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decided: October 20, 1978.


Nos. 962 and 963 April Term. 1976, Appeals from the Orders dated June 24, 1976, of the Court of Common Pleas of Allegheny County at No. 2781 January Term, 1972.


Judd N. Poffinberger, Jr., and Gerald S. Lesher, Pittsburgh, for appellants.

Michael P. Malakoff, Pittsburgh, for appellees.

Watkins, President Judge, and Jacobs, Hoffman, Cercone, Price, Van der Voort and Spaeth, JJ. Watkins, former President Judge, and Hoffman, J., did not participate in the consideration or decision of this case.

Author: Price

[ 259 Pa. Super. Page 40]

This action was commenced by the filing of a complaint in equity by thirty-six named plaintiffs on behalf of themselves and all similarly situated mortgage borrowers against twenty-nine lending institutions.*fn1 The plaintiffs sought various relief on claims arising out of the lending institutions' requirement that mortgagors pay, in addition to amounts due

[ 259 Pa. Super. Page 41]

    for principle and interest each month, an amount equal to one-twelfth of the aggregate annual real estate taxes and hazard insurance premiums, hereinafter termed escrow payments.*fn2 The lending institutions involved pay no interest on these escrow payments.

Plaintiffs originally alleged four theories in support of their cause of action. Preliminary objections, in the nature of demurrers, filed by most of the named defendants, were sustained by the lower court. On appeal, the supreme court reversed as to three of the counts, holding that plaintiffs had stated causes of action in trust, constructive trust, and implied contract.*fn3 The court affirmed the grant of the demurrer to the fourth count which charged a violation of the Truth in Lending Act.

On November 6, 1975, an order was entered by the Court of Common Pleas certifying the plaintiff class, establishing subclasses, and approving a proposed form of notice and procedures for service. Basically, the action was certified as a class action on behalf of all persons who had given or assumed mortgages to the various defendants on residential real property situated in the Pittsburgh SMSA*fn4 under agreements requiring mortgagors to make monthly escrow payments and who, since January 1, 1972, had made the payments but had not received "interest" for earnings derived from the use of the funds.

In December of 1975, the parties agreed to a proposed settlement of the claims. Petitions for the approval of the settlement were presented to the Court of Common Pleas of Allegheny County and to the United States District Court

[ 259 Pa. Super. Page 42]

    for the Western District of Pennsylvania, where a companion suit had been filed charging a conspiracy to adopt uniform practices in violation of the anti-trust laws.*fn5 A notice of the "Pendency and Proposed Settlement of Class Action" approved by both courts was mailed to those individuals whose mortgages had not been satisfied prior to January 1, 1972. Notice to individuals whose mortgages were satisfied prior to this date was by publication.*fn6

Joint hearings on the reasonableness of the proposed settlement were held before the common pleas and the district courts.*fn7 Ultimately, the hearing judge in the Court of Common Pleas of Allegheny County disapproved the settlement, redefined the class and imposed on the defendants the cost of notifying the enlarged class.*fn8

The first question presented is whether the order disapproving a class settlement is appealable as a final order. We conclude that it is appealable.*fn9

In Bell v. Beneficial Consumer Discount Company, 465 Pa. 225, 348 A.2d 734 (1975), our supreme court stated the following:

"With exceptions not relevant here the Appellate Court Jurisdiction Act gives the appellate courts of the Commonwealth jurisdiction over appeals only from 'final orders.' . . .

[ 259 Pa. Super. Page 43]

Whether an order is final and appealable cannot necessarily be ascertained from the face of a decree alone, nor simply from the technical effect of the adjudication. The finality of an order is a judicial conclusion which can be reached only after an examination if its ramifications. We follow the reasoning of the United States Supreme Court that a finding of finality must be the result of a practical rather than a technical construction. Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 546, 69 S.Ct. 1221, 1226, 93 L.Ed. 1528 (1949)" 465 Pa. at 227-28, 348 A.2d at 735 (footnotes omitted).

Cohen*fn10 established what is known as the "collateral order" doctrine. Under this doctrine, an order which does not place the parties out of court may still be appealable where the order disposes of a matter separate from the merits of the case and where the question is "too important to be denied review and too independent of the cause itself to require that appellate consideration be deferred until the whole case is adjudicated." Cohen, supra, 337 U.S. at 546, 69 S.Ct. at 1226; see also Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974).

By its very nature a settlement does not dispose of the case on the merits. Moreover, "[d]isapproval of the settlement is not a step toward final disposition and it is not in any sense an ingredient of the cause of action. In itself, the . . . [lower court's] order is final on the question of whether the proposed settlement should be given judicial approval." Norman v. McKee, 431 F.2d 769, 773 (9th Cir. 1970). It is obvious that the final resolution of this case will be extremely complicated and time consuming. Already, several years have passed and two appeals have been engendered since the commencement of this litigation. Moreover, if the case proceeded to verdict it is doubtful that an appellate court could review the settlement. Assuming the decision was reviewable at that time, it would be virtually

[ 259 Pa. Super. Page 44]

    impossible to frame a remedy for an abuse of discretion because the element of uncertainty inherent in a compromise would be eliminated.

As the supreme court stated in Dickinson v. Petroleum Conversion Corp., 338 U.S. 507, 511, 70 S.Ct. 322, 324, 94 L.Ed. 299 (1950), the ultimate determination involves a balancing between "the inconvenience and costs of piecemeal review on the one hand and the danger of denying justice by delay on the other." (Footnote omitted). "Considering again the length of trial in . . . [class action cases, we believe that] the right of the unnamed plaintiffs to fair representation may be infringed by the erroneous disapproval of a settlement." Norman v. McKee, supra at 774. We hold that orders disapproving class action settlements are appealable as final orders.

In substance, the proposed settlement differentiated between those individuals with mortgages outstanding on January 1, 1976, and those individuals who had satisfied mortgages between December 7, 1965, and January 1, 1976. As to the former group, the ...

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