept. of Interior (10th Cir. 1986) 798 F.2d 389, 391 the Tenth Circuit held that if an objecting union's rights are "resolved by consent decree and not adversary litigation, [the] case presents a unique situation in which prejudice to the [union] can be avoided only by setting aside the prior judgment and allowing the opportunity to litigate the merits of the case."

In Kirkland v. N.Y. State Dept. of Correc. Services (2nd Cir. 1983) 711 F.2d 1117, 1126-1127 (Kirkland), the Second Circuit cited City of Miami with approval. And in Wilder v. Bernstein (S.D.N.Y. 1986) 645 F.Supp. 1292 (Wilder), the district court cited Local Number 93 and stated that parties who choose to resolve litigation through settlement may not dispose of the claims of a third party without its consent. (Wilder, supra, at p. 1318.) Recently, citing Martin and Local Number 93, the Second Circuit stated: "[I]t is well settled that no voluntary settlement--whether entered as a consent decree, approved under [Federal Rules of Civil Procedure] Rule 23(e), or agreed to in private--can dispose of the claims of a non-consenting third party." (United States v. Brennan (2nd Cir. 2011) 650 F.3d 65, 118 (Brennan).) Thus, based on Kirkland, Wilder and Brennan, it is fair to say that the Second Circuit also interprets that law as requiring a decision on the merits.

Prior to W.R. Grace and Local Number 93, the rule in the Seventh Circuit was that a consent decree could abridge the pre-existing rights of third parties. (Metro. Housing v. Village of Arlington Heights (N.D.Ill. 1979) 469 F.Supp. 836, 851-852; E.E.O.C. v. American Tel. & Tel. Co. (3rd Cir. 1977) 556 F.2d 167 [a consent decree can affect third party rights]; Airline Stewards, Etc. v. American Airlines (7th Cir. 1978) 573 F.2d 960, 964 [the district court did not have a duty to litigate the merits of the plaintiffs' claims prior to approving a settlement that impacted the rights of other individuals].) Then, in 1992, the Seventh Circuit cited W.R. Grace, Local Number 93 and other cases and stated that "'parties who choose to resolve litigation through settlement may not dispose of the claims of a third party, and a fortiori may not impose duties or obligations on a third party, without that party's agreement.' [Citation.] [Citations.] In particular, they may not alter collective bargaining agreements without the union's assent. [Citation.] Neither may litigants agree to disregard valid state laws. [Citations.]" (People Who Care v. Rockford Bd. of Educ. (7th Cir. 1992) 961 F.2d 1335, 1337 (People Who Care).) Ultimately, the Seventh Circuit held that "before altering the contractual (or state-law) entitlements of third parties, the court must find the change necessary to an appropriate remedy for a legal wrong. Even if this finding may come on abbreviated proceedings (a subject we have not decided), there must be such a finding." (Id. at p. 1339.) In People Who Care, the Seventh Circuit did not specify the nature of the proceeding required for abrogating a third party's rights. Nonetheless, it is in line with W.R. Grace and Local Number 93 insofar it requires a finding of a legal wrong and therefore necessarily requires a decision on the merits of the plaintiff's claims.

The settling parties argue that multiple lower federal cases have interpreted the Due Process Clause as requiring much less than Hialeah and City of Miami. Based on our reading, we cannot concur.

In Dennison v. Los Angeles Dept. of Water & Power (9th Cir. 1981) 658 F.2d 694 (Dennison), an employee sued an employer for race discrimination on behalf of himself and other minority employees. The parties negotiated a consent decree that required the employer to implement an affirmative action program. After a fairness hearing, and after the district court heard the views of an objecting union, the consent decree was approved. Subsequently, the union sued the employer to recover compensation for nonminority employees who were denied promotions because of the consent decree. The district court granted summary judgment for the employer. The Ninth Circuit affirmed the summary judgment and held that "the district court's decision on the ground that the present action is an impermissible collateral attack." (Id. at p. 695.) In addition, the court noted that "the [f]airness [h]earing held before the consent decree was formally adopted adequately afforded the union an opportunity to present to the court its view of the adverse impact of the decree on non-minority employees." (Id. at p. 696.)

Two reasons dissuade us from reading Dennison as permitting a trial court to abrogate a non-settling party's contractual or statutory rights based upon a mere finding that a consent decree is fair. To begin with, it predates W.R. Grace and Local Number 93 and those cases are controlling. Additionally, the consent decree in Dennison did not abrogate specific and affirmative contractual or statutory promises of promotion that had been given to the nonminority employees through a collective bargaining agreement or by a legislative body. In other words, they did not possess a legally enforceable right to receive promotions. At most, the nonminority employees had an expectation of receiving promotions under a discriminatory practice. (See Vanguards of Cleveland v. City of Cleveland (6th Cir. 1985) 753 F.2d 479, 484-485 ["Since non-minorities do not have a legally protected interest in promotions which could only be made pursuant to discriminatory employment practices, it follows that the legal rights of non-minorities will not be adversely affected by reasonable and lawful race-conscious hiring or promotional remedies"].) Here, subject to exception, UTLA's members were granted seniority rights by contract and statute. Those rights are not on par with the expectation of the nonminorities in Dennison.

Johnson held that a union lodging an objection to a consent decree was entitled to nothing more than a fairness hearing. (Johnson, supra, 393 F.3d at p. 1096.) The consent decree in that case, however, did not alter the union's contractual rights, and the court therefore held that W.R. Grace did not require a judicial determination. (Johnson, supra, at pp. 1105, 1109.) The court recognized two distinct rules. Number one, an objecting party without any rights at stake "'is entitled to present evidence and have its objections heard at the hearings on whether to approve a consent decree, [but] it does not have power to block the decree merely by withholding its consent.' [Citation.]" (Id. at p. 1107.) Number two, "a consent decree may not impose duties or obligations on an intervenor that does not consent to settlement, nor dispose of valid claims the party has under the Constitution, a statute, or contract. [Citation.]" (Ibid.) While the facts of Johnson invoked the former rule, the facts of this case invoke the latter. Subsequently decided cases can be similarly parsed.

The Oregon court held that the district court did not have to conduct a full evidentiary hearing before approving a conservation plan akin to a consent decree. But Oregon, like Johnson, involved a settlement that did not abrogate the contractual rights of third parties. (Oregon, supra, 913 F.2d at pp. 582-583 & fn. 6 [the objecting parties asserted an interest in preserving natural resources].) U.S. v. Comunidades Unidas Contra La Contaminacion (1st Cir. 2000) 204 F.3d 275, 279 (Comunidades) falls into the same camp. The trial court did not have to hold an evidentiary hearing because the objecting party only claimed that an environmental consent decree did not sufficiently protect the environment. (Ibid.) Oregon and Comunidades do not apply when contractual or statutory rights are at stake.

An intervenor objected to a class action settlement in Lelsz v. Kavanagh (N.D. Tex. 1991) 783 F.Supp. 286 (Lelsz) and appealed when the settlement was approved. Lelsz acknowledge that pursuant to Local Number 93, parties who settle litigation "'may not dispose of the claims of a third party . . . without that party's agreement.' [Citation.]" (Lelsz, supra, at pp. 291-292.) Despite that rule, the intervenor lost on appeal. The intervenor was permissive and it was "not at all clear" what contractual interests or rights the intervenor was asserting. (Id. at p. 293.) The court held that that the intervenor was not entitled to block the settlement because it did not have a sufficiently strong interest under Local Number 93 and Zipes. (Lelsz, supra, at p. 294 ["[the intervenor's] interest in the Implementation Agreement alone, though it entitles [the intervenor] to be heard on the reasonableness and legality of the settlement, is not so strong as to require its consent to the settlement"].) Thus, the district court recognized that a sufficiently strong interest required a different procedure than a fairness hearing. It bears pointing out, as well, that the Lelsz court is in the Fifth Circuit. As a district court, it was bound by the Fifth Circuit's decision in City of Miami. There is no suggestion in Lelsz that it was purporting to depart from precedent.

When the First Circuit decided Durrett v. Housing Authority of City of Providence (1st Cir. 1990) 896 F.2d 600 (Durrett), it cited City of Miami and stated that "if third parties will be affected" by a settlement, the court must ensure "that it will not be unreasonable or legally impermissible as to them. [Citation.]" (Durrett, supra, at p. 604.) Nonetheless, Durrett reversed an order denying approval of a proposed consent decree because, in part, "[n]o protesting third parties have appeared" and there was "no suggestion, or basis for one, that the proposed [consent] decree would violate any law." (Ibid.) Durrett cannot be read as disagreeing with the holdings of the Supreme Court or other circuits.

Simply put, the settling parties have not cited any lower federal decisions that change our perception of the trend as stated in W.R. Grace and Local Number 93. Even if case law did not establish a trend, we would adopt the reasoning of Hialeah and City of Miami as the law of California because those cases properly recognized that the rights of a non-settling party should be given no less respect than the rights of parties who negotiate a consent decree. In other words, all parties should have the right to either voluntarily compromise a claim or litigate.

II. The trial court did not decide the merits at the fairness hearing.

Though the parties agree that a fairness hearing is not a decision on the merits, it is important to contextualize the nature of the fairness hearing that transpired below. As noted by Justice Rehnquist in his dissent in Ashley v. City of Jackson, Miss. (1983) 464 U.S. 900, 902 [dissenting from the denial of certiorari], "The central feature of any consent decree is that it is not an adjudication on the merits. The decree may be scrutinized by the judge for fairness prior to his approval, but there is no contest or decision on the merits of the issues underlying the lawsuit." The Ninth Circuit, in Oregon, explained that at a fairness hearing, the court "should not determine [the] contested issues of fact that underlie the dispute." (Oregon, supra, 913 F.2d at p. 582.)*fn10 A review of the California Rules of Court and relevant case law prove that this is the rule in our state.

Parties who settle a class action may move the trial court for preliminary approval of the settlement. (Cal. Rules of Court., rule 3.769(c).) If preliminary approval is granted, the trial court must order that notice of the final approval hearing be given to members of the class. (Cal. Rules of Court., rule 3.769(e).) Before final approval can be granted, the trial court must first conduct an inquiry into the fairness of the proposed settlement. (Cal. Rules of Court., rule 3.769(g).)

The trial court has broad discretion to determine whether a class action settlement is fair. It should consider factors such as the strength of plaintiffs' case; the risk, expense, complexity and likely duration of further litigation; the risk of maintaining class action status through trial; the amount offered in settlement; the extent of discovery completed and the stage of the proceedings; the experience and views of counsel; the presence of a governmental participant; and the reaction of the class members to the proposed settlement. (Nordstrom Com. Cases (2010) 186 Cal.App.4th 576, 581 (Nordstrom); Dunk v. Ford Motor Co. (1996) 48 Cal.App.4th 1794, 1801.) But the "list of factors is not exclusive and the court is free to engage in a balancing and weighing of factors depending on the circumstances of each case. [Citation.]" (Wershba v. Apple Computer, Inc. (2001) 91 Cal.App.4th 224, 245 (Wershba).) In sum, the trial court must determine that the settlement was not the product of fraud, overreaching or collusion, and that the settlement is fair, reasonable and adequate to all concerned. (Nordstrom, supra, at p. 581.)

The burden is on the proponent of the settlement to show that it is fair and reasonable. (Wershba, supra, 91 Cal.App.4th at p. 245.) However, there is a presumption of fairness when: (1) the settlement is reached through arm's-length bargaining; (2) investigation and discovery are sufficient to allow counsel and the trial court to act intelligently; (3) counsel is experienced in similar litigation; and (4) the percentage of objectors is small. (Ibid.)

Consistent with these rules, the lengthy written order (order) after the fairness hearing confirms that the trial court issued a discretionary ruling on the fairness of the ...


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