In re Prudential Ins. Co. of America Sales Practice Litigation

Class Actions — Objections to Proposed Settlements
Docket Number: 
Case Description: 

This settlement involves the largest of a series of massive, nationwide life insurance fraud class actions brought against major insurance companies by the Milberg, Weiss law firm. The basic fraud allegations are three-fold:

  1. that agents touted life insurance as good "investments" when in fact they were nothing more than insurance;
  2. that agents fraudulently encouraged customers to "replace" their policies with new policies, which meant more premiums and commissions, but generally no countervailing benefit for the customers; and
  3. that agents told customers that, after a certain number of years, their premiums would vanish, when in fact the fine print indicated that premiums would only vanish in certain circumstances (depending on interest rates).

The case settled for two types of relief. The first, available to all class members, gave class members discounts and other benefits on class members' existing policies and on new Prudential insurance and financial products. The second provided an alternative dispute resolution mechanism that allowed class members to adjudicate their fraud claims before neutral arbitrators. The settlement also provided that class counsel could seek up to $90 million in fees without objection from Prudential, and class counsel sought the full amount.

Significantly, the settlement released a fourth category of claims, referred to simply as "other" improper sales practices. The complaint made no mention of such claims and no litigation document of which we are aware described these "other" practices, nor did the document setting forth the ADR procedures suggest how such claims could be vindicated. The clear purpose of adding these claims was to provide an all-encompassing res judicata effect to any claim by any Prudential insured during the class period (which extended over 14 years), even those claims that had yet to accrue.

Objectors came forward, most significantly objectors represented by Pittsburgh attorney Michael Malakoff, who was counsel in a West Virginia state court class action limited to West Virginians, that raised some, but not all, of the claims raised in the federal action. Malakoff pursued the objections aggressively by seeking discovery and filing many briefs and other documents.

Malakoff's clients' objections were rejected on their merits in the district court, and the district court approved the settlement and the full fee. The objectors appealed to the Third Circuit on many grounds. The Third Circuit rejected all of the merits objections, but vacated and remanded the fee issue for further evidence concerning the value of the settlement and whether class counsel's efforts could reasonably be said to have created that value. Malakoff's clients sought review in the Supreme Court, which was denied. We have been informed that the ADR component of the settlement was highly successful, resulting in approximately $2 billion in approved claims, about double that which class counsel had predicted when the fairness issue was pending in the district court.

While the settlement approval was pending before the district court, Milberg Weiss sought sanctions against Malakoff, arguing that, in a number of respects, Malakoff's aggressive opposition to the settlement, including his attempt to have the district judge recused, was frivolous. That matter was held in abeyance until after the settlement was approved. Ultimately, however, the district court, affirming in part the recommendation of a magistrate judge, found sanctionable conduct and assessed $100,000 in fees against Malakoff.

We closely monitored the case in the district court and filed an amicus brief in the Third Circuit that focused on the "other claims" issue, which the parties had largely ignored. We maintained that the release of such claims could not be sustained under Article III's case or controversy requirement or Rule 23 certification standards, and also rendered the settlement unfair. The court of appeals allowed us to file a reply brief (very rare, if not unheard of, for an amicus) and the issue took up considerable time at oral argument, in which we fully participated. However, as indicated, our arguments, like all other arguments against the settlement, were ultimately rejected.

Malakoff's sanction was appealed to the Third Circuit. Concerned that objectors will be chilled if their aggressive response to class settlements result in sanctions, we filed an amicus brief arguing that he should not have been sanctioned. Applying a “clearly erroneous” standard, the appellate court affirmed the imposition of sanctions, reversed as to a specific sanction imposed, and noted its appreciation of the important role of objectors’ counsel.

Also, 962 F. Supp. 450 (D.N.J. 1997).