TIMOTHY W. HILL, on behalf of himself and all others similarly situated; PUBLIC EMPLOYEES' RETIREMENT SYSTEM OF MISSISSIPPI; UNION ASSET MANAGEMENT HOLDING AG; PENSION FUND GROUP, Plaintiffs, Appellees,
STATE STREET CORPORATION; GOLDMAN, SACHS & CO.; MORGAN STANLEY & CO, INC.; CREDIT SUISSE SECURITIES (USA), LLP; LEHMAN BROTHERS INC.; UBS SECURITIES, INC.; KENNETT F. BURNES; PETER COYM; NADER F. DAREHSHORI; AMELIA C. FAWCETT; DAVID P. GRUBER; LINDA A. HILL; CHARLES R. LAMANTIA; MAUREEN J. MISKOVIC; RICHARD P. SERGEL; RONALD L. SKATES; GREGORY L. SUMME; ROBERT E. WEISSMAN; RONALD E. LOGUE; EDWARD J. RESCH; PAMELA D. GORMLEY; ERNST & YOUNG, LLP, Defendants, Appellees, CHARLES F. FRANZ; NITA W. FRANZ, Interested Parties, Appellants
APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS. Hon. George A. O'Toole, Jr., U.S. District Judge.
John C. Browne, Bernstein Litowitz Berger & Grossman LLP, William H. Narwold, and Motley Rice LLC on brief for lead plaintiffs-appellees Public Employees' Retirement System of Mississippi and Union Asset Management Holding AG.
Christopher T. Cain and Scott & Cain on brief for interested parties Charles F. Franz and Nita W. Franz.
Before Thompson, Lipez, and Kayatta, Circuit Judges.
KAYATTA, Circuit Judge.
This appeal arises out of the settlement of a securities class action brought on behalf of all who purchased the common stock of State Street Corporation during a period of just over three years. In settling the case, the lead plaintiff and plaintiff's counsel agreed with defendants that some class members would be deemed uninjured, and that others who were injured in amounts less than $10.00 would be paid nothing. They justified this sacrifice of the claims of small investors as reducing transaction costs in the interests of " the class as a whole," meaning in fact the interests of those class members with larger claims, class counsel, and defendants. 
The lead plaintiffs began distributing notice of the settlement (including the allocation plan, the right to opt out, and the right to object) on August 18, 2014, by mailing notice packets to over 7,000 potential class members and the nominee owners who held potential members' stock in street name. The notice plan was implemented in a manner that ensured that all large investors got ample notice of their right to opt out, and their right to object. For many small investors, though, there were foreseeable delays in forwarding the notices from the nominee owners to the investors. On September 4, 2014, the district court pushed back the final settlement hearing from October 27 to November 20. Nevertheless, the notices thereafter distributed continued to publish an objection deadline of October 6 and a hearing date of October 27. As a result, lead plaintiffs' counsel did not send individual notices directly to many small investors until a few days before, and in many cases after, the published deadline for opting out and for objecting.
Par for the course, virtually no one (even those who may have actually opened, read, and understood the notices) objected to the settlement. See generally Am. Law Inst., Principles of the Law: Aggregate Litigation § 3.05 cmt. a (2010) (hereinafter " ALI Principles" ) (" [A] settlement may raise serious fairness issues, but the amounts involved per class member may be so small that no class member has a sufficient incentive to object." ). Surprisingly, the only ones who both objected and appealed the rejection of the objection raise no complaint about the substance of the settlement, including either the allocation formula or the minimum allocation threshold, each of which has the effect of causing many class members to release their claims in return for no consideration of any type. Instead, the objectors who appeal voice only two complaints: (1) they were given too little time to register objections with the district court; and (2) the district court should not have approved the amount of attorneys' fees awarded to class counsel.
The district court rejected these objections in full. It was also sympathetic to the argument of the lead plaintiffs that any appeal would increase the costs of plaintiffs' counsel (who have received $10.2 million plus interest as part of the settlement) and postpone distribution of the proceeds to the class members. Citing our 1987 decision in Sckolnick v. Harlow, 820 F.2d 13 (1st Cir. 1987), the district court used Federal Rule of Appellate Procedure 7 to bar objectors from appealing unless they posted a bond in the amount of $75,300. To justify this order, the district court determined that any appeal from its rulings on the objections would be frivolous, and the bond amount would ensure there would be funds available to pay plaintiffs' counsel for their fees defending the frivolous appeal.
In Sckolnick, before allowing the bond requirement to stand, our court also conducted a " preliminary examination of the merits," concluding that " we cannot say that the district court abused its discretion
in judging [the appeal] to be frivolous." Id. at 15. Such a preliminary review is crucial in protecting against the possibility that a district court could effectively immunize its decisions from review by declaring any appeal frivolous. Cf. Azizian v. Federated Dep't Stores, Inc.,499 F.3d 950, 961 (9th Cir. 2007) (" [T]he question of whether, or how, to deter frivolous appeals is best left to the courts of appeals . . . . Allowing district courts to impose high Rule 7 bonds . . . risks impermissibly encumber[ing] appellants' right to appeal and effectively preempt[ing] this court's prerogative to make its own frivolousness determination." (second and third alterations in original) (citation and internal quotation marks omitted)). Here, a preliminary review left us less comfortable with any pre-judgment that the appeal would be frivolous. We therefore stayed the order to post ...