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COME NOW, Objecting class members/Petitioners in Intervention Jackie Alexander, Willie Alexander, Rhonda Arrington, Byron Arrington, Ethel Davis, Johnny Ray Hamilton, Easter Hickman-Rogers, Geri Moree, Diane Vandergriff, Arlene Walker, Antholene Clark, and Maria Epps ("the Alexander Objectors") and file these objections to the proposed class settlement in this case. These Objections shall also serve as the Alexander Objectors' notice that they intend to participate in this Court's fairness hearing through their counsel.

INTRODUCTION

This case presents a question that should answer itself: can class counsel adequately represent the class in settlement negotiations when they have already made clear that they would rather dismiss the case (and bear their costs to date) than actually try to litigate it?

In this case, even the defendants recognized that the answer to this question is "no." On January 17, 1997, one week before this Court was to hear oral argument on whether this case would be certified as a class action for litigation purposes, class counsel moved to dismiss "with prejudice, with all costs assessed to Plaintiff" on the grounds, inter alia, that this case "has been certified as a class action for settlement negotiations for some period of time . . . and that thus far settlement negotiations have been unfruitful." Plaintiff's Motion to Dismiss. Less than a week later, the defendants moved to disqualify class counsel and appoint substitute counsel, saying: "Plaintiffs' counsel have demonstrated an intent to abandon pursuit of the interests of the plaintiff class, apparently due to the present failure of the parties to reach a quick settlement suitable and beneficial to plaintiffs' counsel." Defendants' Motion to Disqualify Plaintiffs' Counsel and Appoint Substitute Counsel (filed Jan. 23, 1997) at 1. The following day, however, the defendants not only agreed to settle the case with these same counsel, but agreed to pay class counsel's costs (up to $50,000) whether the settlement was or was not finally approved.

It is difficult to imagine a more blatant example of class counsel publicly displaying their own inadequate representation, or of defendants explicitly recognizing the inadequacy and nonetheless seeking to take advantage of it for themselves, while also generating benefits for those same inadequate class counsel at the expense of the class. For this reason alone, the proposed settlement should be rejected, class counsel should be disqualified, the defendants' agreement to pay class counsel's expenses should be voided, and new class counsel should be appointed.

The law requires counsel appointed pursuant to Rule 23 to demonstrate undivided loyalty to the class, unburdened by conflicting obligations to other clients or to their own self-interests. But class counsel have demonstrated exactly the opposite here. Attorneys who publicly announce their unwillingness to litigate the claims of the class cannot possibly fulfill their fiduciary responsibilities to the members of the class, as required by both Rule 23 and the Due Process Clause. And any settlement those counsel reach after making such public announcements is irrevocably tainted. As the Supreme Court recently explained, both counsel and the court are "disarmed" by any class settlement negotiations conducted in the context of cases filed without the intent or possibility of litigation. Amchem Products, Inc. v. Windsor ("Amchem"), 1997 Wl 345149 at *18. For defendants sued by counsel who have no intent, desire, or ability to litigate classwide claims, settlement negotiations are a one-way street running in their direction -- they can embrace an opportunity to cap their liabilities while facing no accompanying risk of a trial should negotiations fail. See also John C. Coffee, Jr., Class Wars: The Dilemma of the Mass Tort Class Action, 95 Colum. L. Rev. 1343, 1379-80 (1995) (favorably cited in Amchem, supra).

The inadequacy of class counsel's representation in this case is exacerbated by the fact that these same lawyers have a poor track record in other class proceedings before this Court. For example, in Graham v. Security Pacific Housing Services, Inc., Messrs. Deakle and Sims were among the counsel who sought this Court's approval of a settlement that provided for a fee award to class counsel totaling roughly three times what the class would have received under the settlement. The Alexander Objectors do not suggest that these lawyers could never again qualify as class counsel in any setting, but they do believe that the notorious history of these counsel should raise this Court's level of scrutiny with respect to the conduct in this case and any future class actions in which those lawyers are involved. And when their conduct here is subjected to any level of serious scrutiny, it is plain that their representation was inadequate.

The proposed settlement should also be rejected because Rule 23 and the Due Process Clause do not permit certification of a mandatory, no-opt-out class with respect to the class members' claims for compensatory and/or punitive damages. While the Alexander Objectors recognize that this Court has previously certified mandatory, "settlement-only" damages classes in other cases, the Supreme Court's recent reversal of the Fifth Circuit's decision in In re Asbestos Litigation, 90 F.3d 963 (5th Cir. 1996), cert. granted, judgment vacated, and cause remanded for further proceedings sub nom. Ortiz v. Fibreboard, 1997 WL 107214 (U.S., June 27, 1997) relieves this Court of any duty to follow what was already-shaky Fifth Circuit precedent in support of such certifications.

Although the instant "small claims" action typifies the cases for which the Rules Advisory Committee created opt-out classes with the enactment of Rule 23(b)(3) in 1966, see Amchem, 1997 WL 345149 at *14-15, there is no evidence here that the requirements of any other subdivision of Rule 23 can be met. Neither subdivision (b)(2) nor (b)(1)(A) were intended to apply to cases involving individual claims for damages. And the settling parties have offered no evidence to support application of subdivision (b)(1)(B), the "limited fund" provision of Rule 23. While Defendants have baldly asserted that they may lack sufficient assets to pay all of Plaintiffs' claims, courts have been steadfast in refusing to certify actions under Rule 23(b)(1)(B) absent substantial evidentiary proof of a "limited fund." Nor can the settling parties rely on the doctrine of "punitive damages overkill" to justify the (b)(1)(B) certification in this case. Even if due process would place some unknown limit on the total amount of punitive damages these Defendants must pay for a single course of conduct, that fact cannot support the mandatory certification proposed here, both because the class definition fails to include all claimants who might collect punitive damages for Defendants' loan and insurance practices, and because the proposed mandatory certification also includes claims for compensatory damages.

Finally, this Court should reject the proposed settlement because it is substantively unfair to absent class members. First, the settlement should not impose any requirement for absentees to submit claim forms. Because Defendants admit that they possess all information necessary to distribute settlement funds to all eligible class members, the "claims-made" requirement serves no function but to ensure that a majority of class members will receive no relief. Second, the settling parties have made no showing to support the economics of this settlement. While the class notice indicates that the class will receive 20% of the "Net Premium Paid" for credit-related insurance, the settling parties have provided no basis for this Court to determine whether such a percentage is appropriate. Based on the allegations of the complaint, 20% of premiums seems inadequate, given that, but for Defendants' wrongful conduct, many of those insurance policies would not have been issued to class members at all. Moreover, the 20% figure in the class notice is highly misleading. Due to the combined effect of the "claims-made" requirement, together with a $1.5 million cap on the Compensatory Damages Fund, the class will only receive some fraction of 20% of the total Net Premium Paid by all class members. Thus, separate and apart from the adequacy of representation and class certification problems discussed above, this Court should not approve the settlement as currently proposed without requiring the settling parties to provide objectors discovery sufficient to give some basis for determining whether the settlement's economic terms are fair.

Because class counsel have failed to adequately represent the class, this Court should disqualify them, reject the settlement they negotiated, void the Defendants' agreement to pay class counsel's costs (and order the money repaid if it has already changed hands), amend the class certification order, and appoint new attorneys to represent the class. This case should then proceed anew as an opt-out class action certified under Rule 23(b)(3), with the newly-appointed class counsel prosecuting the claims -- either to trial or to settlement -- as they see fit in the exercise of their fiduciary duties.

STATEMENT OF FACTS

Procedural History

Class counsel John Deakle and J. Michael Sims filed the class complaint in this action on February 16, 1996, alleging a variety of claims against Defendants Tower Loan of Mississippi, Inc. ("Tower Loan"), American Federated Life Insurance Co. ("American Federated"), and other related entities. The complaint seeks both damages and injunctive relief on behalf of Plaintiff Bryant Jones and other similarly situated Mississippi customers of Tower Loan, based on Defendants' allegedly illegal practices related to the issuance of credit-related insurance. Among other things, the complaint states that Tower Loan fraudulently induced its loan customers to buy certain credit-related insurance from American Federated, without informing those customers that such insurance was not required, and without revealing that Tower Loan's officers received commissions from American Federated for the sale of such insurance. According to the class complaint, through this and other conduct, Defendants violated a variety of federal statutes, including the Truth-in-Lending Act, the Fair Debt Collection Practices Act, and federal antitrust laws. Plaintiffs also asserted pendent common law claims arising under Mississippi state law.

In June of 1996, having already filed the class complaint and a motion to certify the Jones class, class counsel then filed several claims against the same Defendants in state courts in Mississippi, on behalf of individual Tower Loan customers who were members of the putative class. See, e.g., Johnson v. Tower Loan of Mississippi, Inc., Circuit Ct. of the 2d Jud. Dist. of Jones County, MS; No. 96-6-86 (filed June 14, 1996); McGill v. Tower Loan of Mississippi, Inc., Cir. Ct. of the 1st Jud. Dist. of Jasper County, MS; No. 96-0044 (filed June 24, 1996). In response to class counsel's decision to file these parallel actions on behalf of individual class members in state courts, Defendants moved this Court to enjoin class counsel from initiating parallel proceedings. In that motion, Defendants asserted that class counsel's concurrent representation of individual class members while they were also prosecuting the class claims posed a conflict of interest inconsistent with Rule 23's adequacy of representation requirement. See Defendants' Mtn. to Expedite Resolution of Class Certification Issues and To Preclude Class Counsel from Initiating Parallel Proceedings (filed July 5, 1996) at 3-5. Defendants did not seek to disqualify class counsel at that time. They did, however, say, "Class counsel should not be permitted to act with impunity in ways detrimental to the class they seek to represent." Id. To remedy the problem, Defendants asked this Court to hold an expedited hearing on whether the case would be certified as a class action.

On September 9, 1996, this Court temporarily certified a mandatory plaintiff class in this action, "for the limited purpose of allowing the parties to continue settlement negotiations." Order of 9/9/96 at 3. The class was defined to include all persons who paid any premiums or other costs of insurance written by the American Federated Companies in connection with loans made by the Tower Loan Companies in Mississippi from February 15, 1993 to March 31, 1997. In addition to ordering temporary certification of such a class under Rule 23(b)(1)(A) and 23(b)(1)(B), this Court also stayed all pending parallel litigation against Defendants and enjoined class members from initiating new lawsuits arising from or relating to the conduct at issue here. This injunction included a stay of the individual lawsuits filed by class counsel in June. Id.

The very same day, class counsel and Defendants reached an oral agreement to settle the case. The minute entry on the Court's docket summarizes the actions taken at the September 9, 1997 status conference with the Court as follows: "Case settled. Parties to enter Stipulation of Settlement within 30 days. Fairness hearing to be scheduled within 100 days." Minute entry of Sept. 10 (reflecting conference on Sept. 9, 1996). On December 11, however, following a status conference with this Court, a new minute entry states, without explanation, that "[p]revious class action settlement now uncertain." On the same date, after the conference, the Court also scheduled oral argument for January 24, 1997, on the parties' pending motions for class certification for litigation purposes.

With the apparent settlement falling apart and a class certification ruling for litigation purposes approaching, three extraordinarily revealing events took place. First, class counsel reacted by seeking to abandon the class altogether. One week before oral argument, on January 17, 1997, class counsel filed a motion to dismiss, merely because "settlement negotiations have been unfruitful." Second, and equally astonishing, rather than rejoice at the dismissal of a threatening class action, Defendants filed a responsive pleading that opposed Plaintiffs' motion. Defendants purported to rally to the aid of absent class members, stating that "[a] class action complaint may not be dismissed merely because the current class representative and his lawyers elect to abandon their self-assumed responsibilities to the class." The Tower Loan Companies' Objection to Plaintiff's Motion to Dismiss (filed Jan. 23, 1997) at 2. The Defendants added that they were more than willing to renew settlement negotiations in the case, and requested that this Court afford a hearing to "evaluate the status and progress of negotiations." Id. at 4. Third, heightening their leverage against Plaintiffs' counsel even further, Defendants also filed a motion to disqualify class counsel on the basis of their abandonment of the class and because of conflicts created by their concurrent representation of individual class members outside the class action. See Motion to Disqualify Plaintiffs' Counsel and Appoint Substitute Counsel (filed Jan. 23, 1997). In so doing, they stated what was plainly the truth:

Plaintiffs' counsel have demonstrated an intent to abandon pursuit of the interests of the plaintiff class, apparently due to the present failure of the parties to reach a quick settlement suitable and beneficial to plaintiffs' counsel. Plaintiffs' counsel have filed an unsupported motion to dismiss the case, without regard to the interests of the class. That motion expressly states that the reason for seeking to dismiss the case is that "thus far settlement negotiations have been unfruitful." Plaintiffs' counsel have thus demonstrated that they are uninterested in representing the interest of the class absent a prompt settlement.

Defendants' Motion to Disqualify at 1-2.

Class counsel and Defendants reached oral agreement on the proposed settlement currently pending before this Court the following day. See Minute Entry dated January 24. Not only did that agreement guarantee that Messrs. Deakle and Sims would receive a fee if the settlement was ultimately approved (while removing any threat that substitute counsel would reap those same rewards) it also provided that Defendants would pay class counsel's costs to $50,000. Settlement Agreement at 26-27. While settling defendants in class actions often agree that they will pay such expenses if the settlement wins final approval, in this case Defendants agreed to pay even if "this Agreement should later fail to become effective and the settlement not implemented." Id.

Even after the settlement was reached, when class counsel were faced with an apparent obstacle to implementation of the settlement, class counsel again sought to abandon the class. Citing Defendants' failure to supply information regarding administration of the settlement, on July 9 class counsel filed a motion to decertify the class. Although the July 9 motion claims that the Settlement Agreement obligates Defendants to supply the disputed information, the motion fails to seek any enforcement of those provisions from the Court. Instead, class counsel merely asked that the Court decertify the class. Without explanation, that motion has since been withdrawn. See Dkt. No. 304, Motion by all plaintiffs to withdraw motion to decertify class for settlement purposes (filed August 4, 1997). Class counsel thus continue to signal their disinterest in litigating this case -- and their recognition that Defendants would be extremely fearful of losing the substantial benefits of the settlement's terms.

Terms of the Settlement

The Class Settlement Agreement provides that class members will receive a total of between $2.5 million and $4.5 million for their compensatory and punitive damages claims, along with certain injunctive relief. Those who file timely claims ("Responding Class Members") may receive shares from both a Compensatory Damages Fund and a Punitive Damages Fund. Although only those class members who file claims will receive money under the deal, class members do not need to establish any other qualifying criteria to be eligible. The Compensatory Damages Fund will consist of at least $500,000 and no more than $1,500,000, depending on how many class members file claim forms. Similarly, the Punitive Damages Fund will consist of between $2 million and $3 million.

Responding Class Members who elect to participate in the Compensatory Damages Fund will receive up to 20% of the "Net Premium Paid" by them to the American Federated Companies. However, if 20% of the "Net Premium Paid" by all Responding Class Members exceeds $1.5 million, each class member will receive only his or her pro rata share of the $1.5 million. Sett. Agrmt at 23. Each Responding Class Member will receive twice the amount of punitive damages as they are eligible to receive for compensatory damages. But, if the total Compensatory Damages received by Responding Class Members is less than $1,000,000, those Responding Class Members will each receive a pro rata share of $2,000,000 as punitive relief. Id. at 24.

While the Settlement Agreement proposes a mandatory, no-opt-out class to be certified under Rule 23(b)(1)(A), 23(b)(1)(B), and 23(b)(2), the settlement nonetheless contemplates that class members will be entitled to "opt out" of the Compensatory Damages Fund to pursue their claims for compensatory damages individually -- but they can only file such claims before this Court. Class members will not be entitled to pursue their claims for punitive damages individually in any court.

The settlement also provides a variety of prospective injunctive relief requiring changes in Defendants' credit/insurance practices. Class counsel contend that such injunctive relief, which will remain in place for six years, has a value of $12,000,000. Class Notice at 3.

Finally, Defendants have agreed that they will not oppose class counsel's fee request for up to $900,000, which Defendants will pay separately from the Compensatory and Punitive Damages Funds. Class Notice at 5.

Class Counsel's Recent Settlement Practices

All of the foregoing should be viewed in the context of class counsel's recent litigation and settlement practices. As this Court is well aware, this case is not the first class action lawsuit filed and settled by class counsel in regard to abusive insurance practices. All were filed and settled since 1995, when a Mississippi jury awarded $500,000 in compensatory damages and $38.5 million in punitive damages in an individual case involving similar allegations against Trustmark National Bank. After the jury reached its verdict in that case, other cases began to be brought against other banks, including cases against Tower Loan.

In July of 1995, Curtis Hussey, a lawyer in lead class counsel John Deakle's firm, wrote to plaintiff's counsel in the Trustmark case, seeking his assistance. In that letter, Mr. Hussey stated that he had five potential clients with force-placed insurance related claims. "I would have contacted each of [the potential clients] to get more information," Hussey wrote, "but, frankly, I don't know enough about the case to know what questions to ask them." About one of the potential clients Hussey stated that he had reviewed the documents but, "[i]f there is a claim, I don't know enough to determine when it would have arisen."

On August 18, 1995, less than a month after this correspondence, class counsel, including Mr. Deakle and Mr. Sims (but not including the plaintiff's counsel in the Trustmark case), filed the national class action that gave rise to the settlement in Bentley v. Deposit Guaranty National Bank, No. 2:95-CV-292(P)(S) (S.D. Miss.). The complaint -- like the original complaint in this case -- essentially alleged the same causes of action that were pled by the individual plaintiff in the Trustmark case, including numerous violations of state and federal laws. In all three cases (i.e., Jones, Bentley, and Trustmark), the complaint sought injunctive relief and compensatory and punitive damages.

On October 3, 1995, this Court certified the Bentley class for settlement purposes only. Approximately two weeks later, before class counsel had conducted any formal discovery, a settlement was reached between the parties. The settlement provided for certification of a nationwide opt-out class with respect to compensatory damages claims, but also provided for mandatory, no-opt-out class certification of all class member claims for punitive damages. In February 1996, Trial Lawyers for Public Justice entered the Bentley case on behalf of objecting class members, but the Defendants settled the claims of those class members in return for their withdrawal of objections to the class settlement. This Court subsequently approved the settlement in May 1996.

After reaching the proposed settlement in Bentley, class counsel became aware of the opportunity to file additional class actions involving force-placed CPI practices. They filed this lawsuit in February 1996 and filed a similar class action against a subsidiary of BankAmerica in April 1996 -- Graham v. Security Pacific Housing Services, Inc

Class counsel originally settled the Graham action in January 1997, for terms that were to become infamous. Had that originally proposed settlement been finalized and approved by this Court, the class members would have received less than $1.8 million, class counsel would have received $5.4 million, and Mississippi class members would have been deprived of their right to opt out and seek punitive damages. For that reason and others, objectors represented by Trial Lawyers for Public Justice sought to intervene and object, and this Court ultimately gave TLPJ counsel the opportunity to renegotiate a new settlement, together with class counsel and the defendants. In the end, the class members received $7.9 million, class counsel received $1.9 million, and all class members, including those from Mississippi, were allowed the right to opt out and pursue all of their claims. This Court entered a finding that the class had been adequately represented by the combined efforts of class counsel and the objecting Intervenors' counsel from TLPJ.

ARGUMENT

I. CLASS COUNSEL HAVE DEMONSTRATED THAT THEY CANNOT ADEQUATELY REPRESENT THE CLASS

Federal Rule of Civil Procedure 23(a)(4) requires that absent class members be adequately represented by both the class representatives and class counsel. In examining the adequacy of representation, courts "focus on the attorney, as well as the named parties, because they realize the important role the attorney plays in protecting the interests of the class." North Am. Acceptance Corp. v. Arnall, Golden & Gregory, 593 F.2d 642, 644 n.4 (5th Cir.), cert. denied, 444 U.S. 956 (1979) (citations omitted); see also Amchem, 1997 WL 345149 at *20 n.20 ("[t]he adequacy heading also factors in competency and conflicts of class counsel"). Adequate representation by class counsel is required not only by Rule 23, but also by our Constitution: "Due process of law would be violated for the judgment in a class suit to be res judicata to the absent members of a class unless the court applying res judicata can conclude that the class was adequately represented in the first suit." Gonzales v. Cassidy, 474 F.2d 67, 74 (5th Cir. 1974) (citations omitted).

Class counsel in this case have failed to satisfy the adequate representation requirements of Rule 23 and due process both by demonstrating that they have no intent to protect the interests of the class outside the context of a quick settlement that benefits counsel, and by negotiating the settlement while laboring under a conflict of interest stemming from their concurrent representation of individual clients who were asserting claims against these same Defendants outside the class. Both problems illustrate that these class members have had no advocates working with undivided loyalty on their behalf, and that any settlement negotiated by the existing class counsel here is therefore unapprovable. This Court cannot determine whether a settlement it may consider "fair," might not have been "fairer" had it been struck by counsel who were more concerned with generating benefits for the class than fees for themselves or recoveries for their individual clients. See In re Asbestos Litig., 90 F.3d 963, 1009 and n.42 (5th Cir. 1996)(Smith, J., dissenting) (citing In re Corrugated Container Antitrust Litig., 643 F.2d 195, 211n.25 (5th Cir. 1981) and In re General Motors Corp. Engine Interchange Litig., 594 F.2d 1106, 1125 n. 24 (7th Cir. 1979)), judgment vacated by Ortiz v. Fibreboard, 1997 WL 107214 (June 27, 1997).

Any lawyers willing to abandon the claims of their clients at the first sign that defendants are unwilling to reach an early settlement cannot fulfill their duties of adequate representation. As with any other kind of case, fair settlements in class actions can result only from arms-length negotiations in which both sides of the negotiation wield litigation leverage. For defendants, such leverage comes in the form of a variety of legal and factual defenses. Conversely, plaintiffs' bargaining strength rests on the threat of securing a judgment following trial. Without such a threat, the bargaining process is skewed beyond repair: "Class counsel confined to settlement negotiations could not use the threat of litigation to press for a better offer." Amchem, 1997 WL 345149 at *18. As Judge Jerry Smith has described, this dynamic creates an unparalleled opportunity for collusion between defendants and class counsel, as both stand to gain from negotiating a deal providing for generous fees for counsel and meager recovery for the class . . . . [defendants] negotiate with absolutely nothing to lose from walking away from the deal; class counsel, on the other hand, work pro bono unless they consent to a settlement.

In re Asbestos Litig., 90 F.3d at 1000 (Smith, J., dissenting). One Rule 23 scholar has explained the problem as creating a "reverse auction," in which, either in reality or as perceived by class counsel, defendants control the right to award class counsel's fees, and that right will go to the low bidder. John C. Coffee, Jr., Class Wars: The Dilemma of the Mass Tort Class Action, 95 Colum. L. Rev. 1343, 1354 (1995); see also In re General Motors Corp. Pick-up Truck Fuel Tank Prod. Liab. Litig. ("GM Trucks"), 55 F.3d 768, 788 (3d Cir. 1995) (if there is no threat that a class action will be litigated, "attorneys jockeying for position might attempt to cut a deal with the defendants by underselling the plaintiffs' claims relative to other attorneys").

The facts of this case provide a classic illustration of how defendants facing no risk that plaintiffs' counsel will litigate a class action to judgment can use their superior bargaining position to secure a favorable settlement. After class counsel filed their motion to dismiss the case in January, Defendants responded both by opposing the motion and seeking this Court's aid in reopening negotiations, and by filing a motion to disqualify class counsel. At that point, class counsel were faced with the choice of either agreeing to whatever terms Defendants offered, or having this Court rule on a well-founded motion to disqualify them. Not only would the latter option result in a public airing of class counsel's "dirty laundry," it would also create a substantial risk that Messrs. Deakle and Sims would lose any potential class counsel fee to whatever lawyers this Court chose to substitute for them. It should therefore come as no surprise that this class action settled the very next day after Defendants presented class counsel with that Hobson's choice.

Defendants' behavior reveals their own recognition of the unbalanced bargaining leverage they had acquired as a result of class counsel's lack of willingness to litigate the plaintiffs' claims. At risk of belaboring the obvious, the Alexander Objectors suggest that it is highly unusual, if not unique, for a defendant to affirmatively oppose a motion for voluntary dismissal of plaintiffs' claims. But the Defendants in this case were so enticed by the opportunity of reaching a class settlement with these "settlement-only counsel" that they actually opposed class counsel's motion to dismiss the lawsuit.

Class counsel's concurrent representation of individual clients outside the class further undercuts the adequacy of their representation of class members. As the Fifth Circuit has emphasized, "the adequacy of settlement terms cannot ordinarily redeem a settlement that was bargained by a party who was in a conflict position." In re Corrugated Container Antitrust Litig., 643 F.2d 195, 211 n.25 (5th Cir. 1981) (emphasis in original). As Judge Smith explains the type of conflict that plagued class counsel here:

A shrewd but unethical attorney will accept a significantly smaller settlement in a class action in exchange for a more modest increase in an individual settlement. And even an attorney who would refuse such an outright bribe might be tempted to make concessions during the class negotiations, hoping to develop goodwill that will pay dividends when negotiating over the individual lawsuits.

In re Asbestos Litig., 90 F.3d at 1011 (Smith, J., dissenting).

Class counsel's willingness to divide their loyalties between individual clients and the class precludes any finding of adequate representation. Although this record does not reflect whether Messrs. Deakle and Sims have settled their individual cases against Defendants during the pendency of this action, it is clear that class counsel have filed such cases. Whatever class counsel's actual motives for such filings, they create the risk and appearance that counsel were determined to strike separate, "sweetheart" deals on their individual cases in return for giving up more in the class negotiations.

In addition to the spectre of collusion raised by class counsel's simultaneous representation of individual clients, Defendants' agreement to pay up to $50,000 of class counsel's expenses, regardless of whether the class settlement is ultimately approved, provides a compelling, independent indication that the negotiations here were not conducted at arm's length. In essence, the $50,000 payment amounts to no more than Defendants' agreement to pay class counsel's costs for suing them. At the time the settlement was agreed to, class counsel had already made plain their unwillingness to litigate the case. They did not anticipate incurring more costs, but did anticipate foregoing their costs to date (as well as any fee they might obtain if they actually litigated). To secure a favorable settlement against the class, Defendants offered an extraordinary deal to class counsel: full reimbursement for all expenses up to $50,000, whether or not the settlement was finally approved, and attorneys' fees up to $900,000 if it was. Defendants' motive for making such an agreement is obvious: it was an enticement designed to secure the class settlement Defendants wanted. The existence of this extraordinary "cost reimbursement" precludes any finding of adequate representation, and is offensive to public policy. This Court should not only reject the proposed class settlement and disqualify class counsel, but should also void Defendants' agreement to pay class counsel's expenses -- and order the money repaid if it has already changed hands. Sett. Agrmt. IV(C)(1)(d) at 26-27.

II. THE PROPOSED MANDATORY PUNITIVE DAMAGES CLASS SETTLEMENT IS UNCONSTITUTIONAL, VIOLATES RULE 23, AND IS IMPROPER ON A VARIETY OF OTHER GROUNDS AS WELL.

The proposed settlement should also be rejected because it would certify a no-opt-out class under Fed. R. Civ. P. 23(b)(1)(A), 23(b)(1)(B), and 23(b)(2). Sett. Agrmt. at 14. Certification of such a mandatory class encompassing claims for compensatory and punitive damages violates due process, runs afoul of Rule 23, and poses numerous other legal and practical problems.

A. Both Due Process and Rule 23 Require that Class Members Be Given the Right to Opt Out With Respect to Claims for Money Damages.

Rooted deep in our historic tradition is the fundamental principle that each individual must be afforded the opportunity for his or her own day in court. Class actions have been an exception to this principle -- but an exception of limited scope and of application only when it is manifest that the due process rights of absent class members will be assured. Central among these due process rights is the right of class members to opt out of class actions wholly or predominantly for money damages. Without strict adherence to this and other due process protections found in Rule 23, a class action is constitutionally and procedurally improper.

The class members' claims at issue in this case include individual claims for money damages. When individual claims for money damages are included in a class action suit, due process requires that class members be afforded a full and unfettered opportunity to exclude themselves from the class. See Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 812 (1985) ("due process requires at a minimum that an absent plaintiff be provided with an opportunity to remove himself from the class by executing and returning an 'opt out' or 'request for exclusion' form"); see also Penson v. Terminal Transp. Co., 634 F. 2d 989, 993 (5th Cir. 1981) (opt-out right required where personal monetary relief is sought). The constitutional right to opt out of class actions for money damages is embodied in Rule 23, which also provides that class members be afforded a right to exclude themselves from the class when they are pursuing individual claims for money damages. See Fed. R. Civ. P. 23(c)(2). As the Advisory Committee Notes accompanying the Rule explain, where class members possess individual claims for money damages:

the interests of the individuals in pursuing their own litigation may be so strong as to warrant denial of a class action altogether...Thus the court is required to direct notice to the members of the class of the right of each member to be excluded from the class upon his request.

Advisory Committee Notes to 1966 Amendments to Rule 23 ("Advisory Committee Notes"), 39 F.R.D. 69, 104-05.

That class members have a fundamental right to opt out in this case is implicitly recognized by the proposed settlement's provision for a limited right to opt out with respect to compensatory damages. Nonetheless, by refusing to permit class members to pursue their compensatory damages claims in the forum of their choice, and by attempting to impose a mandatory settlement of class members' punitive damages claims, Defendants reveal their desire to achieve through the back door what they could not achieve directly -- a mandatory settlement of all class members' claims for money damages. This desire is confirmed by the provision in the settlement that permits Defendants to unilaterally terminate the settlement agreement if more than 20 class members elect to opt out. Sett. Agrmt at 39.

Ignoring class members' fundamental due process right to opt out, the proposed settlement attempts to establish a no-opt-out punitive damages class pursuant to the mandatory class provisions of Fed. R. Civ. P. 23(b)(1)(A), 23(b)(1)(B), and 23(b)(2). As explained below, however, even assuming that it is appropriate to apply Rule 23(b)(1)(A) and (B) to cases involving claims for monetary damages, the conditions that permit certification of a mandatory class pursuant to Rule 23(b)(1)(A) and (B) have not been met here.

B. Rule 23(b)(1)(A) and (B) Do Not Support Certification of A Mandatory Class in This Case.

Rule 23(b)(1)(A) authorizes mandatory class actions only when individual litigation might "establish incompatible standards of conduct for the party opposing the class." Fed. R. Civ. P. 23(b)(1)(A). This provision applies only when the risk of inconsistent adjudications would have the effect of placing the defendant in an "actual or virtual dilemma" with respect to what standards of conduct to follow. Advisory Committee Notes, 39 F.R.D. at 100; see also Alba Conte, Newberg on Class Actions, 4.06 at 4-20 (3d ed. 1992)("Newberg"). Such a "dilemma" is plainly not created by the mere fact that some plaintiffs might be more successful than others in pursuing their damages claims. In re Bendectin Prod. Liab. Litig., 749 F. 2d 300, 305 (6th Cir. 1984).

In the instant case, there is no evidence that the pursuit of individual litigation would place Defendants at risk of being subject to an "actual or virtual dilemma" with respect to incompatible standards of conduct. Moreover, even if a risk associated with the pursuit of individual actions could be shown, it is unclear how the proposed mandatory class could alleviate that risk, given that the proposed settlement permits all class members to pursue their compensatory damages claims through individual litigation. For these reasons, Rule 23(b)(1)(A) plainly does not support approval of a mandatory class in this case.

Rule 23(b)(1)(B) also fail to provide a justification for a mandatory class in this case. Federal Rule of Civil Procedure 23(b)(1)(B) limits certification of a no-opt-out class to those circumstances when:

(1) the prosecution of separate actions by or against individual members of the class would create a risk of ...

(B) adjudications with respect to individual members of the class which would as a practical matter be dispositive of the interest of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests.

These requirements are fulfilled when "claims are made by numerous persons against a fund insufficient to satisfy all claims." Advisory Committee Note, 39 F.R.D. at 101. In order to support certification of a mandatory class under Fed. R. Civ. P. 23(b)(1)(B), the court must at least hold an evidentiary hearing regarding the financial assets of the defendant, and it must conclude that there is at least a "substantial probability" that separately-brought claims by early-filing plaintiffs will impede the interests of other class members with similar claims. See In re Temple, 851 F. 2d 1269, 1272 (11th Cir. 1988) (issuing mandamus vacating Rule 23(b)(1)(B) certification and noting that, "[w]ithout a finding as to the net worth of the defendant, it is difficult to see how the fact of a limited fund could have been established.") In re Bendectin Prod. Liab. Litig., 749 F. 2d at 307 (issuing mandamus vacating Rule 23(b)(1)(B) certification issued without an evidentiary hearing). The requisite evidentiary hearing for certification of a Rule 23(b)(1)(B) class has not been held in this case and there is no other indication that Defendants' assets are insufficient to meet the plaintiffs' claims. Moreover, even if the parties proved the existence of a "limited fund," that could not justify the limitation imposed here -- the elimination of class members' rights to opt out solely for punitive damages. If Defendants' assets are so limited that individual adjudications threaten to deplete them at the expense of other class members, then there would be no basis for this Court to permit class members to pursue even compensatory damages on an individual basis.

The Alabama Supreme Court recently confirmed the impropriety of certifying a mandatory class for punitive damages claims in Ex Parte Holland, 1997 WL 139479 (Ala., March 28, 1997). In Holland, the trial court had certified a mandatory punitive damages class of people who had fraud and conspiracy claims against a chain of automobile dealerships and an auto financing company. As in this case, class members could opt out with respect to their compensatory damages claims, but were enjoined from pursuing punitive damages claims individually. However, the trial court had conducted no evidentiary hearing to inquire into the status of the defendant's assets and the likelihood that the claims presented would exhaust those assets.

On petition for writ of mandamus, the Alabama Supreme Court directed the trial court to vacate its order certifying the mandatory class. Citing such federal authorities as In re Temple and In re Bendectin, the Alabama court concluded that certification of a mandatory, "limited fund" class action under Rule 23(b)(1)(B) could theoretically be permissible "only when the limited nature of the funds is sufficiently established." Holland, 1997 WL 139479 at *10. Nonetheless, the Holland court held that it would be "inappropriate" for a trial court to conduct the pre-trial procedure that would be necessary to support a finding of a limited fund:

Such a pre-trial procedure would place a trial judge in the extremely difficult position of having to make a prediction as to the maximum amount of punitive damages that the individual plaintiffs would be allowed to recover . . . . The trial judge would also have to make the same kind of prediction with respect to the total amount of punitive damages recoverable by the class as a whole, so that the two predicted amounts could be compared and a determination could be made as to whether the potential individual punitive damages awards would as a practical matter adversely affect the ability of the class members to have a jury give meaningful consideration to their punitive damages claims. . . . After considerable review, we conclude that the cumbersome nature of, and the inherent speculation that would be associated with, such a pre-trial certification procedure make Rule 23(b)(1)(B) inappropriate as a basis on which to certify a mandatory class in a case such as [this one].

Id. at *11.

The punitive damages "overkill" theory also fails to justify the proposed certification under Rule 23(b)(1)(B) here. According to this theory, mandatory certification is necessary with respect to punitive damages because the aggregate amount of such damages that can be assessed for a single course of conduct is limited by due process. See In re School Asbestos Litig., 789 F.2d 996, 1003-05 (3d Cir.), cert. denied, 479 U.S. 915 (1986). But even if such an "overkill" theory were viable under the appropriate circumstances, such circumstances are not present here for two reasons. First, the class is under-inclusive, because Tower Loan customers from states other than Mississippi have claims for punitive damages arising from the same conduct that is at issue here:

[B]ecause all awards must come from the same defendants, a mandatory class predicated on a potential legal limit to punitive damages would logically include all litigants who seek such awards. From that standpoint, the (b)(1)(B) class certified here is under-inclusive with the result that separate actions by those who should properly be included in the class will go forward.

In re School Asbestos Litig., 789 F.2d at 1006. Second, the mandatory certification proposed here is not limited to class members' claims for punitive damages, but also encompasses their compensatory damages claims. Although the settlement proposes to allow class members a limited opt-out right with respect to compensatory damages, under the certification that has been proposed, provision for such individual claims would not be a matter of right but would instead merely be discretionary with the Court. See, e.g., Eubanks v. Billington, 110 F.3d 87, 93 (D.C. Cir. 1997). Moreover, the venue restriction proposed in the settlement for such compensatory claims assumes that the basis for mandatory certification extends to both punitive and compensatory damages. Thus, the punitive damages "overkill" theory, which is justified solely by reference to class members' claims for punitive damages, cannot support the broader mandatory certification sought here.

C. Rule 23(b)(2) Does Not Apply to Class Members' Claims for Damages.

The settling parties' alternative request for mandatory certification under Rule 23(b)(2) is even less colorable than their request for "limited fund" certification. Rule 23's drafters intended to limit certification under subdivision (b)(2) to those cases in which the relief sought by the plaintiff class was predominantly injunctive, such as civil rights and employment discrimination suits. Here, however, the claims for damages alleged in the class complaint cannot support certification under Rule 23(b)(2).

Certification under subdivision (b)(2) is inappropriate here because most of the claims alleged in the class complaint and released under the class settlement are claims for money damages. The presence of those individual claims for damages preclude certification of a no-opt-out class under 23(b)(2), despite the presence of injunctive relief in the proposed settlement. In short, this case is one predominantly for money damages. That being so, the class members have a right -- both under the federal rules and the U.S. Constitution -- to opt out and pursue their damages claims in other courts. See Shutts, 472 U.S.at 812; Rules Advisory Committee's Notes to 1966 Amendments to Rule 23, 39 F.R.D. 69, 102 (1966) (subdivision (b)(2) "does not extend to cases in which the appropriate final relief relates exclusively or predominantly to money damages").

Moreover, even if this was not a case predominantly for money damages (which it is), the class members would still have a constitutional right to opt out and pursue their claims for damages in other courts. The mere inclusion of injunctive relief in a case that also seeks money damages does not create the sort of unified interest in a common result that justified the creation of mandatory classes in the first place. Although there may be a practical need for a single outcome with respect to the injunctive relief sufficient to justify certification of a mandatory class with respect to those claims, there is no reason to deprive class members of the right to exclude their damages claims from the case. Thus, where cases predominantly seeking injunctive relief also seek money damages, the proper approach is to permit mandatory class certification with respect to the injunctive relief sought, but to certify the class on an opt-out basis with respect to the damages claims. See, e.g., Holmes v. Continental Can Co., 706 F.2d 1144, 1152 (11th Cir. 1983); see also James W.M. Moore, 3B Moore's Federal Practice, 23.41[5] (1993) (where "injunctive relief and damages would be equally appropriate remedies, and both may be obtained, the court should divide the suit into subclasses handled under the separate subdivisions of [Rule 23](b)"); Newberg 4.14, at 4-51 to 4-52 (where class members seek individual compensatory relief in addition to broad classwide injunctive relief, courts should afford them procedural protections of notice and the right to opt out).

D. The Proposed Class Is Improper On A Variety of Other Grounds As Well.

In addition to the constitutional and procedural defects discussed above, the proposed class raises a number of other thorny legal and practical problems. These include constitutional questions about the infringement on class members' Seventh Amendment right to a jury trial, see Parklane Hosiery Co. v. Shore, 439 U.S. 322, 338 (1979) (Rehnquist, J., dissenting) and difficult questions under the Anti-Injunction Act. See In re Fed. Skywalk Cases, 680 F. 2d 1175 (8th Cir.), cert. denied sub nom Stover v. Rau 459 U.S. 988 (1982) and In Re Temple, 851 F. 2d at 1269.

Perhaps most disturbingly, however, the certification here has the practical effect of preventing the class members in this case from exercising their right to opt out even with respect to their claims for compensatory damages. Given the facts of this case, it is likely that many class members do not have claims for compensatory damages alone in amounts that are sufficient to attract counsel who would be willing to provide services on a contingency basis. This problem is exacerbated by the fact that the settlement proposes limiting the venue of "opt-out claims" by requiring that they be filed before this Court. That being so, as a practical matter the proposed mandatory punitive damages class forces class members to accept the settlement with respect to both compensatory and punitive damages, even if they would otherwise prefer to opt out. As explained above, this interference with class members' right to opt out has constitutional implications. For all of these reasons, the proposed mandatory class cannot withstand scrutiny. The proposed restrictions on class members' right to opt out should not be approved.

III. THE PROPOSED SETTLEMENT IS UNFAIR
A. The Claims Filing Requirement Virtually Assures That the Majority of Class Members Will Receive Nothing from this Settlement.

Despite the fact that the Defendants' records contain all information necessary to distribute settlement funds among the class, the settlement requires that class members affirmatively file a claim form in order to recover. Claims filing requirements dramatically restrict the percentage of class members who benefit from the settlement. Moreover, where the class settlement proposes that some or all unclaimed funds will revert to the defendant, as this settlement does, a claims procedure acts as nothing more than a disguised limitation on the money paid by the defendant. As Professor Newberg concludes:

When the defendant has made a formula settlement offer to the class, agreeing to pay each qualifying class member a sum of money in relation to that member's claims against or purchases from the defendant, then the defendant's ultimate monetary exposure is directly proportional to the number and size of claims filed by class members. Under these circumstances, the defendant's interest is usually to limit its pecuniary liability as much as possible, and the defendant would seek to have the court adopt affirmative response requirements and forms that would discourage, or at least not encourage, the filing of claims by class members.

2 Newberg on Class Actions 8.35 at 8-116 (3d ed. 1992). And, as this Court has learned in other cases, a significant majority of class members fail to satisfy claims filing requirements. Id. at Appendix 8-4 (Response Rate Levels) (showing that claims filing rates in a majority of class actions are below 20 percent).

Defendants' contention that the claims filing requirement is necessary to avoid individual review of claim files is disingenuous. Defendants recite their alleged reason for the claims filing requirement in the Settlement Agreement:

The Tower Loan Companies represent that, at least for a portion of the time period involved, the best means to determine each individual borrower's Net Premium Paid is to review each individual loan file. Such review, however, is not feasible because of the large number of Borrowers. Therefore, the parties agree that the reasonable and most accurate method to determine participants in the cash settlement under this Agreement is to require Class Members to respond to notice.

Sett. Agrmt at 28. But, if individual review of claim files is unwieldy, there is no reason that individual review of claim forms would not be similarly problematic. How will Defendants determine what to pay each class member who files a claim form without checking those class members' files? The only difference is that there will be fewer forms than there are files. Thus, Defendants ask this Court to approve the claims filing requirement for the express reason that it will cut down on the number of class members who receive a recovery. This Court should reject that request.

B. The Settling Parties Have Failed To Demonstrate That the Economic Terms of the Settlement are Sufficient

The settling parties have made no showing to support the economics of this settlement. While the class notice indicates that the class will receive 20% of the "Net Premium Paid" for credit-related insurance, the settling parties have provided no basis for this Court to determine whether such a percentage is appropriate. Based on the allegations of the complaint, 20% of premiums appears inadequate, given that, but for Defendants' wrongful conduct, many of those insurance policies would not have been issued to class members at all. Moreover, the 20% figure in the class notice is highly misleading. Due to the combined effect of the "claims-made" requirement, together with a $1.5 million cap on the Compensatory Damages Fund, the class will only receive some fraction of 20% of the total Net Premium Paid by all class members. At this point, the record is silent as to how much Defendants may have collected from the class in illegal premiums -- and it is quite possible that 20% of that number is significantly greater than the $1.5 million cap on the settlement's Compensatory Damages Fund.

Thus, unless this Court is inclined to reject the proposed settlement and appoint new counsel because of the adequacy of representation and class certification problems discussed above, it should require the settling parties to provide objectors with formal discovery sufficient to evaluate whether the settlement's economic terms are fair.

CONCLUSION

In light of the shortcomings outlined above, the Alexander Objectors respectfully request that this Court reject the proposed settlement, disqualify class counsel, void the agreement to pay class counsel $50,000 in expenses, amend the class certification to provide class members an unfettered right to opt out with respect to all claims for damages, and appoint new counsel to prosecute the class claims.

Respectfully submitted,
Jane E. Tucker
MS Bar # 1786
125 South Congress St., Ste. 103
Jackson, MS 39201

Steve Baughman
BARON & BUDD, P.C.
3102 Oak Lawn Ave., Ste. 1100
Dallas, TX 75219
(214) 521-3605

Arthur H. Bryant
TRIAL LAWYERS FOR PUBLIC JUSTICE
1717 Massachusetts Avenue N.W.
Suite 800
Washington, D.C. 20036
(202) 797-8600

August 15, 1997

CERTIFICATE OF SERVICE
I, Steve Baughman, counsel for the Alexander Objectors, certify that a true and correct copy of these Objections was sent to counsel for the settling parties via Federal Express, this 14th day of August, 1997.
STEVE BAUGHMAN