FIRST JUDICIAL DISTRICT COURT

COUNTY OF SANTE FE

STATE OF NEW MEXICO

 

 

FLOYD D. WILSON, for himself and all

others similarly situated,

 

Plaintiffs,

 

vs.                                                 Cause No. D0101 CV 9802814

 

NOTE:

MASSACHUSETTS MUTUAL LIFE                         THIS VERSION OF THESE

INSURANCE COMPANY,                                        OBJECTIONS HAS REDACTED

PERSONAL IDENTIFYING

Defendant.                                            INFORMATION ABOUT THE

OBJECTORS, BUT IS OTHERWISE

IDENTICAL TO THE OBJECTIONS

FILED WITH THE COURT

 

 

OBJECTIONS TO THE PROPOSED SETTLEMENT

OF JON SHELDON, JERRY PALMER,

DAVID WEINSTEIN, DANIEL BLINN, GREGORY

CHIARTAS, DOUGLAS DIXON AND RAPHAEL METZGER

 


COME NOW, objecting class members Jon Sheldon of Brookline, Massachusetts, Jerry Palmer of Topeka, Kansas, David Weinstein of Philadelphia, Pennsylvania, Daniel Blinn of Glastonbury, Connecticut, Gregory Chiartas of Charleston, West Virginia, Douglas Dixon of Houston, Texas and Raphael Metzger of Long Beach, California (collectively “the Sheldon Objectors”), through their counsel William Snead, and F. Paul Bland, Jr., Arthur H. Bryant, Leslie A. Brueckner and Michael Quirk of Trial Lawyers for Public Justice, and file these objections to the proposed Settlement Agreement between plaintiffs Floyd D. Wilson and the Estate of Leo W. Huppert (the “Named Class Representatives”) and defendant Massachusetts Mutual Life Insurance Co. (“Mass Mutual”).  These Objections shall also serve as the Sheldon Objectors’ notice that they intend to participate in this Court's fairness hearing through their counsel.[1]

INTRODUCTION AND SUMMARY OF ARGUMENT

In a hearing on a motion to compel earlier in this case, this Court made the following observation:

[A]fter all we really don’t want to enrich the attorneys.  This is for the class, right?  This is recovery for a class of people so we are in this for a group, right?

 

Transcript of Proceedings, July 9, 1999 (emphasis added).  This Court rightly set out what should be the governing principle here: the major purpose of the class action device is to represent and advance the interests of all of the class members, not to advance the interests of their lawyers and representatives.  Unfortunately, the settlement that has been reached in this case departs dramatically from that purpose.


First, although the defendant will pay out a minimum of $8.6 million in cash and possibly as much as $15 million under this proposed settlement, the deal as currently constructed permits class counsel and the class representatives to keep all of that money and give none of it to the absent class members.[2]  This arrangement is grossly unfair and unreasonable, and it falls well outside of the bounds of an acceptable settlement.  The settlement also releases all claims for roughly five million former policyholders,[3] but provides them with no relief -- either damages or injunctive relief -- whatsoever.  This is outrageous, unfair, and flatly contrary to law.


In addition, the settlement includes improper secrecy provisions.  First, the Settlement Agreement mentions the existence of a secret “Supplemental Agreement” between the settling parties that is sealed.  ¶ 1.24.  Class actions must be open, however, and the settling parties cannot resolve the rights of more than six million people around the nation and simultaneously have secret side dealings.  In addition, the agreement provides that all data regarding the extent to which the injunctive relief to be provided by the settlement affects Mass Mutual’s policyholders’ behavior will be kept secret.  ¶ 8.1.  This provision of the Settlement Agreement enshrines secrecy that makes a mockery of the thesis of plaintiff’s case -- that full disclosure about the additional premium for model payments is significant and valuable to consumers.

The Settlement Agreement also contains an overbroad release that both extinguishes the claims of millions of class members who will obtain no relief from this settlement and that purports to waive the rights of California class members under a statute that expressly bars such a release.

Finally, the Notice of the settlement misleadingly states that class members will not pay the huge attorneys’ fee requested in this case.  In fact, since Mass Mutual is a mutual insurance company, payment of an enormous attorney fee will likely have an appreciable economic cost on those class members who are still current Mass Mutual policyholders. 

For all these reasons, this Court should reject the proposed settlement as unfair and reject the propose attorneys’ fees and proposed incentive payments for the class representatives as excessive.

In addition, the Court should appoint new class counsel and class representatives in light of the inadequate representation by the current class counsel and the named class representatives.


STATEMENT OF FACTS

Facts About the Sheldon Objectors[4]

Jonathan Sheldon is a resident of Brookline, Massachusetts.  He has not opted out of this action.

Jerry Palmer is a resident of Topeka, Kansas.  He has not opted out of this action.

David H. Weinstein is a resident of Philadelphia, Pennsylvania.  He has not opted out of this action.

Daniel Blinn is a resident of Glastonbury, Connecticut.  He has not opted out of this action.

Gregory B. Chiartas is a resident of Charleston, West Virginia.  He has not opted out of this action.

Douglas Dixon is a resident of Houston, Texas.  He has not opted out of this action.

Raphael Metzger is a resident of Long Beach, California.  He has not opted out of this action.

Facts About the Settlement


The Settlement Agreement requires Mass Mutual to make new disclosures to current policyholders about their premium payment options.  ¶¶  2.2-2.5.  It makes no provision for any relief of any sort to past policyholders.  The settlement releases any and all claims that have been “or could have been” asserted in this case on behalf of all class members, however.  ¶ 3.6, referencing ¶ 1.3.  It also releases the claims of California class members under § 1542 of the California Civil Code.

The settlement agreement provides that class counsel intends to apply for, and Mass Mutual will not oppose or contest, attorneys fees as follows: (i) a $5 million cash payment; (ii) a $3 million life insurance policy in force for class counsel’s life; and (iii) an immediate 20 year certain annuity with an annual payment of $250,000 for life.  ¶ 4.1.

The settlement agreement provides that plaintiffs will apply for incentive payments of $250,000 to Floyd D. Wilson and $100,000 to the Estate of Leo W. Huppert.

Paragraph 8.1 of the settlement agreement provides that Mass Mutual will provide Class Counsel a verified written report including the number of policyholders who changed their method of premium payment after receiving the new disclosures, but provides that “Class Counsel shall receive this report on a confidential basis only and shall preserve the confidentiality of the information contained therein.”

Paragraph 1.14 of the Settlement Agreement recites that there is a “confidential supplemental agreement under seal with the Court and not mentioned as part of the public record.”


I.          THE SETTLEMENT IS NOT FAIR, REASONABLE OR ADEQUATE AND SHOULD BE DISAPPROVED.

 

The burden of proving the fairness of a proposed class action settlement is always on its proponents, without the benefit of any presumption to aid in meeting this burden.  See Newburg & Conte, 1 Newburg on Class Actions § 11.42, at 11-94 (3d ed. 1993) (citing, inter alia, In re General Motors Corp. Engine Interchange Litig., 594 F.2d 1106 (7th Cir.), cert. denied, 444 U.S. 870 (1979)).[5]  See also Gautreax v. Pierce, 690 F.2d 616, 630-31 (7th Cir. 1982); Blanchard v. Edgemark Financial Corp., 175 F.R.D. 293, 300 (N.D. Ill. 1997).

The court, meanwhile, has an independent duty to closely scrutinize class settlements to safeguard the rights of absent class members.   See Grunin v. Int’l House of Pancakes, 513 F.2d 114, 123 (8th Cir.), cert. denied, 423 U.S. 864 (1975).  In Amchem Products, Inc. v. Windsor, 117 S. Ct. 2231 (1997), similarly, the Supreme Court held that the rights of absent class members must be “the dominant concern” of the court, especially in the settlement context.  The Supreme Court held that courts should provide "undiluted, even heightened attention in the settlement context" to certain Rule 23 requirements in order "to protect absentees. . . .”

In connection with a motion to compel earlier in this case, the plaintiffs themselves highlighted the fact that this Court’s vigorous Rule 23(e) review of any settlement is the key safeguard of the rights of class members:


Defendant’s real argument is that, at the end of the litigation, Mr. Wilson and the undersigned might have a conflict of interest with the class because, in any settlement, they might accede to a lousy settlement for the class in return for defendant agreeing to pay the undersigned a large attorney fee and/or agreeing to pay Mr. Wilson an extraordinary representative plaintiff’s fee for the time and effort he devoted to the case.

 

The short answer to this attack on Mr. Wilson’s and the undersigned’s integrity, besides its utterly speculative character, is that it is not they who will determine the fairness of any settlement, but rather the Court under the mandate of Rule 23(E).

 

Plaintiff’s Response to Defendant’s Supplement to Motion to Compel at 3-4 (footnotes omitted).

As the plaintiffs appear to have recognized, class action settlements require a higher level of scrutiny than ordinary cases because there always exists a potential conflict of interest between the class and class counsel.  See Mars Steel v. Continental Ill. Nat. Bank & Trust, 834 F.2d 677, 681-2 (7th Cir. 1987).  Indeed, one of the key dangers inherent in class action settlements is that class counsel may accept a lower recovery for the class in exchange for larger attorneys’ fees.  See Richard A. Posner, An Economic Analysis of Law 570 (4th ed. 1992)(“the absence of a real client impairs the incentive of the lawyer for the class . . . [the lawyer] will be tempted to offer to settle with the defendant for a small judgment and a large legal fee”).  Because the risk of collusive settlements is much greater in class actions than in ordinary litigation, it is “imperative” that a trial judge conduct a “careful inquiry” into the fairness of a proposed class settlement.  Mars Steel 834 F. 2d 682.  "The primary purpose of Rule 23(e) is to protect class members . . . . whose rights may not have been given due regard by the negotiating parties."  Ficalora v. Lockheed Calif. Co., 751 F.2d 995, 996 (9th Cir. 1985).


A.        THE SETTLEMENT IS NOT FAIR TO THE ABSENT CLASS MEMBERS BECAUSE CLASS COUNSEL AND THE CLASS REPRESENTATIVES WILL COLLECTIVELY KEEP MILLIONS OF DOLLARS WHILE THE ABSENT CLASS MEMBERS RECEIVE NO MONEY WHATSOEVER.

 

1.                  It is Contrary to the Principles Governing Class Actions for Class Counsel to Take All of the Economic Value of the Case for Himself.

 

Mass Mutual is demonstrably willing to pay out a significant sum of money to settle this case, because it has agreed to pay class counsel the unusually high attorney fee described above.[6]  Putting aside for the moment the fact that Mass Mutual is a mutual insurance company (that issue is addressed in Part I-A-3 below), simple economics instruct that the huge sum devoted to the attorney fee necessarily comes from funds that could have gone to the class members.

The decision makers of Mass Mutual have determined that it made economic sense to settle this case for a certain economic value, or they would not have agreed to pay class counsel this huge fee.  From Mass Mutual’s standpoint as a defendant, there is no reason to prefer to pay a sum of this nature to class counsel than to the class members.  Once the decision was made to settle this case for $5 million immediately and another $8 million or so over time, the question became: “what is a fair and adequate division of this value between the class and their counsel?”


Class counsel has effectively proposed the following answer:  a fair division is for him to take almost 100% of the money and for the six million absent class members he represents to get none of it.  This answer is dramatically wrong and improper.  As this Court recognized in the passage quoted at the outset of these objections, the purpose of the class action device in our civil justice system is not to enrich the lawyers, but is instead to benefit persons who could not practically pursue their claims on an individual basis.  As the Supreme Court and the other authorities cited in the preceding section have noted, courts have an obligation under Rule 23(e) to closely scrutinize class action settlements to ensure that the goal of protecting the interests of absent class members is respected and implemented.

Class counsel’s answer – that he gets to keep all of the money – is contrary to basic principles of legal ethics.  In several states (and this is a nationwide class action, with class counsel claiming to represent plaintiffs from across the nation), it is normally a violation of the professional responsibility code for attorneys to charge a fee that exceeds their client's recovery.  See, e.g., Attorney Grievance Comm'n of Maryland v. Korotki, 569 A.2d 1224, 1233 (Md. 1990) ("Without passing upon whether there can ever be circumstances justifying a contingent fee in excess of fifty percent, it is generally a violation of the rule for the attorney's stake in the result to exceed the client's stake.") 


Class counsel’s proposed answer is also at odds with the law that has developed around class action settlements in recent years.  In one other case where the class counsel sought to take a fee greatly exceeding the economic benefit to the class, a court remonstrated:

A request for $6 million in attorneys’ fees where counsel has provided no more than $2 million in benefits to the class is astonishing.  It is a sad day when lawyers transmogrify from counselors into grifters.  Suffice it to say that we find the request unreasonable.

 

Strong v. BellSouth Telecomm., 173 F.R.D. 167, 172 (W.D. La. 1997) (emphasis added).  While the undersigned counsel could locate no reported cases where class counsel have attempted to take a multimillion dollar fee and provide no monetary benefits whatsoever to the absent class members, there are a number of reported cases where proposed settlements would provide hard cash to class counsel but only coupons or potentially ephemeral relief to the class members.  The growing trend in the courts to closely scrutinize such deals, and make sure that class members are getting hard economic value before awarding a rich fee to class counsel, is strong analogous support for the proposition that this settlement is improper.  Cf. Voege v. Ackerman, 67 F.R.D. 432, 436-37 (S.D.N.Y. 1975) (“the fee determination will be reserved until all claims of shareholders entitled to participate in the settlement have been filed and determined.”); Goodrich v. E.F. Hutton Group, Inc., 681 A.2d 1039, 1049 (Del. 1996) (basing attorneys' fee upon actual, not potential, benefit conferred); NACA Guidelines, 176 F.R.D. at 399 (in cases involving certificates and no minimum settlement level, class counsel should not request a percentage fee "until such time as the court can accurately assess the actual value of the settlement (i.e. after the deadline for class member claims [or] after the certificates expire).") 


2.                  This Settlement Is Significantly Out Of Keeping With What Is Usual and Acceptable In Cases Involving Settlements Worth Millions of Dollars.

 

Counsel for the Sheldon Objectors believe that there are very few if any cases in the jurisprudence of class actions where a defendant has paid out sums of money like those involved here and a court has allowed all of the money to go to class counsel and the class representatives.  In support of these objections, TLPJ is submitting affidavits from Beverly Moore and Stephen Gardner.  Mr. Moore, the editor of the respected Class Action Reports, is a nationally recognized authority on class actions who has collected and reviewed and reported on rulings and settlements in literally thousands of class actions over the last 25 years.  Moore Affidavit, attached as Exhibit 1 hereto, at ¶¶ 1-3.  He testifies that:

Even assuming that the disclosures/injunctive relief aspect of the settlement provide a legitimate benefit to settlement class members, the settlement appears to provide a disproportionate benefit to class counsel and the two named plaintiffs, who will receive all of the cash paid by defendant.  This type of disproportionate settlement structure has been criticized in numerous cases.

 

Exhibit 1 at ¶ 6 (footnotes omitted).


Mr. Gardner is also recognized as an expert on the ethics of class actions.  He has worked as an Assistant Attorney General in Texas and New York, has been an Assistant Dean at Southern Methodist University Law School, has lectured and written about class action issues, and has represented objectors in several precedent-setting cases of class action abuse.  He was a principal author of the National Association of Consumer Advocates’ Standards and Guidelines for Litigating and Settling Consumer Class Actions, 176  F.R.D. 375 (1998).   His testimony is to much the same effect as Mr. Moore’s.  Mr. Gardner testifies, “I have never seen a case that is settled for relief of this nature to class counsel and class representatives, compared to the absent class members.”  Exhibit 2 at ¶ 10.

A recent article written by two defense attorneys confirms the testimony of Mr. Moore and Mr. Gardner:

You should forget about certifying settlement classes where class counsel receives an attorneys’ fee award but class members receive no monetary distribution.  Courts are becoming increasingly diligent in protecting absent class members against what they perceive to be abuses of the class action device where class representatives and attorneys benefit at the expense of absent class members.

 

Benjamine Reed and D. Matthew Allen, 2 Class Action Litigation Report (BNA) No. 1 at 34 (Jan. 12, 1002) (emphasis added) (attached as Exhibit 3 hereto).

3.         It is Particularly Inappropriate for Class Counsel to Take All of the Economic Value of a Settlement In A Case Involving a Mutual Insurance Company.

 

Earlier in this case, plaintiff made the following point:  “Defendant conveniently ignores the fact that it is no ordinary insurance company.  It is a mutual insurance company, which means that its policyholders are its owners.  As such, Mass Mutual is the equivalent of a corporation and its policyholders are the equivalent of shareholders in Mass Mutual.”  Plaintiff’s Reply for Class Wide Partial Summary Judgment, October 10, 2000, at 23 (emphasis added).  Plaintiffs now have conveniently forgotten the mutual nature of this defendant in the settlement context, however.


Simply put, all of Mass Mutual’s policyholders – including all of the class members who are current policyholders – are owners of Mass Mutual.  If this settlement is approved and Mass Mutual pays out $5 million to class counsel now and another $8 million or so over time to class counsel, those funds will necessarily directly affect the level of retained earnings that the mutual company could otherwise pay in dividends to the policyholders.  As a result, class members not only will receive no money as a result of this class action, they will also collectively lose millions of dollars for the privilege of not having received any money.  As Mr. Moore testified, “Since Massachusetts Mutual is owned by its current policyholders, those class members will actually be paying the fee, as distinguished from some other class actions where the defendant pays the fee out of its own pocket.”  Exhibit 2 at ¶ 6, note 5.

4.         Any Claim that The Class Should Be Satisfied With a Disclosure Because The Injunctive Relief Is “More Important” Is Contrary to the Way that Plaintiffs Have Litigated This Case To Date.

 

While the settling parties have not yet put any significant justification for this settlement before the Court, it seems likely that class counsel will argue that it is appropriate for him to take all of the cash from this deal because the “important” thing here is the injunctive relief.  Such a claim, however, is entirely contrary to the way that this case has been litigated to date.


The plaintiffs have consistently sought damages throughout this litigation, and the pursuit of money damages has been a central element of this case.  In the Second Verified Complaint, ¶ 15 at 5, for example, plaintiff alleged that he is “entitled to recover from Mass Mutual the entire principal amount of money, which represents the fractional premium overcharges . . . for the six years preceding the filing of this action, altogether with all fractional premiums paid after the suit was filed.”  The plaintiff also stressed the damages claims in the pleadings related to the motion for class certification.[7]  After the class was certified, plaintiff proposed that this Court require Mass Mutual to send out a notice reciting that “Plaintiff has asked for damages against MASS MUTUAL in the amount of the total fractional premiums charged for the total period in which fractional premiums have been charged or for such shorter period as the Court may allow on the amount of the fractional premium charges that may be awarded as damages in this action.”

It was not just the plaintiffs who saw the damages as a major issue in this case.  Mass Mutual, similarly, argued that “Plaintiffs are predominantly seeking monetary damages. . . .”  Memorandum in Opposition to Plaintiffs’ Motion for Class Certification, September 8, 1999 at 69.


This Court also focused on the damages questions as being central to the case.  On November 15, 1999, this Court certified a class action for the purpose of the Plaintiff Class seeking a declaratory judgment, an injunction, and also “(c) damages in the amount of the total fractional premiums charged for the total period in which fractional premiums have been charged or for such shorter period as the Court may allow under the applicable statute of limitations; and (d) exemplary damages as may be awarded by the jury. . . .”  The next day, this Court awarded Named Class Representative Mr. Wilson a judgment “for an amount of money equal to the overpayments for the six years immediately preceding the date of filing of the complaint.”  Thus, the settling parties cannot reasonably argue that this case is solely about the injunctive relief provided in the proposed settlement, or that the failure to obtain any damages for the class is insignificant.

To turn at this point and say that the only thing that matters to the class is the disclosures would also be contrary to the nature of the particular disclosures involved here.  The disclosures that plaintiff has sought and that the Settlement Agreement provides all relate to money – they are disclosures about the size of the premiums for modal payments.  The essence of these disclosures are that money is important, and that people should know the worth that Mass Mutual puts on its time value.  Now in the context of this settlement, however, Class Counsel seeks to keep all of this important commodity for himself and to give none to his clients.


Finally, any argument that the injunctive relief is what is truly important would be is contrary to the way the Settlement Agreement treats that relief.  As set forth in the Statement of Facts, the Settlement Agreement makes secret all information about whether Mass Mutual’s policyholders will change their behavior as a result of these disclosures.  For the settling parties to tell this Court that the disclosures are all that matter (so it is alright for Class Counsel to take all of the money), and then simultaneously agree to keep “confidential” between themselves the only data from which one could determine whether the disclosures have any practical impact or not, is cynical at best.

B.        THE SETTLEMENT SHOULD NOT BE APPROVED BECAUSE IT PROVIDES NO RELIEF WHATSOEVER TO FORMER POLICYHOLDERS IN EXCHANGE FOR RELEASING ALL OF THEIR CLAIMS.

 


Not only does the settlement not provide any damages to any class member (while providing at least $8.25 million in fees to class counsel), but it grants no relief at all to former policy holders   Obviously, the new disclosures mandated by the settlement will not be of any use whatsoever to the five million class members who no longer have any relationship with the defendant.   In exchange for nothing, the settlement releases all of these class members’ claims for both damages and injunctive relief against Mass Mutual.  Even putting aside all the arguments raised above, this blatant discrimination against former policyholders renders the entire settlement fatally defective and unapprovable on its face.  See Norman v. McKee, 431 F.2d 769, 774 (9th Cir.  1970) (court disapproved settlement where “no consideration existed for part of the settlement.”) Cf.  Manual for Complex Litigation § 30.42 at 264-65 (3d ed.  1995) (one factor that may be taken into account in determining the settlement’s fairness is whether “particular segments of the class are treated significantly differently from others . . .”).

C.        THE SETTLEMENT SHOULD NOT BE APPROVED BECAUSE IT CONTAINS IMPROPER SECRECY PROVISIONS.         

 

The settlement also includes two unwarranted secrecy provisions that jeopardize class members’ rights and run counter to the public interest.  First, the settlement defines “Maximum Opt Out Number” as “the number contained in a confidential supplemental agreement filed under seal with the Court and not mentioned as part of the public record (the ‘Supplemental Agreement’)” (emphasis added).  Agreement at 4.  The existence of a confidential agreement violates the Local Rules of this Court, which specifically prohibit the filing of any sealed court records “except in extraordinary circumstances to be determined by the court.”   See LR1-208.[8]   The secret Supplemental Agreement also cannot be reconciled with the presumption of openness that applies to court records.  See, e.g., Hagestad v. Tragesser, 49 F.3d 1430, 1434 (9th Cir. 1995); Leucadia, Inc. v. Applied Extrusion Technologies, Inc., 998 F.2d 157, 165 (3rd Cir. 1993). See also Bingamen v.  Brennan, 98 N.M. 109, 645 P.2d 982 (1982) (common law right to inspect and copy judicial records may only be overcome under “extraordinary circumstances”).  It is an abuse of discretion for a trial court to seal court records without articulating a compelling reason for overcoming the public’s presumptive right to know.  Hagestad, 49 F.3d at 1434-35. 


In this case, to our knowledge, there has been no showing of any “extraordinary circumstances” or “compelling reasons” to justify nondisclosure of the terms of the Supplemental Agreement.  Nor, to our knowledge, has their been any specific court findings that compelling reasons exist for secrecy.   Absent such a showing and such findings, the sealing of any court records in this proceeding – let alone a Supplemental Settlement Agreement that could affect the rights of millions of Americans – is indefensible.  Even assuming, however, that adequate grounds exist for preventing the public at large from learning the terms of the Supplemental Agreement, there could be no justification for imposing secrecy on the actual class members whose rights are at stake in this litigation.

The Settlement also contains a provision that will effectively prevent the class members or the public from ever knowing the extent to which the new disclosures mandated by the settlement ultimately benefit the class.  Specifically, the Settlement  provides that

[b]y March 1, 2002, MassMutual will provide Class Counsel a verified written report that shall include the number of policyholders who, during calender year 2001, changed their method of premium payments from a policy basis (that it, monthly, quarterly or semiannually) to an annual basis.  Class Counsel shall receive this report on a confidential basis only and shall preserve the confidentiality of the information contained therein.

 

Settlement ¶ 8.1.  Pursuant to this provision, only class counsel and Mass Mutual will ever know whether the injunctive relief provided by the settlement has any affect at all on the policyholders’ behavior. 


Bluntly put, this makes no sense.  It is hard to imagine what justification either class counsel or Mass Mutual could offer for keeping this information secret.  But it is clear that the public – and, for that matter, the class itself – has a powerful interest in understanding the extent to which the new disclosures mandated by this settlement affect policyholders’ behavior.  Not only would insurance regulators likely benefit from this knowledge, but the impact of the new disclosures will provide insight into the value of the relief provided by this settlement.  This Court should not permit this crucial information to remain the exclusive property of the settling parties.  As Mr. Moore testifies, “By such secrecy the settlement value is inflated so that defendants can boast generosity and class counsel how modest their fees are in relation to the illusory class benefit.”  Exhibit 2 at ¶ 11.

D.        THE SETTLEMENT IS NOT FAIR BECAUSE THE RELEASE IS OVERLY BROAD.

The scope of the release is unreasonably broad.  First, as noted above, the release purports to extinguish all the claims of former policy holders, even though they receive no relief under the settlement.  Plainly, this will not do.


Second, the Settlement Agreement releases claims that class members might have based upon facts not yet even known or suspected.  Settlement Agreement at ¶ 3.6(b).  This provision also explicitly waives class members’ rights under a California statute designed to preserve such claims from being extinguished by general releases, blatantly  circumventing and sidestepping the protections built in by California law. There is no indication what sort of claims might be barred by this unusual and over-reaching provision.   The provision also cynically recites that the class members have “knowingly and voluntarily” waived these statutory rights, even though the provision waiving these rights is not contained in the Notice to the class and may only be found in a document (the Settlement Agreement itself) that is not provided to class members.  To claim that class members have “knowingly and voluntarily” agreed to something that 99% of them have not been actually informed about is to turn that phrase on its head.

E.         THE SETTLEMENT SHOULD NOT BE APPROVED BECAUSE THE NOTICE IS INADEQUATE.

 

As set forth above, the Notice in this case recites that class members will not pay class counsel’s attorneys’ fees.  As explained in Part I-B-3, however, Mass Mutual is a mutual insurance company, meaning that the current policyholder class members will necessarily end up paying all of class counsel’s fees in the form of reduced dividends.  Accordingly, the Notice is flatly wrong on this important point, and highly misleading to class members receiving it.

The Notice is also contrary to the very principles that plaintiffs have espoused throughout this litigation.  Plaintiffs have pilloried Mass Mutual for not disclosing to class members the details of the additional amounts charged to policyholders who pay modal premiums, but have now failed to disclose to class members that they will ultimately collectively bear class counsel’s remarkably high attorneys’ fee.

II.        CLASS COUNSEL'S ATTORNEY FEE REQUEST SHOULD BE REJECTED.


As set forth above, class counsel has negotiated a deal that gives all of the economic value of this settlement (except for the $350,000 incentive payments to the Named Class Representatives) to himself.  As explained above, this is improper, contrary to the purposes of class actions, out of keeping with the practice in class actions generally around the country, and of dubious ethics.

Thus, even in the event that this Court were to reject the foregoing objections and approve the Settlement Agreement as fair, adequate, and reasonable, this Court should still reject Class Counsel’s requested fee as excessive and unreasonable.  As Mr. Gardner testifies, “[w]hile the benefit of improved disclosures can be a real benefit (although I have not evaluated them in this case), it is impossible to justify an award of this nature for that result.”  Exhibit 2 at ¶ 12.

III.       THIS COURT SHOULD REJECT THE REQUESTED INCENTIVE PAYMENTS.


The $350,000 incentive award to the named plaintiffs also demonstrates that the proposed settlement agreement is unfair and is the product of inadequate representation of the class as a whole.  A class action settlement proposal must provide relief that fairly resolves the claims between the plaintiff class and the defendant and must fairly allocate such relief among the entire class.  Holmes v. Continental Can Co., 706 F.2d 1144, 1147 (11th Cir. 1983).  Lead plaintiffs thus incur a fiduciary duty to represent the interests of the entire class when they enter into settlement negotiations.  Women’s Committee v. Nat’l Broadcasting Co., 76 F.R.D. 173, 180 (S.D.N.Y. 1977).  As set forth above, the proposed settlement before this Court would award $250,000 to Floyd Wilson and $100,000 to the Estate of Leo Huppert as named plaintiffs, while providing no relief whatsoever for the vast majority of class members who are former Mass Mutual insurance policyholders and awarding purely prospective relief in the form of disclosures for present policyholders.  These proposed incentive payments are manifestly unreasonable, and should be disapproved.

Proponents of incentive awards bear a substantial burden to establish fairness and adequate representation where a settlement agreement explicitly bestows preferential treatment upon them.  Since named plaintiffs “may be tempted to accept suboptimal settlements at the expense of the class members,” Weseley v. Spear, Leeds & Kellogg, 711 F. Supp. 713, 720 (E.D.N.Y. 1989), courts must carefully scrutinize incentive awards for named plaintiffs to ensure the fair allocation of relief within settling classes.  Holmes, 706 F.2d at 1148; Plummer v. Chemical Bank, 668 F.2d 654, 660 (2nd Cir. 1982) (requiring evidentiary support of greater injury to named plaintiffs to justify their more generous treatment in settlement).[9]  The named parties must demonstrate that the “totality of circumstances combine to dispel the ‘cloud of collusion’” that a disparate settlement suggests.  Holmes, 706 F.2d at 1148 (quoting Women’s Committee, 76 F.R.D. at 182).  The parties to the proposed settlement here cannot sustain this burden.


The agreement reached between the named plaintiffs and Mass Mutual on individual incentive awards bears none of the hallmarks of a fair settlement that adequately represents the interests of all parties.  In Women’s Committee, the court upheld incentive awards of between $1,336 and $35,174 that were based on facts relating to the named plaintiffs’ individual claims where the settlement provided significant monetary and injunctive relief to the entire class, preserved individual claims of class members who had previously filed suit, was endorsed by a government agency that had intervened to represent the public interest, and elicited no objections from absentee class members.  Women’s Committee, 76 F.R.D. at 182.  Likewise, in Green v. Battery Park City Authority, 44 Fair Empl. Prac. Case (BNA) 623 (S.D.N.Y. 1987), the court upheld $4,000 incentive awards for named plaintiffs where the settlement provided monetary relief to the entire class, placed the named plaintiffs in the lower end of the recovery formula, preserved individual claims of those who had previously sued, and used an insubstantial percent of the total settlement fund to pay the incentive awards.  By contrast, the proposed settlement that is before this Court provides no monetary relief to the absentee class members, provides injuntive relief only to a small minority of the class, preserves no class member’s individual claims, and devotes all of the money paid by the defendant to attorney fees and incentive awards.


            Courts have repeatedly denied approval of class action settlements that would give class representatives a vastly disproportionate share of monetary relief through incentive awards.  In Lyon v. State of Arizona, 80 F.R.D. 665, 669 (D. Ariz. 1978), the court rejected a proposed employment discrimination class action settlement that would have awarded $265,000 in attorney fees, back pay only for the named plaintiffs, and prospective relief for the rest of the class because it give rise to the appearance of improper utilization of the class for the benefit of the representatives.  Id. at 669.  In Plummer v. Chemical Bank, 91 F.R.D. 434 (S.D.N.Y. 1981), aff’d 668 F.2d 654 (2nd Cir. 1982), the court refused to approve a settlement creating a $400,000 fund for 500 class members where the named plaintiffs each sought additional incentive awards ranging from $8,500 to $17,500 because such disparate benefits were “prima facie evidence that the settlement is unfair to the class.”  Id. at 442.  In Clement v. American Honda Finance Corp., 176 F.R.D. 15 (D. Conn. 1997), the court rejected a Consumer Leasing Act class action settlement proposal that would give class members nontransferable $75 or $150 coupons while allowing the named plaintiffs to collect $2,500 incentive awards.  The court in Clement noted that the disparity between the named and absentee class members’ benefits was “cause for concern,” and held that this disparity could not be justified by allegations as to the weakness of the plaintiffs’ underlying claims.  Id. at 24-25.  Inasmuch as these decisions teach that class action settlements are not opportunities for class representatives to enrich themselves at the expense of absentee plaintiffs, this Court should reject the proposed incentive payments.


Incentive awards often constitute an attempt to compensate for the time and effort expended by named plaintiffs in prosecuting a case as lay persons.  See, e.g., In re U.S. Bioscience Securities Litigation, 155 F.R.D. 116, 122 (E.D. Pa. 1994) (authorizing incentive awards of $250 and $125 to named plaintiffs based on per diem compensation provided to jurors).  Individual incentive awards thus are typically modest, ranging from $1,000 to $10,000 in most cases. Gardner Declaration, Exhibit 2 at ¶ 19; Moore Affidavit, Exhibit 1 at ¶ 12 (“the bonuses sought here are extraordinarily higher than usual”); see also Green, 44 Fair Empl. Prac. Case 623 (awarding named plaintiffs $4,000 each in settlement of employment discrimination class action); Huguley v. General Motors Corp., 128 F.R.D. 81, 84-85 (E.D. Mich. 1989) (award of less than $4,000 each to named plaintiffs in Title VII settlement); Bryan Pittsburgh Plate Glass Co., 59 F.R.D. 616, 617 (W.D. Pa. 1973), aff’d 494 F.2d 799 (3rd Cir. 1974) ($17,500 aggregate incentive award to named plaintiffs settling Title VII class action); GMAC Mortgage Corp. v. Stapleton, 603 N.E.2d 767, 776 (Ill. App. 1st Dist. 1992) (awarding $2,000 to class representative in settlement of consumer class action).  The $250,000 and $100,000 awards sought by the named plaintiffs here present a stunning contrast to the modest sums of most incentive award payments.

In sum, the proposed settlement agreement’s $250,000 and $100,000 incentive awards represent extraordinary sums that are unjustified by the facts of this case.  Even without regard to relief obtained by the class as a whole, incentive awards of this magnitude would be virtually unprecedented.  But when these figures appear in an agreement that provides zero monetary relief to the class as a whole and provides no relief of any form to the vast majority of class members, the court should conclude that the settlement agreement is substantively unfair to the class and that the interests of absentee class members are not adequately represented.


IV.       THE PROPOSED SETTLEMENT CANNOT BE APPROVED BECAUSE CLASS COUNSEL AND THE NAMED CLASS REPRESENTATIVES HAVE NOT ADEQUATELY REPRESENTED THE CLASS IN THIS CASE.

The proposed settlement in this case also cannot proceed unless the class meets the various certification criteria of New Mexico District Court Rule 1-023.   New Mexico Rule 1-023(a)(4), like Fed. R. Civ. P. R. 23(a)(4), provides that a class action may be maintained only if “the representative parties will fully and adequately protect the interests of the class.”  This provision has been found to constitute a minimum requirement of due process.  See Amchem Products, Inc. v. Windsor, 521 U.S. 591 (1997); Fed. R. Civ. P. 23(a)(4).  As Justice Ginsberg wrote in her concurrence in Matsushita Elec. Indus. Co., Ltd. v. Epstein, 116 S. Ct. 873, 875 (1996), “adequate representation is among the due process ingredients that must be supplied if the judgment is to bind absent class members.”  See also Herbert Newberg & Alba Conte, 1 Newberg on Class Actions § 1.13 (3d ed. 1992).

Even if the provisions of a class action settlement agreement appear to be substantively fair, moreover, it cannot be approved if counsel did not adequately represent the class.  See In re General Motors Corp. Engine Interchange Litig., 594 F.2d 1106, 1125 n.24 (7th Cir. 1979), cert. denied, 444 U.S. 870 (1979) ("No one can tell whether a compromise found to be 'fair' might not have been 'fairer' had the negotiating [attorney] . . . been animated by undivided loyalty to the cause of the class.") (citation omitted).


It is clear that the adequacy-of-representation has not been met in this case.  It is self-evident that, when class representatives and class counsel agree to a settlement where they keep all of the money and the class receives none of it, the class has not been adequately represented.  As noted above, a contingency fee higher than 50% (much less the 100% contingency fee enshrined here) violates the ethical codes of some states.  Negotiation an unethical settlement simply cannot constitute adequate representation under Rule 23 (a)(4).

The excessive incentive payments to the Named Class Representatives similarly constitute prima facie evidence that they have not been vigorous advocates for the interests of other class members.  Cf.  Manual for Complex Litigation § 30.42 at 264-65 (3d ed. 1995)  (one factor that may be taken into account in determining the settlement's fairness is whether “particularly segments of the class are treated significantly differently from others. . . .”)  Such an outcome also indicates that class counsel are not adequate representatives.  Cf. In re Ford Motor Co. Bronco II Prods. Liab. Litig., 1995 U.S. Dist. LEXIS 3507 (March 15, 1995) (one of the dangers inherent in class action settlements is that class counsel “may try to 'sell out' the class in exchange for substantial attorneys' fees”).[10]


As Mr. Gardner testifies, “Given the totality of the circumstances of this settlement, the amounts sought by both class counsel and class representatives are so far out of proportion to any reasonable award to them that the conclusion is inescapable that neither class counsel nor class representative are adequate to represent the class.”  Exhibit 2 at ¶ 23.[11]

V.        THIS COURT SHOULD NOT APPROVE THE SETTLEMENT BEFORE THE SHELDON OBJECTORS HAVE A FULL AND FAIR OPPORTUNITY TO CONDUCT DISCOVERY INTO THE PROPOSED SETTLEMENT.

Finally, this Court should not approve the proposed settlement until the Sheldon objectors have had the opportunity to conduct appropriate discovery in regard to the settlement.  It is well established that objectors have the right to pursue discovery from the settling parties.  See In re General Motors Corp. Engine Interchange Lit., 594 F.2d 1106 (the trial court abused its discretion by preventing objectors from showing through discovery that negotiations prejudiced best interests of the class); A. Conte, Newberg on Class Actions, § 11.57, pp. 11-140 to 11-114 (3d ed. Dec. 1992) (reviewing case law and noting that objectors generally have a right to conduct independent discovery).

The Sheldon Objectors wish to exercise this well-established right, and have served a limited number of narrow and carefully drafted Requests for Production and Interrogatories upon each of the Settling Parties.  The discovery requested goes to the heart of the Sheldon Objectors’ objections to the proposed settlement, and this Court should not approve the settlement before the Sheldon Objectors have received the discovery sought and have had an opportunity to file supplemental materials in support of their objections.   


In this case, the Sheldon Objectors are entitled to take discovery on a number of different crucial questions:

·                    How did Class Counsel conduct the negotiations relating to this settlement?  Class members are entitled to learn the details of the negotiations, in light of the possibility -- strongly suggested by the settlement’s terms -- that class counsel may have compromised the absent class members' interests to obtain a huge fee.  See  Ficalora v. Lockheed Calif. Co., 751 F.2d 995, 996 (9th Cir. 1985) ("The attorney also can be forced into a situation in which his or her own fee can be enlarged or reduced by concessions made by the class or by members of the class in order to achieve settlement.")

·                    What Are Class Counsel’s Time and Expenses in This Case?  Class counsel has not yet provided any information about his actual time spent on the case.  This Court should permit discovery into counsel's lodestar as a reality check upon the reasonableness of the requested fee award.  This is particularly necessary where, as here, the amount of the benefit actually conferred is ephemeral (and destined to be a secret), under the settlement.  Cf. Charles v. Goodyear Tire and Rubber Co., 976 F. Supp. 321, 326 (D.N.J. 1997) ("any settlement based upon an award of certificates may prove to be too speculative a value on which to base a fee award"). 


·                    How Much Will the Attorneys’ Fee and the Class Representatives’ Incentive Payments Reduce the Average Class Members’ Dividend Payments from Mass Mutual?  Since the Notice does not provide class members with the Present Value of the requested attorneys’ fee, and since the Notice falsely states that class members will not pay for the requested attorneys’ fee, the Sheldon Objectors are entitled to discovery from Mass Mutual as to how much that fee will economically affect them.

·                    What is in the Secret Supplemental Agreement?  Class counsel and the Named Class Representatives are not permitted to have secret side deals with the defendant and hide them from the millions of people whom they purport to represent.

Even if this Court were inclined to approve the settlement despite the foregoing sections, the Sheldon Objectors’ objections cannot be fairly resolved until the settling parties have provided the Sheldon Objectors with the answers to these questions.

CONCLUSION

In light of the foregoing, the Sheldon Objectors ask this Court to (a) reject the proposed Settlement Agreement as unreasonable, unfair, and inadequate; (b) deny class counsel’s fee request as excessive; (c) deny the proposed incentive payments to the Named Class Representatives as excessive; and (d) find that class counsel and the named class representatives are not adequate representatives.


RESPECTFULLY SUBMITTED BY:

 

________________________________

William E. Snead

Law Office of William Snead

201 12th Street, N.W.

Albuquerque, NM 87102

 

 

________________________________

F. Paul Bland, Jr. (motion for pro hac vice admission

     pending)

Arthur H. Bryant

Leslie A. Brueckner

Michael Quirk

Trial Lawyers for Public Justice

1717 Massachusetts Ave., N.W., Suite 800

Washington, D.C. 20036

(202) 797-8600

 

CERTIFICATE OF SERVICE

 

I certify that on February 2, 2001, I had mailed by overnight mail, Monday delivery, a copy of the foregoing Objections to the Proposed Settlement of Jon Sheldon, Jerry Palmer, David Weinstein, Daniel Blinn, Gregory Chiartas, Douglas Dixon and Raphael Metzger to the following:

 

George Gary Duncan, Esq.

506 Galisteo

Santa Fe, New Mexico 87501

 

 


Vaughn C. Williams, Esq.

Skadden, Arps, Slate, Meagher & Flom LLP

Four Times Square

New York, New York 10036

 

______________________________

 



[1]  These objections are based upon the information currently available to the Sheldon Objectors.  The Settling Parties possess a good deal of additional information that is highly relevant to the adequacy of the settlement and the appropriateness of the fee petition, however, and the Sheldon Objectors have moved to intervene and have sought this information through discovery filed concurrent with these objections.  When the Sheldon Objectors have received answers to that discovery (and when they have been served with the Settling Parties’ papers in support of final approval), they intend to supplement these objections.

[2]  This is done through the twin devices of extraordinarily high attorneys’ fees ($5 million in cash, a guaranteed life insurance policy of $3 million, and an annuity worth $250,000 per year) and unprecedented incentive payments for the class representatives of $250,000 and $150,000, respectively.

[3]  Mass Mutual has represented to this Court that the total class consists of more than six million persons.  See Memorandum in Opposition to Plaintiff’s Motion for Class-Wide Partial Summary Judgment, August 7, 2000, at 4.  Plaintiff has represented to this Court that Mass Mutual’s documents indicate that 1.1 million class members are current policyholders.  See Plaintiff’s Combined Motion and Brief for Order Approving Proposed Notice and Notice Procedure to the Class And For An Order Awarding Interim Costs of Notice to Plaintiff at 5.

[4]  As part of its Class Action Abuse Prevention Project, Trial Lawyers for Public Justice, (“TLPJ”) counsel for the Sheldon Objectors, has represented objectors or filed amicus briefs in support of objectors in more than a dozen cases.  TLPJ has also reviewed scores of other class action settlements in connection with its project, and extensively researched the law of class action settlements.

[5]  Because the text of New Mexico’s Rule 23 is identical to that of the federal rule, we are citing federal cases as persuasive authorities with respect to the issues raised by these objections.

[6]  Interestingly, the Settling Parties have not disclosed to the class what they consider to be the present value of the proposed fee.  Throughout the case, plaintiffs have argued that Mass Mutual acted improperly by giving class members a bunch of numbers and requiring them to “do the math” to figure out the magnitude of the additional premium for modal payments.  Plaintiffs have abandoned this principal when it comes to class counsel’s attorney’s fee, however, as they have proposed to provide him with an extremely unusual three-part fee including guaranteed future relief, without telling class members what that fee is worth in current dollars.

[7]  Plaintiff argued that “[o]nce the Court determines the true amount of Plaintiff’s

damages due to Mass Mutual’s illegal fractional premium overcharging practices, Plaintiffs will be entitled to recover that amount with prejudgment interest.  In this case, counsel is confident that he will be able to prove the class damages on a class wide or common basis by using the Defendant’s own financial records.”  Class Certification Combined Motion and Brief, filed June 15, 1999, at 15.  Plaintiff went on to argue that “this case is manageable in terms of damage distribution.  The undersigned has personally set up and overseen two class action settlement distribution projects, one involving the distribution of $23.5 million to over 300,000 claimants in 1987 and the other involving the potential distribution of $100 million to over 3 million potential claimants in 1992.  This case will be much simpler than those because of the tremendous advances in computer technology since that time.”  Id.  at 17.

[8]  Such “extraordinary circumstances” may only be found “(1) Upon a written and verified application for the sealing of such file; (2) A showing of good cause; and (3) A showing that significant and irreparable harm will result unless the file is sealed.”   Id.

[9]  Indeed, some courts have questioned whether it is ever appropriate for named plaintiffs to seek extra benefits for themselves.  See, e.g., In the Matter of Continental Illinois Securities Litigation, 962 F.2d 566, 571 (7th Cir. 1992) (examining law of restitution as limited to compensation for professional services, while distinguishing “public-spirited” nature of named plaintiff’s role); In re Gould, 727 F. Supp. 1201, 1209 (N.D. Ill. 1989) (“By bringing...a class action, a named plaintiff disclaims any right to preferred treatment in settlement”). 

[10]  In addition, as noted above there is a secret Supplemental Agreement between the class representative and Mass Mutual.  From the little available in the public record, it is certainly possible that the secret Supplemental Agreement also includes additional compensation to class counsel and the named class representatives.  The Sheldon Objectors have served discovery requests upon both of the settling parties with respect to the provisions and nature of this side deal.

[11]  Because class counsel and the class representatives have not adequately represented the class, new class counsel and class representatives should be appointed in their stead.