RICHARD DUHAIME, et al.
On Behalf of Themselves and
All Others Similarly Situated,
v. Case No. 96-10706-GAO
JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY, et al.,
On December 31, 1997, this Court approved the settlement in this case. Diane A. Nygaard, counsel for thirteen purported class member-objectors ("the Rose Objectors"), timely filed a notice of appeal on January 30, 1998. On March 10, 1998, the Rose Objectors filed a notice of withdrawal of appeal with prejudice with the United States Court of Appeals for the First Circuit, which was granted the following day.
In March 1998, shortly before receiving the notice of withdrawal of appeal, Brian Wolfman, one of the attorneys for Senator Metzenbaum, learned from Ms. Nygaard that the Rose Objectors had reached, in her words, a "very, very good settlement" in cash and that they would be abandoning their appeal. See Ex. 1, Declaration of Brian Wolfman 57 ("Wolfman Decl."). After the First Circuit ordered that the appeal be withdrawn, Mr. Wolfman and counsel for the settling parties exchanged a series of letters over the next three-and-a-half months relating to whether the settling parties were planning to present the terms of the side settlement with the Rose Objectors to this Court for its approval. Id. 911. In this correspondence, counsel for John Hancock represented that they did not plan to present the side settlement to this Court, and class counsel initially failed to respond to Metzenbaum's inquiry. Id., Attachs. C, D, G. On June 1, 1998, counsel for class member Metzenbaum propounded interrogatories and requests for production of documents to defendants, the class plaintiffs, and the Rose Objectors. See Ex. 2, Interrogatories and Request for Production of Documents of Class Member-Objector Howard M. Metzenbaum to the Defendants, the Class Plaintiffs, and the Rose Objectors. Counsel for the class and for John Hancock have informed us that they believe the discovery is improper; counsel for the Rose Objectors initially stated that she plans to file no response on the issue of presenting the side settlement to this Court, and she has since stated that she believes that discovery is improper. Id. 1113, Attachs. FL; see also Ex. 3, Declaration of Douglas L. Stevick (Stevick Decl.) 3.
It is Senator Metzenbaum's position that, because the interests of all class members are affected by the side settlement with the Rose Objectors, Rule 23(e) of the Federal Rules of Civil Procedure requires that the settlement be presented to this Court for its approval. If the discovery reveals, as we suspect, that the side settlement with the Rose Objectors is substantially different from the deal offered to the class members, we plan to file a motion pursuant to Rule 60(b) asking the Court (a) to require the defendants to offer the same deal to all class members, including Senator Metzenbaum, or (b) to abrogate the Rose Objectors' side settlement and require that the settlement proceeds be dedicated to the interests of the class as a whole. Accordingly, Senator Metzenbaum moves to compel responses to his interrogatories and requests for production of documents. In the alternative, if the Court finds that Senator Metzenbaum is not a party to this action, then Senator Metzenbaum moves to intervene for the limited purposes of compelling the other parties to present the side settlement to the Court for its approval and of offering comments upon the side settlement's fairness, adequacy, and reasonableness. Because this Court retained jurisdiction over this action "for any . . . necessary purpose," see Final Judgment and Order 10, this action is still pending, and the Court has jurisdiction over the matters raised by Senator Metzenbaum's motion.
As an absent class member, Senator Metzenbaum as a matter of law is already a party to this action. The Supreme Court has held that all absent class members are "parties to the suit." American Pipe & Constr. Co. v. Utah, 414 U.S. 538, 551 (1974); see also McDonald v. Secretary of Health & Hum. Serv., 834 F.2d 1085, 1091 (1st Cir. 1987) (holding that sixty-day limitations period for exhausting administrative remedies was tolled during pendency of class action because "the commencement of a class action suspends the statute of limitations as to all asserted members of the class who would have been parties had the suit been permitted to continue as a class action") (quoting Crown Cork & Seal Co. v. Parker, 462 U.S. 345, 35354 (1983)) (emphasis added). This Court gave both preliminary and final certification to the plaintiff class in this case; Senator Metzenbaum did not opt out, and he remains a class member. He is, therefore, a party to this action, and he may seek discovery from the other parties pursuant to Rules 33 and 34 of the Federal Rules of Civil Procedure. Indeed, many cases have held that absent class members have an independent right to discovery. See 2 Newberg on Class Actions 11.57 (citing cases).
As to the merits of the Rule 37 motion to compel, Senator Metzenbaum's discovery requests fall within the purview of Rules 33 and 34. Rule 33(a) permits "any party" to serve upon "any other party" no more than twenty-five interrogatories without leave of court. Senator Metzenbaum's interrogatories are not burdensome or numerous--there are only seven--and are directed solely to the issue of the terms of the side-settlement between John Hancock, class counsel, and the Rose Objectors. See Ex. 2, at 24. Similarly, Rule 34(a) permits "[a]ny party" to serve on "any other party" a request for production of documents. Senator Metzenbaum requests that the other parties produce "all documents that contain information responsive to the foregoing interrogatories or that relate in any way to any agreement among the Rose Objectors and the Defendants, or between the Rose Objectors and the class payments." Id. at 6. This request is unambiguous and narrow, and it relates solely to the side-settlement. As the attached declaration and the correspondence attached thereto demonstrate, Senator Metzenbaum, in conformity with Rule 37(a)(2)(B), has conferred with the other parties in an effort to secure the information and material without court intervention. Therefore, Senator Metzenbaum has no other way of obtaining this information.
Furthermore, it is evident even from the brief correspondence between counsel for Senator Metzenbaum and the remaining parties that discovery is necessary. Counsel for John Hancock has responded to Senator Metzenbaum's inquiries into the issue of the side settlement by stating that they "appear to be premised on the false assumption that all of Ms. Nygaard's clients were class members," whereas, according to John Hancock, "several of her clients had either opted out or claimed to have opted out, and that "other of her clients had policies that were not encompassed in the Duhaime class." Wolfman Decl., Attach. H. Similarly, counsel for the Rose Objectors has informed Senator Metzenbaum's counsel that some of the Rose Objectors had opted out or were regarded by John Hancock as having opted out, and that others had multiple policies. See Stevick Decl. 4. While the other parties have confirmed that at least some of the Rose Objectors were, in fact, class members and not opt-outs or other ineligible individuals, see Wolfman Decl. 12 & Attachs. I, J, our lack of knowledge about such basic features of the side-settlement underscores the importance of discovery. Therefore, the motion to compel interrogatories and production of documents should be granted.
If the Court finds that Senator Metzenbaum cannot take discovery because he is not a party to this action, he moves, in the alternative, to intervene pursuant to Rule 24(a) and (b).
An applicant may intervene of right
when the applicant claims an interest relating to the property or transaction which is the subject of the action and the'
applicant is so situated that the disposition of the action may as a practical matter impair or impede the applicant's ability to
protect that interest, unless the applicant's interest is adequately represented by existing parties.
Fed. R. Civ. P. 24(a)(2). To intervene of right, therefore, a movant must show (1) that the motion is timely; (2) that he has a direct and substantial interest in the subject matter of the litigation; (3) that the disposition of the action may as a practical matter impair his ability to protect that interest; and (4) that his interest is inadequately represented by the existing parties. Caterino v. Barry, 922 F.2d 37, 3940 (1st Cir. 1990).
Senator Metzenbaum's interest in this action arises from the requirement of Rule 23(e) that a "class action shall not be dismissed or compromised without the approval of the court." A major purpose of this requirement "is to discourage the use of the class action device to secure an unjust private settlement for the named plaintiff to the detriment of the remainder of the putative class." 2 Newberg on Class Actions, 11.65, at 181. The side settlement with the Rose Objectors has resulted in the withdrawal of their notice of appeal and, thus, the dismissal of this case. Just as named plaintiffs or their lawyers may not use a class action lawsuit to secure a favorable private settlement at the expense of absent class members, so too objecting class members, by appealing an approved class action settlement, may not gain leverage for obtaining a favorable side settlement due to the delays inherent in appeal and the possibility, however remote, of reversal. Such side deals adversely impact the direct and substantial interests of absent class members in ensuring that similarly-situated class members are treated alike and that monies paid by the defendants for purposes of settlement inure to the benefit of all class members. For example, a side settlement in this case in which a class member-appellant agreed to dismiss an appeal in exchange for $1 million in cash would raise grave questions as to why the other class members did not obtain the same deal or why that money was not made available to the class as a whole.
Senator Metzenbaum is not certain that the side settlement with the Rose Objectors is unjust, but he does contend that the settlement must be presented to this Court for such a determination. The conduct of the other parties, who have stated that they have no intention of presenting the side deal to this Court, shows that they are not adequately representing Senator Metzenbaum's interests on this issue. Finally, his application to intervene is timely: Senator Metzenbaum's counsel wrote to class counsel and counsel for John Hancock within a few days after the appeal was withdrawn to inquire whether they intended to present the side settlement to this Court for its approval. More than two months passed before class counsel responded to Metzenbaum's inquiry, and his counsel have been expeditiously pursuing this matter since receiving that response.
Furthermore, by scrutinizing the side settlement with the Rose Objectors, this Court would establish an important precedent for class action litigation that would benefit both plaintiff classes and class-action defendants: plaintiff classes, because settlements will not be held hostage by a class member who prosecutes a nuisance appeal solely to secure an individual settlement from the settling parties that is out of all proportion to the relief afforded to other class members under the settlement or to the harm that he suffered, and defendants, because they will more quickly be able to secure the desired release and will more certainly be able to estimate liability. Subjecting side settlements to court scrutiny will also free up more money (or favorable presumptions in an alternative dispute resolution process) for the class as a whole, whose claims generate the value of the settlement. Class counsel will be able to seek a higher-valued settlement because they know that the defendant need not withhold money to buy off the previously inevitable nuisance appeals. In the long run, Rule 23(b)(3) class actions will be streamlined and appeals limited only to those class members who are truly dissatisfied with the merits of the settlement.
In the alternative, Senator Metzenbaum should be allowed to intervene permissively under Rule 24(b), which gives a district court the discretion to allow a timely motion to intervene if the movant's claim and the main action have a common question of law or fact and intervention would not unduly delay or prejudice the rights of the original parties. Senator Metzenbaum's motion to intervene meets all three requirements. First, for the reasons stated above, his motion is timely. Second, because Senator Metzenbaum is a class member who was sold a vanishing premium policy, his claim are identical to those of many other class members. Third, his intervention will not unduly prejudice the rights of the original parties because the issue of approval of the side settlement with the Rose Objectors by this Court will have no adverse effect on the class members. If the Court reviews the side settlement and finds that it is fair, intervention will not alter implementation of the settlement agreement between John Hancock and the class. If, on the other hand, the side settlement is disproportionate to the relief accorded other class members, and the Court agrees that the class must be offered a similar deal or the Nygaard settlement proceeds must be paid to the class as a whole, intervention will improve the position of the class.
For the foregoing reasons, Senator Metzenbaum's motion to compel answers to interrogatories and production of documents or, in the alternative, for limited intervention, should be granted.
Douglas L. Stevick
Public Citizen Litigation Group
1600 Twentieth Street, N.W.
Washington, DC 20009-1001
Attorneys for Class Member
Howard M. Metzenbaum
July 8, 1998