Appendix — Siemon-Netto v. Rose
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UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
No. 03-7011
Filed August 20, 2003
SUMMARY ORDER
THIS SUMMARY ORDER WILL NOT BE PUB-
LISHED IN THE FEDERAL REPORTER AND MAY
NOT BE CITED AS PRECEDENTIAL AUTHORITY
TO THIS OR ANY OTHER COURT, BUT MAY BE
CALLED TO THE ATTENTION OF THIS OR ANY
OTHER COURT IN A SUBSEQUENT STAGE OF THIS
CASE, IN A RELATED CASE, OR IN ANY CASE FOR
PURPOSES OF COLLATERAL ESTOPPEL OR RES
JUDICATA.
At a Stated Term of the United States Court of
Appeals for the Second Circuit, held at the Thurgood
Marshall United States Courthouse, at Foley Square, in
the City of New York, on the 20 day of August, two
thousand and three.
PRESENT:
HON. DENNIS JACOBS,
HON. SONIA SOTOMAYOR,
Circuit Judges.*
HEATHER ADAMS, GEORGE ALDRICH, JOSEPH BARTH,
DEREK J. BARTLETT, VICTOR BEAUZAY, JUDITH L.
BOUDREAU, JANET BUDGE, KENNETH T. BURGESS, A.J.
BURNS, S.M. BUTLER, G.G. CAMPBELL, JOHN A.
CARTER, JULIE M. CARTER, R.H. CARTER, THOMAS H.
COLLINS, GRAHAM THOMAS JOHN COOK, JULIE COR-
MAN, JONATHAN CRISP, ALFRED DOLL-STEINBERG,
ADELE GERDE DOLL-STEINBERG, ROBERT EDWARD
DOCKERTY, BERNARD JOHN EDMONDS, B.C. ELLIS,
CLIVE FRANCIS, SIMON GARROW, GEOFFREY E. HALL,
JOHN M. HAMILTON, HOWARD HARPER, MONIKA
HARPER, RICHARD G.D. HARRISSON, ANTONIO FRAN-
CIS HEALEY, N.R.K. HICKS, YUKIMO HONDA, RICHARD
HULSE, S!IR WILLIAM JAFFRAY, KEVIN JAMES, J.H.
JOHNSON, PETER B. JOHNSON, R. WILLIAM JOHNSTON,
MENEL S. KALIFF, DONAL KINSELLA, R. KREBS, SIR
MICHAEL LEIGHTON, MARK I. LEvy, ELIZABETH LEVY,
FRANK LIN, EDWIN R. LODER, BARBARA LYONS, J.J.
MACBRIEN, DAVID MAINWARING, ROBERT H. MOR-
GAN, MAX MOSLEY, JOHN NEIGER, FREDERICK
THOMAS POOLE, ROBERT POSNER, FREDERICK ENOCH
PRICE, MARGARET ANN PRICE, ROSS C. RADFORD,
CHARLES RANALD, REGIS REMILLARD, GILLIAN
SIEMEN-NETTO, UWE SIEMON-NETTO, GAVIN SORREL,
. The Honorable Fred I. Parker, who was a member of the
panel, died following argument, and the appeal is being decided by
the remaining two members of the panel, who are in agreement. See
2d Cir. R. § 0.14(b).
3a
H. CHRISTOPHER. STARKEY, ROBERT L. SWISHER,
LINDA K. TREITEL, JOHN TROOSTWYK, IRENE BUCH-
MAN WEINBERG, LOUIS S. WEINBERG, D.J. WELLER, C.
ALONZO WILLIAMS, M. WILSON, MYRA WILSON,
PETER WILSON, M. WORSTER, P. WORSTER, ANNA
YOUNG,
Objector-Appellants,
—\.—
MARK ROSE, ELICE J. ROSE and PHILIP M. STAMM,
Plaintiffs-Appellees,
CITIBANK, N.A.,
Defendant-Appellee.
APPEARING FOR OBJECTOR-APPELLANTS:
RUSSEL H. BEATIE (Philip J. Miller, of counsel),
Beatie and Osborn LLP, New York, NY.
APPEARING FOR PLAINTIFFS-APPELLEES:
KENNETH LAPATINE, Greenberg Traurig LLP, New
York, NY (Sanford P. Dumain, Bruce D. Bernstein,
Milberg Weiss Bershad Hynes & Lerach LLP, New
York, NY, on the brief).
APPEARING FOR DEFENDANT-APPELLEE:
CHRISTOPHER K. TAHBAZ (Robert N. Shwartz,
Adam D. Gale, of counsel), Debevoise & Plimpton,
New York, NY.
4a
APPEARING FOR AMICUS CURIAE:
Robert E. Rice, McDermott, Will & Emery, New
York, NY (Eugene I. Goldman, McDermott, Will &
Emery, Washington, DC, of counsel), submitted a
brief for amicus curiae American Names Associa-
tion, Inc.
Appeal from the United States District Court for the
Southern District of New York (Sweet, J/.).
UPON DUE CONSIDERATION, IT IS HEREBY
ORDERED, ADJUDGED AND DECREED that the judgment
of the district court be, and it hereby is, AFFIRMED.
Objector-Appellants' appeal from a final judgment
dated November 26, 2002 by the United States District
Court for the Southern District of New York (Sweet, J.),
approving a settlement in a class action against Defen-
dant-Appellee Citibank, N.A.
The Objectors raise three arguments on this appeal:
(1) the Notice of Pendency of Class Action violated con-
stitutional due process; (2) the settlement did not fairly
and adequately compensate the class, in part because the
settlement failed to account for the release of certain
Plaintiffs- Appellees’ motion to correct the caption and/or to
strike the appeal of certain individuals designated as Objector-Appel-
lants is granted in part, and denied in part. The following individu-
als are removed from the caption: Gasper Celauro, Michael Montana,
John R. Norton, Betty F. Orme, Warren Peterson, Mark Rose, and
Elise Rose. The following individuals are stricker: from the appeal
and removed from the caption: W.G. Brown, C.B. Finger, Jr., Marvin
Goodson, Cary Harrison, A.J.L. Milhoux, C. Moore, Lisa Ross-
Roberts, John Smith, M.E.P. St. George, and Pieter J. Van Den Akker.
The motion is denied insofar as it relates to Monika Harper, Howard
Harper, Peter Johnson, and Lous S. Weinberg.
aati tatiana
7. re rs
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claims against Lloyd’s of London, a non-party; and (3)
Plaintiffs” counsel had insufficient information prior to
the settlement to fairly evaluate both this case and the
settlement.
We review the first issue de novo, Zervos vy. Verizon,
N.Y., Inc., 252 F.3d 163, 168 (2d Cir. 2001), and the lat-
ter two for abuse of discretion, Jn re Ivan F. Boesky Sec.
Litig., 948 F.2d 1358, 1368 (2d Cir. 1991). We affirm for
substantially the reasons set forth in Judge Sweet's com-
prehensive and thoughtful opinion dated November 26,
2002.
For the foregoing reasons, the judgment of the district
court is hereby AFFIRMED.
FOR THE COURT:
Roseann B. MacKechnie,
Clerk of Court
By: LUCILLE CARR
oe
6a
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
96 Civ. 1262 (RWS)
OPINION
IN RE LLOYD’S AMERICAN
TRUST FUND LITIGATION
APPEARANCES:
Plaintiffs’ Lead Counsel:
MILBERG WEISS BERSHAD HYNES & LERACH
One Pennsylvania Plaza
New York, NY 10019-0165
By: DAVID J. BERSHAD, ESQ.
SANFORD P. DUMAIN, ESQ.
GEORGE A. BAUER III, Esq.
REGINA L. LAPOLLA, ESQ.
BRUCE D. BERNSTEIN, ESQ.
Of Counsel
GREENBERG TRAURIG
885 Third Avenue
New York, NY 10022
By: KENNETH LAPATINE, ESQ.
Of Counsel
7a
Attorneys for Plaintiffs:
ABBEY GARDY
212 East 39th Street
New York, NY 10016
By: ARTHUR ABBEY, ESQ.
JILL ABRAMS, ESQ.
Of Counsel
Attorneys for Plaintiff Objectors:
BEATIE AND OSBORN
521 Fifth Avenue
New York, NY 10175
By: RUSSEL H. BEATIE, ESQ.
Of Counsel
Attorneys for Defendant Citibank, N.A.:
DEBEVOISE & PLIMPTON
919 Third Avenue
New York, NY 10022
By: ROBERT N. SHWARTZ, ESQ.
CHRISTOPHER K. TAHBAZ, ESQ.
Of Counsel
Sweet, D.J.,
The Plaintiffs, representing the class of members of
Lloyd’s of London (“Lloyd’s”), commonly known as
‘“‘Names” and the defendant Citibank, N.A. (“Citibank’’),
have moved pursuant to Rule 23(e), Fed. R. Civ. P., for
final approval of the proposed settlement of this class
action. For the reasons set forth below, the motions are
granted, and the settlement is approved.
8a
Prior Proceedings
Three actions were initiated against Citibank in the
Supreme Court of the State of New York, County of New
York in the period from December 1995 through Febru-
ary 9, 1996 and consolidated by virtue of a stipulation
and scheduling order of January 23, 1996. The consoli-
dated actions were removed to this Court on February
21, 1996. A fourth action filed in this Court was later
similarly consolidated.
As set forth in the complaints, the Plaintiffs and the
Class alleged that Citibank breached its duties and
responsibilities as the trustee of the trust fund of each
plaintiff. It was alleged, inter alia, that Citibank engaged
in a pattern of transferring money from the trust funds
maintained by solvent Names to trust funds of insolvent
Names in order to meet the latters’ obligations, that
Citibank engaged in unauthorized commingling of the
funds in different trust funds, and that Citibank failed to
maintain appropriate and necessary records with respect
to each trust fund.
Specific allegations of improper activities included:
improper loans and overdrafts; improper transfers of
money; failure to establish and properly maintain bank
accounts; improper investment of account funds; breaches
of fiduciary duty; failure to render reports and account-
ings of bank accounts at Citibank; and violations of reg-
ulations issued by the Comptroller of the Currency that
specifically govern banks.
Based on these alleged breaches and wrongful con-
duct, the Plaintiffs sought an accounting by Citibank as
to each trust fund, recovery of any damages suffered as
a result of Citibank’s breaches of its fiduciary and con-
tractual duties, and an injunction enjoining Citibank
from continuing to commit any breaches of the fiduciary
9a
and contractual duties owed to the Plaintiffs and mem-
bers of the Plaintiff Class.
A motion to remand the action was denied by opinion
of June 7, 1996. In re Lloyd's American Trust Fund
Litig., 928 F. Supp. 333 (S.D.N.Y. 1996).
Citibank moved to dismiss the complaint on various
grounds, including (1) that the case should be litigated
in England, (2) that Lloyd’s Members’ Agents and Man-
aging Agents were necessary and indispensable parties,
(3) that Plaintiffs’ claim for breach of contract failed to
state a cause of action, and (4) that Plaintiffs’ claim for
an accounting was legally deficient. The motion was
granted in part and denied by order of January 24, 1997.
In re Lloyd's American Trust Fund Litig., 954 F. Supp.
656 (S.D.N.Y. 1997) (“Lioyd’s I’’).
On March 5, 1997, Plaintiffs filed a consolidated
amended complaint (the “Complaint”) on behalf of a
putative class of all Names of Lloyd’s who underwrote
American Business and who had been damaged by
Citibank’s alleged breach of fiduciary duties as trustee
of the Lloyd’s American Trust Funds (“LATF’’). Plaintiff
claimed that each such Name had money held in trust by
Citibank and was a beneficiary of the LATF, and alleged
that Citibank breached fiduciary duties to the Names by,
among other things, failing (1) to provide information,
or account, to the Names; (2) to make various disclosures
to the Names; (3) to preserve the assets in the LATF; and
(4) to police the activities of Lloyd’s. The Complaint
sought compensatory and punitive damages, injunctive
and declaratory relief, and costs and attorneys’ fees.
Citibank by answer filed April 7, 1997 denied liabil-
ity and asserted a number of affirmative defenses con-
tending that it acted in accordance with the express
terms of the Lloyds’ American Trust Deed (“LATD”),
the instrument governing the LATF, complied with all
10a
directions it received from Lloyd's (as it was required to
do), did not breach any duties owed to any Name, and
that no Name suffered any damages by virtue of “Inter-
Name loans” or indeed any Citibank conduct.
On February 6, 1998, the Plaintiffs’ motion to certify
the Class was granted pursuant to Federal Rule of Civil
Procedure 23(b)(3). See In re Lloyds’ American Trust
Fund Lit., 1998 WL 50211 (S.D.N.Y. Feb. 6, 1998)
(“Lloyd’s IT’), at *8-16, discussing the high likelihood
that any judgment entered in this action would have res
judicata effect barring relitigation in foreign jurisdic-
tions. See id. at *16.
On May 8, 1998, Plaintiffs applied to the-Court for an
order authorizing the form and content of the “Notice of
Pendency” to be provided to the Class. Piaintiffs
attached the form of notice to be mailed to individual
class members, asserting that it would “fairly and accu-
rately inform members of the class that this action is
pending and. . . provide sufficient information for the
class members to make an informed decision under Rule
23.” The Notice of Pendency informed class members of
the case, the allegations, the need to request exclusion
on or before October |, 1998, and the consequences of
remaining in the class. Plaintiffs’ counsel informed the
Court of their intention to “give notice by individually
mailing notice to class members through the aegis of
Lloyd’s counsel in England,” and also to directly “mail
the notice to individuals that they . . . identified as pos-
sible class members.” On May 29, 1998, the dissemina-
tion of the Notice of Pendency as proposed by Plaintiffs
was approved, including notice given by Lloyd’s coun-
sel in Great Britain. After the Notice of Pendency was
mailed to 1,749 members of the class and 64 individuals
submitted requests for exclusion from the Class.
lla
Discovery was undertaken as directed in Lloyd’s I,
1998 WL 50211, at *17-20, and Citibank produced for
inspection approximately 1.8 million pages of docu-
ments, and prioritized its production in response to sub-
Stantive requests made by Plaintiffs’ counsel so that
approximately 450,000 pages of documents that Plain-
tiffs deemed most critical to their case were produced on
an expedited basis.
Citibank also produced information and supporting
documentation to Plaintiffs concerning the amounts of
fees paid to Citibank for its services as the LATF trustee.
In addition, on December 7, 2000, Plaintiffs deposed
Peter von Kaufmann, the Citibank officer with respon-
sibility for overseeing the bank’s work as LATF trustee,
concerning a variety of topics, including (1) Citibank’s
lack of any knowledge about anticipated losses from
asbestos and environmental claims and efforts by
Lloyd’s to recruit new Names to help bear those antici-
pated losses; (2) why no Name was harmed as a result of
“inter-Name lending”; (3) the compensation Citibank
received for serving as trustee of the LATF; (4) the func-
tion and operation of the LATF, including the manner in
which Citibank received and implemented instructions
from Lloyd's; and (5) how Citibank handled “negative
balances” in LATF accounts.
From September 9, 1998 through February 2001, six
pretrial conferences were held in connection with the
negotiations between the parties seeking to reach a set-
tlement of this case. Initial exploratory discussions con-
cerning theories of liability and measures of damages
were followed by substantive negotiations of a com-
prehensive settlement, and then by detailed drafting of
the terms of a settlement, including ten separate exhibits.
The process was complicated and time-consuming, in
12a
part because of the necessity to include the non-party
Lloyd's.
As of May 8, 2002, the parties executed a stipulation of
settlement with its attached exhibits (the “Stipulation”’).
On May 21, 2002, an Order for Notice and Hearing on
Proposed Class Action Settlement (the “Preliminary
Order”) was entered preliminarily approving the pro-
posed settlement set forth in the Stipulation. The Pre-
liminary Order also authorized Plaintiffs’ counsel to
retain Gilardi & Co. (“Gilardi”) to administer the set-
tlement in accordance with the Stipulation’s terms. The
Preliminary Order modified the previously certified
Class to include, for settlement purposes only, all non-
accepting Names, regardless of their affiliation with
Citibank,’ with two exceptions: (1) Names who uncon-
ditionally released Citibank—other than through R&R—
prior to May 8, 2002, and (2) Names who requested
exclusion from the previously certified Class in 1998
and who do not ask to rejoin the Class for settlement
purposes in accordance with the Settlement’s “Opt-In”
procedures, which were set forth in the Preliminary
Order. )
A Notice of Pendency and Proposed Settlement of
Class Action, Fairness Hearing and Right to Appeal (the
“Settlement Notice”) and an individualized Statement of
Estimated Settlement Distribution, providing each Class
Member with his or her Overall Premium Limits and
estimated share of the settlement proceeds, were ordered
mailed to each reasonably identifiable Class Member at
his or her last known address, and the Settlement Notice
was ordered posted on Plaintiffs’ counsel’s website, each
within 15 days of entry of the Preliminary Order. A
shorter “Publication Notice,” also substantially in the
1
The previously certified Class excluded Citibank officers and
directors.
13a
form approved by the Court, was ordered to be published
in The Wall Street Journal (United States edition) and
The Financial Times (United Kingdom edition) within 10
days after mailing of the Settlement Notice.
The non-accepting Names who had opted out of the
Class in 1998 had an opportunity to rejoin the Class for
purposes of participating in the Settlement by submitting
an “Opt-In Request Form” within 45 days of the date on
which the Settlement Notice was mailed. The Court also
required Class Members to file and serve any objections
to the proposed settlement and notices of appearance no
later than August 12, 2002. Of the approximately 1,350
remaining members of the Class,’ 239, representing less
than 18 percent, filed objections on one or more grounds
to the proposed settlement.°
Of the 53 Names who opted out of the Class after
receiving the 1998 Notice of Pendency and who are still
eligible for Class membership, 18 have now asked to
rejoin the Class after receiving notice of the terms of the
proposed settlement. Also, 88 individuals who were
already Class Members submitted “opt-in” requests to
Gilardi after receiving notice of the proposed settlement.
The hearing on the proposed settlement occurred on
September 11, 2002 at which time the motions were con-
sidered fully submitted.
* The number of Class members remaining in the Class today
is lower than the number of Class members in 1998 for two reasons.
First, as noted above, some Class members requested exclusion in
1998 after receiving the Notice of Pendency. Second, since 1998, cer-
tain former Class members entered into individual settlement agree-
ments with Lloyd's in which they released claims against Citibank,
among others.
5
This includes all objections that appear to have been filed in
the days after the August 12 deadline, as well as three objections filed
by individuals who are not Class members.
14a
The Relationship of the Parties
Lloyd’s is a unique and complex insurance market that
has been operating in London for more than 300 years.
In 1971, the Society and Corporation of Lloyd’s (the
“Corporation”’) was established by an Act of the British
Parliament. The Council of Lloyd’s (the “Council”) is
the governing body of Lloyd’s, regulating activity in the
Lloyd’s market through the promulgation of by-laws.
Lloyd's is not itself an insurer, but a market for insur-
ance. It is the individual underwriting members of
Lloyd’s, the Names, and, since 1994, a limited number
of corporate members, who are the insurers and who
underwrite insurance through groups called syndicates.
In 1995, nearly 15,000 individual Names from more
than fifty countries were actively engaged in under-
writing at Lloyd’s. Of those active Names, approxi-
mately 85 percent were British subjects; 5 percent were
American citizens on whose behalf this class action.has
been brought.
The syndicates through which Names underwrite
insurance are managed by underwriting agents known as
managing agents, to which the Names in the syndicate
each delegate the authority to select risks, set premium
rates, hold premiums and pay claims on their behalf.
Names, in consultation with their representative at
Lloyd’s, who is known as a members’ agent, select the
syndicates in which they are to participate in any par-
ticular underwriting year of account. Names generally
underwrite through more than one syndicate in order to
diversify their risk by spreading their underwriting
across different types of insurance, different syndicate
managers and different currencies. Because of this diver-
sification, most U.S. Names underwrite a substantial
amount of non-U.S. business in U.S. dollars, as well as
non-U.S. currency; correspondingly, non-U.S. Names
15a
underwrite a substantial amount of insurance written in
U.S. dollars.
To become a member of Lloyd's, the individual Name
must sign a series of standard agreements, which spec-
ify the rights and duties, and the responsibilities and lia-
bilities, of the Name, the managing agents, the members’
agents and the entire Society of Lloyd’s. See generally,
Roby. v. Corporation of Lloyd's, 996 F.2d 1353, 1357-59
(2d Cir. 1993). Every Name is required to travel to Lon-
don to sign these agreements. See id. at 1363; Roby v.
Corporation of Lloyd’s, 796 F. Supp. 103, 106 (S.D.N.Y.
1992), aff’d, 996 F.2d 1353 (2d Cir. 1993). One key
agreement is the General Undertaking. Each of the Plain-
tiffs has signed the General Undértaking, as well as
other operative documents relating to their membership
at Lloyd’s.
The members’ agent is the Name’s advisor and admin-
istrator of the Name’s Lloyd’s affairs. It is the members’
agent who assists the Name in selecting the syndicates
the Name will join, and who helps keep the Name
informed of all material developments. Pursuant to the
Agency Agreements Bylaw, the Name and his or her
members’ agent are required to execute a members’
agent’s agreement.
The managing agent’s agreement provides that the
managing agent has fiduciary responsibilities to the
Name and is responsible for the actual underwriting of
risk for the Names on that agent’s syndicate. The man-
aging agent is given broad authority “to exercise on [the
Name’s] behalf such powers as are necessary or expe-
dient for the provision by the Agent of the services and
the performance by the Agent of the duties set out in this
Agreement.”
Pursuant to the U.K. Insurance Companies Act of
1982, all premiums relating to a Name’s underwriting
l6a
must be placed into a trust fund established in accor-
dance with the provisions of a trust deed approved by the
U.K. Secretary of State for Trade and Industry. Accord-
ingly, all premiums paid by policyholders are deposited
in one of three types of Lloyd’s trust funds, depending
on the currency in which the premiums are paid. Lloyd’s
American Trust Funds (and the related American Trust
Fund relating to long term business) receive all premi-
ums payable in American dollars. Lloyd’s Canadian
Trust Funds receive all premiums payable in Canadian
dollars. All other premiums received are held in Lloyd's
Premiums Trust Funds.
The LATF was created in August 1939, through an ini-
tial deposit with the City Bank Farmers Trust Company
to protect policyholders in the United States from the
consequences of German attacks on England. The New
York Department of Insurance regulations that govern
the LATF state that: “the trust fund is for the exclusive
protection of all direct policyholders and beneficiaries of
direct policies covering property or risks located within
the United States.” N.Y. Comp. Codes R. & Regs. tit. 11.
vol. A, § 27.13(h)(1) (1995). The reinsurance regulations
covering the LATF require the maintenance of a “trust
fund. . . for the protection of the United States ceding
insurers and United States beneficiaries under reinsur-
ance policies.” N.Y. Comp. Codes R. & Regs. tit. 11,
vol. B, § 125.4(d)(1)(iv) (1995). The trust fund consti-
tutes a vehicle to segregate certain funds to insulate
them from other funds held by the Names as insurers.
Citibank and its corporate predecessors have been the
trustees of the LATF funds since its inception. As of Jan-
uary 31, 1996, Citibank held approximately $12.3 billion
in LATF assets. The rest of these trust funds are located
within the County and State of New York.
17a
Article Eighth of the LATD provides that the LATF is
to be managed and invested by Citibank “at the direction
of the Agent” and that the LATF of a given name “may
be commingled with the [LATF] of any of the other
Names.”
Article Eleventh provides that the American Trustee
will provide an accounting to the Agent and “shall not
be required to account to any person other than the
Agent.”
The LATD specified that New York law shall govern
the rights of the parties with respect to the LATF.
When a Name underwrote “American Business,” the
profits he would eventually receive from premium pay-
ments were deposited into a trust fund for that Name to
pay any claims arising under the American Business,
with the remainder, after operating expenses, to be paid
to the Name.
The American Trust Funds are administered through
combined portfolios referred to by Lloyd’s as “Group
Accounts,” each of which is comprised of the U.S. dol-
lar premiums of a number of individual Names and is
established by the managing agent of one or more of the
syndicates in which those Names participate. Group
Accounts may be comprised of all the Names partici-
pating in just one syndicate, just some of the Names par-
ticipating in a syndicate, or may be comprised of Names
from several different syndicates. The day-to-day admin-
istration of the LATF and LATF-LTB is handled both by
a department of Lloyd's and an administrative unit
within Citibank.
When an underwriting liability is incurred, the first
resort is to the funds in each member Name’s trust funds
to pay the liabilities. If any Name does not have suffi-
cient funds in his trust fund to meet that proportion of
the claims of the policyholders for which the name is
18a
responsible, cash calls will be issued requiring the Name
to make payments to meet his liabilities. If the Name
fails to pay the cash calls, the sums required may be
taken from the Name’s “deposit” which Lloyd’s holds. If
the funds in the Name’s deposit are exhausted and the
Name does not respond to cash calls, the Managing
Agent may ask Lloyd’s itself for money to cover the
defaulting Name’s liability through a draw down on
Lloyd's Central Fund.
According to the Plaintiffs, when Names do not have
sufficient monies in their trust fund accounts to meet
their liabilities, Citibank takes assets from other Names’
trust accounts to pay claims attributable to other trust
accounts with insufficient funds. In other words, pending
payment of cash calls, or a draw down on the defaulting
Name’s deposit, or an application for cash from the Cen-
tral Fund to cover the defaulter’s liability, sums from
the trust funds of other Names are used to pay claims
for which those funds have no liability (“Inter-Name
Lending’’).
According to the Plaintiffs, Lloyd’s used the American
Trust Funds to satisfy its statutory duties as an accred-
ited reinsurer and excess insurer under New York insur-
ance law. On or about May 11, 1995, the New York State
Department of Insurance completed an examination of
Lloyd’s to determine whether Lloyd’s was in compliance
with Insurance Department regulations.
As noted in the report to the New York State Super-
intendent of Insurance:
The examination review of various records main-
tained by Citibank and Lloyd’s indicates that there
is not any record of the individual Names’ total
assets held in LATF accounts. As noted previously
each Name at Lloyd’s underwrites in association
with other Names but each Name is underwriting for
19a
his own sole separate account. Therefore, each
Name’s assets in LATF is for the purpose of meeting
that Name’s liabilities and not liabilities of other
Names. Lloyd’s managing agents keep track of the
amount of funds held in LATF for each syndicate
under their control and also maintain records of
Names comprising each syndicate. However, each
Name is usually represented on several syndicates
which are under the control of various managing
agents. The amount of each Name’s United States
dollar liabilities and funds in LATF, by syndicate
and managing agent, is not accumulated centrally.
Further, managing agents control a Name’s funds in
LATF by means of group accounts. Such accounts
may consist of several syndicates or Names within
several syndicates grouped together for investment
purposes. In order to determine each Name’s assets
in LATF, it would be necessary to compile a listing
from each managing agent of all syndicates under
the managing agent’s control; such a listing would
have to show a breakdown by policy year down to
the Name’s level. It appears that an LATF allocation
by name is not maintained by the trustee or centrally
by Lloyd’s.
Report on Examination of Lloyd’s, London as of Decem-
ber 31, 1993, prepared by the New York State Depart-
ment of Insurance on May 11, 1995 at 11-12 (hereinafter,
“Ins. Dep’t Report”).
The New York State Department of Insurance deter-
mined that the reserves established for American Busi-
ness as reported in Lloyd’s 1993 Trusteed Surplus
Statements were “seriously deficient” and had net defi-
ciencies of more than $7.7 billion, or more than $18 bil-
lion before reinsurance recoveries at the end of 1993.
20a
As a result of the examination finding that Lloyd’s
was not maintaining its statutorily required minimum
surplus, Lloyd’s and the New York Department of Insur-
ance entered into an agreement dated May 24, 1995.
Prior to this action being commenced, Lloyd's had
been exploring and forming a plan of action to reinsure
outstanding liabilities which threatened the solvency of
many Lloyd’s insurance syndicates. This plan, denomi-
nated Reconstruction and Renewal (“R&R”) would act
as a “firebreak” of Names’ underwriting liabilities for all
periods prior to 1993. After this action was filed, Lloyd’s
instituted R&R. Pursuant to the R&R plan, the Names
who accepted R&R received “settlement credits” and
were assessed an “Equitas Premium” which was essen-
tially the premium amount Lloyd’s believed to be nec-
essary to reinsure the Names’ liabilities for prior
underwriting periods. Names who accepted R&R gave
general releases to Lloyd’s, Citibank and others. R&R
was well accepted and over 95 percent of the Names
who were putative class members in this action accepted
R&R, released Citibank, and were foreclosed from being
Class Members.
As a result of R&R, the LATF no longer functioned as
it did during the Class Period. Equitas has its own trust
fund, the Equitas American Trust Fund.
To ensure the success of R&R and the solvency of
Lloyd’s syndicates and the Lloyd’s market, an act of Par-
liament deemed nonaccepting Names to be bound by the
plan for R&R at least to the extent that they are liable to
pay the Equitas Premium. Lloyd’s has obtained judg-
ments against several Names who have not paid the
Equitas Premium, and has begun to enforce those judg-
ments. Names have been put into bankruptcy through
these judgment collection efforts. The objectors maintain
there have been over 400 such bankruptcies.
The Settlement
The parties entered into the Stipulation dated May 8,
2002 which provides that, in exchange for settling and
releasing all claims “in relation to the establishment,
conduct, administration, operation, supervision, direc-
tion or oversight of the LATF,” the Class will receive
$8,500,000 (the “Cash Settlement Fund’) and $11,500,000
in “Credit Notes” which will be used by Class Members
to reduce R&R debt that they owe, or are claimed to owe
to Lloyd’s, consisting of the (i) Equitas Premium amount
and (ii) other amounts the Name was alleged to owe con-
nected with his or her underwriting. The Stipulation thus
creates a total benefit to the Class in excess of
$20,000,000 (the “Settlement Consideration”), including
interest on the credit notes which was $2,875,000 as of
June 30, 2002.
As required by the Stipulation, Citibank has already
paid the $8.5 million into an interest-bearing escrow on
behalf of the Class. This amount and any interest (col-
lectively, the “Cash Settlement Fund”) will be used first
to pay taxes on the fund, the costs of notice and admin-
istration of the settlement, and such fees and expenses as
the Court may award to Plaintiffs’ counsel. The remain-
ing amount will be distributed to Class Members.
The Stipulation provides that Lloyd’s will provide
“safe passage” for the Cash Settlement Fund until it is
distributed to Class Members. The Stipulation and the
proposed Final Judgment contemplate certain findings to
facilitate “safe passage.” These findings will ensure that
the settlement proceeds payable to Class Members will
be deemed only as monies payable in settlement of a
breach of fiduciary duty claim, and that they will not be
deemed “moneys payable . . . in connection with the
American business” for purposes of Sections 3(a) & (B)
of the LATD, or monies payable in connection with
22a
underwriting at Lloyd’s for purposes of Section 2.1 of
the Lloyd’s Premiums Trust Deed.
The $11.5 million in credit notes will be honored by
Lloyd's towards payment of the R&R debt owed by any
Class Members. Payment of R&R debt with credit notes
will avoid any interest owing or charged by Lloyd's on
that R&R debt discharged with such credit notes from
July 1, 1999 until the time of presentment. Credit notes,
which will expire one year after the Court orders their
distribution, will be freely transferable among members
of the Class. Thus, a Class Member may use or sell the
distributed credit notes. Class Members may accumulate
other Class Members’ credit notes to pay their R&R
debt. To facilitate such transfers of credit notes among
Class Members, the Claims Administrator, Gilardi, will
maintain lists where persons interested in buying and_
selling credit notes may post those interests. Gilardi will
serve as a clearinghouse for transfers of the credit notes,
and Class Members will be able to obtain lists of inter-
ested sellers or purchasers at any time upon request.
Plaintiffs* counsel may apply to the Court for a portion
of the $11.5 million in credit notes as part of their fee.
The remainder will be distributed to Class Members.?
Within thirty days after the Settlement is final and no
longer subject to appeal, Plaintiffs’ counsel will move
the Court for a Class distribution order that, among other
things, authorizes distribution of the cash settlement
fund and the credit notes to Class Members. Distribution
of benefits to the Class will commence after the Court
enters the class distribution order, all taxes and admin-
+ To the extent the credit notes might be deemed “securities,”
their registration would not be required pursuant to section 3(a)(10)
of the Securities Act of 1933, as amended, by virtue of the Court’s
approval of the Settlement. /d. 4 5(b). See 15 U.S.C. § 77c(a)(10).
23a
istration costs have been paid, and any remaining dis-
putes relating to the Settlement have been resolved.
The cash settlement fund and the credit notes will be
distributed to Class Members on a pro rata basis, accord-
ing to the proportion each Class Member's aggregate
overall premium limits from 1979 through 1996 bears to
the total of all overall premium limits for all Class Mem-
bers during that period. Based on each Name's demon-
strated means, Lloyd's calculated overall premium limits
for each Name that effectively set a maximum amount of
insurance that could be underwritten on the Name's
behalf each year. For purposes of the Settlement,
Citibank obtained each Class Member's overall premium
limits from Lloyd’s.
The Stipulation provides that unclaimed portions of
the Settlement proceeds do not revert to Citibank. One
year after the initial distribution of cash payments, and
after reasonable efforts by Gilardi to have Class Mem-
bers cash their checks, any balance remaining in the cash
settlement fund will be redistributed to Class Members
who have cashed their checks. If any funds remain after
an additional six months, the balance of the cash set-
tlement fund will be contributed to a non-profit organi-
zation designated by, but not affiliated with, Plaintiffs’
counsel. Six months after the initial distribution of credit
notes, and after reasonable efforts by Gilardi to locate
better addresses for Class Members, Gilardi may sell to
other Class Members any credit notes returned as unde-
liverable. The proceeds of these sales will eventually be
added to the cash settlement fund for redistribution.
Upon approval, the action against Citibank will be dis-
missed with prejudice. In addition, the Stipulation pro-
vides that Class Members will release any settled claims
against Citibank and Lloyd's as well as related persons and
entities in any forum worldwide. The Stipulation limits
sata ic ia ee:
~
24a
“Settled Claims” to those relating “to the establishment,
conduct, administration, operation, supervision, direction
or oversight of the LATF. . .” The Stipulation’s release
specifically excludes from the definition of settled claims,
inter alia, “any claim against Lloyd’s by any Class Mem-
ber who has asserted such claim in any other action prior
to the date of this Stipulation [i.e., May 8, 2002].”
Accordingly, the Stipulation provides that imple-
mentation of the proposed settlement and its benefits to
the Class, depend on preservation of the terms of the
release. Stipulation 4 E (“Defendant's willingness to enter
into this Stipulation is premised on this Settlement pre-
cluding any further litigation of Settled Claims. . . by
Class Members—-American or foreign—against Citibank,
Lloyd’s or any other Released Party . . . in any forum
world-wide”) (granting Citibank termination rights if
Final Judgment is refused or modified in any material
respect.)
Lloyd’s has also agreed in similar fashion that it.will
not seek to attach or otherwise restrain the distribution
of that cash to the Class Members thus granting “safe
passage” for the cash.
The Hearing
Citibank and the Plaintiffs appeared in support of the
Stipulation. Objections were filed by 239 Names who are
members of the Class, both by letter, form objection and
appearance by counsel. |
Three principal objections were made, the first being
the release to non-party Lloyd’s which was alleged to
violate due process, given the initial notice and the inabil-
ity to opt out upon learning of the release to Lloyd’s.
A second related concern was whether or not the
release to Lloyd’s was appropriately limited. A third
objection was based upon the absence of adequate dis-
25a
covery, and the consequent inability of Class Members to
review such discovery. A number of other objections
were advanced.
The Standard for Approval
Rule 23(e) of the Federal Rules of Civil Procedure
provides that “[a] class action shall not be dismissed or
compromised without the approval of the court.” Fed. R.
Civ. P. 23(e). This Court stated the standards for
approval of a class action settlement under Rule 23(e),
most recently in Jn re Blech Secs. Litig.:
The decision to grant or deny such approval lies
within the discretion of the trial court, and this dis-
cretion should be exercised in light of the general
judicial policy favoring settlement.
It is well-established that courts’ principal respon-
sibility in approving class action settlements is to
ensure that such settlements are fair, adequate, and
reasonable.
This determination involves consideration of two
types of evidence. The Court’s primary concern is
with the substantive terms of the setthkement com-
pared to the likely result of a trial, and to that end
the trial judge must apprise himself of all the facts
necessary for an intelligent and objective opinion of
the probabilities of ultimate success should be
claim[s] be litigated.
The Second Circuit has indicated nine factors to
consider in determining the fairness of a proposed
settlement:
(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
26a
and the amount of discovery completed, (4) the
risks of establishing liability, (5) the risks of
establishing damages, (6) the risks of main-
taining the class action through the trial, (7) the
ability of the defendants to withstand a greater
judgment, (8) the range of reasonableness of-
the settlement fund in the light of the best pos-
sible recovery, (9) the range of reasonableness
of the settlement fund to a possible recovery in
light of all the attendant risks of litigation.
The Court’s second concern is with the negotiating
process by which the settlement was reached, which
must be examined in light of the experience of
counsel, the vigor with which the case was prose-
cuted, and the coercion or collusion that may have
marred the negotiations themselves. The Court has
a fiduciary duty to ensure that the integrity of the
arm's length negotiation process is preserved, how-
ever, a strong initial presumption of fairness
attaches to the proposed settlement, and great
weight is accorded to the recommendations of coun-
sel, who are most closely acquainted with the facts
of the underlying litigation.
2000 WL 661860, at *3-4 (S.D.N.Y. May 19, 2000)
(internal quotation marks and citations omitted); accord,
Adair v. Bristol Tech. Sys. Inc., No. 97 Civ. 5874, 1999
WL 1037878, at *1-2 (S.D.N.Y. Nov. 16, 1999); In re
Nasdaq Market-Makers Antitrust Litig., 187 F.R.D. 465,
473-74 (S.D.N.Y. 1998).
The nine-factor test for evaluating fairness described
in Jn re Blech—and previously applied by this Court in
Adair and In re Nasdaq—was adopted by the Second
Circuit in City of Detroit v. Grinnell Corp., 495 F.2d
448, 463 (2d Cir. 1974) (overruling on other grounds
27a
recognized by Chambless v. Masters Mates & Pilots Pen-
sion Plan, 845 F.2d 1053 (2d Cir. 1989). That test will
be applied here.
Due Process Has Not Been Denied by the Release
of Lloyd’s
Because Citibank administered the LATF at the direc-
tion of Lloyd’s, any claims involving the LATF asserted
against Lloyd’s implicates Lloyd’s directions-to Citibank
and Citibank’s implementation of those directions. Many
Class Members have objected to the limited release of
Lloyd’s on the ground that Lloyd’s is not a party to this
action. However, class action settlements have in the
past released claims against non-parties where, as here,
the claims against the non-party being released were
based on the same underlying factual predicate as the
claims asserted against parties to the action being set-
tled. See, e.g.. Class Plaintiffs v. City of Seattle, 955
F.2d 1268, 1287-89 (9th Cir. 1992); In re Y&A Group
Secs. Litig., 38 F.3d 380, 384 (8th Cir. 1994); In re
Orthopedic Bone Screw Prods. Liab. Litig., 176 F.R.D.
158, 165 n.4, 181 (E.D.Pa. 1997); see also 3 Herbert A.
Newberg & Alba Conte, Newberg on Class Actions
§ 12.16, at 12-50 (3d ed. 1992) (“A settlement may. . .
seek to discharge parties who have not been served with
process and are therefore not before the court.”’); /n re
Holocaust Victim Assets Litig., 105 F. Supp.2d 139, 143,
160 (E.D.N.Y. 2000) (approving class settlement with
broad releases of claims against non-parties.)°
5
An objection has been made on the grounds that the release
of Lloyd's is inconsistent with this Court’s previous ruling that
Lloyd's was not an indispensable party. The standard for determining
when a class action settlement may release a non-party is completely
unrelated to the standard for establishing that a party is “indispens-
able.” See Lloyd's 1, 954 F. Supp. at 675.
28a
Courts have permitted class action settlements to
release unasserted claims that could, if asserted later,
have the effect of reopening litigation that was intended
to be settled. See, e.g., TKB Partners, Ltd. v. Western
Union Corp., 675 F.2d 456, 460 (2d Cir. 1982) (settle-
ment may release unasserted claims “in order to achieve
a comprehensive settlement that would prevent reliti-
gation of settled questions at the core of a class action”);
accord Matsushita Elec. Indus. Co. v. Epstein, 516 U.S.
367, 376-79 (1996); In re Nasdaq Market-Makers
Antitrust Litigation, 187 F.R.D. at 482. Such releases
have been approved in class action settlements even
where exclusive jurisdiction over the claims released lies
with another court. See, e.g., TBK Partners, 675 F.2d at
460 (rejecting plaintiffs’ contention that a federal court
could not approve a settlement barring claims over
which a state court had exclusive jurisdiction); Mat-
sushita, 516 U.S. at 376-79 (holding that Delaware state
court could properly release claims subject to exclusive
federal jurisdiction).
Further, courts recognize that it is appropriate for a
class action settlement to include a limited release of a
nonparty, such as Lloyd’s, where that non-party has con-
tributed substantially to making the settlement possible.
The release of Lloyd's is entirely necessary to ensure
finality for Citibank, is clearly appropriate in light of
Lloyd’s contributions to the settlement, and unremark-
able under the applicable legal precedents.
Several Class Members additionally object to the
release in favor of Lloyd’s on the ground that such a
possibility was not expressly disclosed in the Notice of
Pendency. The Notice of Pendency indicated that the
relationship with Lloyd’s would be highly relevant to
this lawsuit and repeatedly references Lloyd’s connec-
tion to the events at issue in this action.
29a
Due process requires only that Class Members have
notice of the proposed settlement and an opportunity to
be heard at a fairness hearing. If the proposed settlement
is fair, adequate and reasonable, due process does not
afford Class Members a second opportunity to opt out.
See In re Brand Name Prescription Drugs Antitrust
Litig., No. 94 C 897, 1996 WL 167347, at *4 (N.D.IIl.
Apr. 4, 1996); Officers for Justice v. Civil Serv. Comm'n
of the City and County of San Francisco, 688 F.2d 615,
635 (9th Cir. 1982); see also Class Plaintiffs, 955 F.2d at
1289 (affirming district court’s approval of settlement
that released non-party against whom class members had
pending litigation, where class members had no oppor-
tunity to opt out of settlement). “Moreover, to hold that
due process requires a second opportunity to opt out
after the terms of the settlement have been disclosed to
the class would impede the settlement process so favored
in the law.” Officers for Justice, 688 F.2d at 634. Indeed,
as the hearing established, the integrity of the Class as
constituted was an essential element to the Settlement.
With respect to the notice of Pendency in a class
action, all that the due process clause requires is a pro-
cedure that “fairly insures the protection of the interests
of absent parties who are to be bound by [the judg-
ment].” Hansberry v. Lee, 311 U.S. 32, 42 (1940). See In
re Gypsum Antitrust Cases, 565 F.2d 1123, 1125 (9th
Cir. 1977) (“The purpose of this notice requirement is
. . to present a fair recital of the subject matter of the
suit and to inform all class members of their opportunity
to be heard”) (citations omitted). As such, “[a] class cer-
tification notice should advise the class members of their
rights and obligations if they elect to remain class mem-
bers.” McCarthy v. Paine Webber Group, Inc., 164
F.R.D. 309, 312 (D. Conn. 1995).
SS
30a
The Notice of Pendency explicitly set forth whose
rights might be affected by this action (i.e., all former
and current underwriting members of Lloyd’s who
underwrote American Business and who did not accept
Lloyd’s R&R proposal); what this case was about (/.e.,
Citibank’s breach of its fiduciary duties to the Names as
trustee of the Lloyd’s American Trust Fund); and the
relief being sought (i.e., the fees paid to Citibank to act
as a trustee of the Lloyd’s American Trust Fund). The
notice explained that this action was based upon insur-
ance underwriting performed by Plaintiffs through
Lloyd’s and thereby the Class Members were put on
notice that their legal rights and obligations relating to
the LATF might be affected.
Here, as stated above, the claims being released
against Lloyd’s are solely claims arising from “the estab-
lishment, conduct, administration, operation, supervi-
sion, direction of oversight of the L[loyd’s] A[merican]
T[rust] F[und]’—claims at the core of this action; and
that were originally set forth in the complaint.
In class actions asserting securities fraud which have
settled, the liability insurer and auditor normally receive
releases of claims brought against the defendant even
though they may not have been parties to the lawsuit.
Similarly, in products liability class actions, non-parties
to the lawsuit (the downstream seller, the distributor,
etc.) may be released in the settlement. This practice is
commonplace and rarely challenged. For example, in
Class Plaintiffs, 955 F.2d at 1289, the Ninth Circuit
approved a class action settlement that released claims
against Washington State. a third party to the action that
had contributed $10 miilion to the settlement fund.
Although the plaintiffs’ complaint in Class Plaintiffs did
not allege claims against Washington State, the Ninth
Circuit found that “Fed. R. Civ. P. 23 does not require
3la
that class members be given an opportunity to opt out of
a proposed settlement when the settlement includes
claims not originally set forth in the class complaint.”
Id. at 1289: see also In re Holocaust Victim Assets Litig.,
105 F. Supp.2d at 141-43 (class settlement approved
which contained broad releases of claims against non-
parties); cf. In re Cons. Pinnacle W. Sec. Litig., 51 F.3d
194, 197 (9th Cir. 1995) (affirming approval of settle-
ment bar order that precluded claims by nonsettling
defendants against non-party that was a “critical par-
ticipant and contributor to the overall settlement”).
Here, as detailed above, Lloyd’s alleged liability is
directly connected with the alleged liability of Citibank.
Moreover, as Lloyd's is contractually bound to indem-
nify Citibank for liabilities relating to the LATF, and
Lloyd’s has agreed to accept and honor credit notes in
excess of $11,500,000 as part of the settlement, it is
entirely appropriate to release Lloyd’s pursuant to the
terms of the Settlement, from the narrow category of
claims arising from “the establishment, conduct, admin-
istration, operation, supervision, direction or oversight
of the LATF.”
The Release of Lloyd’s Is Appropriately Limited
Most of the Names who have objected to the release to
Lloyd’s have done so because of concern that the release
to Lloyd’s releases all claims against Lloyd’s and fore-
closes all litigation, claims and defenses against Lloyd’s,
including pending litigation. First, the release relates
only to claims “in relation to the establishment, conduct,
administration, operation, supervision, direction of over-
sight of the LATF.” Second, even if a claim relates to
“the establishment, conduct, administration, operation,
supervision, direction of oversight of the LATF,” if it has
ee
32a
been raised in any other litigation pending as of May 8,
2002, it is not released even if it is an identical claim.
e None of the class members’ ongoing litigations
against Lloyd's will be affected by the release
contained in the proposed settlement. The
release will not affect any claims that may be
pending or reinstated in the Jaffray litigation in
the United Kingdom, or the action commenced
against Lloyd’s by some class members in the
United Kingdom for access to the Names’
books and records. All such claims were com-
menced prior to the date of the Stipulation and
are thus explicitly excluded from the scope of
the release.
e Any claims that class members may have, now
or in the future, relating to Equitas will not be
affected by the release because such claims do
not relate to “the establishment, conduct,
- administration, operation, supervision, direc-
tion or oversight of the LATF.”
e The European Commission’s ongoing pro-
ceeding against the British Government relating
to its regulation of Lloyd’s will not be affected
by the release because that proceeding is not
against Lloyd’s.
Similarly, the argument of some objectors—that the
Class, by definition, consists of Names who, by virtue of
their rejection of R&R, have already declined to execute
releases in favor of Lloyd’s—misconstrues the limited
scope of-the release. The release of Lloyd’s effectuated
by this settlement relates to a narrowly defined subject
matter, while the releases obtained by Lloyd’s in con-
33a
nection with R&R were general in scope. See Lloyd's I,
1998 WL 50211, at *4.
Indeed, the Stipulation’s release of Lloyd’s will
mostly preclude claims that are already time-barred. Any
Class Member’s yet-to-be-filed claims against Lloyd's
relating to the LATF are almost certainly time-barred
under the law of the United Kingdom. Each Class Mem-
ber has signed numerous agreements with Lloyd's that
vest exclusive jurisdiction for disputes with Lloyd’s in
the courts of England. See Lloyd’s 1, 954 F. Supp. at 669
& n.3. The United Kingdom’s Limitation Act, 1980,
applicable in such courts, bars causes of action in tort
and contract that are not brought within six years of
accrual.
Similarly, any claims would be time-barred in the four
jurisdictions with the largest populations of American
class members. California: Cal. Civ. Proc. Code § 338(d)
(West 1992) (three-year limitation period for fraud); id.
§ 337(a) (four-year limitation period for contract actions);
id. §§ 338(d), 339(1), 343 (two, three, or four-year lim-
itation period for breach of fiduciary duty, depending on
whether breach amounts to actual fraud); Florida: Fla.
Stat. Ann. § 91.55(3)(j) (West 2002) (four-year limita-
tion period for fraud); id. § 95.11(2)(b) (five-year limi-
tation period for contract actions); Behar v. Sunbank/
Miami, N.A., 591 So.2d 969, 970 (1991) (applying four-
year limitation period in § 95.11(3) to breach of fidu-
ciary duty claim); New York: N.Y.C.P.L.R. § 213(8)
(six-year limitations period for fraud); id. § 213(2) (six-
year limitation period for contract actions; Frank Mgmt.,
Inc. v. Weber, 549 N.Y.S.2d 317, 318-320 (1989) (six-
year limitations period for fiduciary duty actions with
genesis in contractual relationship); cf. Salzman v. Pru-
dential Sec., Inc., No. 91 Civ. 4253, 1994 WL 191855
(S.D.N.Y. May 16, 1994) (broker’s fiduciary duty to
34a
client governed by three-year limitation period of CPLR
§ 214(4); Texas: Tex. Civ. Prac. & Rem. Code Ann.
§ 16.004(4) (West 2001) (four-year limitation period for
fraud); id. § 16.004(5) (four-year limitation period for
breach of fiduciary duty); id. § 16.01 (four-year residual
period for actions for which there is no express limita-
tron period); see Heron Fin. Corp. v. United States Test-
ing Co., 926 S.W.2d 329, 331 (1996) (applying § 16.051°s
four-year residual period to claims based on contract).
Class Members unquestionably have for more than six
years had sufficient information to assert any claim
against Lloyd’s relating to the LATF.° As a result, Class
Members are likely giving up nothing of value by virtue
of this aspect of the release.
Discovery Has Been Adequate
Formal discovery is not required, so long as Plaintiffs’
counsel possesses information sufficient to consider
fully the strengths and weaknesses of their claims,.and
thus the relative benefits of litigation and settlement. See
D’Amato vy. Deutsche Bank, 236 F.3d 78, 87 (2d Cir.
2001); see also Maley v. Del Global Technologies Corp.,
186 F. Supp.2d 358, 364 (S.D.N.Y. 2002) (due to con-
firmatory discovery involving “tens of thousands of
pages of documents,” “Plaintiffs’ Counsel possessed a
record sufficient to permit evaluation of the merits of
Plaintiffs’ claims, the strengths of the defenses asserted
by Defendants, and the value of Plaintiffs’ causes of
6
See, e.g., Meg Fletcher, “Lloyd's To Bolster Trusts For U.S.
Policyholders,” Business Insurance, May 29, 1995, at 1 (discussing
the New York State Insurance Department’s Report on the LATF);
“Citibank Sued By U.S.-Based Investors In Lloyd’s Of London,”
Bloomberg News, Jan. 5, 1996; Lloyd's 1, 954 F. Supp. at 660 (noting
that the first action against Citibank based on the LATF was filed on
December 29, 1995).
35a
action for purposes of settlement”); Jn re American Bank
Note Holographics, Inc. Sec. Litig., 127 F. Supp.2d 418,
425-26 (S.D.N.Y. 2001) (to approve a settlement, “the
Court need not find that the parties have engaged in
extensive discovery”).
Before the parties’ settlement negotiations began in
earnest, Plaintiffs had gained valuable knowledge con-
cerning Plaintiffs’ claims in the course of addressing
Citibank’s motion to dismiss and Plaintiffs’ motion for
class certification. Further, pursuant to Plaintiffs’ formal
discovery requests, Citibank had produced to Plaintiffs
approximately 1.8 million pages of documents. Further,
Plaintiffs’ examination of the facts related to their
claims did not cease when settlement discussions began,
and Plaintiffs’ counsel continued to conduct discovery to
confirm that any settlement they negotiated would serve
the interests of the Class. And, finally, during the course
of settlement negotiations, the parties also had the ben-
efit of indirect discovery through proceedings in Eng-
land against Lloyd’s. For instance, the Honorable Justice
Cresswell of the High Court of Justice of England and
Wales issued a 635-page decision in the Jaffray litigation
in November 2000 dismissing sample Names’ claims for
deceit and fraudulent misrepresentation after a trial
spanning 19 weeks. The Society of Lloyd's v. Jaffray,
2000 WL 1629463 (Q.B. Nov. 3, 2000). Knowledge of
the outcome in Jaffray and other cases further informed
the conduct of the settlement negotiations in this case.
Given the stage of this case and the extensive dis-
covery conducted, almost all of it when the case was in
an adversarial posture, Plaintiffs’ counsel is well-posi-
tioned to assess the fairness of the proposed settlement.
Thus, this factor also supports approval. See, e.g., In re
Sumitomo Copper Litig., 189 F.R.D. 274, 281-82 (S.D.N.Y.
1999) (stage of proceedings “strongly” favored approval
on
36a
of settlements reached after “[p]laintiffs had conducted
extensive discovery, investigation and analyses, and the
proceedings were in the advanced stage of pointing or
preparing for trial”); Jn re Painewebber Ltd. Partner-
ships Litig., 171 F.R.D. 104, 126 (S.D.N.Y. 1997) (stage
of proceedings and discovery supported settlement
where “extensive discovery took place prior to the com-
mencement of settlement negotiations” and “a compre-
hensive evaluation of the facts and merits” had been
performed prior to executing the settlement agreement).
The Remaining Objections Do Not Require
Disapproval
Approximately 200 Names have sent in letters or
forms objecting to the terms of the Settlement. Certain
groups of people have made concerted efforts to have
other Class Members lodge objections. There are essen-
tially six standardized objections and twenty-three seem-
ingly independent objections.
A number of Class Members have objected to credit
noies being provided as part of the proposed settlement,
asserting, among other things, that the credit notes will
have little or no value and that the proposed settlement
should be approved only if the entire amount of the set-
tlement is paid in cash.
The courts often approve class action settlements that
employ debt forgiveness and other non-cash benefits as
all or part of the settlement consideration. See, e.g.,
Cullen v. Whitman Medical Corp., 197 F.R.D. 136, 143
(E.D.Pa. 2000) (approving settlement providing cash,
forgiveness of indebtedness of class members to defen-
dants and other non-monetary relief); Follansbee v. Dis-
cover Fin. Serv., Ltd., No. 99 C 3827, 2000 WL 804690,
at *5 (N.D. Ill. June 21, 2000) (approving settlement
providing cash and credits usable by some class mem-
37a
bers to pay down debt to defendant); Pigford v. Glick-
man, 185 F.R.D. 82, 109 (D. D.C. 1999) (approving set-
tlement providing cash and forgiveness of debt owned by
some class members), aff’d, 206 F.3d 1212 (D.C. Cir.
2000): see also State of New York v. Nintendo of
America, Inc., 775 F. Supp. 676, 681 (S.D.N.Y. 1991)
(approving settlement involving distribution to class
members of coupons for discount on defendant’s prod-
ucts); In re American Bank Note, 127 F. Supp.2d at 421
(approving settlement providing combination of cash,
stock, warrants and reorganization certificates); In re
Brown Co. Sec. Litig., 355 F. Supp. 574, 589-90 (S.D.N.Y.
1973) (approving settlement to be paid solely in the form
of warrants).
Several Names have asserted that the credit notes will
have no value to those class members who for various
reasons either do not need or will not use credit notes to
reduce their own R&R debt. However, the credit notes of
such Names can be disposed of in the secondary market
in which all class members may realize value from them.
See Nintendo, 775 F. Supp. at 681 (free transferability of
coupons would increase their value and might render
them “cash equivalents”); Shaw v. Toshiba American
Info. Sys., Inc., 91 F. Supp.2d 942, 960-61 (E.D. Tex.
2000) (holding that transferable discount coupons, which
were redeemable for one year to purchase defendant's
products and which could be aggregated, constituted a
significant benefit for all class members and were a
“model” for the design of non-cash class action settle-
ments); Jn re Cuisinart Food Processor Antitrust Litig.,
M.D.L. 447, 1983 WL 153, at *4 (D. Conn. Oct. 24,
1983) (“fact that the coupons are transferable enhances
their economic value”); cf. In re General Motors Corp.
Pickup Truck Fuel Tank Prods. Liability Litig., 55 F.3d
768, 809 (3d Cir. 1995) (disapproving proposed settle-
38a
ment with significant limitations on transferability of
discount certificates).
The claims administrator will maintain lists for Class
Members to post their interest in transferring or obtain-
ing credit notes. Class Members may obtain information
from Gilardi about interested sellers or purchasers at any
time upon request. See In re Montgomery County Real
Estate Antitrust Litig., 83 F.R.D. 305, 318 (D. Md. 1979)
(noting that class administrator’s establishment of a
clearinghouse to connect potentiai buyers and sellers
would facilitate transfer of certificates); cf. In re General
Motors, 55 F.3d at 809 (disapproving proposed settle-
ment lacking mechanisms to facilitate transfer of cer-
tificates).
The credit notes are valid fora reasonable length of
time—one year from entry of the Class Distribution
Order. Stipulation 9 13(b). The one-year period affords
Class Members ample time to decide whether to apply
the credit notes directly to reduce their own R&R debt
or to sell their credit notes to another Class Member.’
See Shaw, 91 F. Supp.2d at 960-61 (one-year discount
coupons were a “model” for non-cash class action set-
tlement benefit).
Although some objectors claim they owe no R&R debt
to Lloyd’s, in fact over 900 class members, approxi-
mately two-thirds of the Class, currently do owe R&R
debt to Lloyd's, and the total debt to Lloyds’ is far
greater than the available supply of $11.5 million of
credit notes.
In addition, payment of R&R debt with credit notes
also provides complete forgiveness of all interest on that
5
The Credit Notes’ one-year period of validity does not begin
until after entry of the Class Distribution Order, which can only occur
after the Final Judgment is entered and all appeals are exhausted.
39a
R&R debt from July 1, 1999, through the date the credit
notes are tendered to Lloyd's.
The use of credit notes does not constitute an admis-
sion that a Name owes R&R debt. Indeed, the Stipula-
tion explicitly provides that use of the credit notes does
not constitute an admission of liability to Lloyd's. Stip-
ulation 4 5(c). In addition, the Stipulation nowhere pro-
vides that credit notes must be applied against 100% of
R&R debt. Class Members are free to negotiate with
Lloyd’s, using the credit notes as they would cash, to
compromise their disputed R&R debt with Lloyd's.
Several Class Members have objected that they never
received the Notice of Pendency and thus were never
advised of their right to opt out of the Class. However,
the mailing of the Notice of Pendency fully satisfied the
requirements of the Federal Rules of Civil Procedure and
due process. Pursuant to this Court’s May 29, 1998 order,
Lloyd’s, at the request of Plaintiffs’ counsel, mailed the
Notice of Pendency on July 22, 1998 to all Class Mem-
bers—that is, to all Names who had not settled with
Lloyd’s through R&R and who had not otherwise entered
into a settlement with Lloyd’s releasing Citibank.
Lloyd’s mailed the Notice of Pendency to the last known
address reflected in its records for each Class Member.
Such a mailing clearly met the requirements of Rule 23,
which provides that, in a Rule 23(b)(3) class action such
as this one, “the court shall direct to the members of the
class the best notice practicable under the circumstances,
including individual notice to al members who can be
identified through reasonable effort.” Fed. R. Civ. P.
23(c)(2). The mailing of the Notice of Pendency also
satisfied the dictates of due process because it was “rea-
sonably calculated, under all the circumstances, to
apprise interested parties of the pendency of the action
and afford them an opportunity to present their objec-
40a
tions.” See Mullane v. Central Hanover Bank & Trust Co.,
339 U.S. 306, 314 (1950); see also Phillips Petroleum
Co. v. Shutts, 472 U.S. 797, 812 (1985) (“the procedure
. . where a fully descriptive notice is sent by firstclass
mai! to each class member, with an explanation of the
right to ‘opt-out,’ satisfies due process”’).
“It is widely recognized that for the due process stan-
dard to be met it is not necessary that every class mem-
ber receive actual notice, so long as class counsel acted
reasonably in selecting means likely to inform persons
affected.” Jn re Prudential Sec. Inc. Ltd., 164 F.R.D.
362, 368 (S.D.N.Y. 1996) (citing Weigner v. City of New
York, 852 F.2d 646, 649 (2d Cir. 1988)); Grunin v. Inter-
nat’l House of Pancakes, 513 F.2d 114, 121 (8th Cir.
1975) (notice by mail to class members’ last known
address satisfied requirements under due process even
though onethird of class members were not reached) (cit-
ing Eisen v. Carlisle & Jacquelin, 417 U.S. 174-77
(1974) (notice by mail to class members’ last known
address was “the best notice practicable”)). Accordingly,
the fact that a few individual Class Members may not
have actually received the Notice of Pendency does not
render the whole mailing defective. Also, the fact of
non-receipt cannot justify such Class Members being
allowed to exclude themselves from the Class at this
time, nearly four years after the deadline for doing so.
As this Court has held, “a class action settlement is bind-
ing on an absent class member if the notice program is
procedurally adequate, even if the absent class member
does not receive personal written notice.” Jn re Nasdaq
Market-Makers Antitrust Litig., No. 94 Civ. 3996, 1999
WL 395407, *2 (S.D.N.Y. June 15, 1999).
Some objectors contend that the settlement amount is
unfair because the proposed settlement does not estimate
the amounts deducted for taxes, administration fees, and
4la
counsels’ expenses. However, in June of this year, Class
Members were provided with individualized Statements
of Estimated Settlement Distribution that estimated indi-
vidual settlement shares after accounting for estimated
administration costs and counsel fees and expenses.
There is no reasonable risk that the amount of the Set-
tlement will be appreciably depleted by these taxes,
costs and fees, particularly because the funds used to pay
the taxes and administration fees will always be in cus-
todia legis of the Court. Jn re Prudential Ins. Co. of Am.
Sales Practices Lit., 962 F. Supp. 450, 557 (D.N.J. 1997)
(class members can evaluate the settlement fairness
without advance notice of the manner in which addi-
tional remediation disbursements will be allocated),
aff'd, 148 F.3d 283 (3d Cir. 1998).
Certain Class Members also object to the manner in
which the Stipulation allocates settlement benefits,
asserting that benefits should be allocated per capita, not
based on Overall Premium Limits.
Class action settlement benefits may be allocated by
counsel in any reasonable or rational manner because
“allocation formulas ... reflect the comparative
strengths and values of different categories of the
claim.” Jn re Nasdag Market-Makers Antitrust Litig.,
2000 WL 37992, at *2 (S.D.N.Y. Jan. 18, 2000) (“An
allocation formula need only have a reasonable, rational
basis, particularly if recommended by ‘experienced and
competent’ Class Counsel.”) (citations omitted); see also
Maley, 186 F. Supp.2d at 367 (same). “As with other
aspects of settlement, the opinion of experienced and
informed counsel [on appropriate allocation] is entitled
to considerable weight.” Jn re American Bank, 127 F.
Supp.2d at 430.
In this case, the pro rata allocations provided in the
Stipulation are not only reasonable and rational, but
42a
appear to be the fairest method of allocating the settle-
ment benefits. The parties’ negotiated plan of allocation
recognizes that Class Members had differing maximum
limits on the amounts of insurance that could be under-
written on their account, and also that Class Members
underwrote with Lloyd’s for differing lengths of time.
Class Members who underwrote larger amounts of insur-
ance over a greater number of years clearly are more
likely to have had greater dollar amounts of premiums
deposited in, and claims paid from, the LATF; if liabil-
ity and damages were established, such Class Members
would be expected to have suffered greater losses in pro-
portion to their greater financial exposure. The detailed
overall premium limit calculations in Exhibit J to the
Stipulation appropriately recognize these differences in
allocating settlement benefits. See Maley, 186 F.
Supp.2d at 367 (approving allocation plan that had ratio-
nal basis and was “devised by experienced plaintiffs’
counsel who are familiar with the relative strengths and
weaknesses of the potential claims of Class Members’’);
see also In re Oracle Sec. Litig., No. C-90-0931-VRW,
1994 WL 502054, at *1 (N.D. Cal. June 18, 1994) (“A
plan of allocation that reimburses class members based
on the extent of their injuries is generally reasonable.”’)
(citing In re Gulf Oil/Cities Serv. Tender Offer Litig.,
142 F.R.D. 588, 596 (S.D.N.Y. 1992)).
By contrast, a per capita distribution would treat all
Class Members the same, regardless of the amounts of
their funds passing through the LATF over the years. See
In re Painewebber Litig., 171 F.R.D. at 129 (“‘[T]here is
no rule that settlements benefit all class members
equally,’ . . . as long as the settlement terms are ‘ratio-
nally based on legitimate considerations.’ ”) (quoting In
re “Agent Orange” Prod. Liab. Litig., 611 F. Supp.
1396, 1411 (E.D.N.Y. 1985)). An equal allocation of set-
43a
tlement benefits would award a windfall to the Class
Members with less substantial investments.
A number of the objections are based on misinforma-
tion or failure to read the notice and some of the objec-
tions are based on the hope that recovery in this
litigation against Citibank would recoup all the market
losses the Names suffered from underwriting at Lloyd's
regardless of what caused the losses.
These objections, however, improperly assume that
Plaintiffs’ alleged losses and damages have already been
proven. Such objections are therefore entitled to no
weight, because it is inappropriate to assume in the con-
text of approval of a settlement that liability has been
shown or that Plaintiffs have “lost” anything. Class
Plaintiffs, 955 F.2d at 1291 (court is not to “reach any
ultimate conclusions on the contested issues of fact and
law which underlie the merits of the dispute, for it is the
very uncertainty of outcome in litigation and avoidance
of wasteful and expensive litigation that induce con-
sensual settlements” (citing Officers for Justice, 688
F.2d at 625 (“The proposed settlement is not to be
judged against a hypothetical or speculative measure of
what might have been achieved.”)). Lloyd’s and its
related entities are not subject to suit in the United
States, and this action concerned solely whether
Citibank had breached its fiduciary duty as trustee of the
LATF.
Some objectors contend that fair settlement consid-
eration should be at least $160 million, calculated on 10
percent of an unsupported projection that the Class’
damages could be $1.6 billion. However, liability or
damages at trial is far from certain. See Grinnell, 495
F.2d at 455 n.2 (“there is no reason, at least in theory,
why a Satisfactory settlement could not amount to a hun-
dredth or even a thousandth part of a single percent of
44a
the potential recovery”). Indeed, under the damages the-
ory most likely to govern Plaintiffs’ claims, the $20 mil-
lion in cash and credit notes provided by the proposed
settlement is fair and adequate.
The Grinnell Factors Are Satisfied
This action involves complex issues of fact and law
that involve significant risk for the Names in establish-
ing Citibank’s liability to the Class. In order to succeed,
Plaintiffs would have to show that Citibank breached its
fiduciary duties to the Names for whom it acted as a
trustee by, among other things, (a) failing to abide by the
terms of the LATD; (b) failing to inform the trust bene-
ficiaries of information that Citibank allegedly knew but
the Names allegedly did not know, about massive
impending losses resulting from asbestos and pollution
liabilities; and (c) selfdealing. Plaintiffs would also need
to refute Citibank’s argument that it (a) acted in accor-
dance with the terms of the LATD, (b) complied with all
directions it received from Lloyd’s, as it was required to
do by the LATD; (c) did not breach any duties owed to
any Name; and that (d) no Name suffered any damages
by virtue of Citibank’s conduct.
The course of discovery in this action and other
actions pending in England has established that some of
the allegations underlying areas of Plaintiffs’ action are
difficult to support. For example, the allegations con-
cerning Citibank’s role in the conspiracy to recruit peo-
ple to be Names at Lloyd’s and knowledge of the
impending losses attributable to asbestos claims have
been found to be tenuous. Roger Bradley (“Bradley”)
alleged in the English litigation that Citibank knew that
Lloyd’s faced substantial asbestos insurance claims in
the near future which would render Lloyd’s insolvent
and would necessitate the recruitment of additional
45a
Names to shoulder the liability. His testimony was seri-
ously impeached and other attempts to obtain evidence
of such knowledge through formal discovery and infor-
mal investigation have been unsuccessful.
The only substantial claim for the Plaintiffs” alleged
breach of fiduciary duty turned on Citibank’s adminis-
trative duties as trustee. Citibank admitted that it opened
group accounts rather than accounts for individual
Names and that when it faced a group account with a
negative balance, monies were taken from group
accounts with positive cash balances and that Inter-
Name Lending occurred. Citibank also admitted that it
followed Lloyd’s instructions with regard to paying lia-
bilities from certain group accounts.
However, damages and loss causation remain prob-
lematic. Notwithstanding the asserted failure of Citibank
to adhere to the technical terms of the trust deed, it is
not clear that such activity caused any particular Name
any economic injury.
The Inter-Name Lending, colloquially referred to as
the “robbing Peter to pay Paul” scenario, was found to
have occurred, but the investigation has indicated that
the accounts were handled in a commercially appropri-
ate manner and may have benefitted the solvent group
accounts. The borrowing which occurred between the
accounts was recorded in Citibank’s records, and the
accounts from which the monies were borrowed were
repaid and credited with a favorable rate oi interest
(prime plus 500 basis points). The account reconcilia-
tions and crediting of interest occurred on a daily basis.
Prior to implementing R&R, this process was reviewed
and verified to ensure that each account was accurate.
Thus it appears that no solvent group account suffered
any economic injury. Citibank might be able to move
successfully for a directed verdict claiming that Plain-
46a
tiffs had failed to carry the burden of showing causation
of damages.
The allegations in this case concern transactions in the
LATF dating back to its inception in 1939. Over the
many ensuing years, Citibank received millions of
instructions from Lloyd's in the normal course of admin-
istering the LATF. The difficulty of sorting through these
many transactions and documents and their implications,
if any, for each Class Member, would be multiplied by
the critical role that Lloyd’s and the agents played in
providing instructions to Citibank and in maintaining
records of Class Member transactions and balances. See
Lloyd’s II, 1998 WL 50211, at *14.
Whether the allegation that Citibank breached its fidu-
ciary duty to Class Members by extending unauthorized
and unsound Inter-Name Loans could even apply to a
particular Class Member depends on whether the Class
Member was a member of a syndicate that was a net
“lender” or “borrower”—a determination that would
“require[ ] detailed analysis of what was done with each
Name’s funds.” Lloyd’s I], 1998 WL 50211, at *14.
“Since each Name may have participated in several of
the more than 400 Lloyd’s syndicates in any given year
in which that Name underwrote at Lloyd’s, this analysis
[would be] a significant undertaking.” /d.
The determination of damages, like the determination
of liability, is a complicated and uncertain process, typ-
ically involving conflicting expert opinions. The reaction
of a jury to such complex expert testimony is highly
unpredictable. Expert testimony about damages could
rest on many subjective assumptions, any one of which
could be rejected by a jury as speculative or unreliable.
Conceivably, a jury could find that damages were only a
fraction of the amount that Plaintiffs contended.
47a
As the only surviving claim in this action was a breach
of fiduciary duty claim against Citibank, the Settlement
amount was premised on a disgorgement of trustee fees
theory, i.e., the amount of fees Citibank received for ser-
vices rendered to the Class Members as the trustee of the
LATF.
The number of Names at Lloyd’s was in excess of
32,000. following R&R, the number of Names eligible to
| participate as Class Members had dropped to approxi-
mately 1,500. Through individual settlements between
Lloyd’s and Names during the pendency of the action,
the number of Class Members dropped to less than 1,400
(approximately 4.4% of all Names). Discovery has
shown that Citibank’s total fee for acting as trustee of
the LATF during the class period was approximately
$75,000,000. Citibank might well be entitled to offset
any disgorgement of its fees with a claim for quantum
merit compensation for those duties it did adequately
perform for its beneficiaries. Moreover, there was no
evidence that Citibank’s ministerial failings caused the
trust assets to be depleted or that Citibank benefitted
itself at the expense of Class Members, or that Citibank
acted in a faithless or malicious manner, or had insider
information about the impending asbestos losses other
than the Bradley allegations. In light of the number of
Names who released Citibank from liability and are not
entitled to seek disgorgement, the settlement achieved
here (which has a value of at least $20 million) is a
worthwhile recovery.
Although Plaintiffs had engaged in significant dis-
covery (including the review of approximately 1.8 mil-
lion pages of documents from Citibank’s files, and
thousands of documents obtained through Plaintiffs’
investigation), significant additional discovery would
need to be taken, including additional depositions of
Citibank and its representatives; depositions of key third
eee eee t—<—i‘“CSOC:S
48a
party witnesses, such as representatives of Lloyd's
which would likely have to occur in the United King-
dom; and expert designation and expert discovery. In
addition, Citibank’s expected motion for summary judg-
ment would have to be briefed, argued and overcome, a
pretrial order would have to be prepared, proposed jury
instructions would have to be submitted and motions in
limine would have to be filed and argued.
Even if Plaintiffs overcame the significant risks of
receiving nothing at trial, any judgment likely would be
appealed. See Maiey, i86 F. Supp.2d at 362 (“Summary
judgment motions were possible, extensive trial prepa-
ration was inevitable, and postjudgment appeals were
highly likely. All of the foregoing would have extended
the case and delayed the ability of the class to recover
for years.”).
Settlement at this juncture results in a substantial and
tangible present recovery, without the attendant risk of
appeal and delay of trial and post-trial proceedings.
The “ability of the defendant to pay,” a consideration
courts sometimes use to justify a relatively small set-
tlement with a defendant with limited resources, is not a
factor that played any role in the negotiation of the Set-
tlement with Citibank.
Plaintiffs have alleged that Citibank breached its fidu-
ciary duty by failing to inform Class Members con-
cerning impending losses from asbestos and pollution
liabilities. Even assuming that Citibank had such advance
knowledge, which it has denied, and further assuming
that Citibank, as trustee of the LATF, had some duty to
advise each Name on the prudence of the syndicates he
or she joined, or the wisdom of every underwriting deci-
sion made by such syndicates, individual questions con-
cerning whether particular Class Members knew or
should have known about these risks from other sources,
49a
and thus knowingly accepted those underwriting risks,
would need to be determined. See Lloyd’s II, 1998 WL
50211, at *14.
In the meantime, Lloyd’s could be expected to attempt
to attach any judgment rendered by this Court before it
could reach the hands of the Class. All the while, the
time and expense of Plaintiffs’ counsel would steadily
increase, risking a further diminution of the Class’ ulti-
mate recovery. Maley, 186 F. Supp.2d at 362 (“The
expenses of continued litigation would further burden
any recovery obtained for the class, that is assuming
Plaintiffs recovered more than the settlement now before
the Court, if they were to recover at all.”’).
The complexity, expense and likely duration of further
litigation strongly support approval of the proposed set-
tlement. See id. (“Settlement at this juncture results in a
substantial and tangible present recovery, without the
attendant risk and delay of trial. These factors weigh in
favor of the proposed Settlement.”); Klein v. PDG Reme-
diation, Inc., No. 95 Civ. 4954, 1999 WL 38179, at *2
(S.D.N.Y. Jan. 28, 1999) (complexity, expense and likely
duration of litigation favored settlement that “offer[ed]
Class Members the benefit of immediate recovery as
opposed to an uncertain award several years from now’).
Under the second Grinnell factor, courts examine any
objections to determine whether the absence of sub-
stantial opposition to the settlement supports its fairness
and adequacy. See In re Sumitomo Copper Litig., 189
E.R.D. at 281 (“absence of substantial objections. . .
strongly favors approval of the proposed settlements’’);
Maywalt v. Parker & Parsley Petroleum Co., 864 F.
Supp. 1422, 1429-30 (S.D.N.Y. 1994) (objections should
be examined to shed light on the assessment of the over-
all adequacy of the settlement), aff’d, 67 F.3d 1072 (2d
Cir. 1995). In addition, “it is well established that a set-
50a
tlement can be fair notwithstanding a large number of
objectors.” Grant v. Bethlehem Steel Corp., 823 F.2d 20,
23 (2d Cir. 1987) (collecting cases). Indeed, “even
‘majority opposition to a settlement cannot serve as an
automatic bar to a settlement that a district judge, after
weighing all the strengths and weaknesses of a case and
the risks of litigation, determines to be manifestly rea-
sonable.’ ” County of Suffolk v. Long Island Lighting
Co., 907 F.2d 1295, 1325 (2d Cir. 1990) (quoting TBK
Partners, 675 F.2d at 462 (2d Cir. 1982)); see also In re
Nasdaq, 187 F.R.D. at 479 (“Although each objection
must be evaluated on its merits, the primary concern
. is to compare the terms of the proposal with the
likely rewards of litigation.’).
In this case, nowhere near a majority of Class Mem-
bers have cbjected to the proposed settlement. To the
contrary, objections have been filed by a relatively mod-
est minority of the Class. In its preliminary order, the
Court required all objections to the settlement to be filed
with the Court and served on the parties no later than
August 12, 2002. Out of the approximately 1,350 Class
Members, only 239—or less than 18 percent—have sub-
mitted objections. This relatively low number of objec-
tions itself supports approval of the settlement. See, e.g.,
In re Nasdaq, 187 F.R.D. at 479 (citing Stoetzner v. U.S.
Steel Corp., 897 F.2d 115, 118-19 (3d Cir. 1990) (fact
that only 10% of class objected “strongly favors settle-
ment’) and Boyd v. Bechtel Corp., 485 F. Supp. 610, 624
(N.D. Cal. 1979) (fact that only 16% of class objected
deemed “persuasive” of settlement’s adequacy)); see
also Grant, 823 F.2d at 24 (settlement approved despite
opposition by 36% of tne class because there is “no rea-
son why a settlement cannot be considered fair despite
opposition. . . [of] significantly less than half of the
class’’).
-
5la
Also, of the 53 Names who originally requested exclu-
sion from the Class in 1998 and who are still eligible for
Class membership, 18 of them, or 34 percent, have
timely submitted requests to rejoin the Class and par-
ticipate in the Settlement pursuant to the opt-in oppor-
tunity provided under the proposed settlement. Of these
18, two also submitted objections to certain features of
the proposed settlement. And notably, 88 individuals
who had never requested exclusion from the Class—and
who therefore did not need to submit opt-in requests
expressing their decision to participate in the Settle-
ment—submitted such requests anyway. These facts fur-
ther demonstrate the Class’ support for approval of the
Settlement. See In re Corrugated Container Antitrust
Litig., MDL No. 310, 1981 WL 2093, at *14-15 (S.D.
Tex. June 22, 1981) (small percentage of objectors and
significant number of opt-outs who czied back in after
receipt of settlement notice supported approval of set-
| tlement), aff’d, 659 F.2d 1322 (Sth Cir. 1981).
| Although some of the objections filed in this case have
been vigorously asserted, this Court has a fiduciary duty
to protect all Class Members—including the silent
majority who have not voiced any objections to the Set-
tlement. See Grant, 823 F.2d at 23 (“[T]he mere fact that
the only class members expressing opinions regarding
the settlement were a vocal minority opposing it does
not alter the district court’s discretion in approving the
settlement or its duty to protect the interests of the silent
class majority . . .”). Further, where the objections that
are voiced are based on improper assumptions or other-
wise flawed arguments, such lack of credible opposition
counsels in favor of approving the settlement. See Jn re
Nasdaq, 187 F.R.D. at 479 (“an objection based on an
assertion or argument not readily supportable at trial
should not be permitted to bar settlement”).
oe — a eee nnn ccen nee ene ———————————eeeeeeee
52a
Based upon the consideration of the objections, the
Grinnell factors, and the Stipulation, the proposed set-
tlement is fair and adequate.
The Attorneys’ Fees Are Approved
Courts have long recognized that where, as here, a
class plaintiff successfully recovers a fund, the costs of
litigation should be spread among the fund's beneficia-
ries. Under this “equitable” or “common fund” doctrine
established more than a century ago in Trustees v. Gree-
nough, 105 U.S. 527 (1882), attorneys who create a
common fund to be shared by a class are entitled to an
award of fees and expenses from that fund as compen-
sation for their work. See Boeing Co. v. Van Gemert, 444
U.S. 472, 478 (1980); Mills v. Elec. Auto-Lite Co., 396
U.S. 375 (1970).
In Lindy Bros. Builders, Inc. v. Am. Radiator & Stan-
dard Sanitary Corp., 487 F.2d 161 (3d Cir. 1973) (Lindy
1), aff’d in part, vacated in part, 540 F.2d 102 (3d Cir.
1976) (en banc) (Lindy IT), the Court of Appeals for the
Third Circuit applied the socalled “lodestar” analysis to
a common fund case. In applying that analysis, a court
first calculates a lodestar by multiplying the number of
hours expended by plaintiffs’ counsel in litigating the
case by their reasonable hourly rates. That result is then
adjusted by a “multiplier” to reflect such factors as the
results obtained, the risks involved, the contingent
nature of the fee, quality of the work performed, and
public policy considerations. The lodestar approach was
adopted by the Second Circuit shortly after the Lindy I]
decision. Grinnell, 495 F.2d at 471.
Chief Judge Aldisert of the United States Court of
Appeals for the Third Circuit, the author of Lindy I],
convened a task force of prominent judges and practi-
tioners to reconsider the lodestar method because “a
53a
number of difficulties [had] been encountered.” Court
Awarded Attorney Fees, Report of the Third Cir. Task
Force, (Arthur F. Miller, Reporter), reprinted in 108
E.R.D. 237 (3d Cir. 1985) (the “Task Force Report”).
The Task Force Report identified at least nine perceived
deficiencies of the lodestar approach. Consequently, the
Task Force concluded that that approach need not be fol-
lowed in common fund cases and that fee awards in
common fund cases should be based on a percentage of
recovery. Id. at 254-59.
Indeed, many courts have held that the percentage
approach is a permissible method for determining attor-
neys’ fees in common fund cases. See, e.g., Blum v. Sten-
son, 465 U.S. 886, 900 n.16 (1984). In recent years,
many Circuit courts have approved the percentage-of the
fund method. See, e.g. In re Thirteen Appeals Arising
out of the San Juan DuPont Plaza Hotel Fire Litig., 56
F.3d 295, 307 (Ist Cir. 1995); In re GMC, 55 F.3d at
821-22; Rawlings v. Prudential-Bache Props., Inc., 9
F.3d 513, 515-17 (6th Cir. 1993); Gottlieb v. Barry, 43
F.3d 474, 487 (10th Cir. 1994); Camden I Condo Ass’n Vv.
Dunkle, 946 F.2d 768, 774 (11th Cir. 1991); Swedish
Hosp. Corp. v. Shalala, 1 F.3d 1261, 1271 (D.C. Cir.
1993).
Although the law in this Circuit has not been uniform,
and both the lodestar and percentage of the fund meth-
ods are available to the district courts within the Second
Circuit, the Second Circuit has held that it is within the
discretion of the district court to determine whether to
apply a percentage of the recovery or a lodestar analysis.
Goldberger v. Integrated Res., Inc., 209 F.3d 43, 50 (2d
Cir. 2000). This Court has previously found that the per-
centage approach is appropriate in a class action com-
mon fund context. In re Nasdaq, 187 F.R.D. at 484
(“there is strong support for the percentage approach
eS
54a
from district courts in this Circuit”). See also In re
American Bank Note, 127 F. Supp.2d at 431 (“the trend
of the district courts in this Circuit is to use the per-
centage of the fund approach.”); /n re Sumitomo, 74 F.
Supp.2d at 397 (“Courts increasingly have come to
recognize the shortcoming of the lodestar/multiplier
method as a universal rule for compensation.” ); Chate-
lain v. Prudential-Bache Sec., Inc., 805 F. Supp. 209,
215 (S.D.N.Y. 1992) (“This Court declines to apply the
lodestar method, and instead favors the use of the
straight percentage of recovery method”); /n re RJR
Nabisco, Inc. Sec. Litig., No. 88 Civ. 7905, 1992 U.S.
Dist. LEXIS 12702, at *18 (S.D.N.Y. Aug. 24, 1992); In
re Gulf Oil, 142 F.R.D. at 596-97.
The percentage method directly aligns the interests of
the class and its counsel and provides a powerful incen-
tive for the efficient prosecution and early resolution of
litigation, which clearly benefits both litigants and the
judicial system. The percentage approach is also the
most efficient means of rewarding the work of class
action attorneys, and avoids the wasteful and burden-
some process—to both counsel and the courts—of
preparing and evaluating fee petitions, which the Third
Circuit Task Force described as “cumbersome, enervat-
ing, and often surrealistic.” Task Force Report, 108
F.R.D. at 258. See also In re Union Carbide Corp. Con-
sumer Prods. Bus. Sec. Litig., 724 F. Supp. 160, 170
(S.D.N.Y. 1989); In re “Agent Orange”, 611 F. Supp. at
1306 (criticizing lodestar approach as one that “tends to
encourage excess discovery, delays and late settlements,
while it discourages rapid, efficient and cheaper reso-
lution of litigation”), aff’d in part, rev’d in part, 818
F.2d 226 (2d Cir. 1987).
Further, the percentage approach most closely approx-
imates the manner in which private litigants compensate
55a
their attorneys in the marketplace contingency fee
model:
. [A] percentage-of-the-fund approach more accu-
rately reflects the economics of litigation practice.
The district court in Howes v. Atkins, 668 F. Supp.
1021 (E.D. Ky. 1987), noted that “plaintiffs” liti-
gation practice, given the uncertainties and hazards
of litigation, must necessarily be result-oriented. It
matters little to the class how much the attorney
spends in time or money to reach a successful
result.” Jd. at 1025.
Swedish Hosp., 1 F.3d at 1269. See also In re Sumitomo,
74 F. Supp.2d at 397 (nothing that the percentage
approach is “uniquely the formula that mimics the com-
pensation system actually used by individual clients to
compensate their attorneys.”); In re RJR Nabisco, 1992
U.S. Dist. LEXIS 12702, at *18-19.
The requested amount of attorneys’ fees, which
includes expenses, approximately $4,350,000 in cash
from the cash settlement fund, plus $1,300,000 in credit
notes, representing approximately 28% of the total set-
tlement consideration, is consistent with awards made in
similar cases. In this district alone, there are scores of
common fund cases where fees alone (i.e., where
expenses are awarded in addition to the fee percentage)
were awarded in the range of 33-1/3% of the settlement
fund). See, e.g., Maley, 186 F. Supp.2d at 370 (awarding
1/3 of settlement fund); Newman v. Caribiner Int’l Inc.,
No. 99 Civ. 2271 (S.D.N.Y. Oct. 19, 2001) (awarding 33
1/3% of an all cash $15 million settlement); Lemmer v.
Golden Books Family Entm'’t Inc., No. 98 Civ. 5748
(S.D.N.Y. Oct. 12, 1999) (awarding 1/3 of settlement
fund); Maywalt v. Parker & Parsley Petroleum Co., 963
F. Supp. 310, 313 (S.D.N.Y. 1997), aff’d sub nom.; Olick
56a
v. Parker & Parsley Petroleum Co., 145 F.3d 513 (2d
Cir. 1998); Moelis v. Hyperion Capital Mgmt. Inc., No.
94 Civ. 3328 (S.D.N.Y. Oct. 16, 1997) (awarding 1/3 of
settlement fund); 7n re JWP, Inc. Sec. Litig., No. 92 Civ.
5815 (S.D.N.Y. Jan. 24, 1997) (awarding 1/3 of settle-
ment fund); /n re In-Store Adver. Sec. Litig., No. 90-CIV
5594 (S.D.N.Y. Dec. 18, 1996 (33 1/3%); In re SLM
Int'l, Inc. Sec. Litig., No. 94 Civ. 3327 (S.D.N.Y. July
23, 1996 (33 1/3%); In re Columbia Sec. Litig., No. 89
Civ. 6821 (S.D.N.Y. Feb. 15, 1995) (awarding fees of
$8,333,333 or one-third of the settlement fund); /n re
Wedtech Sec. Litig., No. M21-46, MDL 735 (S.D.N.Y.
July 30, 1992) (granting fee award of $17,650,000.00, or
one-third of the settlement fund); /n re Allstar Inns Sec.
Litig., No. Civ. A. 88CIV 9282, 1991 WL 352491
(S.D.N.Y. Nov. 20, 1991) (35%); Baron v. Commercial &
Indus. Bank of Memphis, No. 75 Civ. 1274, 1979 U.S.
Dist. LEXIS 9380, at *18 (S.D.N.Y. Oct. 3, 1979
(awarding 36% of $900,000 settlement). ;
The Second Circuit recently addressed the issue of fee
awards in class action litigation where a common fund
has been created. In Goldberger, 209 F.3d at 44-45, the
Second Circuit authorized the award of attorneys’ fees to
plaintiffs’ counsel in a class action on either the per-
centage or lodestar approach, and affirmed a district
court's discretion to award fees to plaintiffs’ counsel on
the lodestar method which award amounted to less than
4% (or about $2.1 million in fees) of the total recovery
of four separate settlements aggregating over $54 mil-
lion. However, in Goldberger, the district court had
found, at the outset that the case was almost certain to
produce a large recovery from the defendants. /d. at 54-
55. This conclusion was based upon the district court’s
findings that, among other things, counsel had benefit-
ted from the work done by the federal authorities during
57a
both criminal and civil actions brought against certain of
the defendants, the claims involved no novel issues of
law and the case was generally without risk. The Second
Circuit agreed with the lower court's assessment that the
case was a low risk case. /d. at 53-55.
The facts of this particular litigation, therefcre, make
it closer to Maley than Goldberger. Maley, 186 F.
Supp.2d at 371-74; see also Steiner v. Williams, No. 99
Civ. 10186, 2001 U.S. Dist. LEXIS 7097, at *18-19
(S.D.N.Y. May 31, 2001) (awarding 30% because plain-
tiffs’ argument was “novel and risky” and because
“counsel took a tremendous risk that, in the end, nothing
would be recovered.”).
The requested fee award is also reasonable based on a
cross-check of the percentage award against counsel's
lodestar.
Plaintiffs’ counsel collectively spent in excess of
8,030 hours in performance of their services on behalf of
the class. The cumulative lodestar at current hourly rates
for the services performed by all Plaintiffs’ firms is
$2,614,830.75.
The fee requested here represents a multiplier of just
2.098 to the cumulative lodestar of all plaintiffs’ firms.
Under the lodestar method, a multiplier is typically
applied to the lodestar in recognition of the contingency
risk as well as other factors. Steiner, 2001 U.S. Dist.
LEXIS 7097, at *19 (noting that the risk of success has
been identified as the foremost factor in determining
whether to award a fee enhancement); Weseley v. Spear,
Leeds & Kellogg, 711 F. Supp. 713, 716 (E.D.N.Y. 1989)
8
The 2.09 multiplier is calculated using the face value of the
requested credit noted ($1,300,000) and the requested cash
($4,350,000) less the litigation expenses ($193,665.77), for a total fee
of $5,456,334.30, divided by the lodestar amount $2,614,830.75.
58a
(“The most significant factor in the calculation of an
upward adjustment is the risk of the litigation.”’).
This Court approved a multiplier of approximately
3.97 in In re Nasdaq, 187 F.R.D. at 489, noting the Hon-
orable Leonard B. Sand’s observation that “[i]n recent
years multipliers of between 3 and 4.5 have become
common.” Rabin v. Concord Assets Group, Inc., [1991-
92 Transfer Binder] Fed. Sec. L. Rep. (CCH) p.96,471
(S.D.N.Y. 1991) (applying a 4.4 multiplier), quoting
O’Brien v. National Property Analysts, 88 Civ. 4153, TR
P. 72 (S.D.N.Y. July 27, 1989); see, e.g., Roberts v. Tex-
aco, Inc., 979 F. Supp. 185, 198 (S.D.N.Y. 1997) (5.5
multiplier); Jn re RJR Nabisco, 1992 U.S. Dist. LEXIS
12702, at *15-16 (6 multiplier). Much higher multipliers
have been awarded as well. See, e.g., Weiss v. Mercedes-
Benz of N.Am., Inc., 899 F. Supp. 1297, 1304 (D. N.J.
1995) (awarding fee that resulted in a multiplier of 9.3
times hourly rate), aff’d, 66 F.3d 314 (3d Cir. 1995);
Glendora Cmty. Redevelopment Agency v. Demeter, 202
Cal. Rptr. 389, 398-99 (App.2d Dist. 1984) (12 times
lodestar). See also Cosgrove v. Sullivan, 759 F. Supp.
166-67 n.1 (S.D.N.Y. 1991) (multiplier of 8.74 based on
$1 million fee against lodestar of $114,398).
Here, the resulting multiplier of 2.09 is at the lower
end of the range of multipliers awarded by courts within
the Second Circuit. See Maley, 186 F. Supp.2d at 368-69
(finding a multiplier of 4.65 to be within the range in
this Circuit). -
The courts of this Circuit, including this district, have
expressly recognized that the contingent nature of coun-
sel’s fee, with the built-in risk of litigation, is a highly
relevant factor in determining the fee to be awarded. As
the Grinnell court stated:
No one expects a lawyer whose compensation is
contingent upon his success to charge, when suc-
59a
cessful, as little as he would charge a client who in
advance had agreed to pay for his services, regard-
less of success. Nor, particularly in complicated
cases producing large recoveries, is it just to make
a fee depend solely on the reasonable amount of
time expended.
495 F.2d at 470-71 (citing Cherner v. Transitron Elec. .
Corp., 221 F. Supp. 55, 61 (D. Mass. 1963)). See also
Steiner, 2001 U.S. Dist. LEXIS 7097, at *19; In re
“Agent Orange”, 818 F.2d at 236: In re Union Carbide,
724 F. Supp. at 164 (“[C]ontingent fee risk is the single
most important factor in awarding a multiplier”); /n re
Warner, 618 F. Supp. at 747 (“Numerous cases have rec-
ognized that the attorneys’ contingent fee risk is an
important factor in determining the fee award.”’).
Taking into account the significant compiexity of the
issues, the magnitude of the action, and the risks of this
litigation and contingent nature of the fee, the amount
sought by Plaintiffs’ counsel is certainly reasonable.
The result achieved and the quality of the services
provided are also important factors to be considered in
determining the amount of reasonable attorneys’ fees
under a lodestar/multiplier analysis. See, e.g., Hensley v.
Eckerhart, 461 U.S. 424, 436 (1983) (“[MJost critical
factor is the degree of success obtained”); Behrens v.
Wometco Enters. Inc., 118 F.R.D. 534, 547-48 (S.D. Fla.
1988) (“The quality of work performed in a case that
settles before trial is best measured by the benefit
obtained”), aff'd, 899 F.2d 21 (11th Cir. 1990); In re
Warner, 618 F. Supp. at 748-49. Plaintiffs’ counsel
include some of the best known and highly regarded
firms in class action litigation.
Plaintiffs’ counsel were faced with formidable oppo-
sition in this action. Citibank was represented by two of
the country’s leading law firms. That Plaintiffs’ counsel
60a
were able to obtain a substantial settlement of the action
from Citibank is additional confirmation of the quality
of their representation in this matter, and is another
important factor for the Court to consider in determining
the reasonableness of Plaintiffs’ fee request. See, e.g., In
re Warner, 618 F. Supp. at 749; In re Computron Soft-
ware, Inc., 6 F. Supp.2d 313, 323 (D. N.J. 1998).
A review of the percentages and the multipliers
awarded in other similar class action litigations, the
complexity, magnitude and risks of this litigation, and
the contingent nature of the fee, the result achieved for
the Class given the status of the action, the quality of the
representation by Plaintiffs’ counsel, as well as public
policy, establish that the fee request of approximately
28% of the settlement fund is fair and reasonable and
should be awarded by the Court.
It is so ordered.
New York, NY ROBERT W. SWEET
November 26, 2002 ROBERT W. SWEET
U.S.D.J.
nN
6la
CONSTITUTIONAL AND
STATUTORY PROVISIONS INVOLVED
_ The Fifth Amendment provides in part:
No person shall be. . . deprived of life, liberty, or
property, without due process... .
. Rule 23(c)(2) of the Federal Rules of Civil Procedure
provides:
In any class action maintained under subdivision
(b)(3), the court shall direct to the members of the
class the best notice practicable under the circum-
stances, including individual notice to all members
who can be identified through reasonable effort. The
notice shall advise each member that (A) the court
will exclude the member from the class if the member
so requests by a specified date; (B) the judgment,
whether favorable or not, will include all members
who do not request exclusion; and (C) any member
who does not request exclusion may, if the member
desires, enter an appearance through counsel.
62a
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
96 Civ. 1262 (RWS)
IN RE LLOYD’S AMERICAN TRUST FUND LITIGATION
THIS DOCUMENT RELATES TO ALL ACTIONS
NOTICE OF PENDENCY AND PROPOSED
SETTLEMENT OF CLASS ACTION, FAIRNESS
HEARING AND RIGHT TO APPEAR
TO: ALL FORMER AND CURRENT UNDER-
WRITING MEMBERS OF THE SOCIETY OF
LLOYD’S WHO UNDERWROTE AMERICAN
BUSINESS AND WHO DID NOT ACCEPT
LLOYD’S OFFER OF SETTLEMENT IN CON-
NECTION WITH ITS PLAN FOR RECON-
STRUCTION AND RENEWAL (INCLUDING,
FOR PURPOSES OF THE PROPOSED SET-
TLEMENT, CURRENT OR FORMER OFFI-
CERS AND DIRECTORS OF CITIBANK).
THIS LEGAL NOTICE DESCRIBES A PRO-
POSED SETTLEMENT OF A PENDING CLASS
63a
ACTION AND YOUR RIGHTS IN CONNEC-
TION WITH THAT PROPOSED SETTLE-
MENT. IF YOU ARE A CLASS MEMBER,
YOU MAY BE ENTITLED TO RECEIVE
BENEFITS THROUGH THE PROPOSED SET-
TLEMENT DESCRIBED IN THIS NOTICE.
PLEASE READ THIS NOTICE CAREFULLY
AND IN ITS ENTIRETY. IF YOU ARE A
CLASS MEMBER, YOUR RIGHTS WILL BE
AFFECTED BY PROCEEDINGS IN THIS
ACTION.
NoTICE Is HEREBY GIVEN, pursuant to Rule 23 of the
Federal Rules of Civil Procedure and an Order of the
United States District Court for the Southern District of
New York (the “Court”) dated May 21, 2002, that a hear-
ing will be held before the Honorable Robert W. Sweet,
in the United States Courthouse, 500 Pearl Street, New
York, New York 10007, at 12:00 noon, on September 10,
2002 (the “Fairness Hearing”) to determine whether a
proposed settlement (the “Settlement”) of this action
(the “Action”), on the terms and conditions set forth
in the Stipulation and Agreement of Settlement dated
May 8, 2002 (the “Settlement Agreement”), should be
approved as fair, reasonable and adequate, and to con-
sider the proposed plan for allocating the Settlement pro-
ceeds and the application of Plaintiffs’ Counsel for
attorneys’ fees and reimbursement of expenses.
64a
TABLE OF CONTENTS FOR THIS NOTICE
Page
Ai. EPC PP ERGREPA IG BONE 55 i6s cance nce seeensanesiams 2
B. MES TORT Ce Tie Pe Ce eliscsisssesianms Zz
C. BACKGROUND TO THE SETTLEMENT .... 3
D. SETTLEMENT PROCEEDS AND PLAN
COE PEATE AO as 4 05 ces i nketeateniaekseeks 3
E. RELEASE OF CLAIMS, DISMISSAL
OF ACTION, AND PRELIMINARY
AND PERMANENT INJUNCTIONS .......... 5
F. RIGHT TO REJOIN CLASS FOR
PURPOSES OF SETTLEMENT ......00scccnsees 6
G. THE FAIRNESS HEARING, AND THE
RIGHTS OF CLASS MEMBERS TO
APPEAR AND OBJECT . 020... sccccieceescens . 6
H. EXCLUSION RIGHTS OF CITIBANK
OFFICERS AND DIRECTORS. ........00sc0cse00s 7
I. ATTORNEYS’ FEES, DISBURSEMENTS
AND ADMINISTRATIVE EXPENSES........ 7
J. JURISDICTION OF THE COURT ............. 8
K. HOW TO OBTAIN ADDITIONAL
gg 2 eee ee ee ee rer eer rei 8
A. INTRODUCTION
Why should I read this Notice?
1. This Notice concerns the proposed Settlement of a
class action filed against Citibank, N.A. (“Citibank”) by
underwriting members of Lloyd’s (“Names”) who were
65a
beneficiaries of the trusts held by Citibank in connection
with the underwriting of “American Business” (defined
as insurance for which both Names’ liabilities and pre-
miums were payable in U.S. dollars). You have received
this Notice because, according to Lloyd’s records, you are
—or were before you requested exclusion (see paragraph
4. below)—a member of the Class (“Class Member’).
(Where Lloyd's records indicate that correspondence
should be sent to a Name's authorized representative,
this Notice is being sent to that representative.)
2. As a Class Member, you may be eligible to partic-
ipate in the proposed Settlement of this Action. You
should read this Notice in full to learn about your rights
in connection with the Settlement.
How do I know if I am a member of the Class?
3. Citibank acts as the trustee of the Lloyd’s American
Trust Fund (“LATF”), in which policyholder premiums
and other monies are held in trust in connection with the
underwriting of American Business. The Class consists
of all Names who underwrote American Business,
received Lloyd's offer of settlement in connection with
Reconstruction & Renewal (“R&R”), and allegedly have
been damaged by the conduct of Citibank in allegedly
breaching its fiduciary duties as trustee of the LATF,
regardless of whether such Names have any present or
former affiliation with Citibank, but excluding: (a) those
Names who did accept such offer of settlement, (b) those
Names who have otherwise unconditionally released
Citibank prior to May 8, 2002, and (c) those Names who
previously requested exclusion from the Class (the “Opt-
Outs”) pursuant to the “Notice of Pendency of Class
Action” mailed to Class Members in July 1998, and who
do not accept the opportunity to rejoin the Class as dis-
cussed in Section F of this Notice.
sit taal |
66a
What if I previously excluded myself from the
Class?
4. A “Notice of Pendency of Class Action,” dated May
29, 1998 (the “Notice of Pendency”), was sent in July
1998 to all known members of the Class. Pursuant to the
Notice of Pendency, Class Members were allowed to
submit requests to be excluded from the Class on or
before October 1, 1998.
5. At this time, Opt-Outs are being provided with
the opportunity to rejoin the Class for purposes of
participating in the Settlement. If you are an Opt-Out
and you would like to participate in the Settlement,
you must complete the Opt-In Request Form attached
as Appendix 2 to this Notice and submit it to the con-
sulting firm that will administer the Settlement,
Gilardi & Co., LLC (the “Claims Administrator’’),
postmarked no later than July 22, 2002. More infor-
mation about making a request to rejoin the Class is
contained in Section F of this Notice.
6. If you are an Opt-Out and you do not wish to par-
ticipate in this Settlement, you need take no action in
response to this Notice. Your rights will not be affected
by the Settlement.
What if I am (or was at some point in the past) an
officer or director of Citibank?
7. If you are or were at any time an officer or direc-
tor of Citibank, you were not a member of the Class
when the Notice of Pendency was mailed, and you
therefore have not yet been provided with an oppor-
tunity to exclude yourself from the Class. Informa-
tion about how Citibank officers and directors may
exclude themselves from the Class at this time is con-
tained in Section H of this Notice.
672
B. HISTORY OF THE ACTION
What is the Action about?
1. This Action was originally filed in the Supreme
Court of the State of New York, County of New York.
Citibank removed the Action to this Court on February
21, 1996.
2. On February 22, 1996, Citibank moved to dismiss
the Action on various grounds, including (a) that the
case should be litigated in England, (b) that Lloyd’s and
the managing agents and the member's agents at Lloyd's
were necessary and indispensable parties to the litiga-
tion, (c) that Plaintiffs’ claim for breach of contract
failed to state a cause of action, and (d) that Plaintiffs’
claim for an accounting should be dismissed. Plaintiffs
opposed Citibank’s motion. On January 24, 1997, this
Court denied in part Citibank’s motion, but granted
Citibank’s motion to dismiss Plaintiffs’ claims for
breach of contract and an accounting.
3. On March 5, 1997, Plaintiffs filed a Consolidated
Amended Complaint (the “Complaint”) on behalf of all
Names who were beneficiaries of the trusts held by
Citibank in connection with the underwriting of Amer-
ican Business. The Complaint alleged, among other
things, that Citibank acted as the trustee of the LATF, in
which policyholder premiums and other monies were
held in trust in connection with the underwriting of
American Business. Plaintiffs alleged that each Name
that underwrote American Business had money held in
trust by Citibank and was a beneficiary of the LATF.
Plaintiffs further alleged that Citibank breached its fidu-
ciary duties to the Names for whom it acted as trustee
by, among other things: (a) failing to abide by the terms
of the Lloyd’s American Trust Deed, as amended from
ee
68a
time to time (“LATD”’) including (/) failing to establish
individual trust accounts, (ii) commingling the monies of
individual trust funds, (iii) improvidently making loans
on behalf of beneficiaries who had no obligation to make
such loans and without sufficient information to know
whether those loans could be repaid by the borrower, and
(iv) failing to maintain records of the monies it held on
behalf of each beneficiary; (b) failing to inform the ben-
eficiaries of massive impending losses resulting from
asbestos and pollution liabilities of which it was aware;
and (c) self-dealing by, among other things, (/) prefer-
ring itself over its beneficiaries, and (ii) acquiescing and
participating in a purported amendment to the LATD in
order to insulate Citibank from liability to the benefi-
ciaries. The Complaint further alleged that Citibank is
liable to the beneficiaries and answerable in damages.
4. Citibank denied Plaintiffs’ allegations, advanced
certain affirmative defenses in opposition to Plaintiffs’
claims, and asserted that it is not liable to Plaintiffs or
the Class. Among other things, Citibank contended that:
(a) it acted in accordance with the express terms of the
LATD; (b) it complied with all directions it received
from Lloyd's, as it was required by the LATD to do; (c)
it did not breach any duties owed to any Name; and (d)
no Name suffered any damages by virtue of Citibank’s
conduct. Citibank also contended that some of the
Names who are members of the Class may not have had
monies loaned on their behalf, and that some Class
Members may have benefitted from the alleged loans to
the extent that Lloyd's syndicates in which those Names
participated received such loans.
5. On June 25, 1997, Plaintiffs moved to certify a
class of Names pursuant to Federal Rule of Civil Pro-
cedure 23. On February 6, 1998, this Court granted
69a
Plaintiffs’ motion. The class as defined at that time was
substantially similar to the Class described in Section A
of this Notice, except that it did not include officers and
directors of Citibank.
6. The Notice of Pendency was sent in July 1998 to all
known members of the Class. Pursuant to the Notice of
Pendency, Class Members (except for those who would
have been Class Members but were excluded because of
their affiliation with Citibank) were allowed to submit
requests to be excluded from the Class on or before
October 1, 1998.
C. BACKGROUND TO THE SETTLEMENT
Why did the parties decide to settle the Action?
1. Before entering into the Settkement Agreement,
Plaintiffs, by their counsel, conducted an investigation
relating to the claims and the underlying events and
transactions alleged in the Complaint. Counsel for Plain-
tiffs and the Class have analyzed the evidence gathered
during their informal investigation, pretrial discovery
and confirmatory discovery, including the review of
approximately 1.8 million pages of documents from
Citibank’s files, and they have researched the applicable
law with respect to the claims of Plaintiffs and the Class
against Citibank and the potential defenses to those
claims.
2. Plaintiffs, by their counsel, have conducted dis-
cussions and arm’s-length negotiations with Citibank’s
counsel with respect to a settlement of the Action, with
a view to settling the issues in dispute consistent with
the interests of the Class.
3. Based upon their investigation, pretrial discovery
and confirmatory discovery, counsel for Plaintiffs and
70a
the Class have concluded that the terms and conditions
of the Settkement Agreement are fair, reasonable and
adequate as to Plaintiffs and the Class, and in their best
interests, and have agreed to settle the claims raised in
the Action pursuant to the terms and provisions of the
Settlement Agreement, after considering (a) the sub-
stantial benefits that Plaintiffs and the Class Members
will receive from settlement of the Action, (b) the atten-
dant risks of litigation, and (c) the desirability of per-
mitting the Settlement to be consummated as provided
by the terms of the Settlement Agreement.
4. Citibank has denied and continues to deny all alle-
gations of wrongdoing or liability whatsoever. Nonethe-
less, in view of the uncertainties, risks and expense of
litigation, Citibank has agreed to settle and terminate all
existing or potential claims against it pursuant to the
terms and provisions of the Settlement Agreement. In
agreeing to settle this Action, Citibank in no way
acknowledges any fault or liability.
5. On May 21, 2002, the Court preliminarily approved
the Settlement, and it scheduled the Fairness Hearing to
consider, among other things, whether the Settlement
should be finally approved pursuant to Federal Rule of
Civil Procedure 23(e) as fair, reasonable and adequate.
Among other things, the Court also ordered the Plaintiffs
to provide Class Members with notice of the Fairness
Hearing, the terms of the Settlement, and Class Mem-
bers’ rights in connection with the Settlement.
6. The Court has not determined the merits of the
Plaintiffs’ claims or the defenses to those claims. This
Notice does not imply that there has been or would be
any finding of violation of the law or that recovery could
be had in any amount if the Action were not settled.
Tila
D. SETTLEMENT PROCEEDS AND PLAN OF
ALLOCATION
What will the Class receive under the Settlement?
1. In full and final settlement of this Action and the
Settled Claims (as that term is defined in the Settlement
Agreement and in Appendix 1 to this Notice), Citibank
will provide a benefit of Twenty Million Dollars
($20,000,000) to the Class. This benefit will be provided
in the form of a Cash Settlement Amount of Eight Mil-
lion Five Hundred Thousand Dollars ($8,500,000), and
Credit Notes having an aggregate principal amount of
Eleven Million Five Hundred Thousand Dollars
($11,500,000).
Net Cash Settlement Fund
2. On May 29, 2002, Citibank paid the Cash Settle-
ment Amount into an interest-bearing escrow on behalf
of Plaintiffs and the Class. Under the Settlement Agree-
ment, Milberg Weiss Bershad Hynes & Lerach LLP and
Greenberg Traurig, LLP, two of the law firms repre-
senting Plaintiffs and the Class, serve as Escrow Agents.
The terms of the escrow are set forth in an Escrow
Agreement that is itself an exhibit to the Settlement
Agreement.
3. The Cash Settlement Amount and any interest
earned thereon are together known as the “Cash Settle-
ment Fund.” The Cash Settlement Fund shall first be
used to pay certain taxes, notice and administration
costs, and such fees and expenses as may be awarded to
Plaintiffs’ Counsel by the Court. (See Section I of this
Notice.) The balance of the Cash Settlement Fund after
the above payments shall be the Net Cash Settlement
Fund.
nar enstei ncesomeaanseanaemtalall
Net Credit Notes
4. In addition to having paid the Cash Settlement
Amount, Citibank shall cause Credit Notes to be pro-
vided to Class Members. The Credit Notes shall have the
following characteristics: a
(a)
(b)
(Cc)
They shall be acceptable to and honored by
Lloyd's for the payment of any R&R Debt due
and owing to Lloyd’s by any Class Member.
“R&R Debt” means the Name’s Equitas Pre-
mium and any other outstanding underwriting
liabilities covered by his/her Finality Statement
plus accrued interest (but without, as non-
acceptors of the Lloyd’s settlement offer made
in July 1996, the benefit of any allocation of
the Combined Litigation Settlement Funds,
Debt Credits or refund of the members’ Special
Central Fund Contribution except to the extent
provided for in an Action Group Settlement
Agreement to which the Name is a party).
Payment of any R&R Debt by these Credit
Notes shall avoid any interest that may other-
wise have been owing or charged by Lloyd’s on
such R&R Debt from July 1, 1999 until pre-
sented. For example, if a Class Member had a
$10 R&R Debt as of July 1, 1999, on which
Lloyd’s would claim $2.50 of accrued interest
as of June 30, 2002, and the Class Member ten-
dered $10 in Credit Notes on June 30, 2002,
such Credit Notes would pay the entire amount
of such R&R Debt and all accrued interest.
The individual Credit Notes shall be freely
transferrable among Class Members.
73a
(d) The Credit Notes shall expire on the first
anniversary of the date on which the Court
enters the Class Distribution Order (as defined
in paragraph 10 of the Settlement Agreement).
(e) The Credit Notes shall not be redeemable for
cash or any other consideration other than to
reduce R&R Debt.
5. A portion of the Credit Notes also may be awarded
by the Court to Plaintiffs’ Counsel as attorneys’ fees and
expenses. (See Section I of this Notice.) The balance of
the Credit Notes net of any Credit Notes awarded to
Plaintiffs’ Counsel shall be the Net Credit Notes.
6. To facilitate transfers of Credit Notes among Class
Members, the Claims Administrator, Gilardi & Co.,
LLC, will maintain lists where those interested in either
selling or purchasing Credit Notes may post their inter-
est in doing so. There is no assurance that any market for
such transactions will develop. The Claims Adminis-
trator may serve as a clearinghouse for such transactions.
Plan for Allocating the Net Cash Settlement
Fund and the Net Credit Notes
When will Settlement proceeds be distributed to
Class Members?
7. The Settlement will become effective at such time
as Orders entered by the Court approving the Settlement
shall become final and no longer subject to appeal (the
“Effective Date”). Within 30 days of the Effective Date,
Plaintiffs’ Co-Lead Counsel will move the Court for a
Class Distribution Order, by which the Court will,
among other things, authorize distribution of the Net
Cash Settlement Fund and the Net Credit Notes.
i as i.
74a
8. The Net Cash Settlement Fund and the Net Credit
Notes will be distributed to all Class Members, exclud-
ing those who have timely requested exclusion from the
Class and who have not accepted the opportunity to
rejoin the Class, as described in Section F of this Notice.
The distribution will begin after entry of the Class Dis-
tribution Order, after all taxes and administration costs
have been paid, and after any and all disputes relating to
the Settlement (including any disputes concerning attor-
neys’ fees awarded to Plaintiffs’ Counsel) are fully and
finally resolved.
How will each Class Member’s share of the Settle-
ment proceeds be calculated?
9. The Net Cash Settlement Fund and the Net Credit
Notes will be distributed to Class Members based on the
proportion of each Class Member’s “Overall Premium
Limits” for each year from 1979 to 1996, combined,
compared to the Overall Premium Limits for all. years
from 1979 to 1996, inclusive, for all Class Members,
excepting those who have timely requested exclusion
from the Class but including Opt-Outs who have timely
filed Opt-In Request Forms. Each Class Member’s Over-
all Premium Limits have been determined in accordance
with the terms of the Settlement Agreement, and have
been provided by Citibank, which in turn had obtained
such information from Lloyd’s.
10. Each Class Member who receives this Notice
should also receive a personalized Statement of Esti-
mated Settlement Distribution showing (a) the Class
Member’s Overall Premium Limits from 1979
through 1996, inclusive, (b) the combined Overall
Premium Limits from 1979 through 1996, inclusive,
for all Class Members (including Opt-Outs who may
decide to rejoin the Class), and (c) a calculation of the
75a
estimated share of the Net Cash Settlement Fund and
the Net Credit Notes that the Class Member would
receive if the Settlement were finally approved.
11. Please note that the figures contained on your
Statement of Estimated Settlement Distribution
(other than an individual Class Member’s Overall
Premium Limits) are only estimates. At least some of
those figures will almost certainly change based on a
number of factors, including the number of Opt-Outs
who timely file Opt-In Request Forms. If you have
any questions about your Statement of Estimated Set-
tlement Distribution, or if you did not receive your
Statement, please call the Claims Administrator at
1-800-531-1653.
12. If any funds remain in the Net Cash Settlement
Fund by reason of uncashed checks or otherwise, then
after the Claims Administrator has made reasonable and
diligent efforts to have Class Members cash their dis-
tribution checks, any balance remaining in the Net Cash
Settlement Fund one year after the initial distribution of
such funds shall be re-distributed to Class Members who
have cashed their checks and who would receive at least
$10.00 from such re-distribution. If, after six months
after such re-distribution any funds shall still remain in
the Net Cash Settlement Fund, such balance shall be
contributed to non-sectarian, not-for-profit, 501(c)(3)
organization(s) designated by Plaintiffs’ Co-Lead Coun-
sel and not affiliated with Plaintiffs’ Co-Lead Counsel.
If any Credit Notes are returned as undeliverable and
after reasonable efforts have been made by the Claims
Administrator to locate a better address and no better
address has been found, then, commencing six months
after the distribution of such Credit Notes, the Claims
Administrator may sell or transfer such Credit Notes to
a
76a
other Class Members for such consideration as Plain-
tiffs’ Co-Lead Counsel shall approve, and the proceeds
shall be held for the benefit of such unlocated Class
Member until the time for re-distribution of the Net Cash
~ Settlement Fund, at which point such proceeds shall be
added to the Net Cash Settlement Fund and shall be
redistributed with any balance of the Net Cash Settle-
ment Fund.
E. RELEASE OF CLAIMS, DISMISSAL OF
ACTION, AND PRELIMINARY AND PERMA-
NENT INJUNCTIONS
1. If the Court approves the Settlement, the Action
will be dismissed on the merits and with prejudice.
Does the Settlement contain a release of claims?
2. Under the terms of the Settlement, Plaintiffs and
members of the Class, on behalf of themselves, their
heirs, executors, administrators, successors, assigns,
their trustees in bankruptcy, and any persons they rep-
resent, with respect to each and every Settled Claim (as
defined in the Settlement Agreement and in Appendix |
to this Notice), release and forever discharge any Settled
Claims against any of the Released Parties (as defined in
- the Setthement Agreement and in Appendix | to this
Notice) in any forum world-wide, including but not lim-
ited to any judicial, arbitral, regulatory or administrative
proceeding.
3. For the purposes of this release, the terms
“Released Parties” and “Settled Claims” are defined in
the Settlement Agreement. Those definitions are also set
forth verbatim in Appendix | to this Notice. Class Mem-
bers are urged to review these definitions in connection
with their review of the release.
77a
4. In connection with the release, Plaintiffs and Class
Members acknowledge that they are familiar with Sec-
tion 1542 of the California Civil Code, which provides
as follows:
A general release does not extend to claims which
the creditor does not know or suspect to exist in his
favor at the time of executing the release, which if
known by him must have materially affected his set-
tlement with the debtor.
Under the proposed Settlement, each of Plaintiffs and
Class Members knowingly and voluntarily waives any
rights or benefits, if any, under this section and/or under
any similar state, federal or foreign statute or principle
of common law.
5. The Court has preliminarily enjoined the Plaintiffs,
all Class Members, and each of them, and the heirs,
executors, administrators, successors, assigns and
trustees in bankruptcy of any of them, and anyone who
acts or purports to act on their behalf, from filing, com-
mencing, prosecuting, intervening in, or participating in
(as class members or otherwise) any lawsuit or other
proceeding in any jurisdiction that asserts any Settled
Claim (as defined in the Settlement Agreement and in
Appendix | to this Notice) against any of the Released
Parties (as defined in the Settlement Agreement and in
Appendix | to this Notice). Upon final approval of the
Settlement, Plaintiffs and Citibank will ask the Court to
enter a permanent injunction that will be similar to the
preliminary injunction already in force.
mee, ‘ —
78a
F. RIGHT TO REJOIN CLASS FOR PURPOSES
OF SETTLEMENT
If I am an Opt-Out, how do I rejoin the Class and
participate in the Settlement?
1. All Opt-Outs (Names who were Class Members but
who previously requested exclusion from the Class pur-
suant to the Notice of Pendency) have the opportunity to
rejoin the Class for purposes of participating in the Set-
tlement. Persons who previously excluded themselves
may rejoin the Class by completing and submitting the
“Opt-In Request Form” attached to this Notice as
Appendix 2, and by submitting that Form, postmarked
on or before July 22, 2002, to: In re Lloyd’s American
Trust Fund Litigation Opt-In Requests, c/o Gilardi &
Co., LLC, Seitlement Administrator, P.O. Box 1110,
Corte Madera, CA 94976-1110.
2. Persons who submit a timely, valid Opt-In Request
Form shall consent to the jurisdiction of this Court and
shall be bound by the terms of the Settlement Agreement
(including but not limited to the release) and the Final
Judgment to be entered herein. If the proposed Settle-
ment is finally approved, persons who submit timely,
valid Opt-In Request Forms shall be entitled to a
share of the Net Cash Settlement Fund and Net
Credit Notes, and they shall be bound by the terms of
the release and the injunctions described in Section
E, above.
79a
G. THE FAIRNESS HEARING, AND THE RIGHTS
OF CLASS MEMBERS TO APPEAR AND
OBJECT
When will the Fairness Hearing take place?
1. The Court has scheduled the Fairness Hearing to
occur on September 10, 2002 at 12:00 noon, before the
Honorable Robert W. Sweet, in the United States Court-
house, 500 Pearl Street, New York, New York 10007.
The Fairness Hearing may be adjourned from time to
time by the Court without further written notice to the
Class.
2. At the Fairness Hearing, the Court will determine,
among other things, (a) whether to finally approve this
Settlement as fair, reasonable and adequate; (b) whether
to dismiss the Action and the claims of the Class Mem-
bers; (c) whether the plan for allocating the Settlement
proceeds is fair and reasonable; and (d) whether to enter
the permanent injunction described in Section E of this
Notice. If the Settlement is approved, the Court will also
consider the application of Plaintiffs’ Counsel for attor-
neys’ fees and expenses.
Can I object to the proposed Settlement?
3. Any Class Member who wishes to object to the pro-
posed Settlement or any of its terms, including the pro-
posed plan for allocating the Settlement proceeds or
Plaintiffs’ Counsel’s application for fees and expenses,
may do so by filing such objection in writing with the
Clerk of the Court, United States District Court, 500
Pearl Street, New York, New York 10007. For any such
objection to be considered, it must be received by the
Court on or before August 12, 2002. Each written
- objection must include the name of this Action and the
case number on the top of the first page of the objection.
80a
In addition, for any such objection to be considered, it
must be served on each of the following counsel on the
same date that it is provided to the Court:
Plaintiffs’ Co-Lead Counsel:
Sanford P. Dumain, Esq. Kenneth A. Lapatine, Esq.
Milberg Weiss Bershad Greenberg Traurig, LLP
Hynes & Lerach LLP 885 Third Avenue
One Pennsylvania Plaza New York, New York 10022
New York, New York 10119
and
Defendant’s Counsel:
Robert N. Shwartz, Esq.
Debevoise & Plimpton
919 Third Avenue
New York, New York 10022
Can I appear at the Fairness Hearing?
4. Any Class Member who files and serves a timely
written objection as described above may also appear at
the Fairness Hearing either in person or through counsel
retained at the Class Member's expense. Class Members
or their counsel intending to appear at the Fairness Hear-
ing must serve on the counsel listed in paragraph 3
above, and file with the Court at the address set forth in
paragraph 3 above, no later than August 12, 2002, a
Notice of Intention to Appear, setting forth the name of
the case, the case number, and the name, address and
telephone number of the Class Member (and if applica-
ble, the name, address and telephone number of the
Class Member's counsel). Any Class Member who does
not timely file and serve a Notice of Intention to Appear
will not be permitted to appear at the Fairness Hearing,
except for good cause shown. Class Members do not
|
8la
need to appear at the Fairness Hearing or take any
other action to indicate their approval of the pro-
posed Settlement. |
5. Class Members who intend to object to the pro-
posed Settlement or any of its terms, and who desire to
present evidence at the Fairness Hearing, must include in
their written objections the identity of any witnesses
they may call to testify and exhibits they intend to intro-
duce into evidence at the Fairness Hearing.
6. Only Class Members may object to the proposed
Settlement and appear at the Fairness Hearing.
Accordingly, those who requested exclusion from the
Class pursuant to the May 29, 1998 Notice of Pen-
dency may not object or appear at the Fairness Hear-
ing unless they submit a timely and valid Opt-In
Request Form, as described in Section F of this
Notice. Similarly, those who request exclusion as
described in Section H of this Notice may not object
or appear at the Fairness Hearing.
H. EXCLUSION RIGHT F_ CITIBANK OFFI-
CERS AND DIRECTORS
1. In the Court’s February 6, 1998 decision certifying
a class, Names who also were officers or directors of
Citibank were excluded from the definition of the class.
By its Order dated May 21, 2002, the Court modified the
Class, pursuant to Rule 23(c)(1) of the Federal Rules of
Civil Procedure, to include for settlement purposes those
Names who are or were at any time Citibank officers or
directors and who otherwise meet the criteria for Class
membership.
82a
If I am (or was) an officer or director of Citibank,
may I exclude myself from the Class at this time?
2. Because Citibank officers and directors were not
Class Members when the May 29, 1998 Notice of Pen-
dency was mailed, they have not yet had an opportunity
to request exclusion from the Class, but they may do so
at this time. If you are a Class Member who is also a
present or former officer or director of Citibank, and you
wish to exclude yourself from the Class, you must mail
a written request for exclusion to Sanford P. Dumain,
Esq., at Milberg Weiss Bershad Hynes & Lerach LLP,
One Pennsylvania Piaza, New York, New York 10119.
Requests for exclusion must be postmarked on or
before July 22, 2002. If you exclude yourself from the
Class, you will not be bound by any judgment, favorable
or unfavorable, entered in this litigation.
3. Officers and directors of Citibank who are consid-
ering excluding themselves from the Class at this time
may be interested in obtaining a copy of the May 29,
1998 Notice of Pendency. A copy of this document may
be obtained by contacting the Claims Administrator at 1-
800-531-1653.
What happens if I remain a member of the Class?
4. If you are a Class Member who is also a present or
former officer or director of Citibank—and you wish to
participate in the Settkement—you need do nothing. at
this time. If you do not request exclusion, you will be
bound by any order or judgment, whether favorable or
unfavorable, entered by the Court in this Action, and you
may enter an appearance in this Action as described in
Section G, above. If the proposed Settlement is finally
approved, you will be entitled to a share of the Net Cash
Settlement Find and Net Credit Notes, and you will be
-
83a
bound by the terms of the release and the injunctions
described in Section E, above.
May I request exclusion from the Class if I am not
a Citibank officer or director?
5. Please note that only officers and directors of
Citibank may request exclusion from the Class at this
time. All other Class Members were required to sub-
mit requests for exclusion postmarked no later than
October 1, 1998 in order for those requests to be
effective.
I. ATTORNEYS’ FEES, DISBURSEMENTS AND
ADMINISTRATIVE EXPENSES
How much of the Cash Settlement Fund and the
Credit Notes will be used to cover administrative
costs and attorneys’ fees and expenses?
1. Prior to the Effective Date, Plaintiffs’ Co-Lead
Counsel may expend from the Cash Settlement Fund,
without approval from the Court or Citibank, up to
$100,000.00 to pay reasonable costs and expenses asso-
ciated with administration of the Settlement, including
but not limited to the costs incurred in providing notice
of the Settlement to the Class and the fees charged by
the Claims Administrator.
2. At the Fairness Hearing or at such other time as the
Court may direct, Plaintiffs’ Counsel intend to apply to
the Court for an award of attorneys’ fees and expenses in
the total amount of $4,350,000 in cash from the Cash
Settlement Fund, plus $1,300,000 in Credit Notes. The
‘Plaintiffs’ Counsel” who will make this application
include Flaintiffs’ Co-Lead Counsel (whose names and
addresses are found in Section G of this Notice), and (a)
Abbey, Gardy & Squitieri, LLP, 212 East 39th Street,
84a
New York, New York 10016, and (b) Maureen R. Olivo,
Esq., 17 Allison Drive, Englewood Cliffs, New Jersey
07632. .
3. Plaintiffs’ Co-Lead Counsel, without further notice
to the Class, may subsequently apply to the Court for
additional fees and expenses incurred in connection with
administering and distributing the Settlement proceeds
to Class Members. All such additional fees and expenses
awarded in this Action, if any, will be paid from the
Cash Settlement Fund.
~
J. JURISDICTION OF THE COURT
1. Under the terms of the proposed Settlement, each
Class Member is deemed to have submitted to the juris-
diction of the Court, and shall be subject to investigation
and discovery under the Federal Rules of Civil Proce-
dure. Such discevery, if any, shall be limited to discov-
ery concerning the Class Member's status as a Class
Member and the validity and amount of his or her enti-
tlement to receive a distribution from the Net Cash Set-
tlement Fund and Net Credit Notes.
K. HOW TO OBTAIN ADDITIONAL INFORMA-
TION
1. This Notice contains only a summary of the terms
of the proposed Settlement. For a more detailed state-
ment of the Settlement terms and the matters involved in
this Action, reference is made to the pleadings, to the
‘Settlement Agreement, to the Orders entered by the
Court and to the other papers filed in the Action, which
may be inspected at the Office of the Clerk of the United
States District Court for the Southern District of New
an
854
York, United States Courthouse, 500 Pearl Street, New
York, New York 10007 during regular business hours.
2. ALL INQUIRIES BY CLASS MEMBERS CON-
CERNING THIS NOTICE OR THE OPT-IN REQUEST
FORM SHOULD BE MADE TO THE SETTLEMENT
ADMINISTRATOR EITHER BY CALLING 1-800-531-
1653, OR BY WRITING TO Lioyd’s American Trust
Fund, c/o Gilardi & Co. LLE, P.O. Box 1110, Corte
Madera, CA 94976-1110.
3. PLEASE DO NOT CALL THE COURT OR THE
CLERK OF THE COURT WITH QUESTIONS
CONCERNING THE PROPOSED SETTLEMENT.
Dated: New York, New York
June 5, 2002
By Order of the Court
CLERK OF THE COURT
86a
APPENDIX |
DEFINITIONS OF TERMS USED IN RELEASE
1. “Released Parties” means: (1) Citibank, and its past
and present subsidiaries, parents, affiliates, successors,
predecessors, officers, directors, shareholders, agents,
employees, attorneys, advisors and investment advisors;
(2) Lloyd’s; (3) any subsidiary of Lloyd’s from time to
time; (4) to the extent any of them were acting in such
Capacity or were providing services, whether or not for
the benefit of Names, at the request or direction of
Lloyd's; (i) the past and present directors, officers, asso-
ciates and employees of Lloyd’s or any subsidiary of
Lloyd's; and (ii) the past and preseni advisors, lawyers,
consultants (including self-employed contractors) and
secondees to Lloyd’s or any subsidiary of Lloyd's,
including each of their past and present directors, offi-
cers, associates, partners and employees; (5) to the
extent they were acting in such capacity or were pro-
viding services, whether or not for the benefit of Names,
at the request or direction of the Council of Lloyd’s: (i)
the past and present members of the Council; (11) the
past and present members of the Committee of Lloyd’s;
(i111) the past and present members of the Lloyd’s Regu-
latory Board; (iv) the past and present members of the
Lloyd’s Market Board; (v) the past and present members
of any other committee established by either the Coun-
cil or the Committee of Lloyd’s and (vi) the past and
present advisors and lawyers to any of the foregoing,
including each of their past and present directors, offi-
cers, associates, partners and employees; and (6) past
and present managing agents and member's agents at
Lloyd's.
87a
2. “Settled Claims” means any and all claims, rights or
causes of action or liabilities of any kind whatsoever,
whether based on foreign, federal, state, local, statutory
or common law or any other law, rule or regulation, that
any Plaintiff or any Class Member ever had, now has or
hereafter may have against the Released Parties, or any
of them, whether or not asserted in this Action and
whether known or unknown, based on or arising out of
any matter, cause, thing, act or failure to act whatsoever
by any of the Released Parties in relating to the estab-
lishment, conduct, administration, operation, supervi-
sion, direction or oversight of the LATF, except that this
Settlement shall not release or discharge: (i) any claim
against Lloyd’s by any Class Member who has asserted
such claim in any other action prior to the date of this
Stipulation [the Stipulation and Agreement of Settlement
dated May 8, 2002], (ii) any claim to entitlement to the
balances existing from time to time of any Class Mem-
bers’s trust funds in the LATF held by Citibank after the
date of this Stipulation [the Stipulation and Agreement
of Settlement dated May 8, 2002], and (iii) any claim a
Class Member may have independent of the Class Mem-
ber’s status as a Name and beneficiary of the LATF.
88a
APPENDIX 2
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
96 Civ. 1262 (RWS)
IN RE LLOYD’S AMERICAN TRUST FUND LITIGATION
THIS DOCUMENT RELATES TO ALL ACTIONS
OPT-IN REQUEST FORM
I, _(Print name of proposed Class member) _, hereby
request to be re-admitted to the Class in the above-cap-
tioned action for the purposes of the Settlement thereof.
I am a former or current underwriting member of the
Society of Lloyd’s who underwrote American business
and who did not accept Lloyd’s offer of settlement in
connection with its plan for Reconstruction and Renewal,
and I did not otherwise unconditionally release Citibank,
N.A. prior to May 8, 2002. I previously submitted a
request for exclusion from the Class herein.
I have read and understand the Notice of Pendency
and Proposed Settlement of Class Action, Fairness Hear-
89a
ing and Right to Appear, and I now wish to be a member
of the class so that I may participate in the Settlement. I
consent to the jurisdiction of the United States District
Court for the Southern District of New York and I agree
that I shall be bound by the terms of the Stipulation and
Agreement of Settlement (including but not limited to
the release of claims described therein), all relevant
Orders of the Court, and the Final Judgment to be entered
in the above-captioned action.
Dated:
(Signature)
State of
)Ss:
County of
On this day of 2002, before me
personally came _(Print name of proposed Class mem-
ber) to me known to be the individual described in and
who executed the foregoing instrument and acknowl-
edged to me that he/she executed the same.
NOTARY PUBLIC
The Opt-In Request Form must be postmarked on or
before July 22, 2002 and submitted to:
IN RE LLOYD’S AMERICAN TRUST FUND LITIGATION
OPT-IN REQUESTS
C/O GILARDI & Co, LLC
SETTLEMENT ADMINISTRATOR
P.O. Box 1110
CORTE MADERA, CA 94976-1110
90a
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
96 Civ. 1262 (RWS)
IN RE LLOYD’S AMERICAN TRUST FUND LITIGATION
THIS DOCUMENT RELATES TO ALL ACTIONS
NOTICE OF PENDENCY OF CLASS ACTION
TO: ALL FORMER AND CURRENT UNDER-
WRITING MEMBERS OF THE SOCIETY OF
LLOYD’S WHO UNDERWROTE AMERICAN
BUSINESS AND WHO DID NOT ACCEPT
LLOYD’S OFFER OF SETTLEMENT IN CON-
NECTION WITH ITS PLAN FOR RECON-
STRUCTION AND RENEWAL
9la
YOUR LEGAL RIGHTS MAY BE AFFECTED
BY THIS NOTICE. PLEASE READ THIS
NOTICE CAREFULLY.
Why should I read this Notice?
Two Members (“Names”) of the Society of Lloyd's
(“Lloyd’s”), Mr. Mark Rose and Mr. Philip Stamm, have
sued Citibank, N.A. (“Citibank”) in a class action filed
in the United States District Court, Southern District of
New York on behalf of all Names who were beneficiaries
of the trusts held by Citibank in connection with the
underwriting of “American Business” (i.e., policies that
were payable in U.S. dollars and whose premiums were
paid in U.S. dollars). As a Name that underwrote Amer-
ican Business, your rights may be affected by this lawsuit.
You are receiving this notice because you may qualify as
a member of the Class. The purpose of this notice is to
advise that this action exists, provide you with informa-
tion about the action, and ask you to make a decision as to
whether you should remain a member of the Class.
What is this case about?
Citibank acts as the trustee of the Lloyd’s American
Trust Fund (“LATF”), in which policyholder premiums
and other monies are held in trust in connection with the
underwriting of American Business. Plaintiffs allege
each Name that underwrote American Business had
money held in trust by Citibank and was a beneficiary of
that trust. Plaintiffs have alleged that Citibank breached
its fiduciary duties to the Names for whom it acted as
trustee. Specifically, Plaintiffs allege that Citibank
breached its fiduciary duties as a trustee by, among other
things: (1) failing to abide by the terms of the trust
agreement including (a) failing to establish individual]
trust accounts as allegedly instructed by the trust deeds:
92a
(b) commingling the monies of individual trust funds;
(c) improvidently making loans on behalf of beneficia-
ries who had no obligation to make such loans and with-
out sufficient information to know whether those loans
could be repaid by the borrower; and (d) failing to main-
tain records of the monies it holds on behalf of each ben-
eficiary; (2) failing to inform the beneficiaries of massive
impending losses resulting from asbestos and pollution
liabilities of which it was aware; and (3) self-dealing by,
among other things, preferring itself over its beneficia-
ries, and acquiescing and participating in a purported
amendment to the trust deed in order to insulate Citibank
from liability to the beneficiaries.
Plaintiffs allege Citibank is liable to the beneficiaries
and answerable in damages. Accordingly, plaintiffs will
seek damages from Citibank, including, but not limited
to, requiring that Citibank restore all monies that were
improvidently loaned on behalf of beneficiaries who had
no obligation to make such loans. Plaintiffs may -also
seek to have the fees paid to Citibank to act as a trustee
disgorged as plaintiffs allege Citibank failed to act as a
trustee. Plaintiffs may also seek damages for monies
they invested in Lloyd’s syndicates which they would
not have invested had Citibank apprised them of the true
condition of the risks they faced and which were
allegedly known to Citibank at the time plaintiffs made
their investments and for Citibank’s alleged self-dealing.
Plaintiffs have.also requested punitive damages.
Citibank denies Plaintiffs’ allegations, asserts certain
affirmative defenses in opposition to Plaintiffs’ claims,
and asserts that it is not liable to Plaintiffs or the Class.
Among other things, Citibank contends that: (1) it acted
in accordance with the express terms of the trust deed;
(2) it complied with all directions that it received from
93a
Lloyd's; (3) it did not breach any duties owed to any
Name; and (4) no Name suffered any damages by virtue
of Citibank’s conduct. Citibank also contends that some
of the Names who are members of the Class may not
have had monies loaned on their behalf, and that some
Names may have benefited from the alleged loans to the
extent that insolvent Lloyd’s syndicates in which those
Names participated received such loans.
The Court has not expressed any view as to the merits
of the claims asserted by plaintiffs or the denials and
defenses asserted by Citibank.
What is a class action?
A class action is a lawsuit brought by one or more rep-
resentative plaintiffs on behalf of a group of people who
allegedly have been injured in a similar fashion. The
purpose of the class action is to resolve the claims of all
the allegedly injured people in one proceeding. The
plaintiffs who bring the action and are certified to act for
the group are “Class Representatives” or “Class Plain-
tiffs.” The other people who have been injured, and who
chose to remain with the Class Plaintiffs are referred to
as “Class Members” or, sometimes, simply, the “Class.”
The attorneys that are chosen by the Court to act on
behalf of the Class and the Representative Plaintiffs are
called “Class Counsel” or “Attorneys for Plaintiffs and
the Class.”
There are various types of class actions that can be
certified. In this case, the Court has certified what is
called an “opt-out” class. “This means that if you fall
within the definition of the Class, you are automatically
a member of the Class unless you request exclusion, i.e.,
request to opt-out of the Class.
94a
How do I know if I may be a member of this Class?
By Order dated February 4, 1998, the Honorable
Robert W. Sweet certified this action as a class action
and defined the class as all former and current Under-
writing Members of the Society of Lloyd’s who under-
wrote American Business and who allegedly have been
damaged by the conduct of Citibank in allegedly breach-
ing its fiduciary duties as trustee of the Lloyd’s Ameri-
can Trust Funds, excepting those persons who have
expressly accepted Lloyd’s offer of settlement in con-
nection with its plan for Reconstruction and Renewal,
and excepting Citibank’s officers and directors.
If you are or were a Name, and you underwrote Amer-
ican Business, and you did not accept Lloyd’s settlement
offer in connection with its Reconstruction and Renewal
plan, and you are not an officer or director of Citibank,
then you are a member of the Class.
In addition, if you enter into a settlement with Lloyd's
at some future date, you may be asked to provide a
release of all your claims against Citibank in connection
with that settlement. If you sign such a release, Citibank
will likely argue to the Court that you are no longer enti-
tled to be a Class Member.
Pursuant to Rule 23(c)(1) of the Federal Rules of Civil
Procedure, the Court reserves jurisdiction to modify,
alter or amend the above-described Order designating
this action as a class action at any time before a final
disposition of this action.
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Who represents the Class?
The following counsel and their law firms are the
Attorneys for the Class:
Sanford P. Dumain, Esq.
Milberg Weiss Bershad Hynes & Lerach LLP
One Pennsylvania Plaza
New York, New York 10119
Kenneth A. Lapatine, Esq.
Camhy Karlinsky & Stein, LLP
1740 Broadway, 16th Floor
New York, New York 10019
Jill S. Abrams, Esq.
Abbey, Gardy & Squitieri
212 East 39th Street
New York, New York 10019
These firms have extensive experience litigating com-
plex, commercial cases and have developed an expertise
in prosecuting class actions.
Who are the Class Representatives?
When an action is brought on behalf of many people
by a representative few, the plaintiffs must seek per-
mission from the Court to pursue the action as a class
action. In connection with this, the plaintiffs are sub-
jected to discovery demands and are deposed to deter-
mine if they can and will act in the best interest of the
Class. In this action, the Court has determined that Mr.
Mark Rose and Mr. Philip Stamm are adequate Class
Representatives. Mr. Rose is a businessman who has
been a Name at Lloyd’s since 1979. Mr. Stamm is an
attorney who has been a Name at Lloyd's since 1980.
96a
As a member of the Class, what decisions do I have
to make?
If you are a member of the Class defined above, you
must now make a choice whether or not to remain a
member of the Class. The decision either to remain a
member of the Class, or to exclude yourself from.the
Class, will have consequences which you should under-
stand before you make your decision.
How do I remain a member of the Class?
Because this Class is an “opt-out” class, if you-wish to
remain a member of the Class you do not need to take
any further action.
What happens if I remain a member of the Class?
If you are a resident or domiciliary of the United
States, and do not request exclusion, your legal rights
with respect to the claims asserted against Citibank will
be determined in this action and you will be bound by
any order or judgment that the Court has entered or will
enter with respect to the Class, whether favorable or
unfavorable.
If you are not a resident or domiciliary of the United
States, and do not request exclusion, your legal rights
with respect to the claims asserted against the defendant
may be determined in this action and you may he bound
by any order or judgment that the Court has entered or
will enter with respect to the Class, whether favorable or
unfavorable.
It is Citibank’s position that if you choose to be a
member of the Class and a judgment is entered in favor
of the Class, you will not receive any money unless you
submit to the jurisdiction of the Court and furnish evi-
97a
dence in support of your individual claim, which may be
contested by Citibank.
How do I exclude myself from the Class?
If you are included in the definition of the Class and
do not wish to participate, you can request to be
excluded from the Class. In order to request exclusion,
you must mail a written request for exclusion to Sanford
P. Dumain, Esq. at MILBERG WEISS BERSHAD HYNES &
LERACH LLP, One Pennsylvania Plaza, New York, New
York 10119. Requests for exclusion should include your
name and address. Requests for exclusion must be post-
marked on or before October 1, 1998.
What happens if I exclude myself from the Class?
If you exclude yourself from the Class, you will not be
bound by any judgment, favorable or unfavorable,
entered in this litigation, and if the result is favorable to
the Class, you will not be entitled to share in the bene-
fits conferred upon the Class.
Is there anything else I should do in response to
this Notice?
If you wish to, you may contact Class Counsel with
any information that you believe will be helpful in
reaching a successful conclusion for the Class. We ask
that you inform Class Counsel of any change in your
address to insure that additional notices in this action
will be received by you.
Do I have to hire my own attorney?
No. Class Counsel will represent your interest if you
remain a member of the Class. However, you may, but
you are not required to, enter an appearance through
counsel of your choice at your own expense.
98a
Do I have to pay attorneys’ fees?
You are only responsible for attorneys’ fees if you
choose to retain your own attorney to represent your
interests in this action. If you are represented by Class
Counsel, you are not required to pay any attorneys’ fees
out-of-pocket. At the conclusion of the action, in the
event of an award of monetary damages, Class Counsel
will apply to the Court for payment of reasonable legal
fees and reimbursement of expenses out of any recovery
achieved. Notice of any request for an award of attor-
neys’ fees and reimbursement of expenses will be sent to
Class members and there will be an opportunity for
Class Members to object to any fee request. In the event
that the action is unsuccessful, you will not be respon-
sible for the payment of any legal fees or expenses.
Where can I get additional information about this
lawsuit?
|
IF YOU HAVE ADDITIONAL QUESTIONS, PLEASE |
WRITE OR TELEPHONE: |
Sanford P. Dumain, Esq.
Regina L. LaPolla, Esq.
Milberg Weiss Bershad Hynes & Lerach LLP
One Pennsylvania Plaza
New York, New York 10119
(212) 594-5300
All legal filings in this action (other than those that
have been sealed to protect confidentiality) may be
examined and copied at any time during regular business
hours at the office of the Clerk of the Court, United
States District Court, Southern District of New York,
500 Pearl Street, New York, New York 10007. PLEASE
—
ei aii a cr erences ner raarcanicenay
99a
DO NOT CALL OR WRITE TO THE JUDGE OR
THE CLERK OF THE COURT CONCERNING
THIS ACTION.
Dated: May 29, 1998 By Order of the United States
District Court for the
Southern District of New York
100a
UNITED STATES DISTRICT COURT
DISTRICT OF COLUMBIA
Case No. 1:03CV01524 (JR)
THE SOCIETY OF LLOYD'S,
Plaintiff,
GILLIAN MARY SIEMON-NETTO and UWE SIEMON-
NETTO, 1444 Rhode Island Avenue, N.W., Apt. 112,
Washington, D.C. 20005,
Defendants.
AMENDED ANSWER, COUNTERCLAIMS
AND CLASS ACTION COUNTERCLAIMS
(WITH A JURY DEMAND)
Defendants and counter
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