Opposition Brief — International Precious Metals Corp. v. Waters
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Supreme Court, U.S.
FILED
? APR 2 4 2000
No. 99-1560
; CLERK
IN THE
Supreme Court of the United States
INTERNATIONAL PRECIOUS METALS CORPORATION,
MULTIVEST, INC., JAMES GROSFELD, individually and
as Trustee of the JASON GROSFELD TRUST, MULTIVEST
REAL ESTATE, INC., S.S. MELBOURNE, INC.
and THE CYPRESS GROUP, INC.,
Petitioners,
v.
WILLIAM WATERS and LINDA BARTHOLOMEW,
individually and on behalf of all those similarly situated,
Respondents.
On PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT
RESPONDENTS’ BRIEF IN OPPOSITION
Saeed
- rose.
Eric G. LIPorF C. BRANDON WISOFF
RARING & LIPOFF Counsel of Record
3070 Bristol, Suite 650 NEIL A. GOTEINER
Costa Mesa, CA 92626-3072 FARELLA BRAUN & MARTEL LLP
(714) 429-2970 235 Montgomery Street
San Francisco, CA 94104
(415) 954-4400
Attorneys for Respondents
159213 @) Counsel Press LLC
(800) 274-3321 + (860) 359-6859
I
QUESTIONS PRESENTED
1. Whether the district court abused its discretion in
following Supreme Court and Eleventh Circuit precedent
permitting class counsel’s fee award to be based on the gross
amount of the settlement fund, where doing so resulted in a fee
award representing a multiplier of only 1.05 on class counsel’s
actual lodestar investment in this seven-year litigation; where
the district court found that defendants’ tactics had prolonged
the litigation and thereby helped reduce the number of claims
filed against the fund; where class counsel conferred a
substantial benefit on the class and would suffer a multimillion
dollar loss if defendants’ approach to fees were taken; where
no class member objected to the fee award; where defendants,
not class members, stand to receive 90% of the proposed
reduction in the fee; where defendants expressly stipulated they
had no objection to the fee award and advocated its
reasonableness to the district court prior to dismissal of the jury;
and where the district court conducted a thorough and
independent fee determination and found the fee to be fair and
reasonable?
2. Whether defendants should be permitted to appeal from
that portion of their settlement agreement in which they
expressly stipulated, in return for class counsel capping its fee
request, that they would not object to a fee award up to the
amount of the cap, where defendants expressly told the district
court that the fee award requested was “well within the range
of reasonable” and where defendants seek to keep all the benefits
of their settlement agreement while simultaneously rejecting
all its burdens? [Note: this question would. become relevant
only if the Court grants review of question No. 1, since the
Eleventh Circuit affirmed the district court’s fee award on the
merits without determining whether defendants should be
precluded from appealing their own settlement. ]
il
TABLE OF CONTENTS
Page
Questions Puaseneee 6.6 5 dsacnc neers 1
Table OF Comtemt .s.ccstctntuss Caner ete aees il
Table Of Cited Antiparities .. .. 66. ccc scenes: iV
Table Of AppemGieee:i:i:0:<25s50 44449 ere enous Vili
Statement Of Jurisdiction ..................... l
Statutes beweGvel ..ossdc ks cae eee l
Statement OF TRG QUOD: 6 sin cen vedere cue eeens 2
A. Introduction and Summary .............. 2
B. ‘The Sete 6 iiscs0ereeeevneaeas ee 8
C. Preliminary Approval of the Settlement and
Desmtosal OF Che BURY 3 << ah. 86.5555n0sncens 10
D. Defendants’ Breaches and the District
Court’s Fairness Hearings .............. 12
E. Defendamte’ AGU ios sac kdkscnveeusess 16
Reasons Why The Writ Should Be Denied ....... 17
1. The Propriety Of A Particular Fee Award Is
A Fact-Bound Decision, Determined On A
Case-By-Case Basis And Reviewed Only For
An Abuse OF Dascsetion. ... ic cc cusses. 17
il
Contents
Page
Il. There Is No Conflict Among The Circuit
Courts Regarding This Court’s Boeing
SEP PCCP CTE OTE TCU Le ae 22
III. This Case Presents No Important Issue Of
oe er rere err ere eee 26
IV. Given The Facts At Bar, This Is A Singularly
Inappropriate Case For Review. .........-. 28
SS SEPP CPOE ET EP ETT ETT TCL Le 30
iv
TABLE OF CITED AUTHORITIES
Page
Cases:
Association of Community Organizers for Reform
Now (ACORN) v. Edgar, 99 F.3d 261 (7th Cir.
ea re wr r er ery she TP i l
Boeing Co. v. Van Gemert, 444 U.S. 472 (1980) ..
C£R GEARS ESR ERE LEA Lee 22, 23, 24, 25, 26
Brooks v. Georgia State Bd. of Elections, 59 F.3d
pee. Le | rr er renee l
Camden I Condominium Ass'n, Inc. v. Dunkle,
946 F.26 768 (11th Cir. 1991) ............ 17, 18, 23
Cohen v. Merrill, Lynch, Pierce, Fenner & Smith,
Inc., 722 F. Supp. 24 (S.D.N.Y. 1989) ........ 27
Donovon vy. Penn Shipping Co., 429 U.S. 648 (1977)
Punk Mean A a ea ee eek a ete ee l
Evans v. Jeff D., 475 U.S. 717 (1986) ........... 28, 29
Hattaway v. McMillian, 903 F.2d 1440 (11th Cir.
i, TCT ORT PEE TOO eee het Ete l
In re Copley Pharmaceutical, Inc. ‘‘Albuterol”’ Prod.
Liab. Litig., 1 F. Supp.2d 1407 (D. Wyo. 1998)
Cited Authorities
Page
In re Crazy Eddie Secs. Litig., 824 F. Supp. 320
(Ath, © Oe). |) wwewerrerr er rs 18
ITT Rayonier, Inc. v. United States, 651 F.2d 343
(Sth Cie. PORE) occ cade cu wesnaeenned senses !
Lake Coal Co. v. Roberts & Schaeffer Co., 474 U.S.
P20 (IOSD) 2... ck koe venseiyessi eee l
Malchman vy. Davis, 761 F.2d 893 (2d Cir. 1985). 29
Meghig v. KFC Western, Inc., 516 U.S. 479 (1996)
POOP oe rere re re ee 27
Nashville, Chattanooga & St. Louis Ry. Co. v. United
States, 113 U.S. 261 (1885) .........--.026.- ]
Prandini v. National Tea Co., 557 F.2d 1015
(36 Cis. 1977) 05 ccenvanasiwnatanuseeesans 29
Shores v. Sklar, 885 F.2d 760 (11th Cir. 1989) ... 1
Six Mexican Workers v. Arizona Citrus Growers,
904 F.2d 1301 (9th Cir. 1990) ............--- 19, 25
Skelton v. General Motors Corp., 860 F.2d 250
(7th Cie. 1968) o. .0 ckcndsnscacaeeaneeees 18, 23, 28
Sprague v. Ticonic Nat'l Bank, 307 U.S. 161 (1939)
VI
Cited Authorities
Page
Strong v. Bell South Telecomm., Inc., 137 F.3d 844
(Sih 4. BSE oc cd bee peace eee eee 25
Swift & Co. v. United States, 276 U.S. 311 (1928)
Ceees tes ab eee ae be ene eee |
Van Gemert v. Boeing Co., 553 F.2d 812 (2d Cir.
SOT T) cvuanscncaesss4aneee oe 18, 19
Van Gemert v. Boeing Co., 573 F.2d 733 (2d Cir.
1978), rev'd en banc, Van Gemert v. Boeing Co.,
590 F.2d 433 (2d Cir. 1978), aff'd, Boeing Co. v.
Van Gemert, 444 U.S. 472 (1980) ............24, 25
Van Gemert v. Boeing Co., 590 F.2d 433 (2d Cir.
1978), aff'd, 444 U.S. 472 (1980) ............24, 25
Van Gemert v. Boeing Co., 739 F.2d 730 (2d Cir.
ISS) once vvens desea bee 18, 24
Walsh v. Ford Motor Co., 945 F.2d 1188 (D.C. Cir.
IOP) .nciv cadences leeks eee l
Williams v. MGM-Pathe Communications Co.,
129 F.3d 1026 (9th Cir. 1997) ............24, 25, 28
vil
Cited Authorities
Page
Statutes:
Ril Vom & | |") peewee wre 26
eit foe) rere rre terre a 27
PUBC, 0 TD ca cvs coca cacense anes veget ses 27
15 U.S.C. § 77z-1(ay(O) 6. eet 2, 26, 27
Other Authorities:
2 H. Newberg and A. Conte, Newberg on Class
Actions (3d ed. 1992) 2.0.0... . eee ee eee 18, 19, 21
3 H. Newberg and A. Conte, Newberg on Class
Actions (3d ed. 1992) 2... . ee eee reer eneee 22
The Nature and Extent of Telemarketing Fraud and
Federal and State Law Enforcement Efforts to
Combat It: Hearings Before the Commerce,
Consumer and Monetary Affairs Subcommittee of
the Committee on Government Operations, House
of Representatives, 10\1st Congress, 2d Session,
July 11 and 12, 1990 ........-20--eeceeeeces 3
National Futures Ass'n Manual, Vol. 6, No. 2 (as of
January 1, 2000) at 4 9021, Compliance Rule 2-9
POO EPPO TT OEP Te Le a 2
vill
TABLE OF APPENDICES
Appendix A — Order Of The United States Court
Of Appeals For The Eleventh Circuit Denying
Motion Of Appellants For Stay Of Issuance Of
Mandate Pending Petition For Writ Of Certiorari
Dated And Filed January 24, 2000 ...........
Appendix B — Excerpts From Volume 52 Of
Transcript Of Trial Proceedings Of The United
States District Court For The Southern District
Of Florida Dated January 27,1997 ...........
Appendix C — Volume 55 Of Transcript Of Trial
Proceedings Of The United States District Court
For The Southern District Of Florida Dated
I ag BOE ek eke a en Ee bk
Appendix D — Excerpts From Transcript Of
Fairness Hearing Of The United States District
Court For The Southern District Of Florida Dated
| 8, ree eee ere ren reer ear ere ee
Appendix E — Excerpts From Transcript Of Status
Conference Of The United States District Court
For The Southern District Of Florida Dated April
ey NOPE Ste ree co baa ean ORs eee ae
Page
la
2a
8a
ix
Appendices
Appendix F — Sealed Amended Findings Of Fact,
Conclusions Of Law And Order Of The United
States District Court For The Southern District
Of Florida Denying Preliminary Injunction Under
Fraudulent Transfer Claim Dated July 10, 1995,
Nunc Pro Tunc For February 21,1995 .......-.
Appendix G —- Declaration Of Stephen Senderowitz
Regarding Application For Final Approval Of
Class Counsel’s Attorney’s Fees And Costs Dated
February 20, 1997 .........-e eee eee eeeee
Appendix H — Declaration Of Neil A. Goteiner In
Response To The April 24, 1997 Declarations Of
Martin Kaminsky And Paul Dodyk Dated May 5,
1997 And Filed May 6, 1997 .........---++--
Appendix I — Declaration Of John L. Cooper In
Response To April 24, 1997 Declaration Of Paul
M. Dodyk Dated May 5, 1997 And Filed May 6,
| OT ENE Pere er Te eT TTT ero
Appendix J — Administrative Order Of The United
States District Court For The Southern District
Of Florida Closing Case Dated And Filed May 8,
NE a acne Meade AAR CARN ee ARSED
Appendix K — Order Of The United States Court
Of Appeals For The Eleventh Circuit Re Motions
Dated And Filed November 4, 1998 ..........
Page
10Sa
126a
14la
156a
Xx
Appendices
Appendix L — Brief Amicus Curiae Of The
American Association Of Retired Persons In
Support Of Appellees Dated November 4, 1998
Appendix M — Brief For Plaintiffs-Appellees Dated
October 20, 1998, Corrected November 2, 1998
oS O'S. 2 ASS S O-4O oR eA OE OOS O44 EA SO 6 E- B'S BOS OO 6 6S ESS
Appendix N — Motion Of Plaintiffs-Appellees For
Leave To File Supplemental Brief To Address
One Mistatement In Defendants-Appellants’
Reply Brief Dated November 30, 1998 ........
Appendix O — Order Of The United States Court
Of Appeals For The Eleventh Circuit Denying
Appellees’ Motion To File A Supplemental Brief
Dated And Filed December 22, 1998 .........
Appendix P — Order Of The United States Court
Of Appeals For The Eleventh Circuit Denying
Petition For Writ Of Mandamus Dated And Filed
Pe een re er
Appendix Q — Excerpt From The National Futures
Association Manual, Volume Six, Number Two
poe fg ee er ara
Page
168a
200a
294a
303a
304a
— a Ta ee ee ee
l
RESPONSE TO PETITION FOR WRIT OF
CERTIORARI
Respondents and plaintiffs below (hereinafter “plaintiffs”’)
respectfully request that the Court deny the petition for writ of
certiorari filed on behalf of petitioners and defendants below
(hereinafter “‘defendants’’).
STATEMENT OF JURISDICTION
Although the Eleventh Circuit affirmed the district court’s
fee award on the merits, neither the Eleventh Circuit nor this
Court has jurisdiction to hear this appeal by defendants from
their own stipulation of settlement. Settlement of an action
renders the cause moot. Lake Coal Co. v. Roberts & Schaeffer
Co., 474 U.S. 120 (1985); [TT Rayonier, Inc. v. United States,
651 F.2d 343, 345 (Sth Cir. 1981). “[MJootness is a threshold
jurisdictional inquiry.” Brooks v. Georgia State Bd. of Elections,
59 F.3d 1114, 1121 (11th Cir. 1995). Thus, an appeal of a case
which has been settled must be dismissed without consideration
of the merits. Swift & Co. v. United States, 276 U.S. 311, 324
(1928), quoting, Nashville, Chattanooga & St. Louis Ry. Co. v.
United States, 113 U.S. 261, 266 (1885) (“ ‘a decree, which
appears by the record to have rendered by consent, is always
affirmed, without considering the merits of the cause’ ”’). Where,
as here, a party stipulates to a comprehensive settlement, without
explicitly preserving a right to appeal a particular issue, there is
no right of appeal. See, e.g., Association of Community
Organizers for Reform Now (“ACORN”) v. Edgar, 99 F.3d 261,
262 (7th Cir. 1996); Walsh v. Ford Motor Co., 945 F.2d 1188,
1192 (D.C. Cir. 1991) (Ginsberg, J.); Shores v. Sklar, 885 F.2d
760, 762 (11th Cir. 1989). A party cannot stipulate to a judgment,
even under protest, and preserve the right of appeal. Donovon
v. Penn Shipping Co., 429 U.S. 648, 650 (1977); Hattaway v.
McMillian, 903 F.2d 1440, 1451 (11th Cir. 1990).
STATUTES INVOLVED
The issues raised by the petition implicate neither any
federal statute nor statutory policies. As noted in the Eleventh
Circuit opinion below, The Private Securities Litigation Reform
,
Act of 1995 (“PSLRA”) is inapplicable to this case which was
brought under the Commodity Exchange Act (“CEA”), involved
no securities and was filed long before enactment of the PSLRA.
STATEMENT OF THE CASE
A. Introduction and Summary
This class action arose from the fraudulent sales activities
of a South Florida telemarketing boiler room called Multi Vest
Options, Inc. (“MOT”). MOI, and its parent, Internationa!
Precious Metals Corporation (“IPMC”’), had a long-standing
history of serious problems with regulatory authorities,
including the Commodity Futures Trading Commission
(“CFTC”), the governmental agency charged with regulating
commodity sales, and the National Futures Association
(“NFA”), the industry’s self-regulatory body that works in
conjunction with the CFTC. In January 1990, the CFTC sued
MOI for company-wide, management supervised fraud in the
sale of Exchange — Traded Options (“ETOs’), causing the
company to stipulate to a permanent injunction and to go out of
business. (RA at | 10a-1 1 la, 225a-226a)' NFA rules still require
any commodity firm employing former salespersons of MOI to
adopt “stringent supervision procedures . . . in order to ensure
that the improper training [these salespersons] have previously
received does not taint their sales efforts on behalf [of their
firm].” National Futures Ass'n Manual, Vol. 6, No. 2 (as of
January 1, 2000) at ¢ 9021, Compliance Rule 2-9, Supervision
of Telemarketing Activity. (RA at Q)
James Grosfeld, through a holding company called
MultiVest, Inc. (““MVI") owned and controlled 100% of both
IPMC and MOI. Numerous documents found in Grosfeld’s files
document his awareness of, and participation in, the fraudulent
practices of his companies. (RA at 225a-233a) Upon filing of
the CFTC complaint, Grosfeld fraudulently transferred millions
of dollars in assets of the holding company MVI to himself and
1. Citations to documents included in Petitioners’ Appendix are
cited as “PA at ___.” Citations to documents included in Respondents’
Appendix are cited as “RA at ___.”
3
his minor son without consideration. (/d. at 227a) As with most
boiler room operations closed by the CFTC, MOI was largely a
bankrupt shell having almost no assets to pay customer claims.
At the end of the day, MOI lost its customers over $120 million,
$100 million of which went to MOI as commissions.
(Id. at 236a-237a)’
This class action was commenced in April 1990 to recover
investor losses from Grosfeld. The very day plaintiffs filed their
complaint, Grosfeld began transferring over $30 million (later,
over $50 million) — without consideration — into a tenancy
by the entirety with his wife, an effort which the district court
found to be motivated by Grosfeld’s “actual intent” to defraud
the plaintiff class by leaving them with nothing more than a
“paper judgment.” (RA at 108a, 114a)
Defendants’ assertions that the district court improperly
certified a “churning” case, while irrelevant to this fee dispute,
are contrary to the record evidence. The problems at Grosfeld’s
companies were not due to a few salespersons “churning”
accounts; they were the result of a management-supervised
program of training salespersons to cheat customers.
(RA at 22a-36a) Indeed, a unanimous panel of the Eleventh
Circuit, after requesting a response from plaintiffs, denied
defendants’ earlier writ petition seeking to decertify the class
as being improperly based on a “churning” claim. (/d. at P)
Defendants’ assertions, that it is “without contradiction”
that plaintiffs precluded early resolution of the case by assuming
unreasonable settlement positions, are also belied by the record.
2. Telemarketing boiler room fraud — where small investors are
typically left with worthless claims against a defunct, bankrupt corporate
shell — is one of Congress’ concerns under the CEA. By the time the
CFTC finally shut down MOI, the problem had become so acute that
Congress convened hearings on the matter. The Nature and Extent of
Telemarketing Fraud and Federal and State Law Enforcement Efforts
to Combat It: Hearings Before the Commerce, Consumer and Monetary
Affairs Subcommittee of the Committee on Government Operations,
House of Representatives, 101st Congress, 2d Session, July 11 and 12,
1990.
4°
(RA at H, I) Indeed, the district court specifically found that it
was “Defendants [who] engaged in litigation tactics that
substantially prolonged the case.” (PA at S-6)
After seven years of contentious litigation, and on the eve of
closing arguments after a five-month jury trial, defendants and
plaintiffs agreed to settle. A $40 million fund was created to pay
the claims of class members, with unclaimed amounts reverting to
Grosfeld. Because attorneys’ fees are the single largest claim against
a class action settlkement fund, and because the lodestar
amounts for both sides were enormous given the length and
intensity of the litigation, Grosfeld wanted class counsel to cap
their fee request so as to give him more certainty regarding his
likely payout. Conversely, class counsel wanted the settlement to
end all disputes between the parties including Gsputes and
related appeals over the fee and expense award. The parties
expressly agreed, therefore, that class counsel would limit their fee
request to a third of the total fund plus expenses, and that in
return defendants would not object either “directly or indirectly”
to a request in that amount. (PA at G-36) Both sides advocated
approval of the settlement to the district court: defendants expressly
told the district court that the settlement, after deduction of the fee
and expense request, would provide an “exceptional” recovery to
the class and that a fee request of one-third of the gross settlement
fund would be “well within the range of reasonable.” (PA at A-10
n.9; PA at S-3 n.3 & S-4; RA at 44a, 50a-5 la)
After obtaining preliminary approval of the settlement and
dismissal of the jury, defendants began reneging on their
stipulations in order to create a larger reversion for Grosfeld.
First, defendants objected to plaintiffs’ request that the
settlement administrator use an outside service to update stale
addresses for class members who would be entitled to file
claims. Second, defendants objected to, and then appealed from,
the district court’s award of fees and expenses to class counsel.
Third, defendants sought to erect barriers to class members
receiving their shares of the settlement, leading to two separate
appeals currently pending in the Eleventh Circuit.
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In short, defendants engineered a premeditated breach of
their own settlement in order to derail an imminent jury verdict
and obtain the benefits of their settlement including their
negotiated cap on class counsel’s fees, the reversion they now
enjoy and dismissal of all claims. Their downside thus protected,
defendants now seek this Court’s assistance in rescinding their
agreement on fees so as to create a larger reversion for
themselves (90 cents of every dollar) and a multimillion loss
for class counsel. Both the district court and the Eleventh Circuit
rejected this unfair result, noting that the $13.3 million fee award
represented a modest multiplier of only 1.05 on class counsel's
actual lodestar investment in this case of over $12.6 million
(PA at A-13) — this, after class counsel assumed the enormous
risk of funding this matter through seven years of litigation, a
five-month jury trial, and now three years of fighting defendants’
frivolous appeals from their own settlement.
Against this background, defendants’ assertion that it is
plaintiffs’ counsel who have “manipulated” the settlement
process is transparently not credible, as both the district court
and the Eleventh Circuit determined. In its final order rejecting
defendants’ efforts, the district court found that defendants’
arguments were “frivolous,” that defense counsel’s testimony
regarding comparative fees in other cases was based entirely
on hearsay and was “not credible” and that defense counsel’s
statements concerning the unprecedented nature of the fee award
directly “conflict{ed]” with his earlier statements in seeking
the court’s approval of the settlement. (PA at S-1, 3 n.3, 4)
Similarly, a unanimous panel of the Eleventh Circuit found that
“defense counsel’s arguments about the ‘exorbitant and
unprecedented fee award,’ . . . are in conflict with their earlier
assertions to the district court” and that defense counsel's
claimed interest in protecting the class “strains credulity” given
that defendants are in reality seeking return to themselves of
approximately 90% of any reduction in class counsel’s fee.
(PA at A-10 n.9, 13)
6
Further undermining the credibility of defendants’ position
is the fact that the American Association of Retired Persons
(“AARP”), the largest consumer lobby group in the United
States, filed a brief in the Eleventh Circuit supporting plaintiffs’
fee award and rejecting each of defendants’ arguments as
undermining the economic incentives that would motivate class
counsel to bring these types of cases against the operators of
telemarketing boiler rooms. (RA at L) Indeed, if the Court
adopted the rigid rule advocated by defendants — that district
courts must always limit fees to a portion of the fund actually
claimed by class members — telemarketing firms could cheat
consumers without fear of civil liability so long as they stole
relatively small amounts from each customer so as to minimize
the likelihood of claims. That is precisely what Grosfeld did
here; he then engaged in time consuming scorched earth
litigation tactics. Only after class counsel had been forced to
spend millions of dollars and only on the eve of an adverse
verdict, did he agree to settle. No reasonable class counsel would
undertake this type of risk and expense if fees were wholly based
on the number of claimants who may come forward (years after
the fraudulent transactions in question) to claim their shares of
any settlement.
Despite resounding rejection of their position by the district
court, by the largest consumer lobby group, by a unanimous
panel of the Eleventh Circuit and by the failure of a single sitting
Eleventh Circuit judge to vote for rehearing en banc, defendants
continue their calculated charade in this Court where — yet
again — they grossly distort the factual and procedural history
of the case, make factual assertions nowhere supported in the
record, make arguments directly contrary to arguments made
below and cite to declarations stricken from the record by the
Eleventh Circuit as having been improperly filed for the first
time on appeal. It is defendants’ tactics, not this fee award, which
give lawyers and the legal profession a bad reputation.
Defendants urge this Court to accept unsupported and
internally contradictory assertions as bases for eliminating a
7
district court’s discretionary authority to consider all relevant
factors in making fee determinations. There is no reason for
this Court either to change the well-developed rules in this area
or to review the instant fact-bound individualized fee
determination. All precedents, including Supreme Court
precedents, teach that district courts have broad discretion in
setting an appropriate fee award and that courts are permitted
to base the award on the total benefit achieved for the class, not
just that portion of the benefit actually claimed by the class —
a factor over which class counsel has no control.
There is no conflict in the circuits over this issue.
Notwithstanding defendants’ repeated reference to “coupon”
settlements, this was not a “coupon” settlement; every class member
who filed a timely claim has received approximately 20% of his or
her out-of-pocket loss in cash and fully-secured, interest bearing
promissory notes, with the average recovery being $1,200 and with
some class members receiving in excess of $20,000. There is no
important issue of federal law for this Court to decide in this case;
the decision below was based on a long-standing and demonstrably
sound “abuse of discretion” standard. Where, as here, the fee award
barely covered class counsel’s actual lodestar invested in the case,
through seven years of litigation and five months of trial, there can
be no abuse of discretion. Nor is any federal statute implicated.
Defendants’ citation to the PSLRA is disingenuous as this case
involved no securities, but was brought under the Commodity
i Exchange Act (“CEA”), which has exclusive jurisdiction over the
regulation of ETOs. Eliminating telemarketing fraud has been one
of Congress’ primary concerns under the CEA.
Moreover, as noted by the Eleventh Circuit, it would be
singularly inappropriate for a court “to renegotiate on [defendants’ }
behalf the terms of an agreement concluded after arms-length
i negotiations.” (PA at A-17) Defendants’ continuing efforts to
increase the monetary reversion to a boiler room operator by
reneging on their agreements and disavowing representations they
made to the district court to obtain approval of the settlement —
all under the sanctimonious guise of championing the interests of
the very class members they defrauded — should not be rewarded.
B. The Settlement
At or about the time the trial began in September 1996,
defendants and plaintiffs discussed a settlement. It was during
these lengthy and ongoing discussions that defendants — not
plaintiffs — insisted on a reversionary settlement. (RA at 161a-
162a)
The settlement stipulation provided that Grosfeld would
create a settlement fund against which claims could be filed by
class members and from which the fees and expenses of
plaintiffs’ class counsel and the settlement administrator would
be paid. (PA at G-11, 12, 29-31) Of this amount 25% was to be
paid in cash. (/d. at G-12) The remaining 75% was to be paid in
the form of an interest-bearing master promissory note secured
by an irrevocable letter of credit from a prominent national bank.
Id. The settlement provided for a plan of allocation among class
members who timely filed claims with a third-party settlement
administrator in relation to each class member’s recognized loss
as a percentage of the settlement fund as a whole. (/d. at G-29)
Any amounts not claimed by class members or used to pay the
fees and expenses of counsel and the settlement administrator
were to revert to Grosfeld. (/d. at G-27, 28)
Defendants expressly agreed not to object to a fee of up to
one third of the gross settlement fund amount, plus expenses,
in return for plaintiffs’ agreement not to request a larger fee:
Plaintiffs’ Class Counsel of Record shall apply for
fees in an amount not to exceed 33-1/3% of the
Settlement Fund plus their costs and expenses. . . .
Defendants will not directly or indirectly oppose
Plaintiffs’ Class Counsel of Record’s application for
fees and expenses or compensation of the
Representative Plaintiffs.” (PA at G-36) (emphasis
added)
The stipulation also stated that it was a “final and complete
resolution of all disputes,” (Jd. at G-41), reached “voluntarily”
(/d.) and that defendants “shall not attack this Stipulation in the
settlement approval process.” (/d. at G-21).
BOPP Se SOBA APPA
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9
The parties also drafted and stipulated to a form of class
notice that expressly told class members that counsel would be
requesting a fee and expense award of one-third of the gross
settlement fund amount, plus expenses, that class members
would receive no more than 20% of their recognized losses if
the fee request were approved, that any unclaimed amounts
would be returned to defendants and that defendants would not
be objecting to the requested fee. (PA at H-8, 16, 17, 1-2)°
3. Defendants’ accusations that the co-drafted class notice was
misleading rests on the absurd notion that the notice should have
anticipated the number of claims that would be filed and then compare
the value of those claims to the fee request. Defendants argued in the
Eleventh Circuit that plaintiffs’ counsel had prior notice of a letter from
the settlement administrator estimating a claims rate. Plaintiffs’ counsel
demonstrated below that this accusation was false and that the letter to
which defense counsel referred was a letter that only defense counsel
had received in ex parte communications with the settlement
administrator. Indeed, plaintiffs demonstrated that it was defense counsel
who withheld that letter from both plaintiffs’ counsel and the district
court until after obtaining preliminary approval of the settlement and
dismissal of the jury. When confronted with these facts by the district
court, defense counsel had to admit on the record that the letter had
been sent solely to him prior to finalization of the settlement.
(RA at 247a). Defendants similarly argued below that plaintiffs’ counsel
knew from the experience of claims filed in MOI’s CFTC receivership
proceedings that few class members would file claims against the
settlement fund. Plaintiffs’ counsel demonstrated below that this
assertion is also false. The CFTC receiver had few if any funds to
distribute and still received thousands of claims even though the
receivers’ notice cited statute of limitation defenses and strongly
discouraged claims from all customers others than those trading ETOs
during the last two years of MOI’s 5-year existence. (RA at 154a).
Here, by contrast, a $40 million fund was created and every class
member filing a claim was assured of receiving approximately 20% of
his or her out-of-pocket losses. With an average recovery of $1200,
there was every reason to believe class members would have incentive
to file claims. And, of course, defendants never told the district court
they believed few class members would file claims; they instead urged
approval of the Settlement as being fair and reasonable to the class.
| '
10
The parties also drafted a proposed claim form that class
members would use to submit claims against the settlement fund. |
In these negotiations, plaintiffs demanded and received a provision
which prohibited the settlement administrator from rejecting any
incomplete or inaccurate claim so long as the claim form could be
corrected by the settlement administrator with information available
from plaintiffs’ counsel or MOI’s records. (PA at G-33, 34)*
Additionally, plaintiffs demanded and obtained a provision
establishing a toll-free line to the settlement administrator so that
class members could call the settkement administrator for
instructions on how to complete the claim form. (RA at 20a)
Although the parties successfully negotiated a complete :
set of settlement documents, they had difficulty agreeing upon ;
an amount for the settlement fund. On the eve of closing
arguments defendants finally offered to fund the settlement with
$40 million. Defendants’ prior offers had been below that
amount by in excess of $10 million. (RA at 152a)
C. Preliminary Approval of the Settlement and Dismissal
of the Jury
When the district court learned of the settlement, it
specifically asked whether the amount of attorneys’ fees that
would be requested had been “worked out” by the parties.
(RA at 5a-6a) The district court was told that the parties had
agreed that plaintiffs’ counsel could — without objection —
request a fee amount of up to 33-1/3% of the $40 million
settlement fund plus costs. (/d.)
For several days, the district court conducted a series of
hearings and conferences to review the details of the settlement.
While some of these conferences took place in chambers off
4. In fact, one of the related appeals that defendants are currently
pressing in the Eleventh Circuit challenges the district court’s order
instructing the settlement administrator to allow those claims of class
members who filed incomplete claim forms capable of correction. This
is all part of defendants’ overarching strategy to renege on every part of
their settlement agreement requiring payments to class members and
class counsel.
1]
the record or by telephone, the court later recited on the record
various statements which defendants now deny making,
although defendants did not dispute them at the time they were
put on the record. At no time during these discussions did
defendants indicate they believed only a small portion of the
class would file claims or that any part of the settlement
agreement, notice or claim form was misleading or unfair.
Defendants did not then tell the court they were forced into a
“clear-sailing” agreement. To the contrary, defendants’
settlement counsel vociferously argued that even after deduction
of the proposed fee the settlement would produce “an
exceptional benefit to the class members.” (PA at A-10 n.9:
RA at 44a) Indeed, the Parties jointly presented the district court
with a study done by the National Economic Research
Association (“NERA”) as Supporting the fairness of the
settlement and reasonableness of the fee request. (PA at A-8
n.7; S-3-4 & n.3) Defendants’ counsel, when asked about the
fee, assured the district court that “a fee of one-third the gross
amount of the settlement fund would be well within the range
of reasonable.” (PA at A-8 n.7, 10n.9; RA at 50a-5 1a)
After several days of exhaustive review, discussion and
modification of the settlement, the district court held a hearing
in Open court, at which time plaintiffs’ settlement counsel, set
forth the basic terms of the settlement and summarized some of
the in-chambers discussions. When the district court asked
defendants if they had anything to add, defense counsel affirmed
that Plaintiffs’ counsel had correctly outlined the settlement and
that he had nothing further to add. (RA at 22a)
The district court then entered the stipulated preliminary
approval order and told the parties it was dismissing the jury.
(/d. at 36a-38a) That order again expressly states that defendants
are not objecting to the fee and expense request. (PA at B-8)
12
D. Defendants’ Breaches and the District Court’s Fairness
Hearings
Having locked class counsel into their negotiated fee cap
through entry of the preliminary approval order and dismissal
of the jury, defendants then began to undermine and renege on
their agreements. First, they attempted to minimize the number
of claims filed by class members by objecting to the settlement
administrator’s use of an address locator service — requiring
the district court’s intervention. (RA at 246a-247a) Then,
defendants urged the district court to wait to see how many
claims were actually filed against the settlement fund and only
award plaintiffs’ class counsel a percentage of the amount
actually claimed, as opposed to a third of the fund created as
they had stipulated. (/d.)
Out of aclass of approximately 20,000 individuals, the court
received only one objection to the settlement. (PA at A-10 n.9;
RA at 249a) That objector told the district court she did not
object to class counsel’s fee and expense request. (/d.)
Furthermore, no class member intervened or appealed the district
court’s final approval order.
At the March 31, 1997 fairness hearing, the district court
reviewed the history of the case, including the in-chambers,
off-the-record discussions, noting that even defendants had
agreed that the settlement, after deduction of fees and costs,
would “produce an exceptional benefit to the class members.”
(RA at 44a) The district court went on to note that defendants
had — prior to the jury’s dismissal — expressly supported the
reasonableness of the fee:
“Now, I do want to note that the settlement’s
stipulation that the — excuse me, that the fee request
of one-third of the settlement fund is the maximum
amount of fees that the parties agreed — the parties,
that’s both sides — agreed could be sought pursuant
to the settlement stipulation that the Court approved
at the end of January, after being assured by both
sides that a fee of one-third of the gross amount of
2 eel
13
the settlement fund would be well within the range
of reasonable.” (Id. at 50a-5la (emphasis added))
Defendants’ counsel took no issue whatsoever with the
district court’s summary of what they had previously said during
the in-chambers, off-the-record preliminary approval
discussions. In fact, moments later when asked whether
defendants wanted to comment on any of the matters being
covered, defendants’ counsel said they had only one comment
concerning the request of the lone objector for an extension of
time in which class members could make Claims. (Id. at 60a)
Defendants’ assertions that the district court never made
such a statement until two months later in its May 8, 1997 order,
and that the court fabricated its statements in that order are
deplorable falsehoods rejected by the Eleventh Circuit.5
5. Defendants tell this Court that the district court was “mistaken”
in its attribution of these statements to defendants’ counsel. Petition at
29. By contrast, defendants told the Eleventh Circuit that the district
court had “purposefully” erred in making these statements. (PA at U-3)
In any event, the district court did not merely put these statements in its
May 8, 1997 order; as noted above, it put them on the record — without
objection from defendants — at the March 31, 1997 fairness hearing.
In the fall of 1998 when the case was on appeal, defendants’ counsel
submitted the three declarations which they now cite to in which they
claim they never made these statements. (PA at T-11-20) The Eleventh
Circuit struck those declarations from the record as being an improper
attempt to introduce evidence for the first time on appéal. (PA at V)
Defendants nevertheless refer this Court to those declarations without
noting that those declarations were filed only as part of their appeal.
Petition at 29 n.32. When confronted with their failure to object to the
district court’s statements at the March 31, 1997 fairness hearing,
defendants told the Eleventh Circuit that they had, in fact, objected to
those statements in connection with their April 21, 1997 motion to alter
or amend the judgment. (PA at X-26) Defendants, however, misleadingly
cited the Eleventh Circuit not to the declaration filed on Apmil 24 (which,
in fact, said nothing about the district court’s March 31] statements)
(PA at O), but to declarations which they filed with the district court
only after the district court entered and faxed its May 8, 1997 order
(Cont'd)
14
The district court noted that defendants sought to back out
of their obligations under the agreement, while obtaining all
the benefits and imposing a multimillion dollar loss on class
counsel. (RA at 9la-92a) Contrary to defendants’ assertion that
the district court was misled, the court expressly understood
that a significant portion of the settlement fund might not be
claimed. (/d. at 99a) (The Eleventh Circuit flatly rejected this
linchpin of defendants’ entire argument. (PA at A-7-8 & n.7))
The district court also noted that even fewer class members
would have been able to claim but for plaintiffs’ counsel’s efforts
to obtain an order requiring the settlement administrator to use
a locator service to resend claims packets to persons whose
addresses had been stale. (RA at 96a-101a)
The district court addressed each of defendants’ objections
and methodically went through the relevant fee determination
factors, noting that most resulted in an upward adjustment of
the norma! fee benchmark. (PA at A-6-7; RA at 96a-101a)
The district court had before it not only the NERA study of
nationwide fee awards, but the declaration of an expert in
complex commodities litigation. (RA at G) The declaration
noted the difficult groundbreaking nature of this class action
suit against the upstream operators of a defunct commodity
telemarketing firm and demonstrated how favorably the results
in this action compared to other private commodities litigations
and CFTC restitution programs. (/d.) The district court awarded
plaintiffs’ counsel a fee award of one-third of the $40 million
settlement fund or $13.3 million, with $5 million of this amount
to be payable in cash and the remainder to be payable as a
deferred obligation.
(Cont'd)
and officially closed the case file. (PA at P, Q, R; RA at J, N) In short,
defendants never disputed the district court’s March 31, 1997 statements
until after the case was closed in May, and the Eleventh Circuit agreed
that defendants’ representations on appeal are “in conflict with their
earlier assertions to the district court.” (PA at A-10 n.9).
15
On April 25, 1997, the district court held a hearing to resolve
plaintiffs’ counsel’s expense requests. Three days before that
hearing, and long after the March 17, 1997 stipulated deadline
for filing objections had expired, defendants filed a motion
requesting the district court to alter or amend its prior fee award.
(PA at L) Notwithstanding that defendants and plaintiffs had
jointly provided the district court with the NERA study when
asking the court to approve the settlement, defendants now attacked
the district court’s reliance on that study, claiming to have done a
telephone survey of unidentified counsel supposedly involved in
the cases included in that study, and concluding from their own
“hearsay” survey that the fee and expense award was “excessive.”
(PA at M, O-7) At the end of this hearing, the district court again
expressed displeasure that defendants were now taking positions
contrary to those taken in chambers: “the NERA study was offered
by both sides . . . as authoritative; . . . it was represented to me that
the fee award sought was well within the range of common practice
in these types of cases... .” (emphasis added) (RA at 104a)
Again, defendants did not dispute they had made these statements
in seeking the court’s preliminary approval of the settlement.
In its May 8, 1997 final order denying defendants’
motion to alter or amend the fee award, the court found that
the motion was “frivolous.” (PA at S-1) The court also noted
that defendants’ evidence in support of the motion (namely
their continuing unsupported claim that the award is 400%
greater, relative to class distributions, than any prior case)
was based entirely on hearsay, that it was inconsistent with
defendants’ counsel’s prior representations, and that it was
defendants’ counsel who previously had advocated the NERA
Study as supporting the proposed fee: “in those discussions,
counsel for both sides assured the Court that their experience
and the findings contained in the NERA Study would support
an attorneys’ fee award in [the amount of $13,333,333].”
(Id. at S-3 & n.3, 4) The district court even noted that it had
personally telephoned the author of the NERA study who
contradicted the representations that defense counsel
16
was making about the information contained in the report.
(Id. at S-4, 5) The district court therefore rejected defense
counsel’s testimony as being “not credible.” (/d. at S-4)°
The district court also noted that a fee award based solely
on the number of claims actually received would reward
defendants for having unnecessarily prolonged the litigation
knowing that the claim rate decreases with the passage of time.
(Id. at S-6) The district court also noted that it would be “highly
inequitable” under the circumstances of this lengthy and
expensive case to adopt defendants’ position. The court noted
that its analysis at the March 31, 1997 fairness hearing required
an upward adjustment to the fee benchmark. (/d. at S-6-7)
E. Defendants’ Appeal
Defendants then appealed from their settlement agreement,
claiming that they had been “coerced” into their agreements by
overreaching class counsel and a “contumacious” district court.
Recognizing that the record undermined their arguments,
defendants attempted to create a new record on appeal first by
filing declarations in the district court after the case was closed
(PA at P, Q, R) and then by submitting declarations in the
Eleventh Circuit purporting to take back the statements which
they had made to the district court in seeking preliminary
settlement approval and which the district court had then put
on the record without objection. (PA at T-11-20) The Eleventh
Circuit ordered the declarations filed for the first time on appeal
stricken from the record and ordered defendants to submit a
new brief deleting those references. (/d. at V) Defendants again
made reference to the declarations in their revised brief and
6. Defendants now — for the first time — complain that the district
court made ex parte contact with the author of the NERA study.
Defendants’ complaint is disingenuous given that defendants’ counsel,
who submitted the declaration regarding the settlements in the NERA
study, failed to show up at the hearing for questioning or cross-
examination. This incident only highlights that the district court
vigorously exercised its duty to conduct an independent investigation
of the reasonabieness of the fee request.
17
again the Eleventh Circuit ordered their brief stricken.
(RA at K) A unanimous panel of the Eleventh Circuit affirmed
the district court’s fee award. (PA at A) When defendants
requested a rehearing, with a suggestion of rehearing en banc,
not one judge of the Eleventh Circuit voted to hear the case.
(Id. at F) The Eleventh Circuit also denied defendants’ request
for a stay of mandate pending their petition to this Court for a
writ of certiorari. (RA at A)
REASONS WHY THE WRIT SHOULD BE DENIED
I. The Propriety Of A Particular Fee Award Is A Fact-
Bound Decision, Determined On A Case-By-Case Basis
And Reviewed Only For An Abuse Of Discretion.
The Court would be ill advised to adopt the rigid, formulaic
Standard which defendants propose should govern fee awards.
It is Hornbook law that district courts have “broad discretion”
in determining an appropriate fee award ona case-by-case basis.
“[I]ndividualization in the exercise of a discretionary power [for
fee awards] will alone retain equity as a living system and save
it from sterility.” Sprague v. Ticonic Nat’l Bank, 307 U.S. 161,
167 (1939); Camden I Condominium Ass ’n, Inc. v. Dunkle, 946
F.2d 768, 774 (11th Cir. 1991).
Defendants’ latest theme — raised for the first time in their
petition to this Court — is that “reversionary” settlements are
part of a “scandalous” “scheme plaguing the federal courts” for
the purpose of “enriching” class counsel. Petition at 3, 26, 28.
By contrast, defendants argued to the Eleventh Circuit that
reversionary settlements are “very rare.” (PA at W-30) Both here
and in the Eleventh Circuit, defendants have argued that class
counsel manipulated the settlement in order to generate an
“exorbitant” fee at the class’ expense. But in the district court,
of course, defendants urged approval of the settlement as being
fair and reasonable to the class.
Defendants’ ever-changing situational arguments have one
thing in common: they are all totally lacking in any evidence
suggesting collusion, manipulation or other unfair practices
designed to harm the interests of class members. Both the district
18
court and the Eleventh Circuit concluded that the settlement
was the result of vigorous arms-length negotiations. (PA at A-5
n. 4, 17) Similarly, the AARP, as spokesperson for millions of
older American consumers, is not in the habit of filing amicus
briefs supporting fee awards to class counsel who have engaged
in “schemes” to enrich themselves at the expense of their
consumer Clients.
There is absolutely no basis to conclude that reversionary
settlements are part of a “scheme” or are generally unfair. As noted
by Professor Newberg, reversionary settlements are one of several
commonly accepted methods for dealing with unclaimed funds.
2 H. Newberg and A. Conte, Newberg on Class Actions (3d ed.
1992) (hereinafter “Newberg’’) § 10.15 at 10-38, § 10.17 at 10-40
& n.124 (collecting cases). Indeed, many of the leading cases
discussing class action fee awards involved reversionary
settlements. Camden, 946 F.2d at 771 n.2; Skelton v. General Motors
Corp., 860 F.2d 250, 254 n.1 (7th Cir. 1988); In re Crazy Eddie
Secs. Litig., 824 F. Supp. 320, 323, 326 (E.D.N.Y. 1993)
(reversionary settlement where the court awarded $14.2 million in
fees representing 33.8% of the gross amount of the $42 million
settlement fund, plus $2 million in expenses, in a case where
there was no trial). There is authority that even where the
defendant’s liability to the class has been proven, any unclaimed
portion of the judgment amount should revert to the defendant
and should not be distributed pro rata to class members who
did file claims. See, e.g., Van Gemert v. Boeing Co., 739 F.2d
730, 736-37 (2d Cir. 1984); Van Gemert v. Boeing Co., 553 F.2d
812, 815-816 (2d Cir. 1977); see also 2 Newberg § 10.20 at 10-52.
These cases reason that the equitable interest in the unclaimed
funds belongs to the class members who have not claimed,
and that class members who have claimed are no more entitled
to those funds than is the defendant.
Indeed, defendants’ underlying assumption — that all funds
are automatically distributed to class members in the absence
of a reversionary settlement — is plain wrong. “Most class
actions result in some unclaimed funds,” the disposition of which
19
is left in the district court’s discretion. See, e.g., Six Mexican
Workers v. Arizona Citrus Growers, 904 F.2d 1301, 1307
(9th Cir. 1990) (discussing the various alternatives used by courts
for distributing such funds). Some courts permit the shares of
non-claiming class members to be distributed pro rata to class
members who have claimed their shares. Jd. at 1307 n.4. Other
courts, however, find there is no just reason to give claiming
class members a windfall by allowing them to capture the shares
of nonclaiming members as well. See Van Gemert, 553 F.2d at
815 (rejecting this approach as an improper “fluid class”
recovery). Courts have reached various solutions — including
cy pres distribution to a next best class, reversion of unclaimed
balances to the defendant and escheatment of unclaimed
balances to the government. Six Mexican Workers, 904 F.2d at
1307-08. See also 2 Newberg §§ 10.15, 10.16, 10.17, 10.19,
10.20.
In other words, district courts are often called upon to
exercise their equitable discretion in allocating unclaimed
balances. Class counsel are never penalized by having to return
a portion of their fee award when unclaimed balances remain at
the end of the claims process and the district court determines
that those funds should revert to the defendant, escheat to the
government or be distributed under the cy pres doctrine. There
is no reason why a different result should obtain here, where
the district court at the time of final settlement approval made a
determination that it would be fair, in the context of this
settlement, for unclaimed balances to revert to the defendant.
Moreover, defendants’ credibility is undermined by the very
affidavit on which they rely to argue that the fee award at bar
was 400% greater than the highest fee award ever made in the
Eleventh Circuit. Defendants’ counsel submitted an affidavit in
the district court representing that defense counsel had made
an ex parte telephone survey of the various lawyers involved in
the twenty-nine settlements from the Eleventh Circuit contained
in the NERA study. (PA at M) Counsel claimed that although
thirteen (i.e., 45%) of those twenty-nine settlements were
20)
“reversionary,’ no unclaimed funds were left in any of those
reversionary settlements. Defendants’ counsel concluded,
therefore, that the NERA study was, in fact, based on actual
distributions, rather than the size of the fund created. But if —
as defendants claim in their petition — class counsel knew, or
should have known, that only a small percentage of the class
would file claims, how is it that there were no unclaimed funds
in any of the thirteen reversionary settlements contained in the
NERA study? Either defendants are wrong about the claims
history of the settlements in the NERA study or they are wrong
in their assertion that only a small fraction of class members
typically file claims. The district court rejected defense counsel’s
affidavit as being “not credible.” (PA at S-4) We know, because
the district court personally called the author of the NERA study,
that the fee awards in those twenty-nine cases were based on
the entire settlement fund created, without regard to whether
the amounts were actually later distributed. Indeed, most fee
awards occur at the time of final settlement approval, whereas
the claims process often goes on for months or even years later.
Thus, it would be unusual for a district court to know the final
results of the claims process at the time fees are awarded.
Defendants’ efforts to “chart” the disparate fee awards they
claim result from reversionary as compared to pro rata
settlements further demonstrates the absurdity of the rigid,
formulaic rule they would have this Court adopt. It is not true
that class counsel who creates a $40 million reversionary
settlement fund will always receive the same fee as class counsel
who creates a $40 million pro rata settlement fund. Where, as
here, class counsel litigated a difficult and contentious case
through seven years of litigation and a five ath jury trial,
incurring an actual lodestar of over $12.6 mill. vn, a $13.3 million
fee award (representing one-third of the $40 million settlement
fund, which in turn represents one-third of the actual out-of-
pocket losses of $120 million) was entirely reasonable. Every
class member who submits a claim is entitled under this
settlement, after deduction of fees and expenses, to receive 20%
” ere
21
of his or her out-of-pocket losses.’ On the other hand, class
counsel who obtains a $40 million pro rata settlement (based
on out-of-pocket losses of $700 million) after only a few months
discovery and little invested in the case, would be entitled to a
much smaller fee. In other words, whether the settlement is
reversionary or pro rata is only one of many factors that the
district court, and a reviewing court, must take into consideration
in setting an appropriate fee award under all the circumstances
of the particular case.
In this case, the average pay-out to class members filing a
claim ($1,200) seemed sufficiently large to prowide filing
incentive. Indeed, it was a far larger average recovery than
individuals typically receive in a class action. (RA at 136a, 154a)
As Professor Newberg has noted, this factor typically results in
a higher than average claim rate. See 2 Newberg § 11.18 at 11-
24. Defendants — while downplaying the benefit created by
class counsel — have admitted that class members typically
receive only “2% to 10%” of their out-of-pocket losses from
class settlements, even where the settlement agreement provides
‘for a pro rata distribution. (PA at W-37). Here, by contrast,
every class member who filed a claim has received
approximately 20% of his or her out-of-pocket loss from this
reversionary settlement. Individual class members do not care
about the total amount claimed by the class as a whole; they
care about the amount of their individual share. A recovery of
20% of out-of-pocket losses significantly exceeds the national
norm. Notwithstanding defendants’ repeated references and
citations to “coupon” settlements, this settlement was not a
“coupon” settlement; class members received cash and fully-
secured, interest-bearing promissory notes, with some class
members receiving in excess of $20,000 and numerous others
receiving several thousands of dollars. Furthermore, provisions
providing a formula for the distribution of the net settlement
fund, after the payment of counsel fees and expenses, according
to class members’ recognized losses, as well as the filing of
7. Defendants admit this fact. (PA at Q-3, 8)
22
proofs of claim, are standard and accepted procedures in aclass
action settlement. 3 Newberg § 12.35 at 12-90.
II. There Is No Conflict Among The Circuit Courts
Regarding This Court’s Boeing Decision.
Struggling to create some issue worthy of this Court’s
review, defendants wrongly tell the Court that there is a split
among the circuits on how to apply this Court’s decision in
Boeing Co. v. Van Gemert, 444 U.S. 472 (1980). Each circuit
gives district courts broad discretion in determining fee awards
and reviews fee determinations under an “abuse of discretion”
standard. Whether a settlement is “reversionary” or “pro rata”
is only one of many factors that district courts are permitted to
consider in setting an appropriate fee.
In Boeing, this Court held that class counsel’s fee award
may be measured by the size of the common fund established
for the benefit of the class and not merely by the value of the
claims eventually asserted against the fund:
“(Class members’] right to share the harvest of the
lawsuit upon proof of their identity, whether or not
they exercise it, is a benefit in the fund created by
the efforts of the class representatives and their
counsel. Unless absentees contribute to the payment
of attorneys’ fees incurred on their behalves, they
will pay nothing for the creation of the fund and
their representatives may bear additional costs.”
Id. at 480 (emphasis added).
Moreover, the Court noted that the result is the same
notwithstanding that defendant may have a reversionary and
“latent” interest in the funds, if unclaimed. Jd. at 481-482. Once
the fund was established for the benefit of class members, all
class members held equitable interests in their respective shares
of the fund. Jd. In assessing fees, it was therefore proper for the
district court to look at the entirety of the fund created for the
benefit the class. See also 3 Newberg § 14.03 at 14-14.
a ——————————— A NN _
23
Defendants’ argument — that Boeing decided only
whether it would be impermissible “fee-shifting” to base
class counsel’s fee on the entirety of the fund, and not whether
fees must be based on the entirety of the settlement fund —
proves too much. Of course, Boeing does not say fees “must”
be based oi the entirety of the fund, but the Court Clearly
held that it was “permissible” to base fees on the entirety of
the fund. It is not impermissible “fee-shifting” to base a fee
award on the entire fund because class members, whether
they claim their shares or not, have “benefited” and hold an
equitable interest in the fund that has been created through
the efforts of class counsel.
Defendants’ reliance on footnote 5 of this Court’s Boeing
decision, to distinguish between the judgment fund in Boeing
and the settlement fund at bar, is misplaced. The defendants’
liability in Boeing (where they had to pay the judgment fund
into court subject to receiving a portion of it back in the
event it was not all claimed) is logically no different than
Grosfeld’s liability here (to pay the full settlement amount
to the settlement administrator with no right to return of any
funds unless and until class members fail to claim their
Shares). Indeed, almost ten years ago, the Eleventh Circuit
rejected this notion in the very decision in which it adopted
the “percentage of the fund” method for calculating fees in a
common fund case. Camden, 946 F.2d at 771 n.2. There, the
court flatly rejected as having “no merit” the argument that
basing counsel fees on the entirety of a reversionary
settlement fund would constitute impermissible “fee
shifting”: “The settlement clearly created a common fund
for the satisfaction of the County’s liabilities.” Jd.; accord
Skelton, 860 F.2d at 254 n.1 (rejecting the argument that
defendant’s right of reversion in a class settlement changed
the “common fund” analysis). Whether or not defendants
have a reversion, each class member has “an undisputed and
24
mathematically ascertainable claim” against the fund created
on his behalf. Boeing, 444 U.S. at 479.8
Moreover, defendants’ argument — concerning
overreaching counsel and disproportionate fee awards — is the
same misguided “public relations” argument which was initially
adopted by the lower court in Boeing and then rejected by an en
banc hearing of the court of appeal and later by this Court. See
Van Gemert v. Boeing Co., 573 F.2d 733, 735-36 (2d Cir. 1978)
(criticizing large fee awards and holding that only the claimed
portion of the fund could support a fee award), rev’d en banc,
Van Gemert v. Boeing Co., 590 F.2d 433 (2d Cir. 1978), aff'd,
Boeing Co. v. Van Gemert, 444 U.S. 472 (1980). The Second
Circuit en banc decision which this Court affirmed in Boeing
provides an even more detailed discussion of why defendants’
position is untenable. The en banc panel noted that a contrary
rule would unduly penalize either claiming class members or
class counsel. Van Gemert, 590 F.2d at 440-41. To award class
counsel a reasonable fee bearing some proportion to their effort,
courts would be forced to reduce disproportionately the share
of claiming class members in order to cover a fee that could be
taxed only against those claimants’ shares. /d. On the other hand,
protecting claiming class members by limiting class counsel to
a fixed percentage of the fund actually claimed would make the
resulting fee entirely dependent on the number of plaintiffs who
8. Indeed, the lack of impermissible “fee-shifting” is even more
obvious in the context of a settkement where the defendant agrees that
the fee may — without objection — be based on the entirety of the
settlement fund. There has never been any legal principle precluding
the assessment of fees against a defendant’s latent interest where, as
here, the defendant has agreed to that procedure. See, e.g., Williams v.
MGM.-Pathe Communications Co., 129 F.3d 1026, 1027 (9th Cir. 1997)
Defendants’ other assertion — that the Boeing Court made clear that
defendants’ liability was “not subject to a reversion” (Petition at 21) —
is obviously false. The Court expressly recognized this possibility,
444 U.S. at 477, 482, but expressed no opinion on the ultimate outcome.
Id. at 482 n.8. In fact, all unclaimed funds in Boeing did revert to the
defendant. Van Gemert, 739 F.2d at 733.
25
came forward — notwithstanding the difficulty of the case, the
quality of representation or the hours spent by class counsel.
Id. at 441. The panel also noted that because the number of
plaintiffs who will come forward to claim their shares is
unpredictable, class counsel would be discouraged from
pursuing class suits, regardless of the merits of the case.
Id. at 435, 441.
The decision of the Eleventh Circuit below is entirely
consistent with Boeing. It held that class counsel’s fee award
may be, but need not be, based on the entirety of the settlement
fund created for the benefit of the class. The court noted that
district courts must look at the entire panoply of factors relevant
to determining a proper fee under all the circumstances of the
particular case. The court also noted that class counsel’s fee in
this case was only a “modest lodestar multiplier of 1.05%” over
Class counsel’s actual lodestar of $12,663,897.
Contrary to defendants’ assertion, the Ninth Circuit did not
hold in Williams v. MGM-Pathe Communications Co., 129 F.3d
1026 (9th Cir. 1997), that a district court must — as a matter of
law — base a fee award on the total amount of a reversionary
settlement fund. The Ninth Circuit held that under Boeing a
district court “may” base the fee on the entire fund, id. at 1027,
and that the district court had “abused its discretion” in that
case, id, by limiting class counsel to a fee based only on the
actual amounts claimed. The Ninth Circuit held that the district
court should have based the fee either on the amount of the
settlement fund created or on the actual lodestar. Accord, Six
Mexican Workers, 904 F.2d at 1311 (noting that fees may be
“assessed against every class members’ share, not just the
claiming members” and that the lodestar method should
otherwise be used if “the percentage recovery would be either
too small or too large in light of the hours devoted to the case or
other relevant factors’’).
Defendants’ assertion that the Fifth Circuit in Strong v. Bell
South Telecomm., Inc., 137 F.3d 844 (Sth Cir. 1998), held that
only actual payouts should be considered is again wrong. Since
26
the Fifth Circuit bases fee awards on a lodestar, rather than a
percentage of the fund method, the court found that this Court’s
decision in Boeing was inapplicable to the case. Moreover,
unlike here, the court found that no common fund had been
established on which to base a fee award. Instead, class members
were to continue in a plan or receive credits for future telephone
usage. Moreover, the court awarded plaintiff’s counsel an
amount “which exceeded the lodestar figure plus costs.”
Id. at 851.
There also is no confusion in the lower courts as defendants
suggest. As the Eleventh Circuit noted in its opinion below,
“no case has held that a district court must consider only the
actual payout in determining attorneys’ fees.” (PA at A-9)
The lower court cases cited by defendants were distinguished
below as cases involving “coupon” settlements incapable of
precise valuation, settlements involving no “common fund”
because they were subject to further alternative dispute
resolution procedures, or suits that were settled with little effort
by plaintiffs’ counsel and little benefit to class members.
Moreover, each of those cases awarded class counsel an amount
equaling or exceeding class counsel’s actual lodestar.
(RA at 275a-278a) The Eleventh Circuit agreed that the cases
cited by defendants all “emphasize that attorneys’ fee awards
are in the discretion of the district court and... illustrate that
whether a district court judge considers the total fund or the
actual payment will vary according to the circumstances of each
case.” (PA at A-9 n.8)
III. This Case Presents No Important Issue Of Federal Law.
Defendants improperly invite this Court to create a “federal
law” issue by rewriting the Private Securities Litigation Reform
Act (“PSLRA”) to cover futures contracts and commodities
boiler rooms. This case, however, involves no securities, falls
outside the jurisdiction of the PSLRA and under the exclusive
jurisdiction of the CEA. 7 U.S.C. § 2(a)(ii) (CFTC has exclusive
jurisdiction over commodity futures and options). The federal
courts have repeatedly recognized that Congress did not intend
isan Bes ois. vee
Wee SHB PS ug
1 Pi aise A Ngati: Cena panes eS 3S
27
to apply the federal securities laws to commodity trading
accounts. See, e.g., Cohen v. Merrill, Lynch, Pierce, Fenner &
Smith, Inc.,722 F. Supp. 24, 26-27 (S.D.N.Y. 1989) (collecting
cases). Defendants neither dispute the CEA’s exclusive
jurisdiction, nor that this action was commenced years before
the 1995 PSLRA.
The PSLRA is only relevant to demonstrate that Congress
knows how to take legislative action in the area of fee awards if
it deems such action appropriate, and that it chose not take such
action with respect to the CEA.” To the contrary, Congress has
created broad remedies under the CEA, not available under the
securities laws, including express private rights of action
for civil aider and abettor liability. 7 U.S.C. § 25(a). It has
also made telemarketing fraud in the solicitation of
commodity option customers one of the CFTC’s highest
priorities. 7 U.S.C. § 9(b).
Unable to address these fundamental principles establishing
that the PSLRA is irrelevant to this case, defendants ask that
the Court adopt their “policy” view that Congress intended the
PSLRA to address “scandalous” “manipulation of reversionary
settlements.” (Petition at 24, 26) Of course there is no evidence
of any such policy or of defendants’ heretical subtext that
Congress’ intent was to apply this PSLRA provision to boiler
room commodities class actions. To the contrary, this action
raises none of the concerns that motivated Congress to enact
the PSLRA — precluding securities strike suits that ultimately
harm the interests of the very class members they purport to
champion (i.e., shareholders), by hoiding corporate treasuries
ransom to class counsel based on innocent declines in stock
prices. In a securities suit, class counsel may actually harm their
own clients (i.e., the shareholders of the company they are suing)
9. Cf Meghig v. KFC Western, Inc.. 516 U.S. 479, 484-85 (1996)
(the inclusion by Congress of a remedy provision in one statute
demonstrates that Congress knows how to draft such a provision and
that it could have provided for such a remedy in an earlier enacted
Statute, if it wished to do so).
28
if they receive a fee from the corporate treasury that is greater
than the amount of money they put into shareholders’ pockets.
That is not true with respect to consumer claims, including
CEA claims, brought against the operators of telemarketing
boiler rooms. Class counsel in this case has not taken its fee
from the corporate treasury in which any shareholder clients
hold ownership interests. To the contrary, class counsel has
generated a fund in which class members had no prior interest
and which would not have existed but for counsel’s assumption
of the risk and effort needed to create the fund.
IV. Given The Facts At Bar, This Is A Singularly
Inappropriate Case For Review.
Moreover, the factual background of this case makes it a
singularly inappropriate vehicle for deciding the issues.
Defendants’ ever-changing arguments, their attacks on the
integrity of the district court, their distortion of the factual record,
their disavowal of representations made to the district court to
obtain approval of the settlement and their reliance in this Cour
on declarations which have been stricken from the record, should
not be rewarded.
No legal principle permits a party to modify or reform his
or her stipulation of settlement so as to leave the settlement in
place, but to rescind the fee agreement provision. See, e.g., Evans
v. Jeff D., 475 U.S. 717, 726-28, 741 (1986) (reversing a court
of appeals decision which had invalidated a negotiated fee
provision while allowing the remainder of the class settlement
to stand); Williams, 129 F.3d at 1027 (holding that fee award
should be based on the total amount of the settlement fund and
noting that defendants had no cause to object since they had
agreed to that process in the settlement agreement); Skelton v.
General Motors Corp., 860 F.2d 250, 260 (7th Cir. 1988) (noting
that a party cannot keep the benefits of his settlement, while
appealing from an agreed-upon fee provision); /n re Copley
Pharmaceutical, Inc. “Albuterol” Prod. Liab. Litig.,
1 F. Supp.2d 1407, 1416 (D. Wyo. 1998) (basing class counsel’s
fee on the gross amount of the settlement fund, noting that
29
“defendant cannot complain now that class counsel seek to do
what the settlement agreement explicitly contemplates”).
Defendants’ argument regarding the so-called “clear
sailing” agreement is of no consequence to this petition. The
Eleventh Circuit permitted defendants’ appeal from their own
settlement agreement and affirmed the district court’s ruling on
the merits. Moreover, nothing in the cases cited by defendants
permits a party to appeal from his own agreement under the
guise of protecting the class. Those cases merely hold that a
private fee agreement between the parties to a class action
settlement does not obviate a district court’s independent
responsibility to review the reasonableness of a fee request. The
Eleventh Circuit found that the district court properly performed
this duty.
Additionally, in Malchman vy. Davis, 761 F.2d 893 (2d Cir.
1985), the lead opinion of Judge Oakes was actually critical of
the analysis of “clear Sailing” agreements which defendants cite
to in Judge Newman’s concurring opinion, noting it was based
on an unrealistic view of the settlement process:
“[W]here, as here, the amount of the fees is important
to the party paying them, as well as to the attorney
recipient, it seems to the author of this opinion that
an agreement “not to oppose” an application for fees
up to a point is essential to completion of the
settlement, because the defendants want to know
their total maximum exposure and the plaintiffs do
not want to be sandbagged. It is difficult to see how
this could be left entirely to the court for
determination after the settlement.” Jd. at 905 n.5
(emphasis added).
Defendants also cite Prandini v. National Tea Co., 557 F.2d
1015 (3d Cir. 1977) for the proposition that it is improper
simultaneously to negotiate a class action settlement and an
agreement on class counsel’s fee award. This Court rejected
this notion in Evans vy, Jeff D., 475 U.S. at 733-38, noting as did
Judge Oakes in Malchman, that it is essential to the completion
30
of a settlement for a defendant to know the maximum exposure
under the settlement. This, of course, is why defendants
negotiated for the cap on class counsel's fees here. The Eleventh
Circuit specifically noted — contrary to defendants’ assertion
that “clear sailing” agreements are pushed by class counsel
solely to silence defendants — that the purpose of these
agreements is “so that defendants have a more definite idea of
their total exposure.” (PA at A-3 n.3) Thus, defendants’ assertion
that they were “concerned” about discussing fee issues in the
context of the settlement (Petition at 11) is nonsense.
In sum, the settlement fund achieved in this hard-fought
case bestowed a benefit to the class that otherwise would have
been unavailable. That not all class members claimed against
the fund was — as the district court specifically found —
partially of defendants’ creation (due to delaying tactics and
efforts to prevent the remailing of class notices) and partly due
to the district court's crowded docket (over which plaintiffs had
no control). (PA at S-6) The district court specifically found
that it would be “highly inequitable” under the circumstances
of this case to saddle class counsel with a multimillion loss for
circumstances over which they had little or no control. (/d.)
CONCLUSION
The Court should deny the writ.
Respectfully submitted,
C. BRANDON WISOFF
Counsel of Record
NEIL A. GOTEINER
FARELLA BRAUN & MARTEL LLP
235 Montgomery Street
San Francisco, CA 94104
(415) 954-4400
Eric G. Lirorr
RARING & LIPOFF
3070 Bristol, Suite 650
Costa Mesa, CA 92626-3072
(714) 429-2970
Attorneys for Respondents
APPENDIX
la
APPENDIX A — ORDER OF THE UNITED STATES
COURT OF APPEALS FOR THE ELEVENTH
CIRCUIT DENYING MOTION OF APPELLANTS
FOR STAY OF ISSUANCE OF MANDATE PENDING
PETITION FOR WRIT OF CERTIORARI DATED
AND FILED JANUARY 24, 2000
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
No. 97-5074
WILLIAM WATERS, LINDA BARTHOLOMEW,
individually, and on behalf of all others
similarly situated,
Plaintiffs-Appellees,
versus
INTERNATIONAL PRECIOUS METALS
CORPORATION, MULTIVEST,
INCORPORATED, et al.,
Defendants- Appellants.
On Appeal from the United States District Court for the
Southern District of Florida
ORDER:
(X) The motion of Appellants for (x) stay . . . of the issuance
of the mandate pending petition for writ of certiorari is
DENIED.
* * *
/s) STANLEY F. BIRCH, JR.
UNITED STATES CIRCUIT
JUDGE
2a
APPENDIX B — EXCERPTS FROM VOLUME 52 OF
TRANSCRIPT OF TRIAL PROCEEDINGS OF
THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF FLORIDA
DATED JANUARY 27, 1997
[commencing at page 8256]
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
Case No. 90-6863-Civ-UNGARO-BENAGES
WILLIAM WATERS and LINDA BARTHOLOMEW,
Plaintiffs,
INTERNATIONAL PRECIOUS METALS CORPORATION,
MULTIVEST, INC., JAMES GROSFELD, MULTIVEST
REAL ESTATE, INC., S.S. MELBOURNE, INC.,
and THE CYPRESS GROUP, INC.,
Defendants.
Miami, Florida
January 27, 1997
9:07 a.m.
VOLUME 52
TRANSCRIPT OF TRIAL PROCEEDINGS
BEFORE THE HONORABLE URSULA
UNGARO-BENAGES
U.S. DISTRICT JUDGE, and a jury
* * *
,
;
.
|
3a
Appendix B
[8257] * * *
(Call to order of the Court)
THE COURT: Okay. Good morning.
Do you need appearances, Bill?
THE REPORTER: No.
THE COURT: Okay. Well, Mr. Goteiner called the
chambers this morning and said you all had reached a
settlement. Of course, this is a 23(b)(3) class action and
reaching a settlement isn’t all that easy. So, I mean, I’m
willing to listen, but my inclination is to say SOITY, guys, too
late.
I’m willing to work with you possibly and possibly take
a sealed verdict and let you try on getting the papers done
after closing arguments while the jury is deliberating. But
then, of course, that would have to be disclosed in the notice
to the class as part of the disclosures so that they could make
an informed decision as to whether or not they [8258] wanted
to object.
MR. GOTEINER: Your Honor, if I may.
THE COURT: Yes.
MR. GOTEINER: While the papers have been drafted,
except the motion for preliminary approval, what’s been
happening is since the trial began the parties have engaged
4a
Appendix B
in the long settlement process, and it just so happened that
last night late a resolution was reached.
A couple of things. One is we’d like your Honor to
consider the settlement, and we would also like your Honor
to agree not to sua sponte recuse yourself by hearing the
settlement.
THE COURT: Well, if that’s the joint request by
everybody, of course, that’s okay with me.
Is that a joint request or not?
MR. KAMINSKY: Yes.
MR. BONNER: Yes, your Honor.
THE COURT: That’s a joint request. Okay.
MR. GOTEINER: What we would recommend to the
Court is that since the papers are drafted and signed, we could
submit them to the Court and allow the Court to consider
them for as long as the Court needs. We obviously don’t
want to lose the jury from plaintiffs’ point of view.
THE COURT: Needless to say, yes.
MR. GOTEINER: So, we would ask the Court to review
[8259] the papers, suspend closing argument for a couple of
days to see if the Court would grant preliminary approval,
and if not, we would proceed with closing argument.
Sa
Appendix B
It doesn’t seem to make sense to the parties to require
the jury to sit here if the case can be settled.
We appreciate it’s late in the day. That’s sometimes the
nature of these sorts of settlements. It’s unusual.
MR. ANDERSON: If] may add something, your Honor,
just because we knew that the Court’s reaction would be
exactly what it was, because we know of your concern about
the jury.
This is a lengthy document. The devil is in the details.
Every sentence of the document has been negotiated. We
have not been working on it, those of us from San F rancisco.
We have people in San Francisco that have been doing it
and the defendants have had Cravath, Swaine & Moore
working on it. So it is a finely-honed document, but there
are a lot of subtleties and intricacies.
THE COURT: Have the attorneys’ fees all been worked
out?
MR. ANDERSON: The language — well, the Court
decides only if attorneys’ fees —
THE COURT: Right. But do we know what the amount
is that’s being requested, what percentage of the total
recovery that would represent?
MR. ANDERSON: Yes, your Honor. Not more than a
[8260] percentage.
6a
Appendix B
THE COURT: Yeah. Well, what is the percentage?
MR. ANDERSON: 33 percent.
THE COURT: Out of $40 million?
MR. ANDERSON: Yeah.
MR. GOTEINER: Plus costs.
THE COURT: Yeah. How much are the costs?
MR. GOTEINER: Your Honor, right now we’d rather
not disclose that information, obviously, because we don’t
have a settlement.
THE COURT: Well, you must have disclosed it to
Cravath, Swaine & Moore.
MR. GOTEINER: I don’t think we have actually, your
Honor.
MR. KAMINSKY: Yes, you have.
MR. GOTEINER: Did we? I wasn’t at all involved in
talking with Cravath, Swaine & Moore.
MR. ANDERSON: We have people in San Francisco
and New York involved in it.
MR. KAMINSKY: I heard a number but I wouldn’t
want to say that’s the number because I heard secondhand
from my cocounsel in New York at Cravath.
LSE ee DORR SHAS =
AR EYE PEE OS BES RES I NE AE Be
7a
Appendix B
MR. ANDERSON: We looked into the kind of fees that
could be awarded, your Honor, but the Court can grant as
much as it chooses. But where we have done as much as we
have, not [8261] more than 33 percent is well —
THE COURT: I just want to get an idea of what the
round numbers are and what the percentages look like. Yes,
33 percent is not an unusual percent in class actions generally,
but, you know, it has to be looked at in relationship to what
the class recovery was, what the exposure was in the case,
the likelihood of recovering, et cetera, et cetera, et cetera.
MR. GOTEINER: Wecan briefly go through the terms,
if your Honor wishes.
THE COURT: Well, | have to tell you, you know, it
remains my — I think that probably this is the best we can
do today, because — well, if you all were not involved in
negotiating the settlement, you all can disclose. This was
not a distraction to you.
MR. GOTEINER: Your Honor, we can do closing
argument if the Court wishes. But we think in terms of
judicial time, economy and also focusing on settlement, it
would make sense to suspend argument for a day or two
until the Court just reviews it — and the Court will need
time to review the papers — and if the Court disapproves it,
then we could proceed later this week.
* * * *
8a
APPENDIX C — VOLUME 55 OF TRANSCRIPT OF
TRIAL PROCEEDINGS OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT
OF FLORIDA DATED JANUARY 31, 1997
[commencing at page 8321]
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
Case No. 90-6863-Civ-UNGARO-BENAGES
WILLIAM WATERS and LINDA BARTHOLOMEW,
Plaintiffs,
aed
INTERNATIONAL PRECIOUS METALS CORPORATION,
MULTIVEST, INC., JAMES GROSFELD, MULTIVEST
REAL ESTATE, INC., S.S. MELBOURNE, INC.,
and THE CYPRESS GROUP, INC.,
Defendants.
Miami, Florida _
January 31, 1997
9:30 a.m.
VOLUME 55
TRANSCRIPT OF TRIAL PROCEEDINGS
BEFORE THE HONORABLE URSULA
UNGARO-BENAGES
U.S. DISTRICT JUDGE, and a jury
* * *
9a
Appendix C
[8322] + *
(Call to order of the Court)
THE COURT: Okay. Good morning. I thin!: we better
get appearances this morning. Who is here for the plaintiffs?
MR. COOPER: John Cooper of the firm of Farella,
Braun & Martel. ;
MR. GOTEINER: Neil Goteiner of Farella, Braun &
Martel.
MR. WISOFF: Brandon Wisoff of Farella, Braun &
Martel.
MR. NEWMAN: Jeff Newman of Farella, Braun &
Martel.
THE COURT: Okay, fine. And for the defense.
MR. DODYK: Paul Dodyk of Cravath, Swaine &
Moore.
MR. KAMINSKY: Martin Kaminsky of Pollack &
Kaminsky.
MR. BONNER: Larry Bonner of Homer & Bonner.
THE COURT: Fine. You can all have a seat. Now, the
reason we are all here is for the Court to take up the [8323]
stipulations of settlement that’s pending before the Court
for preliminary approval.
10a
Appendix C
Let me first say that I’ve been over everything, including
all of the changes that were made this week. | think |
understand the transaction. I would like the plaintiffs,
however, to go through it with me one more time and talk a
little bit about the thinking that has gone into all of this.
MR. COOPER: Thank you, your Honor. My name is
John Cooper with Farella, Braun & Martel. I’m appearing
as settlement class counsel on behalf of the class.
In about September, when this matter was starting trial,
Mr. Dodyk and I started conversations to explore the
possibility of settling this matter, and over the course of the
months since then, we have reached agreement on all of the
documents that are necessary to settle a Rule 23(b) class
action, which includes the stipulations of settlement and the
amendments that your Honor mentioned, the notice, the
orders for preliminary approval, the summary notice.
In addition to that, your Honor, we negotiated the amount
of the consideration, and we have agreed to a settlement in
the amount of $40 million, which is made up of $10 million
cash, which has been paid this morning, or will be paid after
your Honor indicates approval, plus $30 million in
promissory notes that would go to the class members that
would bear the rate of interest that’s offered by the National
Bank of Detroit [8324] on certificates of deposit up to
$100,000.
Mr. Dodyk and I addressed this issue, the issue of the
interest rates, in chambers this morning with your Honor;
and by telephone communication with the bank, it was
”_e ee ee _
lla
Appendix C
resolved that rate is 5.37, which yields 5.50 annual rate of
interest.
I would like to preface my comments by saying that we
have signed documents for the stipulations of settlement and
two amendments to the stipulations of settlement. So, nothing
that I say here is intended to alter any of the contents of the
signed documents, including the business documents that
support that promissory note and the other security items.
In addition to the $10 million plus the $30 million in
promissory notes, the defendants and settlement class counsel
have agreed to cooperate to obtain payment of any remaining
funds held by the receiver to be paid into the settlement fund,
but that will not in any way reduce the obligation to pay the
$40 million, your Honor. 7
There were a lot of consideration that went into these
lengthy negotiations.
THE COURT: Before you get into that, perhaps you
could review for me the security for the $30 million in
promissory notes.
MR. COOPER: Yes, I will turn to that immediately,
your Honor.
For the $30 million, the initial note is a master [8325]
promissory note for $30 million that will be held by the
settlement administrator, which is an obligation of Defendant
James Grosfeld, and it is secured by marketable securities
that will be posted this morning by Mr. Grosfeld in the
amount of $47,700,000 as a minimum, your Honor.
12a
Appendix C
It’s our understanding that will be posted in the form of
Pulte Corporation stock. If there is any default in the
obligations under the stipulations of settlement, the
settlement administrator is authorized to liquidate that
security to the extent necessary to pay down the promissory
notes; and if there is a default, the promissory notes will
immediately become due and payable, to be paid out of that
source.
The stipulations of settlement provides that within 30
days of the day of preliminary approval, an irrevocable letter
of credit on the National Bank of Detroit will be issued to
secure the $30 million obligation, which is first the $30
million obligation on the master promissory note, but as the
claims procedure — which I will explain — is carried through
to identify the authorized amount for the various class
members, then the promissory notes will be issued to the
individual class members which will bear the same rates and
terms as the master promissory note, which 1s the interest
rate that I referred to above.
Those promissory notes are irrevocable and will [8326]
receive the interest paid annually on December 15th. They
will receive checks for that interest on December 15th of
each year. With the payment of the fourth interest payment,
the class members will be notified that by giving notice no
longer than a year and no less than 15 days prior to the
anniversary, the fifth anniversary of the issuance of notes,
they can ask for those notes to be paid on the fifth anniversary
with the interest up to that date.
If the class members do not make that request, your
Honor, the notes will renew at the same interest rates for
13a
Appendix C
another five-year period and will be paid without further
notice at the end of the next five-year period, for a total of
ten years.
In the event that there is a default under the stipulations
of settlement or under the promissory notes, the class
members who are holding these notes will be able to draw
on the letter of credit issued by the National Bank of Detroit.
That letter of credit will be in the form of continuing one-
year letters of credit that must be renewed 60 days prior to
the time that they are to expire.
If they are not renewed within that period of time, then
the notes will become due and payable and the class members
can draw on the letter of credit during that period of time to
receive payment on the promissory note.
So, we believe, your Honor, that that is ample [8327]
security for these promissory notes. These are, in effect, as
we have discussed earlier, certificates of deposit that bear
rates, interest rates, at the same rate as a certificate of deposit
of the National Bank of Detroit.
The claims procedure process is that notice which has
been approved and included in the settlement package will
be mailed to the class members. They will be given 60 days
from the date of mailing in order to file their claim. The
claim form is included in the package of materials and has
been agreed to.
The claim form provides that the information to be
inserted in the claim form will be taken from the monthly
l4a
Appendix C
statements of the class members, the claimants, from
MultiVest, Incorporated, or IPMC. If the class members do
not have their monthly statements, they can either call the
settlement administrator on the 800 number which is set forth
on the claim form or they can write to the claim administrator
and receive copies of their monthly statements.
If a class member requests the assistance of having his
monthly statements copied and sent to him, there will be a
$50 charge for the administration service.
The settlement administrator will review the claim forms
as submitted to confirm that the information conforms to
the information that is contained in the monthly statements.
If the claim form is erroneous but can be conformed and can
be [8328] corrected to reflect the correct information that’s
contained in the monthly statements, the settlement
administrator will make those corrections.
The settlement administrator will not reject any claim
form that is capable of being corrected to conform to the
information that’s set forth in the monthly statements. In
the event that the settlement administrator concludes that
the information set forth in the claim form does not conform
to the requirements of the claim form, then the settlement
administrator will notify the class member and provide the
class member with a statement as to why the settlement
administrator believes that the claim does not conform and
will provide the claimant 20 days in which to respond and
correct it.
In the event it is not corrected within that period of time,
then it can become a disputed claim and can be presented to
15a
Appendix C
the Court in the settlement administrator’s report to the Court.
So, there will be then an opportunity for the Court to review
any of those claims in the event that there are disputes over
that.
I should clarify, your Honor, that the $50 charge for
obtaining monthly statements will be deducted from the class
members’ recovery. It will not be a charge in addition to the
class member. There will not be a charge, a specific charge,
to the class member. It will merely be a deduction from what
[8329] the class member recovers.
Your Honor, there were a lot of considerations, a lot of
analysis that went into our evaluation of this settlement and
into our recommendation, as settlement class counsel, to
recommend to your Honor that you approve the settlement
on behalf of the class.
One of those considerations is the fact that this is an
action against, in effect, an individual: Mr. James Grosfeld.
Mr. Grosfeld testified under oath in this court that his net
worth is approximately $100 million. Since that time, your
Honor, he has filed, pursuant to your Honor’s request, a
financial statement Stating that his total net worth is
approximately $101 million. That was one of the events that
has occurred in communication with your Honor since
Monday.
This settlement of $40 million is a significant portion of
that total net worth of Mr. Grosfeld. That was a consideration
here. There is no insurance, as we understand it, for these
claims. The sole source of recovery for any judgment would
16a
Appendix C
be Mr. Grosfeld’s assets. The personal net worth of Mr.
Grosfeld of approximately $101 million was a consideration,
given the fact that the total claims in this matter were $119
million, with a possibility of trebling a portion of those
damages, plus prejudgment interest, which could have been
an enormous amount of money.
We took into consideration the source of recovery [8330]
from the potential sources of recovery of any judgment taken
in this matter. Your Honor, the amount of the recovery here,
$40 million, is approximately one-third of the total damages
presented in court of $119 million. We believe that after the
deduction of attorneys’ fees, expenses and administration
expenses that the payment to the claimants will be
approximately 20 percent of their out-of-pocket losses.
Your Honor, we have studied and we tendered to your
Honor the NERA Report, and we would like to make that a
part of the record in this matter. It is a study of recoveries in
class actions in the United States.
The 1996 NERA Report — and I’m speaking from
memory now — shows some recoveries, and the average
and the median recovery is in the range of approximately
9 to 10 percent of the total losses.
This settlement, your Honor, is a third — a third — of
the out-of-pocket losses and 20 percent recovery to the class
of their out-of-pocket losses after deduction of the attorneys’
fees, which we will request, and have requested, of one-third
of the recovery plus expenses.
I will address that in a minute.
17a
Appendix C
This is a very significant recovery, your Honor, we
believe, considering the source of funds to pay a judgment.
This is a very significant recovery, your Honor, considering
other class actions that are settled in the United States.
[8331] I would like to review a few things.
When this matter was first presented on Monday, it was
discussed on the record by Mr. Goteiner and Mr. Anderson.
Since that time, Mr. Dodyk and | arrived in Miami and met
with you on Tuesday. We spent a substantial amount of time
reviewing this with your Honor off the record in chambers;
and as a result of our discussions with your Honor and
responding to many of the concerns that you had, you will
see that there are two amendments to the stipulations of
settlement, one of which addressed the first round of concerns
that your Honor addressed to us, and the second, which was
executed yesterday, addresses a second round of concerns
that your Honor had.
I have executed those amendments on behalf of the
settlement class, and I will represent to your Honor that Mr.
Lipoff and the Zuckerman firm-have authorized me to inform
you that we will provide you with executed signature pages
on their behalf shortly.
One of the concerns that your Honor had related to the
collateral and the security. In response to that, the
arrangement was made to provide for the marketable
securities in the form of common stock to be 150 percent of
the outstanding debt of $30 million plus interest thereon.
That has been done, and your Honor will see when we speak
18a
Appendix C
with the settlement administrator this morning that he will
confirm the amount of money or amount of stock that is being
transferred to [8332] secure this, which reflects your Honor’s
concerns.
Your Honor was also concerned about the period of time
when the letter of credit would come into place. Initially,
what we had negotiated was for the letter of credit to come
into place 120 days after preliminary approval, and in
response to concerns of your Honor, we have agreed with
defendants that the letter of credit would be put into place
30 days of the preliminary approval.
An additional item, your Honor, is that plaintiffs’
settlement counsel and plaintiffs’ counsel of record have
waived their right to appeal. Timing and the form of our
fees, as opposed to the amount, we are granting your Honor.
Obviously we are waiving our appeal and leaving that
flexibility in your Honor’s very good hands, we believe.
Your Honor was concerned about additional elements
that related to the finality of the setthement. You will see
those are, likewise, reflected in the amendment documents
that are Amendments | and 2 to the settlement agreement.
Your Honor addressed several issues where you were
concerned about insolvency and potential bankruptcy as that
might affect the quality of the security, and those concerns
are also reflected in the amendment to the stipulations.
THE COURT: Perhaps either you or Mr. Newman could
just review, very briefly, how you saw the potential
insolvency issue with respect to the letter of credit.
19a
Appendix C
[8333] MR. COOPER: I will call on Mr. Newman to
do that, your Honor.
THE COURT: Okay.
MR. NEWMAN: My name is Jeff Newman.
Your Honor, we did, in both negotiating the settlement
and also in following up on concerns raised by your Honor,
look at issues related to the letter of credit and the potential
for insolvency on that. We concluded as follows: One, we
obtained, through the assistance of your Honor,
representations from Mr. Grosfeld, not only as to his net
worth, but also to the effect that he has no outstanding other
obligations other than potential tax liabilities, and, therefore,
we concluded that there was very little risk of insolvency.
Moreover, we concluded that once the preference period
had elapsed and we had our initial security in place, and
notwithstanding whatever collateral was posted, that would
not constitute any kind of voidable transfer and, therefore,
we felt on behalf of the class that they would be adequately
protected against these insolvency risks, and we thank your
Honor for being so concerned about it.
THE COURT: Thank you.
MR. NEWMAN: Maybe I could add one more thing.
We understand that notwithstanding what Mr. Cooper said
about the minimum amount of collateral, that we will fj
actually that [8334] Mr. Grosfeld has actually pledged
1,700,000 shares of Pulte stock, which we will find the value
20a
Appendix C
of today, but is considerably in excess of 47,700,000, which
he agreed to provide. So there is quite adequate collateral
that has been posted in the interim.
MR. COOPER: Your Honor, just a couple of additional
items I would like to draw to your Honor’s attention with
regard to the settlement. One relates to the claim form. We
believe that the fact that the class members can pick up the
phone and make a toll-free 800 call to the settlement
administrator to answer their questions and to obtain
assistance and to obtain monthly statements is a tremendous
benefit in terms of resolving this.
Your Honor expressed interest and reviewed the claim
form in chambers when we reviewed this, and we all agreed
that the 800 number would provide some benefits to the class
members. Also, I drew to your Honor’s attention in chambers,
-and | believe we would like to place on the record, the fact
that the agreements, the stipulations, provide that exchange-
traded option positions that were opened at the end of the
class period, which was October 31, 1989, the value of those
positions still open on that date will be deducted from the
claimant’s claim in the settlement.
Now, I draw that to your Honor’s attention because that
is different than an order that your Honor has entered in
[8335] the trial, but for settlement purposes, the defendants
and the plaintiffs and the class counsel have agreed to that,
and I just wanted to underscore that on the record.
Sections 2 and 3 of the claim form are where this
information is set out. Section | is just basically where you
21a
Appendix C
get the information, name and address, et cetera. Section 2
is a cash-in/cash-out calculation. What did you pay into MOI
or IPMC and what did you get back, and then the difference
is totaled out in Section 2.
In section 3, open positions at the end of the class period,
and transfers out, value transferred out, will be addressed
and then that is totaled.
Your Honor, the last item is, we have agreed to some
dates with regard to this procedure, that is that the settlement
administrator has indicated to us — and has assured us,
indeed — that he will be able to mail out all of the class
notices within two weeks, and that’s two weeks from today,
which is February 14th, and we have agreed that objections
to the settlement and the objections to our fee request of
one-third of the settlement, plus expenses, will be filed 30
days from the mailing date, which we are assuming to be
February 14th, which will be March 17th.
We have requested your Honor to set a hearing 45 days
from the February 14th assumed mailing date, of March 31st,
and the deadline for having the claims postmarked will be
60 days [8336] after mailing, which will be April 30th; and,
your Honor, we are going to try to mail that out as soon as
possible, but we need a date. So we have assumed the April
14th.
With regard to attorneys’ fees, your Honor, I have
already addressed the fact that we have filed this morning a
Waiver of right to appeal with regard to the form of the
attorneys’ fees, but I should also state on the record that we
22a
Appendix C
will request that your Honor award us attorneys’ fees in the
cash portion of the settlement so that we would be paid in
cash to the extent possible. However, we believe that any
award of attorneys’ fees will contain a significant portion of
an obligation by the settlement administrator to us. So, we
will share, under any circumstances, we believe, very
substantially with the class in the time-extended payment
that I’ve already described to your Honor.
If your Honor has any questions, I would be happy to
respond to those.
THE COURT: Well, first, let me turn to Mr. Dodyk and
the other defense counsel and see if there is anything in
particular that they wish to add.
MR. DODYK: Your Honor, I think Mr. Cooper has
accurately described the settlement procedures. We have
nothing to add except for the fact that I believe that under
the stipulations, the proof of claims were to be filed within
60 days after the mailing, which is, by my calculation, April
[8337] 14th.
THE COURT: I believe it’s — well, we can look. |
thought it was 45 days of mailing. In fact, we had discussed
that specifically in chambers.
MR. COOPER: My calculation was it was 45 days for
the hearing.
THE COURT: You are right.
23a
Appendix C
MR. COOPER: Then 60 days from the mailing for —
THE COURT: Let’s go back and look. Which exhibit
is that?
MR. DODYK: Your Honor, I think the relevant entry
shows date blanks, but we had agreed to a 60-day period
between mailing and the submission of the claims. So I think
that works out to April 14th, if I’m not mistaken.
THE COURT: Right.
MR. COOPER: Yes, your Honor, my calendar tells me
that April 14th is the 45th day of the year. So, 60 days to
there would be the 105th day, which my calendar tells me is
April 15th.
THE COURT: The mailing of the notice, it is agreed ©
upon it will be in two weeks, is that right, but the notice will
be mailed by F ebruary 14th?
MR. DODYK: Yes, your Honor.
THE COURT: The objections will be filed in 30 days
after the mailing of the notice, which is March 17th; is that
[8338] right?
MR. COOPER: Yes.
THE COURT: The postmark date of the cutoff of claims
will be?
24a
Appendix C
MR. DODYK: I think we now have narrowed it down
to April 15.
THE COURT: April 15.
MR. COOPER: Yes, your Honor.
THE COURT: And the hearing for approval?
MR. DODYK: We had requested for March 31.
THE COURT: March 31.
MR. DODYK: Yes, your Honor.
THE COURT: Okay. Anything else you want to talk
about, Mr. Dodyk?
MR. DODYK: No, your Honor.
THE COURT: Mr. Cooper, you didn’t talk about this.
Maybe Mr. Goteiner would like to speak to this, but I do
think this is a relevant consideration that we all ought to get
out on the table, which is what this litigation would look
like if it were .o continue and how that fit into the settlement.
MR. GOTEINER: Well, I think defendants would make
a representation as to what would happen under certain
scenarios. I can assure your Honor, we are plaintiffs to win
a jury verdict for the full amount of the losses. There would
be a host of appellate issues that defendants would be taking
up [8339] to the Eleventh Circuit, and if they could, to the
United States Supreme Court.
a
25a"
Appendix C
THE COURT: In fact, I had committed to the defendants
that before we went any further in this proceeding and before
judgment was entered and before the bifurcated issues were
resolved and provided there was a verdict for the plaintiffs
and Mr. Grosfeld Save me assurances as to not transferring
his assets, | would permit an appeal to the Eleventh Circuit
because of all of the novel issues in the case.
MR. GOTEINER: | wasn’t trying to speak for the Court,
but the Court has indeed told us that in writing, something
quite close to that, previously. So, we could have expected
at least a full, from my recollection, two years Just to resolve
many of these issues, and then, of course, the interesting
questions as to what would be happening under the CEA
claim, depending what happened to the boiler room Claim,
and that would have led the Court to consider and decide
upon a whole litany of novel ideas of how you deal with a
case like this where you have to rebut the reliance
presumption, and there’s been much discussion in this case
about the Knapp case being one procedure.
The Court never decided one way or the other whether
it Was going to adopt that procedure.
I should also point out by way of background, looming
[8340] over this entire case has been the novelty that the
Court has mentioned. Mr. Kaminsky, on behalf of defendants,
has pointed out to the Court the changing law in this area,
and I’m sure he could cite chapter and versus Third Circuit
cases and various other cases that have come down on
certification issues.
26a
Appendix C
I should also say there is a sharp distinction in this case,
a fraud-in-the-market case, by contrast, to a class
certification, which are a cakewalk. So, there was a host of
these issues that the Court has been struggling with for some
years, and the Eleventh Circuit would still be struggling with.
So, in consideration of all of those issues and the promise
of a lengthy appellate process, from plaintiffs’ point of view,
at least, this was a terrific arrangement, and given what Mr.
Cooper has already said on the record, getting back for this
class that has an average of $6000 loss per class member 20
percent, were the Court to grant the administration fees and
costs that plaintiffs requested, and I think that covers the
essentials of plaintiffs’ view on what the future would hold
for this case as opposed to the certainty that would occur
were the case resolved now.
THE COURT: Okay. Well, unless there is anything you
want to add on that subject, Mr. Kaminsky, or Mr. Bonner
MR. BONNER: No.
THE COURT: Let me make a few comments. As we
all [8341] know, we came in here Monday morning — I came
in here Monday morning thinking we were going to have
closing arguments. I got in very early to make a few little
changes to the jury instructions. The phone was ringing off
the hook. I didn’t want to take the time to answer it.
Finally, one of my law clerks got in about 8:30 and
answered it, and it was Mr. Goteiner on the phone saying
27a
Appendix C
the parties have reached a settlement. My law clerk can speak
to the fact that I threw my pen down on my desk and I was
enraged.
After five months of trial, to think that it would be sO
casy to settle a case like this was a little disorienting for me,
but of course everyone did recognize that settling a 23(b)
class action is not a simple matter, and it requires notice to
the class members, it requires a fairness hearing and it
requires all kinds of proceedings that we needed to address.
Now, on Monday, court convened and litigation counsel
attempted to outline for me what the terms and conditions
of the settlement were; but unbeknownst to me, Cravath had
Stepped in for Mr. Grosfeld and had been negotiating,
unbeknownst to me, with Mr. Copper, who I had never heard
of until Monday, and it seemed as though what was going to
be necessary was for the lawyers who had actually negotiated
the settlement to fly in to meet with me and discuss it in
more detail.
[8342] I made some comments on Monday after hearing
what the terms of the Stipulations were without having read
it, which I now regret having had the Opportunity to read it
in detail and having had an Opportunity to meet with the
lawyers and to reflect on the agreement and hopefully to
improve it somewhat. So, I apologize for my comments
concerning cutting and running.
The other side of that is, the lawyers had something ofa
challenge in convincing me that the economics of the
settlement were as good as they were representing them to
28a
Appendix C
me to be, but both sides did a very good job of presenting
me with their experience and the national experience in the
resolution of class actions such that really | would be very
hard-pressed to take the position this was not certainly within
the range of reasonableness.
$40 million does represent a very substantial percentage
of Mr. Grosfeld’s net worth, and even if you want to look at
it in terms of total losses with prejudgment interest, it still
represents a very substantial percentage of recovery.
Of course, an aspect of the settlement involves the
timing. The terms of the settlement at a very basic level
involve the payment of $10 million in cash and with the $30
million payable over time. It would have been nice to be
able to send the class members all of their money up front,
but I think that the compromise that has been struck here is
a [8343] practical and realistic solution, given the fact that
what we are dealing with here is a situation where there is
no insurance and we are dealing with an individual’s net
worth.
Now, because of the time aspect, though, I was, as Mr.
Cooper said, extremely concerned about the security. We
worked very hard all week to try and improve the agreement
to tighten up that aspect of it in every respect, and I am
satisfied that we have done as good a job of it as we can and
that the risk to the class members is very minimal.
I know that the plaintiffs intend to seek their fees out of
the cash portion of the settlement, but I have expressed to
Mr. Cooper, and Mr. Cooper understands, that the attorneys
29a
Appendix C
will have to share some of the risk with the class members,
and in all likelihood, although I don’t want to take an absolute
position on this at this time, a very substantial portion of the
attorneys’ fees and costs will end up being deferred over the
same period of time as the class members’ payments will be
deferred.
Now, of course, one of the very significant reasons why
| am persuaded that the settlement is a good settlement,
assuming that conditions that are contained in the agreement
are complied with this morning, is that the securities are
deposited and that the securities and cash have been deposited
and the fact that this litigation would probably have gone on
another three to four years, at least.
[8344] As I said earlier, the case raised a number of novel
issues in a lot of ways. It was like trying to hammer a Square
peg into a round hole. Regardless of who would have
prevailed in this particular proceedings, I believe that there
would have been appeals. Those appeals would have taken
to the Eleventh Circuit numerous novel issues.
I don’t think I have ever seen a case that had so many
novel issues in it, and it undoubtedly would have taken at
least one, if not more, certified questions to the Florida
Supreme Court. So, the lawyers would have had to litigate
the appeal both in the Eleventh Circuit and in the Florida
Supreme Court, and who knows how long that would have
taken, especially on a record of this size. The record is very
substantial after all this time in trial.
One of the reasons | didn’t allow the 1292(b) appeal
before was because I felt that in order for the Eleventh Circuit
30a
Appendix C
to really understand this case, they needed a full factual
development of what the plaintiffs’ position was.
So, litigating an appeal on a record of this size is an
extremely time-consuming exercise. | doubt very much there
would have been a resolution of that appeal for 18 months
to two years; and then if there had been a plaintiffs’ recovery
and that wouid be affirmed, we would had to go on and deal
with this problem of the bifurcated issues, which undoubtedly
would have ended up in another appeal.
[8345] So, | think we were looking at least to three or
four years of more litigation, if not more, and with the
outcome, at every step ofthe way, tremendously uncertain.
So for all of those reasons, and provided that the securities
and the cash are in place, I am prepared to give preliminary
approval.
The only other thing — there is one other thing that |
want to say, and that is that — and I’m not exactly sure how
this fits in with the preliminary approval this morning, but |
must say that I have never been exposed to a case, not in my
practice and not as a judge, that was more contentious than
this case. Not necessarily contentious in a nasty way, but
there was not an issue in the case that was not contested.
It has been extremely time-consuming for everyone to
litigate this case. So, at this point, unless there is something
someone feels that I’ve left out that I haven’t addressed, |
think that what we ought to do is make the call to the — |
guess it’s to the settlement administrator, or is it to Cravath?
3la
Appendix C
MR. DODYK: To Cravath, your Honor.
THE COURT: To make sure that the Cash and the
securities have been delivered.
MR. COOPER: I have one housekeeping matter.
THE COURT: Sure.
MR. COOPER: That is to confirm that we do have a
hearing date on March 31st if that’s available.
[8346] THE COURT: Let me get Catherine in here. How
much time do we think we need to set aside? Should we set
aside the whole day just in case?
MR. COOPER: | don’t believe, and my experience
would indicate, your Honor, that it would not take the whole
day. I would believe the morning would be adequate.
THE COURT: We will set aside a half a day.
MR. COOPER: Also, your Honor, with regard to
briefing on our attorneys’ fees petition, how would you like
| us to do that and dates?
THE COURT: Let’s see. First of all, March 31st is
totally open. So, we will set this for the morning of March
31st for the hearing on the final approval of the settlement.
MR. COOPER: At?
32a
Appendix C
THE COURT: At9 o'clock. Actually, let’s make it 9:30.
How long do you believe it will take to put together your fee
and cost petitions and the briefing that would go with it?
MR. GOTEINER: Three weeks, your Honor.
THE COURT: Three weeks. So, that would be, say,
February 21st?
MR. GOTEINER: Yes, your Honor.
THE COURT: Is that okay?
MR. GOTEINER: Yes, your Honor.
THE COURT: Then I guess you all can respond, if you
[8347] want to respond, within the time provided by the local
rules, and hopefully we can avoid a reply because it will
take us up pretty close to the hearing date, okay?
MR. GOTEINER: That’s fine, your Honor.
MR. COOPER: Thank you, your Honor.
THE COURT: Okay. All right. Now, the arrangement
is, I take it — maybe I should have paid a little more attention
to this, Mr. Dodyk. The cash and the securities are being
delivered to Cravath in escrow, to be delivered to the
settlement administrator?
MR. DODYK: They are in the possession of Cravath at
the present time, in the person of an associate by the name
33a
Appendix C
of Scott Yut. The settlement administrator is in the office
with him. I have given the clerk the telephone number.
THE COURT: Hello, Mr. Yut. This is Judge Ungaro-
Benages in Miami. Can you hear me?
MR. YUT: Yes, | can.
THE COURT: Okay. We are all in open court, as is your
voice.
MR. YUT: Okay.
THE COURT: Okay.
MR. YUT: I can hear you.
THE COURT: I am simply calling to confirm that you
have delivered to the settlement administrator $10 million
in cash, and you tell me how much in Pulte securities.
[8348] MR. YUT: ] have delivered a million $55,000
shares of Pulte Corporation which, based on yesterday’s
closing price, is worth $50,762,500.
THE COURT: Could you say that again? You were kind
of — your voice is breaking up a little bit on the speaker.
MR. YUT: All right. A million 555,000 shares of Pulte
Corporation, which is currently valued at 50,762,500, and
another 150,000 shares of Pulte Homes Corporation for
which this morning we were unable to obtain an exact quote,
but it’s not widely traded.
34a
Appendix C
THE COURT: Mr. Dodyk, are you able to repeat that
back to see whether we got that correctly or not?
MR. DODYK: May I approach?
THE COURT: Please.
MR. DODYK: Scott, could you state as clearly as
possible the value of the Pulte stock?
MR. YUT: 50,762,500.
THE COURT: Fine. Yes, Mr. Newman?
MR. NEWMAN: Mr. Yut, could you tell us the name
on the stock certificates for the other stock certificates,
please?
MR. YUT: Yes. Just a moment.
MR. BUCHBAND: This is Peter Buchband, your
Honor.
THE COURT: Fine.
MR. BUCHBAND: The other company is identified as
[8349] Pulte Homes Corporation, and if you like, I can give
you the number that identifies the security.
MR. NEWMAN: My understanding from Mr. Ormsbee,
who is at Cravath, is that actually the Pulte Homes
Corporation is actually just the former name of Pulte
35a
Appendix C
Corporation and, in fact, what you hold is really 1,700,000
shares of Pulte Corporation stock. From the certificates, you
can’t tell that, but I understand that’s in fact what you hold.
MR. BUCHBAND: Okay, I was not aware of that.
MR. NEWMAN: That’s Okay.
MR. DODYK: Scott, what is the total number of shares
that you have of the two companies?
MR. YUT: 1,700,000.
MR. DODYK: If you were to multiple that times the
stock price for Pulte currently on the market, what is the
total value?
MR. YUT: We will do that right now.
MR. DODYK: We are waiting for you.
MR. YUT: 55,675,000.
MR. DODYK: Thank you:
THE COURT: Okay. All right. Well, Iam satisfied that
the conditions that are contained in the agreement have been
complied with.
Do you agree, Mr. Cooper and Mr. Newman?
MR. NEWMAN: We do, although I would like to have
one [8350] thing confirmed.
36a
Appendix C
Mr. Yut, you are prepared, as immediately as the Court
has approved this order, to wire transfer to Garden City the
$10 million you hold in your trust account; is that correct?
MR. YUT: That’s correct.
MR. NEWMAN: And you will do so now?
MR. YUT: That’s correct.
MR. NEWMAN: Thank you, very much.
THE COURT: Okay. Are we all set, Mr. Newman and
. Cooper?
MR. COOPER: We are.
MR. NEWMAN: We are.
THE COURT: Fine. Thank you very much, Mr. Yut.
MR. YUT: Thank you.
THE COURT: Okay. All right. Well, 1 am now going
then to give preliminary approval to the settlement. I think
the only order I have is the order that’s in this book. Did
someone have a loose order by any chance? Otherwise we
will make a copy.
MR. COOPER: No, we don’t, your Honor, but we
believe the blanks in that order can be filled in now with the
dates that your Honor has granted us.
37a
Appendix C
THE COURT: Okay. Just a second.
MR. KAMINSKY: Your Honor, we will be happy to
take [8351] one out for you.
THE COURT: Thank you very much. The first date
appears on Page 9, and it says the Proof of Claims. This is
the date for the proof of claims. So that should be April 15th,
right?
MR. DODYK: Yes, your Honor. Page 12 I think is the
next.
THE COURT: Right. At 9:30 a.m., on March 31st, will
be the hearing for final approval.
MR. DODYK: Then Page 13, your Honor.
THE COURT: Right, is the cut-off date again.
MR. DODYK: Your Honor, that is the date for filing
objections, and that is March 17, I believe.
THE COURT: Right. March 17th.
MR. DODYK: Then there is, of course, the date on the
last page, which is today.
THE COURT: Right. Okay, and I am signing the order
for preliminary approval at this time.
Okay, so that concludes this except for me to say that I
appreciate very much the efforts that were made to resolve
38a
Appendix C
the matter and very much the cooperation that | received
this week in responding to my questions and dealing with
my objections. .
Yes, Mr. Goteiner.
MR. GOTEINER: Your Honor, | hate to have the last
[8352] word, but on behalf of plaintiffs, I feel we must.
From the plaintiffs’ side, and I think I speak for the
defendants as well, we appreciate the incredible burden that
this case over the years, as well as over the past six months,
has put on the Court, the Court’s staff, and it was a Herculean
task for all concerned, but particularly for the Court. Far
less people than we have, and we appreciate it.
THE COURT: You are welcome, but we all learned a
lot. Thank you very much.
| feel compelled to point this out. Bill has given me a
little crystal hourglass to sit up here forever and remind me
of this case.
Okay. Now, do we have all of our jurors or not? We are
missing two. Okay, well, I don’t know that it’s necessary,
really — what do you all think? I don’t know that it’s
necessary for you to be here when I discharge the jury. | am
going to go and have a few words with them privately and
personally to explain to them what has happened.
What’s the consensus here? What’s the feeling?
39a
Appendix C
MR. GOTEINER: Your Honor, we have no objection
at all to the Court doing that in any way the Court wishes.
MR. DODYK: For defendants, we have no objection.
THE COURT: Youall are excused, and I will deai with
the jury. They will probably become a little irritated, but |
think I can live through that.
[8353] MR. GOTEINER: Your Honor, could you let the
jury know, at least from plaintiffs’ point of view, we would,
if anyone wants to chat with us, talk with them, but obviously
the Court would advise them they don’t have to talk with
any of us.
THE COURT: I’m going to let them know they are free
to talk about the case if they want, and they are free to talk
to the lawyers about it, and they are also free to keep to
themselves.
MR. KAMINSKY: Your Honor, may we keep this to
the lawyers rather than press and other people?
THE COURT: Yes. Although I can’t order them.
MR. GOTEINER: Weare asking the Court convey that
the plaintiffs’ attorneys would like very much to thank them.
THE COURT: I will thank them for all of you, okay?
MR. GOTEINER: And would like to speak with them
as well. That's all.
40a
Appendix C
THE COURT: Okay. Let me handle it.
MR. BONNER: Thank you, your Honor.
MR. GOTEINER: Thank you, your Honor.
THE COURT: If you will wait outside, we will get you
conformed copies of the order. Thank you.
(Adjourned at 10:30 a.m.)
* * * *
ee Rey ae. eee ee ee
4la
APPENDIX D — EXCERPTS FROM TRANSCRIPT OF
FAIRNESS HEARING OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT
OF FLORIDA DATED MARCH 31, 1997
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
Case No. 90-6863-Civ-UNGARO-BENAGES
WILLIAM WATERS and LINDA BARTHOLOMEW,
Plaintiffs,
—-V—
INTERNATIONAL PRECIOUS METALS CORPORATION,
MULTIVEST, INC., JAMES GROSFELD, MULTIVEST
REAL ESTATE, INC., S.S. MELBOURNE, INC.,
and THE CYPRESS GROUP, INC
i
Defendants.
Miami, Florida
March 31, 1997
9:45 a.m.
TRANSCRIPT OF FAIRNESS HEARING
BEFORE THE HONORABLE URSULA
UNGARO-BENAGES
U.S. DISTRICT JUDGE
* * *
42a
Appendix D
[33] THE COURT: All right. So we'll go ahead and
we'll proceed subject to the Court’s review of that agreement.
Now, before we proceed further, | want to take a little
time to review some of the relevant procedural history that’s
brought us to this juncture before we hear from the parties
and the other individuals who are present who wish to be
heard.
I gave preliminary approval to the settlement of the class
action by my order dated January 31, 1997, and I want to
note that that preliminary approval followed upon a week of
intensive review and renegotiation of the terms of the
proposed settlement between the Court, the parties’ trial
counsel and the parties’ settlement counsel.
| also want to note that the proposed settlement as
originally conceived was first presented to me on the morning
of closing arguments after nearly five months of trial.
As I’m sure the attorneys for both sides recall, 1 wasn’t
very enthusiastic about the timing of their decision to resolve
the case. After all, we had presumed upon the jury for many
months and the jury was present and ready and willing to
listen to the closing arguments and render a decision once
and for all in the case as to whether or not there had been a
scheme to defraud; whether or not MOI was a boiler room
within the meaning of the law; and whether Mr. Grosfeld
was responsible for it.
[34] I also was not very happy with the terms of the
proposed settlement to the extent that trial counsel was able
to outline those terms to me.
43a
Appendix D
For example, I didn’t like the idea that the class members
would be compensated solely in the form of individual
promissory notes that would not be payable any sooner than
five years in the future, while most of the class counsel’s
fees and costs would be paid from the cash portion of the
settlement fund.
I was also unhappy with the amount of security for the
deferred obligation during the time preceding the delivery
of the irrevocable letter of credit, and with the parties’
apparent agreement at the time that a fee award of one-third
of the $40 million settlement fund, which everyone at the
time clearly understood to be approximately $13 million,
was reasonable under the circumstances.
I distinctly recall, for example, the attorneys for both
sides estimating that the net settlement fund which would
be available for distribution to the class members after the
fees and expenses were deducted and the administration
expenses were deducted would be in the neighborhood of
$24 million.
Now, as I have already noted, several days of discussions
followed to deal with my concerns. During that time period
the jury was not discharged because I was at all times
prepared to go to verdict if a Satisfactory agreement [35]
could not be reached. However, by the end of that week
sufficient changes had been made to the agreements to allay
most of my concerns.
Additionally, the parties assured me that the terms of
the agreement were sufficiently flexible to permit the deferral
44a
Appendix D
of the attorneys fee and expense obligations in whatever
amount I deemed appropriate.
As further assurance that I would be free to defer all or
a portion of the fee and expense award, class counsel agreed
to waive their right to appeal those aspects of the fee and
expense award relating to the timing or method of payment.
I want to emphasize that in these discussions both sides
went to some lengths to convince me that a settlement fund
consisting of $40 million, albeit comprised of $10 million
in cash and the balance in notes, less a fee award of one-
third of the gross amount of the settlement fund and
reimbursement of counsel’s expenses, would produce an
exceptional benefit to the class members.
Now, I’m not taking a position right now on whether or
not I think it was an exceptional benefit or not, but that was
certainly the position taken by both sides during that week
of discussions.
These efforts on both sides to persuade me at least
preliminarily of the significance of the result obtained in the
- case if the settlement were approved included comparative
[36] analyses of settlements in other class actions alleging
improprieties in the offer and sale of securities and other
matters alleging fraud in the marketing of investments, and
I directed that those analyses be placed in the court file and
otherwise made a part of the public record, and I invite any
interested person to review those documents which were
supplied by both Mr. Dodyk for the defense and by class
counsel.
4Sa
Appendix D
Having received, reviewed and considered these
materials and having engaged in extensive discussions with
the parties concerning the terms of the proposed settlement,
and in the end having been persuaded by both sides that there
was nothing in the proposed settlement that was outside the
range of reasonable and adequate, but reserving to myself
the ultimate decision as to the fairness of the settlement and
the amount of fees and expenses to be awarded to class
counsel, I gave preliminary approval to the settlement by
the order dated January 31, 1997.
On February 21st, 1997, following entry of the order,
the settlement administrator, the Garden City Group,
apparently mailed the court-approved form of notice to all
class members who could be identified or, more specifically,
20,591 individuals at their addresses as then known to class
counsel and as updated by the Postal Service’s national
change of address database reflecting all changes of address
submitted in the last three years.
[37] In addition, the settlement administrator has
reported to the Court that the Court-approved summary notice
was published in the New York Times, the Wall Street
Journal and USA Today.
I acknowledge that the settlement administrator has
reported that approximately 7,000 of the claim packets, which
included notice of today’s hearing, were returned as
undeliverable. That is, of course, not surprising in light of
the fact that this litigation has been ongoing for some six
years and the average individual claim in the case is between
$6,000 and $7,000.
46a
Appendix D
In any event, the Court is satisfied that the notice given,
including the notices published in the newspapers of national
circulation, was the most reasonable and practical under the
circumstances and was also customary in the administration
of class action settlements.
I also note, however, that efforts are, according to the
settlement administrator, ongoing to mail claim packets to
the class members whose packets were returned as
undeliverable.
That came about not because of the efforts initiated —
not because of efforts initiated by the settlement
administrator, as I understand it, but because pursuant to the
request of class counsel the Court ended up ordering the
settlement administrator to contract with another vendor to
obtain updated addresses.
[38] Since then the settlement administrator has advised
the Court that that vendor has supplied 4,743 updated
addresses to which claim packets were recently mailed, and
that additional updated addresses are expected shortly.
Now, having found that the best notice that was
reasonable, practical and customary in the circumstances has
been given, this matter is now ripe for final approval of the
settlement and the other matters that I outlined at the
commencement of this hearing.
To set the stage for how I wish this hearing to be
conducted, I next wish to review the terms of the notice which
govern the participation of class members at this hearing.
47a
Appendix D
The notice specifically required that any class member
opposing the settlement, including class counsel’s request
for fees and expenses, to have notified the Court and the
parties of his or her opposition by March 17th, 1997 by, first,
filing with the clerk of the Court a notice of such person’s
intention to appear together with a statement indicating the
basis for his or her opposition along with any supporting
documentation; and, second, by serving copies of such notice,
Statement, documentation and related papers or briefs upon
plaintiffs’ settlement counsel and defendants’ counsel,
Martin Kaminsky. .
Now, until this morning I was aware of only one
communication which had been received in response to the
notice [39] which stated any Opposition to the proposed
settlement, and that communication was in the form of a
pleading submitted by Carol Orkin, who I understand is
present here in court.
Maybe Ms. Orkin can stand so I know who she is. You’re
Ms. Orkin. Okay. Fine. Thank you. You can have a seat.
Now, Ms. Orkin set forth several — well, three grounds
on which she was objecting to the terms of the settlement. I
don’t know that she’s objecting to the settlement in its
entirety, but she was objecting to certain terms of the
settlement, and she, true to her word, is here today to make
her feelings known, and at an appropriate time I’m going
call on Ms. Orkin to come forward so that she can state what
her position is with respect to the settlement.
48a
Appendix D
Now, this morning it was brought to my attention that
there is present here in court an individual named Christopher
Madden. Where is Mr. Madden?
(Raises hand).
Okay. And Mr. Madden contends that on March — I
guess — he provided me with certain documents and | think
copies have been provided to counsel. The letter states that
he provided to me that’s directed to the clerk of the Court:
“I plan to attend the settlement hearing on March 31 to learn
more about my standing in the class action suit against
MultiVest to verify that I have been given proper priority
[40] within the class and find out more details about the class,
the distribution and the plan of allocation. I plan to present
evidence of a previous settlement signed by the vice president
of MultiVest Options.” And he enclosed a release that he
had executed as a result of a reparations proceeding, | take
it, that he was involved in with MultiVest Options.
Now, what is the position of the — I must tell you, Mr.
Madden, that I suspect that you are — I did not have a chance
to really get into this because I only received this this
morning, for some reason. But in looking at your release, |
suspect that you are excluded from the class.
But, what is the plaintiffs’ position on this?
MR. GOTEINER: Your Honor, we’d have to go back
to the ruling. But I do provisionally believe that the language
in the release may mean he’s excluded. I think this is the
magistrate’s — the Special Master’s ruling, which was
affirmed, but I’m not sure.
SAE eT ee CEE Se Se
49a
Appendix D
MR. NEWMAN: Your Honor, if I might speak. I don’t
know that we actually represent Mr. Madden, but Mr.
Madden told me he never received the $1,900 referred to in
his letter. So it may or may not be that he was released. We
just don’t know the facts.
THE COURT: Okay. So, what is the plaintiffs’ position
on whether or not — well, let me ask Mr. Madden.
Mr. Madden, do you wish to be heard today or are you
[41] simply hear to listen and to find out?
MR. MADDEN: Well, I'd like to be heard, but I’m not
sure what I’m going to say.
THE COURT: Okay. Well, that’s fine. Have a seat.
Well, what do you all think? Should we at an appropriate
time let Mr. Madden speak or not?
MR. GOTEINER: Why not, Your Honor?
THE COURT: And what do the defendants say?
MR. DODYK: Your Honor, I don’t have any objection
to that.
It occurs to me that this may be a nonclass problem in
that it sounds like Mr. Madden has an unsatisfied claim
against the receiver for $1,900, which is outside the class.
But the receiver may have a view on that.
50a
Appendix D
THE COURT: Okay. So maybe we need for the receiver
to — when the receiver returns, we’ll revisit Mr. Madden’s
situation. :
Okay. Now, the only other communication apparently
which the attorneys received that was not in the nature of an
opposition but more in the nature of an inquiry, which was
from Mr. and Mr. Dorsey in Chicago, Illinois, who I take it
are not here. Are the Dorseys here? The Dorseys are not
present.
And they apparently had an account with MOI that
straddled the end of the class period, and inquired whether
they could recover for money lost in transactions after [42]
10-31-89.
So, although the Dorseys aren’t here, I would hope that
class counsel would explain during their presentation the
rationale for the exclusions of the transactions subsequent
to 10-31-89.
Now, let me also note before we proceed further that
class counsel have now submitted their fee and expense
petitions. Counsel is requesting one-third of the settlement
fund as their fee and also $2,665,000 in expenses.
Now, I do want to note that the settlement’s stipulation
that the — excuse me, that the fee request of one-third of the
settlement fund is the maximum amount of fees that the
parties agreed — the parties, that’s both sides — agreed could
be sought pursuant to the settlement stipulation that the Court
approved at the end of January, after being assured by both
Sla
Appendix D
sides that a fee of one-third of the gross amount of the
settlement fund would be well within the range of reasonable.
Moreover, as part of the stipulation — and it’s also in
the order giving preliminary approval to the settlement —
defense counsel agreed not to oppose the fee and expense
application so long as the application did not exceed a request
for a one-third fee — that’s one-third of the settlement fund
— plus expenses.
Now, I also want to note that I am far from committed
[43] to paying — to the payment of the fees and expenses
with 25 percent in cash and 75 percent as a deferred
obligation that the plaintiffs’ counsel has more recently
proposed.
My preliminary view, although, again, I want to hear
from everyone today, is that the portion allocated to cash
Should be in a sum certain in order to avoid uncertainty
concerning the amount and timing of the cash distribution,
to avoid unnecessary administration expenses and to decrease
the counts for conflict.
Now, as I think you all can see, I also am fairly intent
on resolving the receivership issues today because I would
like to have some understanding of the extent to which the
contribution of the receivership to the settlement fund will
have in covering the expenses of the administration of the
settlement.
Now, let’s turn to the main reason we’re here today,
which is to determine whether the proposed settlement is
52a
Appendix D
fair, reasonable and adequate, and it seems to me that we
should first hear from Ms. Orkin and then perhaps we’ Il give
Mr. Madden a chance to say whatever he wants, and then
we’ ll let both sides say whatever they would like with respect
to the settlement.
Yes.
MR. COOPER: Your Honor, my name is John Cooper.
I believe that there’s one item I’d like to correct [44] for
the record, and that is I thought that I heard the Court say
that the notice was mailed on February 21st. I believe that it
was mailed on February 14th.
MR. GOTEINER: That’s correct, Your Honor.
THE COURT: Okay. Fine. Thank you.
Okay. So, Ms. Orkin, do you wish to come forward and
say anything other than what’s contained in your written
objections?
MS. ORKIN: I do object to the original plan of
allocation, although I do understand from my own experience
with class action litigations that 20 percent is not an
unreasonable sum to obtain back from a class action.
I would also like to see the filing deadline in this case
extended because of the fact that so many of the addresses
were outdated. This case is anywhere between eight and 11
years old as far as the addresses are concerned, and you’ve
53a
Appendix D
had more than 7,000 returned, as you reported, and many of
those people are Only just now getting their claims. I don’t
think there’s sufficient time for them to both request their
monthly Statements, get them back, then complete a claim
form.
This is income tax time. People are filing their tax returns
for April 15th. I do not think it would be unreasonable to
extend the filing deadline and give people an additional
Opportunity to file claim forms.
THE COURT: Okay. Anything else?
[45] MS. ORKIN: It’s just my contention. I would like
to see as much of this settlement go to all of the members of
the class and nothing back to the defendants.
I know that this is a reversionary settlement, but I would
like to see as much of this money go to all of the plaintiffs.
Thank you.
THE COURT: Okay. Thanks.
And now, Mr. Madden, what do you want to tell us?
MR. MADDEN: I’ll be very brief, and I don’t have any
objection to the settlement. I just don’t know where I stand,
if at all, in that settlement class.
Let’s see. Brief background.
S4a
Appendix D
THE COURT: Sure.
MR. MADDEN: Ten years ago I opened an account with
MultiVest, lost $3,000 due to what I believe was fraud and
negligence, et cetera.
And a year before this class action was filed, I filed a
notice that I intended to file an action against MultiVest,
which I did do. I filed a complaint with the CFTC, and I was
approached by MultiVest shortly after that via this letter,
which you have a copy of, stating that they wish to settle for
the amount of $1,900, which I agreed to and accepted and
signed, and this letter and accompanying document was
signed by officers of James McTevia and Associates on
behalf of [46] MultiVest, and subsequently received nothing
and was told after I called them that they would not be
honoring their letter. ;
So, basically what I’m wondering 1s if —
THE COURT: Did they give you any explanation as to
why they weren’t going to honor the letter?
MR. MADDEN: No.
THE COURT: Okay. So, how did the release end up
going back to the receiver? You signed the release and sent
it back anticipating you would get the $1,900?
MR. MADDEN: That’s right.
THE COURT: Is that what happened?
Sa al
NE ee Oe aE Fe ee ye ee ao fee ee
55a
Appendix D
MR. MADDEN: They said after you return the signed
originals of the enclosed documents to me — this is James
Robash of McTevia and Associates — [| will send you
MultiVest Options’ check in the amount of $1,900. After |
send you the check, I will file the notice of satisfaction with
the CFTC,
So I sent —
THE COURT: And, again, what did they tell you as to
why they weren’t sending you your $1900?
MR. MADDEN: This was SO Many years ago, I don’t
exactly remember. But I think they just basically said we’re
not going to honor the agreement.
THE COURT: As you see, the receiver is here today.
So, I think when the receiver comes back into the room, at
some appropriate time we’]] try to take it up with the receiver
and [47] try and understand what happened here.
MR. MADDEN: That will be good.
Obviously, I’m ignorant of all the legal complexities of
all this, but I just learned from Statements made a couple
seconds ago that may or may not exclude me from the class.
I don’t know if that’s good or bad for me. And I also knew
nothing about this class action suit until a couple weeks ago
when I read about it in the Paper.
THE COURT: So you saw the notice in the Paper.
56a
Appendix D
MR. MADDEN: That’s right. Actually it wasn’t the
notice. Since I live in Boynton Beach it was just a local news
item because it’s a company, or was.
Also, if 1 am in the class, if there’s a hierarchy within
the class and if this moves me higher or lower, close to
the —
THE COURT: There are no priorities among the class
members. Everybody’s the same.
MR. MADDEN: Okay.
And basically, it would be really nice to know why
something that I was able to accomplish, you know, seven
years ago without paying lawyer’s fees and all the other
receiver’s fees, now, if I do receive anything from this, |
would have to pay all that, you know, additional monies on
top of that; in other words, that comes out of the settlement,
my part of the settlement.
[48] That’s about all I have to say.
THE COURT: All right. Thank you.
MR. MADDEN: Thank you.
THE COURT: So who from the plaintiffs is going to
speak concerning the fairness, adequacy and reasonableness
of the settlement and perhaps address, hopefully address,
Ms. Orkin’s and Mr. Madden’s concerns?
57a
Appendix D
MR. GOTEINER: Your Honor, we have filed
documents — Neil Goteiner on behalf of the plaintiffs.
We have filed pleadings, particularly the one on F ebruary
21, where we’ve set forth in some detail why we think the
settlement is fair and reasonable, and I don’t want to burden
the Court with more discussion on that. It is a fair and
reasonable settlement.
THE COURT: If you want fo rest on your papers, that’s
Okay with me.
Do you want to respond to some of the issues that Ms.
Orkin raised?
MR. GOTEINER: Absolutely.
Well, Ms. Orkin raised, I think, three issues in her Papers.
One has to do with the reversion, and, of course, that was
part and parcel of the settlement Process and it enabled us to
have a bigger settlement pot for those people who do come
and claim. So — in fact, I’ve explained this to Ms. Orkin
Over the phone some time ago.
[49] So we think this was a fair and reasonable part of
the settlement and made a lot of sense because it did create a
bigger pot.
With respect to the $50 charge, which Ms. Orkin raised,
that was going to be paying for the expenses that the receiver
was going to undergo. There has been some issues, as you
know, raised in the correspondence about that.
58a
Appendix D
But the $50 was to come out of any award to a particular
class member. It would not be paid up front. And at the time
that was reasonable, it seemed to us. But there has been, as |
say, some correspondence on this point which the Court
might want to address after Mr. Buchband gets his letter on
file.
The other objection that I recall Ms. Orkin made had to
do with the fees. She didn’t raise it orally, but, you know,
the Court might want to discount a little bit what I have to
say on this. We disagree with Ms. Orkin’s written challenge
to our fee. I did offer Ms. Orkin to send her the materials so
she could make a more informed evaluation of that, and asked
her not to — asked her to be gentle with us on this point. So,
in any event, she declined to take a look at those documents.
THE COURT: Okay. What do you think about Ms.
Orkin’s comments concerning whether or not the bar date
for filing claims should be pushed back?
[50] MR. GOTEINER: I was going to address that as
well. :
We agree. Obviously, plaintiffs think it should be pushed
back. I] should report to you that Mr. Buchband told me that
when he was looking at the success rate, he was coming up
with a 93 percent success rate on identifying these addresses.
Curiously, by pure serendipity, Ms. Orkin told us prior
to the hearing that in fact she works with the Garden City
Group and she has some knowledge of this as well, and they
are doing a good job now of finding these addresses.
59a
Appendix D
The Court should also know on this score that Mr.
Buchband further agreed that, to the extent these people
aren't located, that he’s going to go the next route, which is
a $16, $15 charge, which is paid only if you get a hit, that is,
only if you find the address.
So we think these people should get an additional time
to file a claim.
THE COURT: How far back do you think the bar date
Should be pushed?
MR. GOTEINER: Well, it would seem fair to me that
the people who are receiving the notices now should get the |
same amount of time to file their claims with the account
Statements as the rest of the Class got.
THE COURT: Well, I think we need ultimately a cutoff
date. I mean, I don’t think it can be a fluid date. I think the
date has to be fixed.
[51] MR. GOTEINER: Well, that’s fine.
THE COURT: So, what do you Suggest? May 15th?
MR. GOTEINER: Subject to Ms. Orkin agreeing, of
course, May 15 would seem to be a fair enough date.
THE COURT: Okay. Anything else you want to say?
MR: GOTEINER: No.
60a
Appendix D
THE COURT: Okay. Fine.
Okay. What do the defendants wish to say?
MR. DODYK: If Your Honor please, I only have one
comment to make, and that is with respect to what Ms. Orkin
states with respect to the current mailing.
And I would simply note for Your Honor that this is a
problem which arises customarily in the administration of
class actions, and the solution which is normally adopted by
the courts is not to postpone the date by which the claims
must be submitted, because typically, I think once the claims
come in, then the parties simply stipulate that certain late
claims, in occasions in which the late mailing is caused by
some problem in the administrative process, such as, for
example, in this case the decision to use the alternative source
for the obtaining of the addresses, is accepted by both parties
as a reason why with respect to those late-filed claims they
will still be admitted.
So I would encourage Your Honor simply to see what
happens, and I would be encouraged to think —
[52] THE COURT: Well, you know, in most cases I
would be willing to do that. But in this case I’m not.
Is there an agreement that late-filed claims filed up
through May 31st will be recognized?
MR. DODYK: Your Honor, I can’t state that at this
point. But I can certainly say that defendants would consent
se Ds cot i a
6la
Appendix D
to any mailing — any claim which came in late in which the
lateness was due to some administrative problem, and I would
hope that we would be able to resolve those without any
further litigation. I can’t —
THE COURT: Mr. Dodyk, I mean, really at this point I
think you must understand that there is very little hope of
resolving anything in this case wi thout additional litigation.
MR. DODYK: | don’t believe that’s true, Your Honor.
I really don’t believe that’s true.
THE COURT: I see. Well, what do you think that the
impediments are to my just pushing the bar date back?
MR. DODYK: I’m not sure that’s possible. I’ve never
seen a Case in which that’s been done.
THE COURT: Okay.
MR. DODYK: And the bar date is a part of the
stipulation; and while the Court has powers, obviously,
procedurally over —
THE COURT: I’m notsure. I ’m trying to recall whether
the bar date was specifically part of the stipulation [53] or
whether it was contained in the order.
MR. DODYK: The stipulation says that the bar date is
60 days after the mailing date, and then we put in the order
April 15 because it was 60 days after the February 14th
mailing date.
62a
Appendix D
THE COURT: Well, actually I think that’s sufficiently
flexible to deal with the problem. Sixty days after the mailing
date, whatever the mailing date might be.
MR. DODYK: Your Honor, that might be an appropriate
solution with respect to this class of claimants. I’m not
contesting that. All I Your Honor to do is, rather than
attempting to resolve it in this fashion, why don’t we what
happens, because that’s the way it normally works out.
THE COURT: Well, because seeing what happens in
this case doesn’t work out very well.
MR. DODYK: Well, Your Honor —
THE COURT: Okay. So, if your representation to me
is that that’s the language in the Settlement Agreement, then
I think that that pretty well does it. Sixty days from the date
of mailing.
MR. GOTEINER: Your Honor, I would just add to it
that I think what would be appropriate is for Mr. Buchband
— we’ll get anew notice for those people who get late notices
because they have to be told that, because right now it says
April 15th. So those people — Mr. Buchband knows exactly
who [54] those are; that there will have to be another notice
sent to those people extending that date.
THE COURT: Well, okay. So you all are in favor of
waiting and seeing what happens also.
MR. WISOFF: No, Your Honor.
63a
Appendix D
Just to clarify it, the notices that Mr. Buchband is mailing
out is the court-approved form of notice which has the April
1Sth date.
THE COURT: Right.
MR. WISOFF: We don’t want people who have received
this and it’s after April 15th to refrain from filing because of
that. So, what we Suggest is that there be an amendment
included in the remailed notices to let them know they have
60 days from the date of mailing, so that they won’t be
discouraged from filing a claim during that 60-day period.
THE COURT: So, what are you Proposing? Let’s be
concrete here. Are you Proposing that Mr. Buchband simply
inclose some kind of brief statement?
MR. GOTEINER: Some of them have already been sent
out, Your Honor. So, with Tespect to some that have already
gone out, there’s going to have to be a little one-page
document that Says the Court has extended your time to
answer it until this date. Al] right.
And with respect to the ones that are going out now or
haven’t gone out yet, something can be included within that
[55] notice that Clarifies it.
THE COURT: Okay. Well, I see the defendants
thumbing madly through the settlement stipulation trying to
see what is provided.
MR. DODYK: Your Honor, the research isn’t providing
any change from what I stated originally. | again would
64a
Appendix D
encourage the Court to think in terms of seeing what happens
when it comes in. | understand Your Honor’s view on that,
but that would be my recommendation.
THE COURT: Okay. Well, let me just say this in the
hope of avoiding further litigation on the point, which is
that if the agreement provides 60 days from the date of
mailing, then Mr. Buchband needs to keep records as to when
the mailings are occurring. Let’s start there.
If there is aneed for Mr. Buchband to notify the people
who received the notice late — as I understand it, there have
been two mailings so far, is that right?
MR. GOTEINER: Your Honor, there could have been
more than two. What’s happening is | instructed — well, in
fact, Mr. Dodyk didn’t oppose it — I told Mr. Buchband to
get those notices out as soon as he got the addresses.
THE COURT: Yes, but —
MR. GOTEINER: So there could have been a
rolling —
THE COURT: — the affidavit I received from the
Garden City Group on March 27th conveys to me that there
have [56] been two mailings. At least that’s the way I
understand it.
MR. GOTEINER: I think he means, Your Honor — I
can’t speak for the man — but what he told me was that it is
ongoing. As he gets the batch of the addresses back from
CO,
65a
Appendix D
Mr. Miller at this credit bureau, he sends out additional
notices.
We do know that the first mailing was on F ebruary 14th.
That’s what we do know.
THE COURT: And do you know when the second
mailing was?
MR. GOTEINER: Ms. Orkin, I understand, can confirm
for the Court that what I’ve told you is correct.
THE COURT: But Ms. Orkin, I take it. doesn’t have
the dates of the mailings.
MS. ORKIN: No, I don’t have that on me. But it is ona
rolling basis. As they come in, everything will go out.
THE COURT: Okay.
And that’s really, I think, all I have to say on it. I say it
by way of guidance in the hopes that we can avoid [57]
further litigation on this subject.
Yes, Mr. Newman.
ee
66a
Appendix D
MR. NEWMAN: Is the Court so ordering those so that
we can represent that to Mr. Buchband?
THE COURT: Yes, I am ordering that.
MR. NEWMAN: Thank you.
THE COURT: Okay. Now, I would like to know — I
would like some kind of report or something filed with me
when the mailing has been concluded, so I know. Okay?
MR. GOTEINER: Yes, Your Honor. I think Mr. |
Buchband will submit that to the Court.
THE COURT: Okay. All right.
So, I did review what the plaintiffs provided with respect
to their position on the fairness and adequacy and
reasonableness of the proposed settlement. I am generally
in agreement with their analysis of the situation. I do want :
to make a few additional observations or amplify some of |
the observations that the plaintiffs’ lawyers have already
made.
First of all, I believe that the plaintiffs have applied the
correct lega! analysis to the issue of whether or not the
settlement is fair, adequate or reasonable by assessing the
proposed settlement in terms of its relationship to investor
losses, in relationship to the difficulties which were incurrent
in the case, in relationship to the complexity, duration and
expense of the litigation, in relation to the [58] substance
and amount of the opposition to the settlement, in relationship
et i i i ie Bin me
67a
Appendix D
to the stage of the Proceedings at which the settlement was
achieved, and in relation to the plan of allocation.
Now, more specifically, with respect to each of those
factors, | want to make the following observations:
In relationship to the amount of investor losses, the
settlement fund consists of $10 million in cash plus
approximately $185,000 to be transferred from the CFTC
receivership and $30 million in the fully secured master
Notwithstanding that a significant Portion of the class
members’ recovery will be deferred, I am convinced that
the settlement represents a substantia] recovery in the
To put the Significance of the recovery in numerical]
terms, $40 million represents approximately one-third of the
investor losses of approximately $120 million, and even
68a
Appendix D
allowing for the delay in payment by factoring in
prejudgment interes
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