# Lazy Oil, Co. v. Witco Corp.

> District Court, W.D. Pennsylvania · December 31, 1997 · 95 F. Supp. 2d 290

URL: https://www.frixlaw.com/law-library/cases/2361541

## Case

- **Full name:** LAZY OIL, CO., John B. Andreassi, Thomas A. Miller Oil Co., and Wynnewood Drilling Associates, on Behalf of Themselves and All Others Similarly Situated, Plaintiffs, v. WITCO CORPORATION, Pennzoil Company, and Pennzoil Products Company, Defendants
- **Court:** District Court, W.D. Pennsylvania
- **Decided:** December 31, 1997
- **Citations:** 95 F. Supp. 2d 290; 1997 U.S. Dist. LEXIS 21397; 1997 WL 1526763
- **Precedential status:** Published
- **Opinion:** Opinion by McLAUGHLIN
- **Judges:** McLAUGHLIN
- **Cited by:** 34 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/2361541

## How later opinions describe it (automated extraction)

- noting that no evidence was issued on the defendants’ ability to withstand a larger judgment, but presuming the defendants did and according little weight to that fact due to risks the plaintiffs faced in proceeding to trial
- noting that “[h]ere, as in every case, Plaintiffs face the general risk that they may lose at trial, since no one can predict the way in which a jury will resolve disputed issues”
- observing that, in light of the quality of legal representation provided by counsel for the settling defendants, class counsel “faced a formidable task in prosecuting” the action
- noting a range of 20-27% fee awards in cases that settled for $20-30 million, and awarding attorneys’ fees in the amount of 28% of the $18.9 million settlement fund

## Opinion text

MEMORANDUM OPINION
McLAUGHLIN, District Judge. ■
Presently pending before the Court in this consolidated antitrust class action suit are several motions, including a motion by the Class to approve a proposed settlement of the lawsuit. Specifically, the Class seeks approval of the proposed settlement agreement and the proposed plan of allocation of the settlement proceeds. In addition, Class Counsel seek an award of $6.35 million in attorneys’ fees and $486,165 in unreimbursed expenses. Various absent class members have objected to the proposed settlement, the proposed allocation plan, and/or Class Counsels’ request for attorney fees. Certain of these objectors have further moved for the disqualification or removal of Class Counsel and the creation of a subclass consisting of independent oil producers. Objectors Lazy Oil Co., John B. Andreassi, and Thomas A. Miller Oil Co. also seek an incentive award in the event that the proposed class settlement is approved.
This Court has jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1337. The following constitute the Court’s findings of fact and conclusions of law with respect to these motions.
I. FINDINGS OF FACT
a. The Backgkound Facts
1. Lazy Oil, Co., John B. Andreassi and Thomas A. Miller Oil Co. filed class action
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complaints on April 19,1994, April 26,1994 and May 17,1994, respectively. On July 7, 1994, the Court entered an order consolidating these actions and appointing as co-lead counsel for the Plaintiffs Howard Sed-ran, of the Philadelphia law firm Levin, Fishbein, Sedran & Berman and Samuel Heins, of the Minneapolis law firm Heins, Mills
&
Olson. Howard Specter of Pittsburgh, Pennsylvania was appointed as liaison counsel for the Plaintiffs. Subsequently, ■ on October 11, 1994, Plaintiff Wynnewood Drilling Associates (hereinafter, 'Wynnewood”) filed its class action complaint.
2.All of the aforementioned actions were brought on behalf of identical putative classes composed of all persons (except for Defendants and their affiliates) who had directly sold “Penn Grade crude oil”
1
to one or more of the Defendants between January 1, 1981 and the dates on which the actions were commenced. Plaintiffs alleged that Defendants — Witco Corporation (hereinafter, “Witco”), Quaker State Corporation and Quaker State Refining Corporation (collectively, “Quaker State”), Pennzoil Company and Pennzoil Products Company (collectively, “Pennzoil”)' — conspired among themselves and with unnamed co-conspirators to fix, lower, maintain and stabilize the price they paid to direct sellers of Penn Grade crude oil in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1 . The complaints sought damages and an injunction prohibiting Defendants from engaging in the alleged conspiracy.
3. On June 30, 1995, the Court entered an order permitting the consolidated action to proceed as a class action pursuant to Rule .23(b)(3) of the Federal Rules of Civil Procedure on behalf of a class consisting of all “direct sellers of Penn Grade crude” to Defendants between January 1, 1981 and June 30, 1995. The Court designated Messrs. Sedran and Heins as Class Counsel.
4. Penn Grade crude oil produced in the Appalachian region of the eastern United States has qualities that make it especially useful in the production of engine lubrication oils. For many years, Penn Grade crude was considered one of the best crude oils for the production of motor oils and its qualities could not be produced synthetically. As time passed and • new technology
emerged,
refiners throughout the country were able to use synthetic additives to make improved motor oils with qualities equivalent to those of Penn Grade crude oil. (Def.s’ Expert Reports, Kalt and Lave.) By the late 1980s, three principal refiners of Penn Grade crude remained: Pennzoil, Quaker State and Witco. Recently, Witco has sold its refinery in Bradford, Pennsylvania and Quaker State has announced that it seeks to sell its Congo Refinery in Newell, West Virginia.
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5. In response to Plaintiffs’ allegations of price fixing, Defendants denied having engaged in any conspiracy to fix prices, denied that producers had suffered any injury, and raised several affirmative defenses. Throughout this litigation, Defendants vigorously defended the case.
6. On September 27, 1995, the Court entered an order that provided for the sending of an approved form of notice (“Notice of Class Action”) to potential members of the Plaintiff class and a period of forty-seven days within which they could request exclusion from the class in accordance with procedures described in the order. Over 80,000 copies of the Notice of Class Action were sent out to potential. class members on October 18, 1995.
(See
“Notice of Filing of Affidavit Regarding Mailing of Notice and Publication of Summary Notice,” Doc. No. 93, at Ex. 1, Aff. Of Brad Heffler, CPA.) In addition, a summary notice was published in the
Wall Street Journal
and numerous other newspapers.
7. The names and addresses of the persons to whom notice was sent were drawn from the records of the Defendants reflecting persons to whom Defendants had made payments with respect to Penn Grade crude oil between January 1, 1981 and June 30, 1995. These persons included working interest owners and owners of royalty and overriding interests. Both the working interest and the royalty interest in a single oil well may be divided among many owners. A single individual may be assigned multiple account numbers in Defendants’ payment records. This is true for several reasons. First, a single individual may own royalty, overriding royalty, or working interests in multiple oil wells, and the Defendants’ records may assign a different account number to that individual for each well. Second, oil produced from a single well may be purchased by several buyers in succession over the life of the well and each time the buyer changes, the persons with economic interests in the crude oil may be given new account numbers in the purchaser’s system. Separate class notices were sent to each account number. Accordingly, the actual number of potential class members was substantially less than the number of notices mailed. While the precise number is impossible to determine, the parties’ best estimate put the number of potential class members (including working interest, royalty and overriding royalty interest owners) at between 20,000 and 30,000.
2
8. The Court previously granted final approval of a settlement with Quaker State in the amount of $4.4 million. The Quaker State settlement was entered into on or about December 20, 1995. It did not provide for any injunctive relief against Quaker State. After notice to class members and a hearing, the Court entered an order on June 13, 1996 approving the Quaker State settlement. Thus, only Pennzoil and Witco remained in the case as Defendants.
9. In mid-January 1997, an Agreement of Settlement Between Plaintiff Class and Pennzoil Company, Pennzoil Products Company and Witco Corporation (hereafter, “the Settlement Agreement” or the “Settlement”) was executed by counsel for Defendants Pennzoil and Witco and by all Plaintiffs’ counsel of record on behalf of the Plaintiff Class and two of the class representatives, Wynnewood and John B. Andreassi. The other two class representatives, Lazy Oil Co. and Thomas A. Miller Oil Co., had previously announced their opposition to the Settlement Agreement. Subsequently, John B. Andreassi announced that he was withdrawing his sup
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port for the Settlement Agreement. In light of the opposition of three of the four class representatives to the Settlement Agreement, Class Counsel moved to withdraw as counsel for the objecting class representatives but to continue representing Wynnewood and the Class. The Court conducted a hearing on this motion at which the three dissenting class representatives appeared and were heard. The Court thereafter granted Class Counsels’ motion by order dated February 24, 1997. The three dissident class representatives (hereinafter referred to as the “Lazy Oil Objectors”) later retained new counsel, Joseph E. Altomare of Titusville, Pennsylvania and Wayne Hundertmark of Seneca, Pennsylvania, to represent them in opposing the Pennzoil/Witco Settlement and in seeking other relief.
10. The Settlement Agreement with Pennzoil and Witco resulted after 2 and/6 years of hard fought litigation and a protracted period of arm’s-length negotiations between experienced antitrust lawyers.
11. The parties engaged in over 27 separate negotiating sessions to arrive at the Settlement. (Trans, of Hearing on Proposed Class Settlement, Vol. I at 19.)
3
12. The Court preliminarily approved the Settlement on February 4, 1997. An approved form of notice of the Settlement was mailed to class members on February 18, 1997 and published in
The Wall Street Journal
and numerous regional newspapers. The notice program is described in Notice of Filing of Affidavits Regarding Mailing of Notice and Publication of Summary Notice, dated April 16, 1997 [Doc. No. 222],
13. As described in the class notices, the Court scheduled a final approval hearing for 1:30 p.m. on April 23, 1997. In order to hear all the evidence, including witness testimony from the objectors to the'proposed Settlement Agreement, hearings were also held on April 28, 1997 and May 13, 1997. All persons who wished to object or comment upon any aspect of the Settlement were allowed to do so. During the course of the evidentiary hearing, the Court heard testimony from eleven live witnesses, including three expert witnesses. In addition, the Court has considered affidavits of seventeen persons and numerous documentary exhibits offered by the participants in the evidentiary hearing.
b. The Pennzoil and Witco Settlement
14. The proposed settlement with Pennzoil and Witco, if approved by the Court, will resolve this litigation. Under the Settlement, Pennzoil and Witco have paid $9,700,000.00 and $4,800,000.00, respectively, into an escrow interest bearing account, for a total amount of $14.5 million. They also have paid $250,000.00 into a separate escrow account to pay for the costs of notice and settlement administration. The Settlement Agreement states that Pennzoil and Witco do not admit liability and have agreed to enter into the Settlement Agreement in order to avoid further expense, burden and distraction arising from this protracted litigation.
15. The Settlement Agreement (¶ 9) also provides that Pennzoil and Witco will agree to the entry of a consent order limiting certain communications with the Ohio Oil and Gas Association (“OOGA”)
4
regarding their competitors’ posted prices for Penn Grade crude. Specifically, Pennzoil and Witco have agreed to stop communications with OOGA about their competitors’ posted price changes and have agreed
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not to call OOGA for news about their competitors’ posted price announcements, unless there is no other public source of the information.
16. Based upon purchases during the class period, the average market shares of the three refiners are approximately: Quaker State — 40%, Pennzoil — 40%, and Witco — 20%. (Ex. A to Pl.s’ Mem. in Supp. of Settlement, Doc. Nos. 216, 217.) Based upon a market share analysis of purchases from class members, Pennzoil and Witco will each pay approximately double the amount paid by Quaker State to settle this litigation.
17. The Settlement Fund, including both the Pennzoil and Witco funds and the Quaker State funds, less Court approved fees and expenses, will be distributed to members of the Class who submit claims in accordance with a plan of allocation and distribution. The Class has submitted a proposed plan of allocation, which was described in the mailed notice to class members. As we discuss in more detail,
infra,
certain members of the Class have objected to the proposed plan of allocation.
18. The Settlement provides for the dismissal with prejudice and the release of all claims of Class members that were or could have been asserted against Pennzoil and Witco in this action. If the Settlement is not approved, or if it is otherwise terminated or canceled, the settlement funds, less notice costs, will be returned to Pennzoil and Witco, and the status of the litigation prior to the execution of the Settlement Agreement will be restored.
19. The following objections to the proposed Settlement and positions regarding related matters have been filed or otherwise made known to the Court:
a.The three dissenting class representatives, Lazy Oil Co., Thomas A. Miller Oil Co. and John B. Andreassi, joined by approximately 384 class members (collectively referred to herein as the “Lazy Oil Objectors”), object to the amount of the proposed Settlement and its failure to provide for future price relief. In addition, they seek to remove or disqualify Class Counsel, to certify a subclass of Plaintiffs comprised of “independent producers,” and to obtain “incentive awards” in the amount of $100,000 each for their contributions as class representatives;
b. Ten additional class members (the “New York Objectors”) object to the amount of the Settlement and to Class Counsels’ application for attorneys’ fees;
c. Class member Richard Fry objects to the proposed Settlement and seeks payment of $76,400 for various services he claims to have rendered to Class Counsel;
d. Class Member Jack Master objects to the amount of the proposed Settlement and to its failure to include future price relief;
e. A group of West Virginia class members (the “West Virginia Objectors”) oppose the proposed plan of allocating the Settlement Fund among class members, and to Class Counsels’ application for attorneys’ fees; and
f. An Ohio class member, Beldon
&
Blake Corporation, objects to Class Counsels’ application for attorneys’ fees.
c. The Adequacy of the Pennzoil and Witco Settlement
20. The factors to be considered in evaluating a settlement under Fed. R.Civ.P. 23(e) are: (1) the complexity, expense and likely duration of the litigation; (2) the reaction of the class to the settlement; (3) the stage of the proceedings and the amount of discovery completed; (4) the risks of establishing liability; (5) the risks of establishing damages; (6) the risks of maintaining the class action through the trial; (7) the ability of the Defendants to withstand a greater settlement; (8) the range of reasonableness of the settlement fund in light of the best possible recovery; and (9) the range of reasonableness of the settlement fund in light of all the attendant risks of litigation.
See Girsh v. Jepson,
521 F.2d 153, 157 (3d Cir.1975);
In re
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General Motors Corp. Pick-Up Truck Fuel Tank Products Liability Litigation,
55 F.3d 768, 785 (3d Cir.1995) (hereinafter,
“GM Trucks Litig.”); cert. denied, General Motors v. French,
516 U.S. 824 , 116 S.Ct. 88 , 133 L.Ed.2d 45 (1995).
1. The Complexity, Expense and Likely Duration of the Litigation
21. The first factor in evaluating a settlement is the complexity, expense and likely duration of the litigation. This case involved numerous complex factual and legal issues relating to whether the alleged conspiracy took place and, if so, the damages suffered by the Class. The complex issues included,
inter alia,
the definition of the relevant markets; the effect of an oligopsony
5
on pricing behavior; the inferences to be drawn from evidence of price exchange communications by Defendants; the possible tolling of the statute of limitations because of alleged fraudulent concealment; the determination of the appropriate benchmark crude to calculate damages; and the determination of damages.
22. The complex issues relating to damages were the subject of conflicting testimony by numerous experts on both sides.
23. Given the complexity of this case, the large number of fact and expert witnesses and the voluminous documents relied on by both sides, the preparation for trial and the conduct of the trial itself would have been very time consuming and expensive. Also, absent a settlement, an enormous amount of additional time and expense would have been needed in connection with any motion under
Daubert v. Merrell Dow Pharmaceuticals, Inc.,
509 U.S. 579 , 113 S.Ct. 2786 , 125 L.Ed.2d 469 (1993), concerning the admissibility of certain disputed expert testimony. The Defendants had stated to the Court that they were going to move for a
Daubert
hearing. In addition, it was likely that there would have been a new round of expert discovery arising from the opinions of Plaintiffs’ rebuttal experts. Moreover, regardless of the outcome of the trial, it was highly likely that there would have been an appeal by the party that lost at trial, and such an appeal would have increased the expense and duration of the litigation.
24. During the course of this litigation, Defendants have contested virtually every element of Plaintiffs’ claims concerning both liability and damages. The Settlement provides benefits to the Class years earlier than would be possible if this case proceeded to trial and subsequent appeals. Thus, the Settlement not only avoids the substantial risks and uncertainties inherent in further litigation, it also obviates the need for expensive and protracted litigation.
2. The Reaction of the Class to the Settlement
25. The proposed form of Notice of the Settlement was submitted to the Court for its review on or about January 21, 1997. On February 4, 1997, the Court approved the Notice and directed that it be mailed and published.
26. Notice of the proposed settlement with Pennzoil and Witco was mailed to class members from customer lists developed from the electronic customer files of Quaker State, Pennzoil and Witco. The mailed notice was sent to 75,691 potential class members on February 18, 1997. (Notice of Filing of Affidavits Regarding Mailing of Notice and Publication of Summary Notice, dated April 16, 1997 [Doc. No. 222].)
27. In addition to the mailed class notice, a summary notice describing this Settlement was published in
The Wall Street Journal
on March 7, 1997 and in more
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than 30 newspapers in the Appalachian region.
(Id.)
28. The Settlement was supported not only by class representative Wynnewood Drilling Associates, but also by the overwhelming majority of other class members.
29. Several of the largest and most sophisticated producers of Penn Grade crude submitted affidavits in support of the Settlement. Jerry Jordan, chairman of Ohio-based CGAS Exploration, Inc. (“CGAS,” formerly known as The Clinton Oil Company), submitted an affidavit in support of the Settlement. CGAS is one of the largest producers in the state of Ohio.
(See
Pennzoil Ex. G-3, Depo. of Thomas Stewart at 15, 33; Aff. of Jerry Jordan, Ex. B, “Exhibits To Mem. Of PI. Class in Supp. Of Final Approval of Settlement” [Doc. No. 217]; Tr. Vol. Ill at 117.). A tabulation attached to Mr. Jordan’s affidavit shows that CGAS sold approximately four million barrels of crude oil during the period covered by the alleged conspiracy. (Aff. Of Jerry Jordan.)
30. Edward G. Wallace, Jr. likewise filed an affidavit in support of the Settlement. (Aff. of Edward G. Wallace, Jr. [Doc. No. 231].) During the period January 1, 1981 to June 30, 1995, Mr. Wallace was the president of and/or owned a controlling interest in McAlester Fuel Company, U.S. Exploration Company, and Republic Mineral Corporation. Mr. Wallace estimated that these companies had dollar sales of approximately $500,000 to Defendants during the 1981-95 period.
(Id.)
31. In addition, Charles Kirkwood, a director and vice president of Pennsylvania General Energy Corp. (“PGE”) submitted an affidavit in support of the Settlement
(see
Aff. of Charles Kirkwood [Doc. No. 232]) and testified in support of it at the evidentiary hearing. (Tr., Vol. I at 22-47.) Mr. Kirkwood graduated from Harvard Law School in 1960. He testified that his decision to support the Settlement was based upon a review of expert reports, briefs and memoranda filed in this case addressing the various opinions on the range of damages, as well as the affidavit of former Third Circuit jurist Arlin Adams. (Tr., Vol. I at 43-44.) PGE is currently the largest producer of Penn Grade crude in the Commonwealth of Pennsylvania. During the period 1990 through 1995, PGE sold approximately one million barrels of Penn Grade crude to the Defendants.
Id.
at 23.
32. Together, CGAS, Edward G. Wallace, Jr., and PGE account for approximately 2-3% of all sales of Penn Grade crude to the Defendants.
33. Two West Virginia crude oil producers appeared at the hearing and presented testimony on behalf of the West Virginia Objectors. Barry Lay, Vice President of Engineering for the Waco Oü and Gas Company, testified that his company had sold the Defendants in excess of half a million barrels of oil between 1990 and 1994. (Tr. Vol II, 164-65.) Denny Har-tón, another witness for the West Virginia Objectors, is President and CEO of Gas-Search Corporation, as well as a member of the Board of Directors of the Independent Oil and Gas Association of West Virginia (“IOGA”) — a trade association representing over 300 West Virginia crude oil producers. (Tr. Vol II, 178-180; 189.) These witnesses (and their counsel) stated their opposition to the proposed allocation formula and to Class Counsels’ petition for attorneys’ fees, but did not oppose the Settlement itself. (Tr. Vol II, 159-60,167-68; 180,184,188-89.)
34. Approximately 80% of the Penn Grade crude produced during the class period came from Ohio.
(See
Ex. “A,” Exhibits to Mem. of PL Class in Supp. of Settlement With Def.s Pennzoil Co. Pennzoil Products Co. and Witco Corp., dated April 14, 1997 (“Plf.s’ Ex.s to Settlement Mem.”)).
35. Very few objections from Ohio producers have been submitted and those Ohio producers who
have
objected account for a minuscule percentage of sales of Penn Grade crude to the Defendants.
See
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Affidavits of Edward Radetich, Susan Hamric and Patrick Shannon. Only one producer with operations in Ohio, accounting for only about 3000 barrels of crude during the relevant period, is included in either group of objectors. (Pennzoil Ex. B at 5.) The Court accords considerable weight to the absence of significant Ohio opposition to the Settlement.
36. There are two primary groups who oppose the Settlement itself. The first group, previously referred to as the “Lazy Oil Objectors,” consists of three dissident class representatives (Lazy Oil Co., John B. Andreassi, and Thomas A. Miller Oil Co.) and approximately 384 individuals
6
who have filed “Affidavits of Joinder” expressing their desire to join in the dissident class representatives’ objections. The second group consists of ten producers with operations principally in New York (the “New York Objectors”), who are represented by attorneys Loren Bly and William J. Brennan. Neither of these groups has come forward with information regarding the volumes of oil they sold to Defendants during the relevant class period. Affidavits submitted by Defendants and by Class Counsel, reflecting information derived from payment records of the Defendants, indicate that both groups of opponents in the aggregate represent no more than three percent of the Class, both in terms of numbers of class members (if the Class is estimated to include 20,000 or more persons)
7
and volume of oil sold to the Defendants from the Class during the pendency of the alleged conspiracy (estimated by Plaintiffs’ experts to be upwards of 92 million barrels).
See
Affidavits of Edward Sincavage, Sue Hamric and Patrick Shannon.
37. In addition, individual objections have been submitted by Messrs. Richard Fry and Jack Master.
a.
The Lazy Oil Objectors
38. Lazy Oil Co., a class representative, has been a very small producer of Penn Grade crude. Bennie Landers, a principal of Lazy Oil, testified that during the period 1987 to June 1995, Lazy Oil sold no Penn Grade crude to Witco and has not sold much Penn Grade crude to Pennzoil. (Tr., Vol. II at 84-85.) For the period 1981 through 1988 and 1990 to 1995, Lazy Oil sold only 135,905.1 barrels to Quaker State.
(Id.
at 85.)
39. In total, class representative Lazy Oil Co., Bennie Landers and his related company, Kaylor Natural Gas Co., and John B. Andreassi represent 0.0135321894% of total sales to Quaker State for the period 1981 to 1988 and 1990 to 1995. (Aff. of Edward J. Sincavage, dated April 25,1997.)
40. Approximately 384 producers submitted joinders to the objections of Lazy Oil (“Joinders”). Together, all of the Join-ders and Lazy Oil, John Andreassi, and Thomas A. Miller Co. represent only 1.387% of the total sales to Quaker State during the class period (not counting the year 1989 for which data was not available). (Sincavage Aff. dated 4/25/97, at ¶ 8.)
41. Bennie Landers advised class members about his alternative damage theory of lost profits and advised them how they could register an objection to the Settlement. (Tr., Vol. II at 82.)
42. The Court has carefully considered the objections to the Settlement by class representatives Lazy Oil Co., Thomas A. Miller Oil Co., and John B. Andreassi. For reasons described in these findings, the Court finds that, while these class representatives are well-intentioned, their views about this litigation are misguided, as are their objections. The persons who have objected to the proposed Settlement
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have not advanced valid criticisms of the Settlement. The objectors complain chiefly that the Settlement is inadequate because: (1) it fails to take account of alleged substantial “lost profits” that class members would have received if the price of Penn Grade crude had been higher than it actually was; and (2) it fails to ensure a higher price for Penn Grade crude in the future. As discussed in further detail below, the Lazy Oil Objectors’ “lost profits” damage theory is speculative, contrary to market realities, and otherwise conceptually flawed. Further, the “lost profits” measure of damages would have posed serious problems to the continued maintenance of this case as a class action, since the lost profits of each individual class member are not susceptible to class-wide proof. As is also discussed in more detail below, Plaintiffs would not be entitled to a future crude oil price guarantee even if they were successful at trial.
(i) The Lost Profits Measure of Damages
43. As we note above, one of the main arguments advanced by the Lazy Oil Objectors is that Class Counsel purportedly used the wrong measure of damages. Instead of using the price differential measure of damages, the Lazy Oil Objectors contend that Class Counsel should have used the lost profits measure of damages.
44. Under the price differential measure of damages, a comparison is made of the price actually received during the alleged conspiracy period and what the price would have been in the “but for” world. [This involves- comparing the allegedly conspiratorially depressed prices paid for Penn Grade crude with the prices paid for a competitive “benchmark” crude- — i.e. one that was not affected by the alleged conspiracy. In this case, Plaintiffs’ experts used “Illinois Basin” as the competitive “benchmark” crude.]
45. Lazy Oil objects to the damage analysis used by Plaintiffs’ experts, including the experts’ comparison of the values and prices of Penn Grade crude with the “benchmark” crude. (Tr., Vol. II at 56-57.) However, the price differential method is “widely used -and accepted as a valid approach” for calculating damages. (Aff. of Dr. Kevin Neels dated 4/11/97 [Doc. No. 220].)
46. Under the lost profits theory, damages are calculated as the difference between the profits that the Plaintiffs actually earned and the profits they would have earned, but for the alleged conspiracy. (Aff. of Dr. Neels.) The central premise of the Objectors’ theory is that, in the “but for” non-conspiratorial world, higher oil prices would have provided additional income to independent oil producers, which in turn would have allowed them to engage in necessary remedial work on their existing wells and/or the drilling of new wells. This additional production in turn would have spawned further profits. The Lazy Oil Objectors argue that the damages analysis performed by the Class’s experts is patently deficient because it fails to take into account this element of foregone profits.
47. Dr. Neels explained in his April 11, 1997 affidavit that the Lazy Oil Objectors’ lost profits damages theory erroneously inflates the amount of damages sustained by oil producers and, depending on- certain variables such as the cost of drilling new wells, can actually yield a
lower
estimate of damages than that produced under the price differential theory used by Plaintiffs’ experts. ■
48. Dr. Neels pointed out other conceptual flaws in the lost profits damages theory. For example, he noted that the Lazy Oil Objectors’ theory rests upon the assumption that there is an unlimited number of new wells of constant productivity that could be drilled in the Appalachian Basin, which appears to be questionable. Also, the objectors’ theory presumes that the market could absorb such, increased production, despite evidence that Defendants, throughout the alleged conspiracy
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period, were operating at close to full capacity. (Aff. Of Dr. Neels.)
49. Dr. Neels testified that the price differential model of damages undertaken by Dr. House calculated the “vast bulk” of the Class’s damages in the case and was a “substantially complete” model. (Tr. Vol. II at 229.)
50. The Court finds Dr. Neels’s affidavit and testimony persuasive in this regard and therefore credits his opinion relative to the Lazy Oil Objectors’ lost profits damages theory. Consequently, the Court is not persuaded by the Objectors’ argument that, absent further record development concerning the lost profits element of damages, the record is too incomplete to make a meaningful assessment of the adequacy of the Settlement.
51. In addition to the foregoing problems, there are a host of individualized and predominating factual questions in the context of a class action that need to be determined in connection with a damage theory based upon the lost profits measure. Dr. Neels in his April 11, 1997 affidavit observed that a lost profits measure of damages would require individualized information concerning operating costs, exploration and drilling costs, the likely productivity of new wells brought on-line in response to the financial incentives created by higher prices, and the ability of producers to market the new production either to the Defendants or to other refiners. (Aff. Of Dr. Neels dated 4/11/97.) The witnesses who testified on behalf of the Lazy Oil Objectors confirmed the existence of these individualized factual questions.
52. For example, Victor W. Henderson, an expert appraiser of oil and gas properties, opined that it would be possible to calculate, on a class-wide basis, the estimated lost profits suffered by the Class as a result of Defendants’ alleged conduct. Mr. Henderson admitted during his testimony that, in determining the value of an oil producing property, one needs to look at (among other things): the producing horizon of the particular property; its water production, which varies by well; the extent to which the property requires deep drilling; pricing histories of certain wells; production histories; operating expenses and tax burdens. (Tr., Vol. I at 79-81.) He claimed that one could arrive at estimated values for these factors (and thereby calculate an estimate of class-wide damages) by obtaining data about typical operating expenses, tax burdens, etc., for each given area of similar depth within a particular producing horizon.
8
(Id.)
53. Mr. Henderson admitted that, while there is a general relationship between the price of oil and production, if one looked to a given property, one might find a particular producer operating for some odd reason in an unreasonable fashion.
(Id.
at 82.)
54. Mr. Henderson further acknowledged that, even with an increase in the price of Penn Grade crude, one would not find that there would be remedial well work on each and every property or that there would be new drilling activity.
(Id.
at 90.) He opined that, in order for there to be additional development drilling or remedial work, there has to be a sustained price increase of six months to a year.
(Id.
at 92.) However, the actual length of time that a price increase would need to be
*302
sustained in order to stimulate increased production varies among producers. Moreover, while Mr. Henderson would attempt to draw general conclusions about the Appalachian Basin as a whole, he admitted that the level of price increase necessary to motívate a particular producer to drill new wells varies from producer to producer.
9
(Id.
at 96.) Mr. Henderson also admitted that, at a dollar increase in the price of Penn Grade crude oil, he could not tell whether any particular producer would drill new wells.
(Id.)
55. With respect to shut-in wells, the determination of whether an increase in the price of crude oil would result in the start up of a shut-in well, as opposed to the drilling of a new well, must be determined on a case-by-case basis.
(Id.
at 92-93.) The analysis of the cost to start up a shut-in well also varies well by well.
(Id.
at 93-94.) Further, whether a particular producer owns idle wells is an important factor affecting the likelihood of new drilling. Bennie Landers testified that he would put any additional resources first into idle wells, rather than new drilling, because idle wells create a cash flow problem as well as environmental problems. (Tr., Vol. II at 102.)
56. Victor Henderson conceded that many of the factors that affect new drilling' — -including the drilling depth, the method of completion, the availability of land space on which to drill, the presence of shut-in wells, etc., all vary among producers. (Tr., Vol. I at 95-96.)
57. In addition, to the extent that an increase in the price of Penn Grade crude oil increased production, the refiner purchasers of Penn Grade crude would most likely first look to those producers that were located closer to their refineries.
(Id.
at 99.) Therefore, under the lost profits theory, it is possible that there could be an intra-class conflict in showing lost profits among class members, as producers farther away from refineries would theoretically suffer less harm than those located closer to refineries.
58. Further, assuming that higher oil prices would lead to increased oil production, Victor Henderson was unable to distinguish new oil production by, e.g., Pennzoil from new production by class members. (Tr., Vol. I at 102.) This points up a serious flaw in the Lazy Oil Objectors’ damage approach, because production by the Defendants must be eliminated from any calculation of class-wide damages. Mr. Henderson acknowledged that, after developing an estimate of the incremental production that the Appalachian Basin, as a whole, would have theoretically produced in response to higher oil prices, it would be necessary to go back and allocate the production by referring back to individual persons and entities (such as the Defendant refiners) in order to ascertain whether they in fact drilled new wells or produced new oil.
(Id.)
59. Victor Henderson admitted that his mass appraisal approach to lost profits has never been applied or tested in the context of a class action lawsuit. (Tr., Vol. I at 71-72.) The Lazy Oil Objectors did not provide any reasonably reliable evidence to persuade the Court that, under their lost profits theory, damages suffered by the Class could be accurately determined on a class-wide basis.
60. Another witness for the Lazy Oil Objectors, Samuel T. Pees, a petroleum geologist, confirmed that there are individual variations with respect to the price level at which wells would come back into production. He agreed that Penn Grade prices had to get to $25-$30 per barrel in order to get wells back into production. (Tr., Vol. I at 123-35.)
61. Mr. Pees also acknowledged that the cost of producing a new well depends primarily on the depth of drilling, which
*303
varies widely across the Basin. (Tr., Vol. I at 115.)
62. William C. Henderson (no apparent relation to Victor Henderson) also testified for the Lazy Oil Objectors. He is a producer of crude in the Appalachian region and also has a drilling business. (Tr., Vol. II at 8.) William Henderson testified that, in order for higher oil prices to stimulate additional production, the price increase has to be sustained for at least a year or more.
(Id.
at 27.) In contrast, Victor Henderson testified that a price increase had to be sustained for six months to one year. Thus, it would appear that there is no consensus among producers as to how long a price increase must remain in effect in order to stimulate increased production.
63. William Henderson testified that his lifting cost (the cost to lift crude) was approximately $21.00 per barrel on average. He acknowledged, however, that costs are higher on some leases than on others. (Tr., Vol. II at 24.) Bennie Lan-ders testified that his lifting cost was $17.00 per barrel.
(Id.
at 41.) Thus, it is evident that lifting costs vary on an individualized basis. An individual’s lifting costs would necessarily factor into the determination as to what level price is necessary in order to induce additional oil production.
64. In summary, the Court finds that the lost profits damage theory propounded by the Lazy Oil Objectors would necessarily require numerous individualized factual inquiries and, therefore, it is doubtful that such a theory would be susceptible to proof on a class-wide basis. Dr. Neels testified that the many differences among class members in terms of their cost structures, number of wells owned, drilling costs, etc., would require highly individualized factual inquiries under a lost profits theory. (Tr., Vol. II at 239-42.) The Court is persuaded by Dr. Neels’s opinion on this point.
65. In addition, other considerations lead the Court to conclude that the lost profits measure of damages is a less feasible approach than the ■ price differential measure used by Plaintiffs’ experts. The Court acknowledges Victor Henderson’s opinion that lost profits could be reasonably estimated on a class-wide basis. We reiterate our finding that the individualized nature of many of the factors that would impact on such a calculation (as outlined above) render this approach dubious in a class-action context. At worst, the lost profits approach, as outlined by Victor Henderson, could lead to decertifi-cation of the Class. At best, it is an approach founded upon multiple generalized assumptions — including generalizations about the conditions of a “typical” well and how a “typical” producer in a given area would react to certain pricing fluctuations. While the Court recognizes that a certain level of generalization and imprecision inheres in any class-wide damages calculation, the Court finds that a lost profits approach would yield a substantially less precise measurement of damages than the price differential method because it would be less capable of targeting an individual class member’s damages. Indeed, the Court finds that the lost profits approach in the context of this case could well be attacked as speculative. Dr. Neels testified that the highly individualized circumstances of each producer would mean that the probability of additional drilling would vary from producer to, producer. Thus, Dr. Neels did not believe that one could accurately predict the level of drilling that would have occurred in the “but for” world under a mass approach to lost profits. (Tr., Vol. II at 242.) Once again, we find Dr. Neels’s testimony persuasive in this regard.
66.In addition to being ill-suited for class-wide resolution and somewhat speculative in nature, the lost profits model of damages suffers from other conceptual flaws which render questionable its utility. For one, we note that there was some evidence in this record that the Defendants had been operating at or near full capacity throughout the alleged conspiracy
*304
period.
(See
expert report of Dr. Kalt;
see also
Tr., Vol. II at 235-36.) Thus, there was evidence in this record that could potentially undermine a key assumption of the lost profits theory — that additional oil could have been marketable and would have been profitable. Dr. Neels testified that, if the refiners were operating at economically full rates, introduction of a significant percentage of additional oil into the market would drive prices down. (Tr., Vol. II at 238.).
67. In addition, there was testimony at the hearing that, even assuming a seven percent increase in the price of oil during the conspiracy period (the percentage by which Dr. House calculated that the Class was underpaid), Penn Grade crude prices would not have reached a sustained price level high enough to induce additional drilling. (Tr., Vol. II at 26-27; 231-35.)
10
68. There was also evidence that other factors beside price affected the rate at which new oil wells were drilled in Pennsylvania, including the Pennsylvania Oil & Gas Act and the Tax Reform Act of 1986. (Tr., Vol. II at 28.) Thus, apart from problems with class-wide proof, the lost profits model of damages suffers from substantive conceptual problems.
69. ■ Finally, we find that adoption of the Lazy Oil Objectors’ lost profits theory would result in tremendous expense and would unduly protract this litigation. Victor Henderson stated that, in order to develop a class-wide lost profits model of damages, he would require a team of the experts, including a geologist and an economist. (Tr., Vol. I at 82-84.) Mr. Henderson1 felt that it would take 2-3 months to develop the damages model. However, Samuel Pees testified that he would require a team of 7-8 individuals working for at least 3-6 months in order to develop a model of the geographic parameters of the Appalachian Basin. (Tr., Vol. I at 120.) The Court concludes that pursuing a lost profits model of damages, as outlined by the Lazy Oil Objectors, would require a tremendous investment of time and money without significantly enhancing the Class’s chances for an increased recovery. Indeed, in light of the many problems presented by the Lazy Oil Objectors’ lost profits model, we find that it was reasonable for Class Counsel to pursue a price differential theory of damages in the context of this case.
11
70.For all of the foregoing reasons, the Court finds that the lost profits measure of damages is a less feasible approach in the context of this class action lawsuit than the price differential theory of damages employed by the Class’s experts. Accordingly, the Lazy Oil Objectors’ complaint that the proposed Settlement should be rejected because it fails to account for lost profit damages is not persuasive.
(ii) The Objection Relative to Future Pricing
71. The Lazy Oil Objectors also oppose the Settlement on the ground that it does not, in their opinion, provide
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enough security that the price of Penn Grade crude will be maintained at competitive levels in the future. (Tr., Vol. II at 73-74.) Bennie Landers testified that he was looking for a settlement agreement that would stabilize future prices and thereby provide economic security for Penn Grade producers in the future.
(Id.
at 74-75.)
72. In connection with the settlement negotiations with Pennzoil and Witco, Mr. Landers requested that the Settlement provide that future prices would be pegged to the NYMEX price for crude.
12
(Id.
at 113.) This demand was communicated by Class Counsel to Pennzoil and Witco. However, it is undisputed that the Defendants were unwilling to agree to such terms as part of the Settlement.
(Id.
at 113-14.)
73. Further, Mr. Landers admitted that he was looking for an agreement with the Defendants whereby future oil prices would be stabilized at a particular price for a particular period of time. (Tr., Vol. II at 74.) Mr. Landers admitted to being advised by Mr. Sedran that such an agreement was not possible because it would be in violation of the law.
(Id.
At 75.)
.74. Mr. Landers next suggested that what he actually sought was stronger in-junctive relief. He explained that he was essentially looking “to stop [the Defendants] from doing [in the future] what they were doing [in the past].” (Tr., Vol. II at 76.) This, he felt, would result in a true competitive marketplace and, by implication, higher oil prices.
(Id.)
75.However, it is undisputed that, at the time of the settlement hearings Quaker State was in the process of selling its Congo refinery, and Witco had already sold its Bradford refinery. As Mr. Lan-ders acknowledged, neither Witco nor Quaker State will be purchasing Penn Grade crude oil in the future. (Tr., Vol. II at 112-13.) Therefore, any future injunc-tive relief as to these two companies would essentially be meaningless, since Pennzoil would not be in a position to conspire with either Witco or Quaker State relative to the future pricing of Penn Grade crude oil.
76. The absence of the injunctive relief sought by the Lazy Oil Objectors does not render the Settlement Agreement unfair or unreasonable.
(iii) The Alleged Procedural Deficiencies
77. The Lazy Oil Objectors also attack the Settlement on the ground that the class members’ due process rights have been compromised by the conduct of Class Counsel and by inadequacies in the class notice. They complain that they had no input into either the negotiating process or the selection of the theory of damages on which the case was to proceed. Mr. Lan-ders claimed that the Settlement was presented to him as a
fait accompli
and, in addition, he was asked to delay his decision about the Settlement until after the Class had voted.
78. The Court finds, as a factual matter, that Mr. Landers Was involved in the settlement process. As previously noted, Class Counsel demanded, on behalf of Mr. Landers, that future Penn Grade crude oil prices be pegged to the NYMEX prices. This request was rejected by the Defendants. (Tr., Vol. II at 113-14.)
79. Further, there is evidence that Mr. Sedran had contact with Mr. Landers through his personal representative, Reid Eschallier. The Court credits Mr. Sed-ran’s testimony that, while Mr. Landers was not involved in the “back and forth” of every settlement demand and offer, Mr. Eschallier was involved in some of the settlement discussions and was apprised of the general range of settlement. (Tr., Vol. II at 152-54.)
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80. The Court further credits Mr. Sed-ran’s testimony that, in the course of his contacts with Mr. Landers, Mr. Landers made settlement demands which Mr. Sed-ran felt were outrageous, not in the best interest of the Class, and incapable of being obtained in this litigation.
{Id.
at 154.)
81. The objectors complain that they were not given a voice in the selection of the Class’s theory of damages. However, we reiterate our previous finding that, in the context of this case, the lost profits theory advanced by the Lazy Oil Objectors was a less feasible approach to damages than the price differential theory used by the Plaintiffs’ experts. Accordingly, Class Counsel acted reasonably and in the best interests of the Class as a whole in adopting a price differential measurement of damages.
82. Mr. Landers complains that he was presented with the Settlement at the last minute and asked to approve it on short notice. He claims that Mr. Sedran urged him to forego objecting to the Settlement until the Class as a whole had an opportunity to vote on it. The Court credits Mr. Sedran’s testimony that he did not talk Mr. Landers into agreeing to withhold his views pending a class response to the Settlement. Rather, the Court finds that Mr. Sedran initially urged Mr. Landers to think over the terms of the Settlement Agreement and try to absorb the information before arriving at a decision whether or not to support it. (Tr., Vol. II at 145.) Subsequently, when Mr. Landers voiced his opposition to the Settlement, Mr. Sed-ran sought Mr. Landers’s view concerning the propriety of submitting the Settlement Notice to the Class in order to ascertain the Class members’ views about the Settlement. (Tr., Vol. II at 145-46.) We find no evidence that Mr. Sedran engaged in misconduct in this regard. And, in any event, the class members
were
ultimately advised in the notice that some of the named class representatives did not approve of the proposed Settlement.
83. The Court further finds that, in negotiating the proposed Settlement Agreement, Class Counsel acted responsibly and in the best interests of the Class as a whole.
84. The Lazy Oil Objectors also claim that there were fatal deficiencies in the notice that was sent to Class members to inform them of the proposed Settlement, viz: it incorrectly states that only two (rather than three) of the class representatives opposed the Settlement Agreement; it fails to disclose that the previous settlement with Quaker State was a mere “icebreaker” settlement, not one intended to be a fair, adequate and reasonable compromise of the Class’s claims against Quaker State; and it fails to disclose the total amount of possible recovery being compromised.
85. The Lazy Oil Objectors’ claim that the Class Notice was misleading is unfounded. The Notice adequately advised class members of the terms of the Settlement; the proposed allocation formula for the settlement proceeds; the fact that certain of the class representatives opposed the Settlement; the request of Class Counsel for attorneys’ fees and reimbursement of expenses; the request for incentive awards for the class representatives; the date and time of the final hearing, and the class members’ right to object to the Settlement. To the extent that the Class Notice lacked any pertinent information necessary for class members to arrive at an informed decision about the Settlement, class members were invited to inspect the public file or to contact a toll-free number to obtain additional information.
86. Further, the Court finds that none of the alleged omissions or misstatements in the class notice are so material as to have likely influenced or altered the absent class members’ response to the Settlement in a significant manner. While the purported notice deficiencies may have some relevance in terms of assessing the reaction of absent class members, the Court considers them to be of essentially
*307
minor relevance in light of the many factors informing our assessment, of the Settlement Agreement. In any event, none of the alleged notice deficiencies persuade the Court that the Settlement Agreement is unfair, unreasonable, or otherwise not in the best interests of the Class as a whole.
b.
The New York Objectors
87. A group of ten objectors (referred to hereinafter as the “New York Objectors”) has opposed the Settlement. According to Defendant Pennzoil’s records, the New York Objectors’ sales to Pennzoil between the years 1987 to 1995 total approximately 184,987 barrels, or less than .05% of the Appalachian crude that Pennzoil purchased during that period. (Tr., Vol. Ill at 118.)
88. The New York Objectors, like the Lazy Oil Objectors, oppose the Settlement on the grounds that the monetary component is insufficient and the injunctive relief is not strong enough. These objectors offered no evidence at the hearing in support of these assertions, but instead essentially based their position on the proof submitted by the Lazy Oil Objectors. In addition, they oppose Class Counsels’ request for an award of attorneys’ fees. These issues are dealt with in more detail,
infra.
13
c.
The Objections of Richard Fry, Jack Master and Others
89. The Court has considered all other objections and is not persuaded that they warrant disapproval of this Settlement. Class member Richard Fry, a very small producer (Tr., Vol. Ill at 20), objects that the settlement amount is insufficient. For the reasons discussed in detail below, the Court finds the settlement amount to be adequate. Consequently, the objections by Mr. Fry are denied.
90. Mr. Fry has also requested that he be awarded $71,000 for unspecified investigative services. That request is denied. Mr. Fry has failed to demonstrate that he has done anything that warrants such a payment. Moreover, the conduct of Mr. Fry in connection with his effort to procure an affidavit from a factual witness, Timothy Weaver, is suspect. It appears that Mr. Fry is seeking payment on account on his attempt to act as a broker to have Mr. Weaver provide additional testimony in this case. (Tr., Vol. Ill at 23-24, 151-155.) The Court does not find that there existed any agreement between Mr. Fry and class counsel that would support Mr. Fry’s request for payment.
91. Jack Master, a producer and the current President of the Pennsylvania Independent Oil Producers also objected to the Settlement. Mr. Master claims that the Settlement fails to ensure a sufficiently high price to producers for Penn Grade crude, whose quality he considers to be superior to that of competing crudes. However, as discussed in more detail below, competitors and parties cannot reach any agreement proscribing a particular price level for Penn Grade crude without running afoul of the antitrust laws.
3. The Stage of the Proceedings and the Amount of Discovery Completed
92. Another factor to consider in evaluating the proposed Settlement is the stage of the proceedings and the amount of dis
*308
covery completed at the time of the Settlement.
93. The proposed Settlement with Pennzoil and Witco was reached on January 15, 1997, more than 2]é years after the litigation commenced. Before the Settlement was entered into, Plaintiffs had completed merits discovery and much of the expert discovery, as discussed above.
94. During the lengthy discovery process, Defendants produced almost 1.5 million pages of documents which were reviewed and analyzed by Plaintiffs’ counsel. In addition, substantial quantities of information were produced in electronic form and more than 80 depositions were conducted, including depositions of Defendants’ current and former employees as well as third party witnesses. Also, substantial expert discovery was completed, including preparation of numerous expert reports, rebuttal reports and the depositions of Plaintiffs’ and Defendants’ experts.
95. Since the Settlement was reached after the completion of extensive discovery, Plaintiffs’ counsel were fully aware of the strengths and weaknesses of their case and could make an informed decision as to the fairness and reasonableness of the Settlement.
96. With discovery essentially complete, the Defendants were preparing to file dispositive motions attacking every aspect of Plaintiffs’ case. These included a renewed motion for summary judgment
14
and a motion seeking to strike all of Plaintiffs’ expert witnesses for failure to satisfy the requirements of
Daubert v. Merrell Dow Pharmaceuticals, Inc.,
509 U.S. 579 , 113 S.Ct. 2786 , 125 L.Ed.2d 469 (1993). Defendants’ motion to strike Plaintiffs’ three rebuttal expert witnesses (on non-
Daubert
grounds) was pending at the time the Settlement Agreement was reached, but was later denied, without prejudice to re-filing. Thus, it is likely that this motion too will be reasserted by Defendants in the event the Settlement is not approved.
97. The settlement negotiations between counsel for the parties were conducted at arms’-length and were extensive. There were 27 negotiating sessions that spanned a period of 8 months, from March, 1996 to November, 1996. (Tr., Vol. I at 19.) The Settlement that resulted reflected reasonable compromises on both sides.
A
The Risks in Establishing Liability at Trial
98. If this case had' proceeded to trial, Plaintiffs were confronted with substantial obstacles and risks in establishing liability on the part of the Defendants.
99. This was not a case where the Defendants had been convicted or pleaded guilty to criminal charges of price-fixing. Indeed, although a grand jury investigation of Defendants had been conducted, the evidence was apparently deemed insufficient to warrant the commencement of either criminal or civil proceedings against the Defendants by the government. (Tr. of 3/7/96 Pretrial Hearing [Doc. No. 129] at 15.)
Í00. Plaintiffs were unable to adduce any direct, “smoking gun” evidence of a conspiracy among the Defendants to fix prices. The evidence indicates that Defendants’ posted prices for Penn Grade crude were usually, although not always, the same.
15
This evidence would not have sufficed to establish a violation of Section 1. Because the Penn Grade crude oil industry is an oligopsony, price coalescence can be expected, given the pressures of the market place. This is because individual buyers would know, without communicating with other buyers, that if they offered
*309
prices that were below those offered by the others, they would not be able to buy oñ, and that if they offered higher prices than the others, the others would probably match the higher price. This view was confirmed by the evidence presented at the hearing. (Lazy Oil Ex. 4C at 699; Pennzoil Ex. D at 25; Pennzoil Ex. G-l at 329; Witco Ex. B (vol.II), Tabs 12, 13, 18, 19, 22, 25, 30, 31, 33, 35.) Thus, Plaintiffs could not rely solely on the evidence of uniform pricing to prove liability in this case.
101. At the final hearing, counsel for the Lazy Oil Objectors pointed to a November 8, 1985 Quaker State interoffice memorandum from Bud Koch to W.E. Kingsley, which counsel described as a “smoking gun.”
{See
Lazy Oil Ex. 1, “Exhibits to Pl.s’ Mem. in Opp. to Def.s’ Mot. for Summ. Judg.” at Tab L.) The memorandum describes a conversation between Mr. Koch and Robert Chiles of Pennzoil concerning Pennzoil’s policy of refusing to accept crude oil containing more than a specified maximum percentage of water. However, the probative value of this memorandum at trial would have been highly dubious inasmuch as the memorandum did not constitute direct proof of a conspiracy and did not deal with any particular prices. Furthermore, Pennzoil and Quaker State frequently engaged in crude oil purchases, sale and exchange transactions between themselves. (Pennzoil Ex. E, Ex.12 at 31; Pennzoil Ex. G-2 at 226-27.) In light of this fact, communications between them as to whether they should accept crude oil with water in it hardly amounts to smoking gun evidence of a price fixing conspiracy. It would have been entirely proper for Pennzoil, as a recipient of crude oil from Quaker State, to announce its policy on maximum acceptable water levels in crude oil, in view of the fact that water-borne contaminants could cause serious damage to Pennzoil’s refinery. (Pennzoil Ex. G-l at 314-16.)
102. The Lazy Oil Objectors also rely on the deposition testimony of Mr. Lan-ders regarding a conversation he allegedly had with Ann Jones, an employee at Quaker State with no pricing authority.
{See
Lazy Oil Ex. 1, Tab E and Pennzoil Ex. G-6 at 54-55.) Mr. Landers claimed that, on inquiring how Quaker State intended to react to Pennzoil’s then recent price reduction, Ms. Jones replied, “Somebody from here will get a hold of Pennzoil to see where to leave the price.”
(Id.)
Ms. Jones emphatically testified that no such conversation about Quaker State getting together with Pennzoil to discuss prices ever occurred.
{See
Pennzoil Ex. G-4 at 55, 75-78, 83-85.) It is, of course, almost impossible to predict how a jury would resolve this credibility issue. Furthermore, in light of the Defendants’ many challenges to the Plaintiffs’ case, as discussed
infra,
and the likelihood that resolution of the case would turn largely on expert testimony, the probative force of this alleged remark is by no means certain. Even if such a statement were made, it could be reasonably interpreted to mean only that Quaker State seemed to be following a practice of matching Pennzoil’s posted price, which would have been entirely lawful in the absence of agreement between Pennzoil and Quaker State concerning future prices.
103. Since the Plaintiffs lacked direct evidence of a conspiracy, in order to prevail they would have been required to show not only consciously parallel pricing by the Defendants, but also the existence of one or more “plus” factors.
104. All of the “plus factor” evidence relied upon by Plaintiffs was circumstantial and subject to innocent explanations by the Defendants.
105. In this litigation Plaintiffs contended that the Defendant refiners controlled the prices of Penn Grade crude oil through their ownership of virtually all the refining capacity in the relevant geographic market. They asserted that the Defendants did not negotiate individually with the class members, but instead utilized a posted price system, and the posted prices were nearly identical at all relevant times.
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106. The process by which Defendants decided on and announced their posted prices was examined in great detail in discovery. All of the people involved in the process denied under oath that they engaged in any collusion. [Pennzoil Ex. G-l at 463-64; Ex. G-2 at 461-62; Witco Ex. B, Tabs 17,19, 23, 24, 28, 33.]
107. Discovery showed that the amount of time elapsing between Defendants’ announcement of price changes varied considerably, ranging from a matter of minutes to hours and even days in some cases. (Pennzoil Ex. E (Ex. 12 at 6); Pennzoil Ex. G-l at 328-29.) Moreover, there is evidence of several occasions on which a Defendant announced a reduction in its own posted price but was later forced to rescind the price reduction, retroactively, because other Defendants did not reduce their prices. (Witco Ex. B, Tabs 19, 30, 31; Pennzoil Ex. G-l at 328-29, 342-44.) Similarly, there is evidence of a Defendant “leapfrogging” another’s price increase, announcing an even higher price and forcing the others to move to the higher price. (Pennzoil Ex. E (Ex. 12 at 5); Pennzoil Ex. G-l at 146, 152-53; Pennzoil Ex. G-3 at 89-90; Witco Ex. B, Tab 19.) There is no evidence that any price increase was ever rescinded. (Pennzoil Ex. E (Ex. 12 at 5.)) Moreover, on occasion a Defendant would deliberately wait until late in the day to announce a price increase, thereby attempting to capture producer accounts from other Defendants by making it difficult for them to match the price increase on the same day. [Pennzoil Ex. E (Ex. 12 at 6); Pennzoil Ex. G-2 at 404-406.] This evidence is inconsistent with the claim that Defendants were engaged in a conspiracy to keep prices low.
108. There is evidence that Defendants’ competition to buy oh was not limited to their posted pricing strategy. For example, Defendants offered monetary premiums, in addition to. the posted price, to producers who aggregated oil in truckload quantities; they paid bonuses, in addition to the premiums, to some producers to persuade them to sell them their oil; and they offered “price protection” arrangements to protect producers from drops in the posted price occurring between the time a producer called for his oil to be picked up and the time it was actually loaded. [Pennzoil Ex. D at 25-26; Ex. E (Ex. 12 at 8-11); Ex. G-l at 188-89; Wit-co Ex. B, Tabs 13, 20, 26, 31, 32, 34, 35.]
109. Plaintiffs relied heavily on evidence of exchanges of price information through OOGA. Under this system, a Defendant would telephone OOGA with word of a change in its posted price. Defendants contend that price changes were either effective immediately, or were to be effective at 7 a.m. the following day and were announced to OOGA so late in the day that no transaction could occur at the new price on the day of announcement. OOGA would then telephone the other Defendants to advise them of the change. If one of the other Defendants decided to change its prices in response to the first change, that Defendant would telephone OOGA with word to that effect. After hearing from the others, OOGA would telephone the first Defendant to inform it of the other Defendants’ price announcements.
110. Plaintiffs contend that Defendants’ participation in this price reporting system enabled them to “negotiate” among themselves to arrive at agreed-upon posted prices. However, Defendants asserted that the pricing information exchanged through OOGA related to already-posted prices, not future prices, and therefore was not illegal. Defendants further contended that the frequent communications between them were innocuous and were required as a matter of business necessity by virtue of the nature of the market.
111. Moreover, there was evidence that this system of communication had been devised by OOGA, which was controlled by its producer members, long before the alleged conspiracy was alleged to have arisen and that Defendants were asked to participate in the system by the Associa
*311
tion. (Pennzoil Ex. G-2 at 147-48; Pennzoil Ex. G-3 at 85-87, 90-93.) Most of the oil processed in the Defendants’ Appalachian refineries, as previously noted, is produced in Ohio (Witco Ex. B, Tab 29; Tr., Vol. II at 86), and a Pennzoil representative testified on deposition that Pennzoil agreed to participate in the system as an accommodation to the association representing the great majority of Pennzoil’s Appalachian crude oil suppliers. (Pennzoil Ex. G-2 at 147-48.) The Executive Vice President of OOGA testified on deposition that he believed that Defendants’ participation in this system benefitted the producers by insuring that an individual refiner’s price increase would be known to, and matched by, the other refiners. (Pennzoil Ex. G-3 at 86-93.)
112. Defendants vigorously argued that no price-fixing conspiracy could have occurred without the involvement of Ashland Oil Company, a significant participant in the relevant crude oil market. However, Ashland was not a named Defendant in this case and Plaintiffs had not adduced any evidence that Ashland was a member in the alleged conspiracy.
113. Defendants had also relied on certain evidence to support their contention that their pricing was competitive with one another. They had argued that their crude oil competed with other types of crude oil sold by refiners from throughout the world, and therefore the price of Penn Grade crude oil was controlled not by the Defendants, but instead by the world market. Once again, such evidence demonstrates that Plaintiffs were confronted with substantial risks and uncertainties in establishing liability at trial.
114. Defendants argued that the alleged conspiracy to fix prices artificially low could not succeed unless demand for Penn Grade crude was suppressed. (Pennzoil Ex. E (Ex. 12 at 11-13); Ex. D at 38.) However, Defendants’ economic experts developed evidence that Defendants ran their Appalachian refineries at economically “full” rates and, in some instances, even expanded their refining capacities, during the alleged conspiracy.
(Id.)
These experts also pointed out that Defendants sold some of their refinery capacity to firms not alleged to be participants in the alleged conspiracy, thereby surrendering some control over demand for Appalachian crude oil to “non-conspirators.” (Pennzoil Ex. D at 37-38.) Several of the firms that purchased refineries from the Defendants later went bankrupt, and then simply stopped buying Penn Grade crude. Defendants argued that this fact was inconsistent with the hypothesis that prices were artificially depressed.
(Id.)
115. In light of the conflicting and ambiguous evidence, and the sharply differing opinions of the parties’ experts, Plaintiffs’ likelihood of prevailing at trial was far from assured. Indeed, Plaintiffs faced the risk, not only of an adverse jury verdict on liability, but also that their liability case would not survive Defendants’ renewed motion for summary judgment or a motion for judgment as a matter of law at trial.
a.
Statute of Limitations
116. Plaintiffs sought damages for the period January 1, 1981 through June 30, 1995. If the four-year statute of limitations applied to their claims, they would be barred from recovering damages for conduct occurring prior to April 19, 1990, which is four years prior to the commencement of the first of these consolidated actions.
117. In an effort to escape the application of the four-year statute of limitations, Plaintiffs pleaded that Defendants fraudulently concealed their alleged conspiracy, that Plaintiffs were unaware of the alleged conspiracy, and that Plaintiffs could not have discovered it through the exercise of reasonable diligence, until shortly before the actions were filed in 1994.
118. Plaintiffs would have a difficult time proving fraudulent concealment, and particularly active concealment by the Defendants to conceal the alleged conspiracy.
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It is undisputed that Defendants conducted the price posting system, which Plaintiffs portrayed as the heart of the alleged conspiracy, openly since at least the early 1960’s. The results of the conspiracy alleged by • Plaintiffs — general uniform prices — have been publicly known for decades: Moreover, the fact that the Defendants’ posted prices for Penn Grade crude were usually different from the published prices for allegedly “inferior” crude oil (e.g., the NYMEX futures price for West Texas Intermediate crude) — a price difference which Plaintiffs contend resulted from the alleged conspiracy — was known to producers and was always obvious from inspection of newspaper reports of the two prices. (Pennzoil Ex. G-2 at 142-44; Wit-co Ex. B, Tab 16 at 131-32, 154-55, 186-87; Witeo Ex. B, Tab 15 at 31-32, 36-37.) Defendants point out that crude oil producers in fact , often complained to Defendants about the price difference. (Witeo Ex. B, Tab 15 at 31-32, 36-37; Witeo Ex. B, Tab 16.)
119. In addition, the leaders of the Pennsylvania Independent Petroleum Producers (“PIP-P”), the Pennsylvania Producer’s organization admitted that they suspected price fixing for years. (Pennzoil Ex. G-8 at 87-88,115-16, 200.)
220. At his deposition, Bennie Landers testified that he felt that there was no competitiveness because the refiners all pay the same price and that had been the case as long as he had been in the oil business. (Pennzoil Ex. G-6 at 479.)
221. Objector Richard Fry stated during the hearing on class settlement that he and Bennie Landers had each suspected for years that Defendants were engaged in price fixing and collusion. (Tr., Vol. Ill at 6,17.)
222. Thus, given the fact that many class members suspected price collusion long before the commencement of this action, and considering the absence of strong evidence of fraudulent concealment, it is highly unlikely that Plaintiffs would have been able to recover damages beyond the statute of limitations period.
5. The Risks of Establishing Damages
223. Plaintiffs claim that Defendants’ conspiracy caused them damages for the period January 1, 1981 to June 30, 1995. In connection with their claim for damages, Plaintiffs submitted expert reports from two experts: Donald House, Ph.D., an economist, and Charles J. Queenan, III, an expert in refinery analysis.
224. As part of their damage analysis, Plaintiffs calculated damages under what they call a marginal crude value analysis. Marginal Crude Value is the additional profit (pre-tax) that a refiner earns in a particular period by refining the last incremental quantity of a specific type of crude oil. (Expert Report of Charles J. Queen-an, III, dated November 1, 1995, hereinafter “Queenan Report”.)
225. According to the expert report of Mr. Queenan, marginal crude value, measured in dollars per barrel of a crude oil input to a refinery, is defined as follows:
Marginal crude value = Marginal product revenue
— incremental refining cost
— incremental transportation cost
— crude oil purchase cost.
(Queenan Report at 1-2.)
226. A variety of different products can be made from a barrel of crude oil. The particular mix of products made from a barrel of oil is referred to as its product slate. The specific products that are produced, and the specific quantities of those products that are produced, depend both on the composition of the crude oil and the technical characteristics of the refinery in which it is refined.
(Id.
at 2.)
227. According to the Queenan Expert Report:
Within the refining industry, computation of crude values is quite common. Such computations are used for profit ■planning, crude oil trading and purchas
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ing, crude oil supply planning, operations planning, strategic planning and for other purposes.
Documents produced in this case by Pennzoil, Quaker State, and Witco, together with the deposition testimony of their employees, provide evidence that Defendants calculated crude values for various crude oils in the normal course of their business.
{Id.
at 2.)
228. The Queenan Expert Report also provides:
Among the three Defendants, the information provided by Pennzoil demonstrates that Pennzoil computed, on a monthly or more frequent basis, marginal crude values for Penn Grade, Corning and Eureka, and sometimes for other crude oils and feedstocks, refined at its Rouseville, Pennsylvania refinery. [Footnote omitted.] In its documents, the marginal crude values determined by Pennzoil are sometimes referenced synonymously as “crude incremental margins.”
Pennzoil routinely evaluated the marginal refinery values of Penn Grade, Corning and Eureka crude oil using a computer spread sheet model. Pennzoil described this analysis as follows in an October 1988 memorandum:
Marginal crude economics are run routinely for crudes used at all of our refineries. For those analyses, we typically evaluate the product value for the lowest price dispositions against the highest laid-in crude cost. A similar approach was used for the analysis of the Chaffee and Eureka crudes. [Footnote omitted.]
(Queenan Report at 2.)
229. Mr. Queenan calculated marginal crude values for Penn Grade, Corning, Eureka and a crude known as Illinois Basin for the period July 1998 to June 1995. Mr. Queenan calculated these marginal crude values based upon Pennzoil’s model of marginal crude values for its Rouseville refinery.
{Id.
at 4.) Plaintiffs’ economist, Dr. House, then used those marginal crude values in calculating damages for the class period.
230. More specifically, the marginal crude values of Penn Grade, Corning, and Eureka crudes were compared to Illinois, Basin, which was selected as a benchmark crude.
{See
Expert Report of Donald J. House, dated November 1, 1995; Revised Report of Dr. House, dated January 3, 1996, hereinafter “Revised House Report”.)
231. According to the expert report of Dr. House, Illinois Basin was selected as a benchmark crude based upon four important facts:
(1) Illinois Basin was identified by " Pennzoil as a potential substitute crude;
16
(2) Illinois Basin is produced geographically near the refineries (although more distant than Appalachian crude oil production);
(3) Competitively determined . prices of Illinois Basin could be observed; and
(4) Illinois Basin’s physical and chemical properties are known.
(Revised House Report at 9.)
232. Dr. House calculated a percentage underpayment applicable to crude oil sold by class members. His methodology was as follows:
(1) The Marginal Crude Value of Illinois Basin crude was determined.
(2) The Marginal Crude Values of Penn Grade, Corning and Eureka crudes were determined.
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(3) The dollar per barrel differences between the marginal crude values of Penn Grade, Corning, Eureka and that of Illinois Basin were next determined.
(4) Those dollar per barrel differences were then divided by actual posted prices for Penn Grade, Corning, and Eureka for each month from the period July 1,1993 to June 30,1995 resulting in a percentage difference or percentage undercharge.
(5) The weighted mean of those 24 percentages was calculated for Penn Grade, Corning and Eureka.
(6) The resulting mean percentages were multiplied by actual posted prices to determine a dollar per barrel underpayment.
(Revised House Report at 10.)
233. For the period January .1990 through June 1995, roughly the statute of limitations period, Dr. House estimated damages to be approximately $74 million. Dr. House’s revised damage report calculated damages for January 1, 1990 to March 31, 1990 at approximately $4.4 million. Thus, damages for the statute of limitations period beginning mid-April, 1990 are more accurately estimated at $70 million.
(See
Revised Volume and Damage Table to Rule 26 Expert Report of Donald H. House, filed April 10, 1996.) For the entire period January 1981 to June 1995, Dr. House’s damage estimate totaled approximately $271 million.
(Id.)
234. Plaintiffs’ pre-April 1990 claims are dependent on establishing fraudulent concealment. As described above, it was unlikely that Plaintiffs would be able to demonstrate fraudulent concealment of the alleged conspiracy because many of the producers suspected price fixing for years, the posting of prices through OOGA was known for years, and the parallel pricing pattern of Defendants’ prices was also known for years.
a.
Defendants’Criticisms of Plaintiffs’ Damage Theory
235.Defendants strongly disagreed with the damage theory presented by Plaintiffs and challenged virtually every element of Dr. House’s damages estimate.
(See generally
Expert Reports of Lester Lave and Joseph Kalt and Defendants’ Memorandum in Support of Settlement Agreement.) Defendants’ criticisms of Plaintiffs’ damage claims included the following points that were set forth in their Memorandum in Support of the Settlement:
• Plaintiffs’ benchmark crude, Illinois Basin, was inappropriately chosen inasmuch as: it was never actually refined by any of the Defendants; there was evidence that the slightly higher sulfur content of Illinois Basin made it unacceptable for use in Witco’s refinery; and there were serious questions whether it could be processed safely and economically at Pennzoil’s refinery. (Pennzoil Ex. E [Ex. 12 at 49-50]; Pennzoil Ex. D at 33.)
• Dr. House’s monthly comparisons of marginal crude values reveal wide fluctuations, month to month, in the differences between Penn Grade and Illinois Basin. (Pennzoil Ex. E [Ex. 12 at 54-56].) During some months, the difference between the two is actually negative, suggesting that prices for Penn Grade were “too high” (relative to the “competitive” price) during those months.
(Id.
at 55.) Defendants contend that the magnitude of these fluctuations shows that Dr. House’s method is inherently unreliable, and that his decision to average the monthly differences during this two-year period and then apply the average to the fourteen-year period in question is highly suspect. (Pennzoil Ex. E [Ex. 12 at 54-57]; Pennzoil Ex. D at 36-37.) Defendants further point out that the expert who assisted Dr. House in his calculations, Mr. Queenan, testified at deposition that not one of the accepted statis
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tical tests for accuracy was applied to these calculations. (Pennzoil Ex. G-10 at 317.)
Plaintiffs measured damages from July 1993 to June 30, 1995 and applied that measure retroactively. Defendants claimed this “backcasting” approach was flawed because economic conditions in the earlier years were significantly different than in the two year sample period. (Pennzoil Ex. E [Ex. 12 at 56-57]; Ex. D at 26-27, 35-36.)
Since Dr. House expressed the alleged underpayment as a percentage of the price actually paid for crude oil rather than as a dollar amount per barrel, Defendants claimed that the Plaintiffs’ calculation of damages would be higher the more Defendants actually paid for crude.
The Defendants’ refineries were operating at full capacity and there was ho shortage of crude. A successful conspiracy requires that demand be held down — which did not occur. (Pennzoil Ex. E [Ex. 12 at 16]; Pennzoil Ex. D at 38.)
The methodologies employed by Plaintiffs’ experts were subject to serious challenge under
Daubert .
Defendants’ experts expressed the opinion that the Class actually suffered no damages. (Pennzoil Ex. D at 36-37; Pennzoil Ex. E [Ex. 12 at 63-64].) In support of this opinion they pointed out, first, that several firms that bought substantial quantities of Penn Grade crude oil during the life of the alleged conspiracy were not alleged to have been members of the conspiracy. These firms include Ashland, which operated a large and efficient refinery at Cattlettsburg, Kentucky and which processed Penn Grade crude throughout most of the alleged conspiracy, and United Refining which, from time to time, purchased Penn Grade crude for its refinery at Warren, Pennsylvania. .Defendants’ experts argued that, with such substantial buyers operating outside the alleged conspiracy, there would have been no way for Defendants to succeed in holding the price below competitive levels even if they had conspired to do so: if the price were temporarily driven below competitive levels, one of the non-conspiring buyers would have begun buying Penn grade crude and the price would have been bid back up to competitive levels. (Pennzoil Ex. E [Ex. 12 at 36-41]; Pennzoil Ex. D at 40-43.)
Defendants’ experts also pointed out that numerous Appalachian refineries were closed or went bankrupt during the alleged conspiracy period. (Pennzoil Ex. E [Ex. 12 at 13-15, 20-21]; Ex. D at 38.) Indeed, as Defense Counsel pointed out during the settlement' hearing, Judge Rosenberg’s 1965 opinion in
United States v. Pennzoil Co.,
252 F.Supp. 962 (W.D.Pa.1965), observed that there were ten refineries then processing Appalachian crude oil. Thirty years later, there were only three refineries processing Penn Grade crude on a regular basis — i.e. Pennzoil’s Rouseville, West Virginia refinery; Witco’s Bradford, Pennsylvania refinery and Quaker State’s Newell (Congo) refinery. Defendants argued that this phenomenon is inconsistent with Plaintiffs’ theory of a pricing conspiracy. They note that it is puzzling that, despite an alleged conspiracy among refiners to keep crude oil prices low, so much refinery capacity has proved to be uneconomic. Defendants’ experts argued that if Penn Grade prices had been higher than they actually were (as required by Plaintiffs’ damage theory), even more refinery capacity would have been retired, thereby further shrinking demand for crude oil. If this happened, the laws of supply and demand would have caused the price of crude oil to fall, according to Defendants’ experts. In short, Defendants’ experts argued, higher crude oil prices were unsustainable. (Pennzoil Ex. E [Ex. 12 at 20-21, 42-44]; Pennzoil Ex. D at 17, 38-39, 42.) Defendants argued
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that, without proof that prices in the assumed “competitive” world would have been higher than prices actually were, there is no basis for awarding any damages to the Class.
b.
Plaintiffs’ Expert Rebuttal Reports
236. In response to Defendants’ expert reports, Plaintiffs submitted rebuttal reports from the following experts: Dr. Kevin Neels (impact and damages); Dr. Thomas Saving (the appropriateness of backcasting damages); and Muse, Stancil & Co. (refinery experts). Plaintiffs’ rebuttal experts opined that Plaintiffs’ experts were correct and that Defendants’ experts were wrong in their criticisms of Plaintiffs’ damage theories.
237. For example, Dr. Neels opined in his rebuttal report that Ashland merely set a floor price for Penn Grade crude, but the alleged conspiracy could have worked without Ashland as a participant. (Neels Rebuttal Report at 2-5, 2-6.)
238. As noted above, Defendants’ experts had claimed that the use of Illinois Basin as a benchmark crude was flawed because Illinois Basin was not a crude actually processed (or capable of being processed) by any of the Defendants. According to the Defendants’ experts, under a value parity analysis, the benchmark crude had to be a crude actually processed by the Defendants. Accordingly, in his rebuttal report, Dr. Neels used Eureka crude as a benchmark crude and calculated damages in the range of approximately $25 to $29 million. (Neels Rebuttal Report at 3-2, 3-3 and Exhibits 5 and 5a.)
239. The expert report of Ray Stancil of Muse, Stancil & Co. opined that the Rouseville refinery would have been routinely capable of processing in excess of 2,500 to 5,500 barrels per day of Illinois Basin Crude.
(See
Rebuttal Report of Muse Stancil
&
Co. at 2-3; 16.)
240. In rebuttal to the defense experts’ opinions that it was improper to backcast damages found for the period July 1993 to June 30, 1995, Dr. Thomas Saving concluded that backcasting was appropriate if the price elasticity of supply remained relatively constant or was lower during the backcasting period. (Saving Rebuttal Report at 3.)
241. At the time the Settlement Agreement was reached between Plaintiffs and Witco and Pennzoil, there was pending a motion by Defendants to strike these expert reports on the ground that the opinions expressed therein were not properly “rebuttal,” but rather were new opinions that could and should have been expressed as part of the Plaintiffs’ initial expert disclosures.
242. After the Settlement Agreement was reached, the Court denied this motion without prejudice to being later refiled, if necessary. Nevertheless, substantial questions have been raised with respect to Plaintiffs’ damages estimate, which would be the subject of Defendants’ impending motions to strike the damage estimate under
Daubert
and for summary judgment.
243. In light of all of the foregoing, Plaintiffs face substantial risks in establishing their damages.
c.
The Objectors’Damages Theory
244. As we have previously observed, the Lazy Oil Objectors argue that the Settlement is inadequate in part because it ignores the element of lost profits that class members would earn if crude oil prices had been higher — the theory being that higher prices would have enabled class members to produce more crude oil by bringing shut-in wells back into production and by drilling new wells.
245. As is noted above, the Lazy Oil Objectors called two expert witnesses, a petroleum engineer and a geologist, to testify in support of the “lost profits” theory. Neither of these witnesses, however, expressed the opinion that any class member actually did suffer “lost profits” damages that were not accounted for in Dr. House’s damage estimate. Rather, both witnesses
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testified that it might be possible to determine “lost profits” on a class-wide basis, after a team of several experts had been assembled and had spent three to six months gathering geologic and operating data relating to the Appalachian Basin as a whole. (Tr., Vol. I at 79-81, 89, 118-20).
246. We have previously found that, for several reasons, the Lazy Oil Objectors’ “lost profits” theory is seriously flawed and provides no basis for disapproving the Settlement. Among other things, the Objectors offered no support whatever for key elements of their theory, including: (a) whether prices in the absence of the alleged conspiracy would have been higher than they actually were for periods long enough to stimulate additional produc-' tion;
17
(b) what price would have been paid for crude oil in the absence of the alleged conspiracy;
18
and (c) whether (assuming an increase in oil production) higher prices could have been sustained in light of the uncontradicted fact that the Defendants’ refineries were running at economically full rates during the time of the alleged conspiracy.
19
247. In addition, as discussed above, the “lost profits” theory would require a highly individualized inquiry, class member by class member, into both the fact of injury and the amount of lost , profits suffered by each member of the Class. Although the Lazy Oil Objectors’ petroleum engineering witness, Mr. Victor Henderson, testified that it would be possible to determine aggregate lost profits on a basin-wide basis in the manner of a “mass appraisal” performed for tax purposes, it is clear that any such basin-wide analysis would require one to make assumptions about “typical” class member circumstances and costs when in fact it appears that no such “typical” set of conditions exists. Numerous witnesses agreed that there are wide variations among class members with regard to: (a) whether a class member would be able to increase production — e.g., whether a class member has-shut-in wells or land on which to drill new wells (Tr., Vol. I at 95); (b) whether a class member would drill new wells if oil prices increased to a particular price level
(id.
at 96); (c) the costs of increasing production — i.e., the costs of bringing old wells back into production and the costs of drilling new wells
(id.
at 98, 94, 104-05, 115); (d) the costs of operating wells;
20
and (e) the quantity of increased production possible for a given class member (which would depend on the age of a class member’s shut-in wells and the “decline curve” applicable to his wells) (Tr., Vol. I at 95-96, Vol. II at 19-20). Even if increased production did occur, it would not be possible to distinguish increased production by class members from increased production by Defendants or other nonmembers of the Class without individualized inquiry. (Tr., Vol., I at 102.) Individual questions would likely predominate over common ones, and it is therefore highly questionable whether this approach
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to damages would be suitable in a class action.
6.Risks of Maintaining the Class Action
248. Based upon the damage theory set forth by Plaintiffs, there was little risk that Plaintiffs would be unable to maintain the certified class throughout the proceedings. (This of course is not meant to prejudge unexpected developments in the litigation.) The Court considers that this factor has little bearing on whether the Settlement Agreement should be adopted.
249. The Court believes, however, that if the Plaintiffs’ litigation proceeded under the lost profits theory of damages, there would be considerable risk that the litigation could not continue as a class action. Indeed, during these final approval hearings, counsel for Pennzoil represented to the Court that, if the theory of damages changed to a lost profits measure, the Defendants would seek to have the class de-certified. (Tr., Vol. Ill at 137.)
7.The Ability of Defendants to Withstand a Greater Judgment
250. We next consider the Defendants’ ability to withstand a larger judgment. No evidence was offered on this issue except for the Lazy Oil Objectors’ proof concerning Pennzoil’s estimated market share of national sales of motor oil, which has little bearing on this issue.
(See
Lazy Oil Ex. 11.) The Court presumes that Defendants have the financial resources to pay a larger judgment. However, in light of the risks that Plaintiffs would not be able to achieve any greater recovery at trial, the Court accords this factor little weight in deciding whether to approve the proposed Settlement.
8.The Range of Reasonableness of the Settlement in Light of the Best Recovery and Attendant Risks of Litigation
251. The settlement amount represents a substantial percentage of the Plaintiffs’ experts’ damage estimates for the statute of limitations period. Using a marginal crude value analysis, Dr. House estimated damages for the period January 1990 through June 1995 at approximately $74 million.
21
The Pennzoil and Witco settlement amount, $14.5 million, represents 19.59% of that estimate. Together, the Quaker State settlement and the Pennzoil/Witco settlement, with a combined recovery of $18.9 million, represents 25.5% of that estimate.
22
252. Dr. Kevin Neels, one of Plaintiffs’ rebuttal experts, prepared an alternative analysis using Eureka crude as a benchmark, that resulted in a damage estimate for the same period of $25-$29 million. (Neels Rebuttal Report at Ex. 5 and 5a.)
23
The Pennzoil and Witco Settlement amount represents 50-58% of that estimate. Together, the Quaker State and the Pennzoil/Witco settlements represents roughly 65-76% of that estimate.
253. Dr. House’s estimate of damages for the entire alleged conspiracy period (1981-95) was $271 million. However, that figure was subject to serious challenges by the Defendants, including: (I) Defendants’ argument that the Class was barred from
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recovering any damages for alleged violations prior to April of 1990; (ii) their objection (as previously noted) to the use of “backeasting” as a means .of estimating pre-1993 damages; and (iii) numerous arguments challenging the conceptual integrity of Dr. House’s damages calculation (including,
inter alia,
objections to the selection of Illinois Basin as a benchmark crude, the use of Pennzoil’s Rouseville Refinery as a sample refinery, and the use of a weighted mean average of the percentage undercharge in computing damages). While we do not here engage in a trial of the merits, in light of the many potential problems which the Class faced in establishing its case, the Court considers it unlikely that Plaintiffs could have succeeded in establishing damages in the range of $271 million. Accordingly, although the Settlement represents only about 5.35% of the estimated damages for the entire class period, we do not find this figure to be unreasonable under the circumstances here.
24
254.Some objectors claim that the Court should consider the fact that treble damages would automatically be awarded, even if the Class recovered only for the statute of limitations period. Assuming an award of $70 million for the limitations period, trebling would result in an award of $210 million. The Settlement amounts to approximately 6.9% of that figure. Combined, the Quaker State settlement and the Pennzoil/Witco settlement amount to 9% of that figure. However, most of the challenges to the Class’s damages claim, as outlined above, would still need to be overcome even if damages were limited to the statute of limitations period. Further, in light of numerous complex issues concerning,
inter alia,
the effects of Defendants’ pricing system and the economic forces affecting the crude oil market (all of which were hotly disputed by the parties) the Class faced substantial risks in establishing the Defendants’ liability.
255. By any of the foregoing measures, the Settlement amount is fair, reasonable and adequate in light of the best possible recovery and the risks attendant to the Plaintiffs’ claims.
256. In addition to the monetary component of this Settlement, the Settlement also provides a change in the manner that Pennzoil will communicate with the Ohio Oñ & Gas Association. Specifically, it provides that “Pennzoil and Witco, without admitting that communication with OOGA about any subject is unlawful, each agree to the entry of a Consent Order in the Final Judgment requiring each of them to direct the Ohio Oil and Gas Association (“OOGA”) to refrain from initiating communications with either of them regarding a competitor’s price for Penn Grade crude oil, except permitting such communications to ascertain a competitor’s currently-effective posted price when there is, no other available public source of information (other than a newspaper) concerning that competitor’s currently effective posted price.” Such Consent Order shall expressly permit Pennzoil and Witco individually to notify OOGA of changes in their own posted prices.” (Agreement of Settlement Between Plaintiff Class and Pennzoil Company, Pennzoil Products Company and Witco Corporation ¶ 9.) The Objectors seek disapproval of the Settlement because they feel that this injunctive relief does not go far enough.
257. The Lazy Oil Objectors complain that the Settlement (1) does not specifically enjoin Pennzoil and Witco from price-fixing and (2) does not guarantee producers a stable higher price for their crude oil in - the future. In their Memorandum in Opposition to Settlement Approval, the Objectors stated that “the proffered settlement is inadequate on its face [because of]
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the refusal of the Defendants to enter into any significant covenant concerning their conduct into the future .... the agreement should at least contain affirmative covenants on which the Plaintiffs can rely into the future.” (Mem. in Opp. to Settlement Approval [Doc. No. 180] at 3-4.) In his testimony, Bennie Landers answered “yes” when the Court asked if he was “looking for an agreement with respect to future oil prices that they would be stabilized at a particular price and held at a particular price or a particular period of time.” (Tr., Vol. II at 74-75.) Mr. Lan-ders agreed that what he is “really looking for is to stop [Defendants] from doing what they were doing.”
(Id.
at 76.)
258.To find the Settlement unreasonable because of the absence of an injunction that proscribes future conduct would, in effect, require an admission of guilt by Defendants. Pennzoil and Witco deny that they have engaged in price-fixing and are entitled to do so while settling the lawsuit. Further, to the extent the Objectors suggest that the Settlement is unfair unless Defendants agree to tie their future prices to some other benchmark, such as the selling price of West Texas Intermediate crude on the New York Mercantile Exchange
(see
Tr., Vol. II at 95), or stabilize oil prices at a particular price for a particular period of time
(see id.
at 74-75), the Court is not persuaded. Such an injunction would turn the antitrust laws on their head by removing market forces from future pricing decisions and forcing Defendants to agree on the price at which they will purchase Plaintiffs’ crude. Even if the Plaintiffs were completely victorious at trial, they would not be entitled to a judgment guaranteeing them a future minimum price or protecting them from the vagaries of the crude oil market in any other manner. That is precisely what Class Counsel advised class representative Benny Landers. It is not the province of the Court to renegotiate the Settlement, and the Settlement cannot be considered unfair in the absence of this term.
259. The New York Objectors ask for an injunction that would prohibit price changes for a ten-day period after a competitor changes its price.
(See
Mem. of Law Submitted By Eight Certain Class Members In Opposition to the Settlement [Doc. No. 201] at 18). Such an injunction would not only be anticompetitive, but would actually be detrimental to members of the Plaintiff Class in the face of a price increase announced by a purchaser who was not subject to the injunction, by preventing one purchaser from raising its price to match the price increase.
260. Finally, the requested injunctive relief is inappropriate on the facts. Witco has sold its lubricants division, including the Bradford Refinery, to third parties, and Witco is no longer in the business of purchasing Penn Grade crude. Therefore, any injunction against it would be meaningless. Quaker State has already settled and was not enjoined. There was no objection to that settlement on the ground that it did not include injunctive relief. Bennie Landers sold virtually all of his oil to Quaker State, and yet did not object to the Quaker State settlement. (Tr., Vol. II at 112.) In addition, Quaker State is in the process of selling its Congo Refinery and therefore will no longer be in the business of buying Penn Grade crude. Quaker State cannot be enjoined by this Settlement and, even if it could be, any injunction against it would be meaningless.
261. An injunction that would bar only Pennzoil from conspiring with others who are, by virtue of their absence, incapable of conspiring makes no sense. Therefore, it is not unreasonable that the Settlement contains no such term.
9. Other Factors Regarding the Settlement
262. The Court has also considered the Affidavit of Arlin M. Adams concerning the fairness of the Settlement.
(See
Doc. No. 225.) Although none of the findings herein or the conclusions of law set forth below are dependent upon the Affidavit of
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Judge Adams, the Court has nonetheless considered the views of this respected former Third Circuit judge and finds them persuasive.
263. Considering all the foregoing facts and circumstances, the proposed settlement with Witco and Pennzoil is eminently fair, reasonable, and adequate.
d. The allocation of settlement proceeds
264. Both the Quaker State and the Pennzoil/Witco Settlement Agreements provide that, upon the Settlement becoming final, the Settlement Funds may be distributed in accordance with the plan of allocation and distribution to be submitted by Class Plaintiffs subject to approval by the Court. (Quaker State Settlement ¶ 10; Pennzoil/Witco Settlement ¶ 16.)
265. An ahocation - plan of the settlement proceeds has been submitted to the Court by Class Counsel. Under the proposed allocation plan, which was described in the mailed class notice, class members are required to submit a proof of claim form, identifying their dollar amount of sales of Penn Grade crude to the Defendants for any five years during the Class Period. The dollar amount of sales for Penn Grade and Corning crudes will be given equal weight. Sales of Eureka crude will be discounted 40%. Class members can submit claim forms based upon direct sales of Penn Grade crude during any five years of the class period January 1,1981 through June 30,1995.
266. The Plan of Allocation was arrived at without the agreement or participation of Defendants, is not part of the Settlement Agreement, and is the subject of a separate motion by Class Counsel for approval by the Court. Based on the record currently before us, the Court continues to have reservations about the proposed plan of allocation. Consequently, the Class’s motion for approval of the proposed allocation scheme will be denied without prejudice, pending further proceedings.
E. CLASS COUNSELS’ APPLICATION FOR ATTORNEYS’ FEES AND REIMBURSEMENT OF EXPENSES & The Objectors’ Motion for an INCENTIVE AWARD
267. The notice , that was sent to class members informing them of the proposed Pennzoil/Witco Settlement also advised that Class Counsel would request reimbursement of their out-of-pocket expenses as well as fees not to exceed one-third of the combined settlements with Pennzoil, Witco and Quaker State. Class Counsel have filed a motion for an award of attorneys’ fees in the amount of $6.35 million and unreimbursed expenses in the amount of $486,165.
25
268. The combined totals of the Quaker State settlement and the Pennzoil/Witco settlement is $18.9 million, plus accrued interest, plus $250,000 for costs and expenses of notice and administration of the settlements. As of March 31, 1997, the accrued interest to the Quaker State settlement was approximately $100,000; the interest attributable to the Pennzoil-Witco settlement fund is approximately $75,000. (Aff. of Howard J. Sedran, Esq., Ex. to Mém. in Supp. of Application for Award of Attorneys’ Fees and Reimbursement of Expenses [Doc. No. 211] at Ex. E.) Thus, the requested fees comprise approximately 33.3% of the total combined settlements plus accrued interest as of March 31, 1997.
1. The Request for an Award of Attorneys’Fees
269. Various class members have objected to Class Counsels’ fee request. The New York Objectors contend that the request is excessive and that Class Counsel should -not receive more than a 10% award. Class member Beldon & Blake Corporation also objects to the fee request and urges the Court to. award no more than
*322
20% of the fund. The West Virginia Objectors likewise object that the requested fees are excessive; however, they make no recommendation as to what percentage fee should be awarded.
270. The Court finds, based upon an extensive review of awards in class action suits, discussed
infra,
that an award of attorneys fees in the amount of 25% of the Settlement funds is appropriate as an initial benchmark figure. Accordingly, the Court will consider other factors informing our award of attorneys’ fees in light of this benchmark figure to determine whether an adjustment is appropriate. Among the factors we will consider are: the size of the settlement fund; Class Counsels’ experience and competency; whether Class Counsel acted in the best interests of the Class; the percentage fee that might have been negotiated as a private contingent fee; the stage of the litigation at which the Settlement was obtained; the novelty of issues and any other factors unique to this litigation.
271. The amount of the combined settlement fund is $18.9 million. This figure, while not amounting to a “megafund,” is nevertheless substantial. The Court is therefore mindful that, in assigning a “percentage of recovery” fee award, our award should protect class members against the possibility of a windfall to Class Counsel.
272. In considering the experience and competence of the class attorneys, the Court notes that the Class was represented by very competent attorneys of national repute as specialists in the area of complex litigation. As such, Class Counsel brought considerable resources to the Plaintiffs’ cause. The Court has had the opportunity to observe Class Counsel first-hand during the course of this litigation and finds that these attorneys provided excellent representation to the Class. The Court specifically notes that, at every phase of this litigation, Class Counsel demonstrated professionalism, preparedness and diligence in pursuing their cause.
273. The Court further notes that it is equally impressed by the quality of representation provided by counsel for the Defendants. They too demonstrated a high degree of professionalism and were notably prepared and vigilant in defending their cause. We recognize, therefore, that Class Counsel faced a formidable task in prosecuting this case.
274. With regard to the novelty of issues involved, the Court notes that this was a very complex antitrust case involving expertise in antitrust law, economics and oil industry matters. Class Counsels’ vigorous prosecution of this case resulted in a sizeable recovery within approximately three years. The Court considers this to be a relatively efficient result for the Class, particularly in light of the inevitably protracted nature of class action litigation and the likelihood that any disposition of this action would have resulted in an appeal.
275. We also consider the percentage fee that might have been negotiated as a private fee. Here, Class Counsel have represented that they did in fact privately negotiate with the named class representatives for a 38 and $ % contingency fee, in the event that the case was not certified as a class action lawsuit. We note, however, that any recovery Class Counsel might have been able to achieve under such circumstances would have likely been only a fraction of the recovery obtained here, since the element of class-wide damages would have been lacking. The percentage of recovery for attorneys’ fees is usually inversely proportionate to the size of the plaintiffs recovery. Accordingly, the fact that a one-third contingency fee was negotiated with the named Plaintiffs as private litigants does not necessarily lead us to conclude that a one-third fee is appropriate in the context of a class-wide recovery.
276. Finally, we consider the stage of litigation at which the settlement is reached. Here, the Proposed Settlement came after the lion’s share of discovery had been completed and the parties were
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in a position to evaluate the relative strengths and weaknesses of each side’s case. In addition to noting the vast amount of work which was required in prosecuting this case, we also note Class Counsels’ representation that their involvement in this litigation required them to abstain from working on other matters.
277. On balance, the Court finds that an award of attorneys’ fees in the amount of 28% of the settlement fund (including interest) is fair and appropriate, taking all of the foregoing factors into account. By the Court’s calculations, this yields a figure of $5,341,000.
278. Class counsel urge that an analysis of the lodestar approach confirms the reasonableness of their fee request. Counsel represent that they have spent an aggregate of at least 28,163 hours in the prosecution of this case, producing a lodestar amount of $6,393,167.00.
279. The Court has thoroughly reviewed Class Counsels’ documentation in support of their requested fee and finds that there is some evidence of a duplication of effort. First, we note that some eleven different law firms have combined resources to represent the Class. Whenever such a vast panel of attorneys are working on the same case, it would seem inevitable that some duplication of effort results. Counsel have not supplied sufficient documentation to enable the Court to determine whether all the hours spent reflect non-duplicative efforts to litigate the case. We note, for example, Beldon & Blake Corporation’s objection that the number of hours being billed for each day of deposition is (allegedly) excessive. Also noteworthy is the fact that $414,991 is being sought for preparation of pleadings and motions; $274,693.75 is being sought for “research” and $383,409.25 is sought for time spent on “case planning and organization; strategy.” Further, Beldon
&
Blake points out that the total number of hours billed for document review is equivalent to 21 persons reviewing documents for 50 hours per week for three months. Notwithstanding the complexity of this case and the volume , of document production that occurred here, this figure strikes the Court as somewhat high.
280. In addition, it does appear to the Court that certain functions were occasionally performed by counsel billing at higher hourly rates where a less senior attorney and/or paralegal may have sufficed to perform the same task. Due to the generalized nature of Class Counsels’ documentation in support of their fee request, the Court is unable to determine the specific tasks performed by counsel and the reasonableness therefore.
281. The Court concludes, based on the foregoing factors, that a reduction in the lodestar amount is appropriate and in line with the Court’s award of a percentage-of recovery fee in the amount of 28% of the combined settlement fund.
'2. The Request for Reimbursement of Expenses
282. Class Counsel have also requested reimbursement of certain expenses totaling $486,165. While some class members have lodged vociferous objections to Class Counsels’ request for attorneys’ fees, no members have seriously contested Class Counsels’ petition for reimbursement of expenses.
283. This case has been an expensive case to prosecute in light of the complexity of the legal and factual issues, the necessity of acquiring expert testimony on a variety of issues, the voluminous documentation at issue, the travel involved, and 'the numerous depositions of fact and expert witnesses. In particular, we reiterate that settlement was achieved only after the vast bulk of discovery had been completed. In addition, class counsel have invested over $2,000,000 at their own expense in order to meet the costs of this litigation.
284. The Court has reviewed Class Counsels’ petition for reimbursement of expenses and finds that such expenses are adequately documented and were reason
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ably and appropriately incurred in the prosecution of this action.
285. The Court will grant Class Counsels’ petition for reimbursement of expenses in the amount of $486,165.
3. The Representative Plaintiffs’ Motion for an Incentive Award
286. The Court also has before it a motion by three representative Plaintiffs — Lazy Oil Co., John B. Andreassi and Thomas A. Miller Oil Co. — for incentive awards in the amount of $100,000 each. These moving Plaintiffs base their request for an incentive award on the role that they played in initiating the instant action, retaining counsel to prosecute the class claims, actively participating in the litigation, assisting Class Counsel, and acting as a liaison to absent class members.
287. At the hearing on the proposed Witco/Pennzoil settlement, the Court heard testimony from Bennie Landers, president of Lazy Oil Company, regarding his efforts on behalf of the class. Mr. Landers introduced an exhibit at the hearing which purported to compute the value of the services he has provided in the prosecution of this case, as compiled from telephone bills and other personal records. In total, Mr. Landers purported to document $135,882 in fees and expenses, the vast bulk of which constituted compensation for the time he allegedly has spent on the case, calculated at an hourly rate of $50.
26
288. No records or testimony were submitted to document the basis for an incentive award for either Thomas A. Miller Oil Co. or John B. Andreassi.
289. Class Counsel have filed a memorandum in opposition to the requested incentive award on behalf of the Class, arguing that the requested awards are excessive and disproportionate to the respective contributions made by each of the named representatives. Class counsel recommend that an award be made in the amount of $20,000 for Lazy Oil Co. and $5000 for each of the remaining class representatives.
290. Based upon the testimony, exhibits, and other submissions to the Court, we make the following findings relative to the motion for an incentive award:
291. Thomas A. Miller Oil Co., through Thomas Miller, assisted the Class’s efforts by: (1) obtaining for Class Counsel a summary price chart reflecting the prices that Witco paid for oil over a period of 10 years; (2) providing information about a conversation that Mr. Miller believed would be useful in proving the alleged conspiracy; (3) producing documents in response to the Defendants’ discovery requests; (4) appearing for deposition; and (5) attending the hearing before this Court in connection with our approval of the Quaker State settlement.
292. Mr. Andreassi assisted the Class’s efforts by: (1) producing documents in response to Defendants’ document requests; and (2) appearing for a brief deposition.
293. The efforts of Messrs. Miller and Andreassi, while not inconsequential, do not merit an incentive award of $100,000. Indeed, the Court finds that these efforts do not merit an incentive award beyond the type of benchmark award typically awarded by courts in this circuit. An
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award of $5,000 each for Messrs. Miller and Andreassi is fair and appropriate based on the record here.
294. Lazy Oil Company, through its principal Benny Landers, has made a greater contribution to the Class litigation than the other class representatives. Mr. Landers did provide articles and other literature to Class Counsel that he believed would assist counsel in becoming educated about the oil industry. In addition, Mr. Landers was the key individual responsible for initiating this lawsuit and retaining counsel. During the course of discovery, Mr. Landers assisted in document production, attended four days of deposition, investigated certain leads that he felt would assist the Class, and served as a de facto liaison to many absent class representatives. Nevertheless, the Court finds that the foregoing services do not merit an award of $100,000.
295. The Court finds Mr. Landers’s self-imposed fee to be excessive. ■ In addition, Mr. Landers’s time computations are no more than a rough estimate unsupported by actual time sheets or any particularized documentation and, for that reason, are not reliable. To the extent that Mr. Landers spent time communicating with others about the case, the Court credits Class Counsels’ representation that such communications did not substantially benefit the Class.
296. The Court further credits Class Counsels’ representation that Mr. Landers has already been reimbursed in the amount of $10,054.29 for actual, documented out-of-pocket expenditures. These include telecopier, automobile, and telephone expenses, along with other incidental documented expenses.
297. In addition, the Court credits Class Counsels’ representation that Mr. Landers has spent a considerable amount of time on non-litigation matters, such as trying to convince refiners that they should change the formula by which they pay for Penn Grade crude, most of which provided no assistance to the outcome of this litigation. The Court further notes that Mr. Landers has been an active leader in the efforts of various Class members to oppose the instant settlement. However well intended these efforts (and the Court does not question Mr. Landers’s good intentions), they have not enured to the benefit of class members. For the reasons previously set forth in detail, this Court has approved the Settlement as fair and reasonable and has found that the Lazy Oil Objectors’ criticisms of the settlement are (for the most part) unfounded.
298. An incentive award of $20,000 for Mr. Landers is fair and appropriate based on this record.
f. The objectors’ request for removal of CLASS COUNSEL
299. The Lazy Oil Objectors have filed a motion seeking to remove one of the Co-Lead Counsel, Howard J. Sedran, from this case. On June 12,1997, subsequent to the completion of the hearing on final approval of the Settlement, the. Lazy Oil Objectors filed a motion for disqualification of all Class Counsel. The New York producers have not joined in the Motions of the Lazy Oil Objectors to disqualify Mr. Sedran and the other Class Counsel. (Tr., Vol. II at 120.)
300. The primary basis of the Lazy Oil Objectors’ motion for the removal of Mr. Sedran and Class Counsel is the Objectors’ dissatisfaction with the Settlement. The Objectors complain that Class Counsel should have utilized the lost profits damage theory advocated by the Objectors and further object that the Settlement amount is insufficient. “It is plainly apparent,” the Objectors claim, “that Class Counsel negotiated a settlement and recommended same to the Representative Plaintiffs and the class without ever disclosing that he had, whether by error or intention, completely ignored an entire component of damages otherwise recoverable under applicable law.” (Consolidated Br. of Lazy Oil Objectors [Doc. No. 265] at 30.) The
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Objectors suggest that Class Counsels’ handling of this case (and especially the Settlement) has resulted in an irreparable breach of trust between counsel, the Representative Plaintiffs and the members of the Class inasmuch as Class Counsel have “usurp[ed] the exclusive prerogative of the clients to determine their own fate with full knowledge of the choices.”
(Id.
at 31.)
301. The Objectors also seek to disqualify Class Counsel on the ethical ground that each of Plaintiffs’ attorneys is disqualified from taking any position on any issue adverse to the Objectors. The Objectors claim that, upon filing their motions to withdraw as counsel for the Lazy Oil Objectors, and particularly upon the granting of those motions, counsel became ethically bound to advance no position adverse to their former clients. Class Counsels’ continued participation, it is urged, is a breach of that ethical prohibition.
302. The Lazy Oil Objectors have failed to identify “any concrete act of impropriety” by Mr. Sedran or any other of the class counsel which would warrant disqualification.
See Maywalt v. Parker & Parsley Petroleum Co.,
67 F.3d 1072 (2d Cir.1995).
303. As discussed above, the lost profits damage theory advocated by the Lazy Oil Objectors was fraught with economic and legal problems, and the decision by Class Counsel not to utilize that damage theory does not constitute a legitimate basis for their disqualification. Class Counsel acted in the best interests of the Class in not consenting to the damage theory proposed by Mr. Landers. Mr. Landers is not an economist, a chemist or a petroleum engineer. (Tr., Vol. II at 57.)
304. The fact that Class Counsel made an effort to seek agreement from the Defendants to peg the prices of Penn Grade crude to the NYMEX price for crude refut

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/2361541. Public record. Not legal advice.