Duhaime v. John Hancock Mut. Life Ins. Co.,- Insurance Fraud Settlement

Class Actions – Standards and Cases
Case Description: 

The allegations in this class action and the terms of the settlement are quite similar to those in the Prudential case described in #31 above. Therefore, the settlement and approval process is not set forth here, except where it differs significantly from Prudential.

The principal feature of this settlement, like Prudential, was the establishment of an ADR system to adjudicate the class members' fraud claims. The settlement differed in one respect in that the claims of certain class members (based on type of policy purchased and from whom) were deemed automatically worthy of monetary relief (presumably because of the extent of the fraud or misrepresentation uncovered during the litigation).

Class counsel requested $39 million in fees, which was the maximum request authorized by the settlement agreement.

C. Public Citizen Involvement: Public Citizen was contacted by former Senator Howard Metzenbaum, a class member (and Public Citizen board member) who found the class notice impenetrable. After reviewing the settlement and notice, we filed objections on Senator Metzenbaum's behalf, focused on notice issues and attorney's fees. As to notice, we were concerned that the original notice to the class made it nearly impossible for class members entitled to automatic relief to know that they were entitled and how to go about getting it.

Regarding fees, class counsel claimed that they were entitled to $39 million because that amount was about 9% of their expert's estimate of the settlement's $400 million plus value. We responded that there was no way of knowing the value of the settlement, particularly its ADR component, until the ADR was complete. Therefore, we recommended granting a partial fee up front, holding back the rest to see whether counsel's prediction was accurate, and then awarding additional fees based on the actual relief to the class. We argued that this staged approach would best align counsel's interests with those of their clients.

On our merits objections, after filing our papers, we were approached by the parties, with whom we negotiated specific language changes for further notices to be sent to class members after settlement approval. These changes would alert class members entitled to automatic relief to both its existence and the method for obtaining it.

As to fees, counsel wanted their full fee up front and no compromise was possible, so we argued the objection to the district court. On the same day that the court approved the settlement on its merits, it also largely adopted our staged fee approach, holding back approximately $16.5 million in fees, and, for the reasons that we had advanced, requiring counsel to file a supplemental application after the results of the ADR process were known.

Thereafter, we submitted our own modest fee request (about $60,000 based on a straight lodestar request), arguing that we had helped the class as a whole both in improving the notice and the fee-award mechanism. In a published opinion that should be useful to future objectors, the district court approved our request and ordered that it be paid out of the $16.5 million in escrowed fees.

With the merits over, we became embroiled in one significant post-judgment controversy. One group of objectors appealed from the settlement approval, and shortly after filing the appeal, "settled" their objections, for significant amounts of cash (in what their lawyer described off-the-record as a far better deal than that accorded the class). Metzenbaum asked for discovery in an effort to obtain further information, arguing that Rule 23 required disclosure and court approval of such side settlements. The district court denied Metzenbaum's request and he appealed. In a very disappointing decision, the First Circuit affirmed, holding that ordinarily such side settlements, even if they indisputably involve favored treatment for certain class members, are not subject to any judicial scrutiny.