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.,
Defendant John Hancock's response to Senator Metzenbaum's motion to compel discovery or, in the alternative, for limited intervention raises a grab-bag of procedural points--most of which are irrelevant--in an effort to maintain the secrecy of its side-deal with the Rose Objectors. These procedural points have no force because they fail to appreciate that the primary objective of Metzenbaum's motion is to compel the settling parties to present the Nygaard Settlement to this Court. In short, Rule 23(e) requires this Court to scrutinize the Nygaard Settlement to ensure that class members are treated similarly and that monies offered to settle the claims of the class benefit all of the class. Before turning to the particular arguments raised by Hancock, it is important to step back and examine what has occurred here and what Hancock would like this Court to ignore.(1)
Metzenbaum's motion seeks to discover whether a payoff took place here. The Rose Objectors, claiming membership in the class, filed objections to the settlement. Their objections centered on the propriety of certification, a characterization of General Policy Relief as a marketing scheme, and on alleged procedural difficulties with the settlement's ADR process that would make it impossible, in the Rose Objectors' view, to navigate the ADR and obtain any relief. See, e.g., Objections of Kathryn Rose et al. to Class Notice & Deadlines, Proposed Settlement, and Att'y Fee Req., Parts I & VI. The objection to the adequacy of the ADR process was the near-exclusive focus of Ms. Nygaard's presentation at the fairness hearing on behalf of the Rose Objectors. This argument was countered--indeed, virtually ridiculed--by class counsel and counsel for the defendants at that hearing. No changes to the settlement agreement were made in response to points made by the Rose Objectors. This fact was driven home by Ms. Nygaard herself, when she told counsel for Metzenbaum that, in light of her private settlement, only her clients (but not the other class members) would obtain meaningful relief in this case. See Wolfman Decl. 6.
On December 31, 1997, this Court approved the settlement and rejected all outstanding objections to it, including those of the Rose Objectors. Undaunted, Ms. Nygaard filed a fee application, seeking compensation for approximately 600 hours of work. Hancock opposed the application, arguing that (1) the Rose Objectors had done nothing to benefit the class (or even themselves), and (2) the 600-hour request was grossly excessive. See Defs.' Opp'n to Mot. of Att'ys for Class Members-Objectors Kathryn Rose et al. for Atty's Fees & Expenses at 2.
Meanwhile, the Rose Objectors appealed the settlement's approval to the First Circuit. Soon thereafter, they dropped their appeal and withdrew their fee application--and thus any objections to the settlement--in exchange for substantial cash payments to objectors' counsel and their clients. See Wolfman Decl. 7. Those payments were apparently unrelated to the strength of the claims of the Rose Objectors and not subject to the substantive "law" of the ADR. See id. At present, we do not know the amount of these payments, or whether their source is Hancock, class counsel, or both. But the bottom line is this: Despite having no effect on the settlement's terms, and being unable to convince the Court that their position was correct, the Rose Objectors obtained substantial cash payments that no other class member was able to receive, simply by filing an appeal with the implicit threat to hold up the process that an appeal involves.
Hancock says, in effect, that there is no problem with what we have described above--i.e., that private settlements with class members are perfectly permissible, and hence Senator Metzenbaum has no right to pursue this matter. See Defs.' Mem. Opp'n at 11-12. But Hancock cannot square that position with one of the basic purposes of the class action device: to ensure that similarly situated class members are treated in a similar way. Nor should the Court countenance Hancock's position, which will encourage similar payoffs and permit--indeed, require--defendants to withhold from the class and allocate funds to pay objectors, as part of their calculation as to the amount to be paid in settlement to the class. If, on the other hand, side settlements are required under Rule 23(e) to be submitted for court scrutiny, as we contend, payments such as this one likely will come to an end. Only objectors who genuinely believe that a settlement should not have been approved will take an appeal, and only side settlements presenting legitimate grounds for disparate treatment will gain judicial approval.(2)
We now turn to the particular points raised by Hancock. As a general matter, Hancock misunderstands the primary purpose for which Senator Metzenbaum seeks to compel discovery or, in the alternative, to intervene. The objective of Senator Metzenbaum's motion is to ensure that the side settlement with the Rose Objectors is made part of the public record and presented to the Court for its review and approval or disapproval. For reasons stated above and in Senator Metzenbaum's opening brief, Rule 23(e) requires that the Nygaard Settlement be presented to the Court for its review. It is because defendants, class counsel, and the Rose Objectors refused to present the Nygaard Settlement to the Court on their own that Metzenbaum has moved to compel discovery or, in the alternative, to intervene.
Hancock has little to say in response to Metzenbaum's contention that Rule 23(e) requires that the Nygaard Settlement be presented to the Court, other than to declare that Rule 23(e) does not apply to individual settlements within a class action. See Defs.' Mem. Opp'n at 11. But for reasons stated above and in Metzenbaum's opening memorandum, this assertion is unpersuasive and is certainly not supported by prevailing law. Just as it is impermissible for a named plaintiff to use the class action device to secure a more favorable private settlement than the one he could have secured individually, so too is it impermissible for an objector who appeals to use the fact that he is holding up a class settlement to secure a more favorable private settlement than he could otherwise have obtained. In either case, the claims of the class as a whole, which alone generate the value of the settlement, are used disparately to benefit particular class members, instead of being devoted to all members of the class. Furthermore, if the post-judgment side settlement with the Rose Objectors is not subjected to judicial scrutiny, then we cannot be certain that class counsel has not acquiesced in, or been a party to, a side deal that compromises the interests of absentees--to wit, their interests that monies made available by Hancock for the settlement of class members' claims be directed to the benefit of the class, and not held back to buy off objecting class members who pursue an appeal, but show no special circumstances that would warrant special treatment. In short, class actions are specifically designed to afford similar relief to individuals with similar claims.(3)
In short, Hancock's opposition picks the wrong target. Instead of recognizing that the objective of Metzenbaum's motion is to force class counsel and Hancock to present the Nygaard Settlement to the Court for its review, Hancock concentrates its firepower on Metzenbaum's suggestion that he might, after discovery and review of the side settlement, file a Rule 60(b) motion to require Hancock to offer the Rose Objectors' deal to all class members or to abrogate the Nygaard Settlement and require that its proceeds be directed to the benefit of the class. Because Hancock's arguments regarding discovery and intervention are directed to this possible Rule 60(b) motion, rather than to the Rule 23(e) issue that underlies Metzenbaum's current motion to compel or, in the alternative, to intervene, the arguments are simply nonresponsive. Nevertheless, a few general replies are in order.
First, Hancock characterizes Metzenbaum as seeking to launch a "speculative" attack on the class settlement and the final judgment and order. See, e.g., Defs.' Mem. Opp'n at 2. Although we recognize that Hancock's characterization of our position as "speculative" is pejorative, Hancock is correct that Metzenbaum is acting in the dark. At this time, Senator Metzenbaum does not know whether he will file a Rule 60(b) motion or what specific action he might urge the Court to take, because Hancock, class counsel, and the Rose Objectors have refused to present the side settlement to the Court for its review or make a copy available to Metzenbaum. As Metzenbaum stated in his opening brief (at 2), he does indeed suspect, based on communications with the other counsel, that the Nygaard Settlement is substantially different from the deal that was offered to class members. But any "attack" that Metzenbaum might make on the Nygaard Settlement is "speculative," to use Hancock's terms, simply because, at this time, Hancock and class counsel have refused to disclose the terms of the Nygaard Settlement.
Second, Hancock argues that Metzenbaum's motion to intervene is untimely because more than seven months have passed since the entry of final judgment on December 31, 1997. See Defs.' Mem. Opp'n at 5. Nothing could be further from the truth. Metzenbaum has pursued this matter with diligence, and any delay in filing the motion has been due to the stonewalling of class counsel and Hancock. As shown in detail in the declarations and correspondence attached to Metzenbaum's opening brief, Metzenbaum did not immediately file his motion because he attempted to learn directly from Hancock, class counsel, and the Rose Objectors themselves whether they planned to present the Nygaard Settlement to this Court. After receiving no response from class counsel, who is required to represent all class members in this litigation, to his initial inquiry for two months, Metzenbaum's counsel sent class counsel a renewed inquiry. See Wolfman Decl., Attachs. C, E. After fruitlessly waiting two more weeks without a response from class counsel, Metzenbaum served his interrogatories and requests for production on June 1, 1998. See Metzenbaum's Mem., Ex. 2. Metzenbaum then filed his motion to compel discovery or, in the alternative, to intervene, on July 8, 1998--one week after the expiration of the thirty-day period for response to his discovery requests (but without a response from defendants or class counsel). Given this sequence of events, Metzenbaum's motion is timely.
Third, Hancock contends that the Court's prior ruling denying Metzenbaum's earlier protective motion to intervene, so that he could preserve his right to appeal, "continues to have force and should govern this motion." Defs.' Mem. Opp'n at 4. Hancock does not, however, identify the legal principle that would cause this ruling to "continue to have force," and there is none. Metzenbaum's July 8, 1998 motion for limited intervention raised none of the issues that were implicated by his earlier protective motion to intervene for the simple reason that the July 8 motion is based exclusively on post-judgment events that were not raised, and logically could not have been raised, by the earlier motion. Therefore, neither res judicata, nor estoppel, nor "law of the case," nor any similar theory permits, let alone compels, denial of Metzenbaum's July 8 motion.
Finally, Hancock cites a legion of cases that allegedly supports its contention that Metzenbaum has not met the legal requirements for intervention as of right, permissive intervention, or post-judgment discovery. For reasons stated above, these cases are irrelevant because the gravamen of Metzenbaum's motion is that Rule 23(e) requires the Court to review the Nygaard Settlement. The cases Hancock cites are not germane to this case for the additional reason that none of them arises in the context of an attempt by a class member to compel the settling parties to present the terms of a post-judgment side settlement to the district court for approval, as is required by Rule 23(e). Indeed, because a side settlement that results in the withdrawal of an appeal of the class settlement's approval can, as a matter of necessity, only occur post-judgment, to claim that discovery or intervention should not be permitted because they would threaten the public interest in the finality of judgments is, in effect, to nullify Rule 23(e) in this context. Therefore, when a post-judgment side settlement such as the Nygaard Settlement occurs, discovery and/or intervention should be permitted as a matter of course or the parties to the side settlement would be free to disregard their obligation to present that settlement to the district court under Rule 23(e).(4)
For reasons stated in this and Senator Metzenbaum's opening memorandum, his motion to compel answers to interrogatories and requests for production or, in the alternative, for limited intervention should be granted. As a further alternative, the Court should order the settling parties and Ms. Nygaard to present the terms of the Nygaard Settlement to the Court for its review and give notice and opportunity for comment to all who participated in fairness proceedings in the district court.
Douglas L. Stevick
David C. Vladeck
Public Citizen Litigation Group
1600 Twentieth Street, N.W.
Washington, DC 20009-1001
Attorneys for Class Member
Howard M. Metzenbaum
August 5, 1998
1. We have been informed by class counsel that they do not intend to respond to the motion to compel. Since class counsel have not responded to Metzenbaum's discovery on a timely basis, see Fed. R. Civ. P. 33(b)(3), 34(b), and failed to respond to the motion to compel, Metzenbaum's motion with respect to the class plaintiffs should be granted on that basis alone.
2. At this juncture, without all the facts at hand, Senator Metzenbaum does not suggest that the Rose Objectors took an appeal solely for the purpose of extracting a favorable private settlement for the objecting class members whom she represents. Nevertheless, if the Nygaard Settlement and other settlements like it are not presented to the district court pursuant to Rule 23(e), then the path is cleared for other appeals, the sole purpose of which is to extort money from class counsel and/or the defendants. We would have thought that counsel for Hancock and the class, who are repeat players in class action litigation, would welcome court review of such side settlements because judicial scrutiny would discourage such tactics, would enable settling defendants to more certainly fix their liability exposure, and would confer greater benefits on the class with whom defendants often have an ongoing relationship.
3. Hancock's reliance on In re General Motors Corp. Engine Interchange Litig., 594 F.2d 1106 (7th Cir. 1979), and Rodgers v. United States Steel Corp., 70 F.R.D. 639 (W.D. Pa. 1976), is puzzling. Neither case deals with the Rule 23(e) issue raised by Metzenbaum's motion, which is whether Rule 23(e) requires that a post-judgment side settlement that results in the withdrawal of an objector's appeal of the class settlement be presented to the district court for review.
4. Moreover, as stated in our opening brief (at 3), Metzenbaum's principal claim in this regard is that intervention is not necessary because he already is a party to the suit. See American Pipe & Constr. Co. v. Utah, 414 U.S. 538, 551 (1974).