UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS

 

RICHARD DUHAIME, et al.,
On Behalf of Themselves and
All Others Similarly Situated,
Plaintiffs,
 
v.
JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY,
JOHN HANCOCK VARIABLE LIFE
INSURANCE COMPANY, and JOHN
HANCOCK DISTRIBUTORS, INC.,
Defendants.
 
CASE NO. 96 10706-GAO
 
OBJECTIONS OF HOWARD M. METZENBAUM AND
NOTICE OF INTENTION TO APPEAR

 

On June 13, 1997, this Court ordered that notice be given to members of the plaintiff class of the pendency of this proposed class action, the proposed settlement, and the opportunity to file objections and appear at the fairness hearing scheduled for October 24, 1997. Pursuant to that notice, Howard M. Metzenbaum, former U.S. Senator from the State of Ohio, submits these objections and states that he intends to appear through the undersigned counsel at the fairness hearing. Senator Metzenbaum purchased a whole life policy from John Hancock illustrated as having a vanishing premium. A copy of the Statement of Eligibility he received with the class notice is attached as Exhibit A.

Senator Metzenbaum objects to the proposed settlement on three grounds. First, a class member who purchased a policy with out-of-pocket premiums that have not yet failed to vanish asillustrated is not adequately notified that he waives any claim arising out of this wrongdoing if he does not now elect the Alternative Dispute Resolution ("ADR") Process and submit a claim. Second, the pre- and post-settlement notice packages do not adequately inform class members of the nature, value, and significance of Special Circumstances ADR ("SCADR") Relief. Third, at this time, the present record does not support Plaintiffs' counsel's request for $39 million in attorneys' fees. To ensure that the fee award is fair, the Court should link the amount of attorneys' fees to the value actually realized by the class under the settlement by requiring that the fees be awarded in stages.

I. The notice packages do not adequately inform a class member whose out-of-pocket premiums have not yet failed to vanish as illustrated that he waives any claim arising out of this wrongdoing if he does not submit a claim in the ADR Process.

Some class members purchased policies that were illustrated in materials distributed by John Hancock agents as having out-of-pocket premiums that would vanish at a date that is after the deadline for opting out of the class. Because such a class member's premiums will not fail to vanish as illustrated until, say, 1999, he arguably would not be injured until after the deadlines for opting out of the class and electing between the ADR Process and General Policy ("GP") Relief. This is the case for Senator Metzenbaum, who bought what appears to be a ten-year vanishing premium whole life policy in 1995. The proposed settlement treats many of these class members as having a present injury that can be remedied through the ADR Process. See Weiss Aff., App. A, Ex. A [hereinafter "ADR Scoring Manual"] at 23 (Part II.G.2(c)). Pursuant to the Release, a class member whose premiums have not yet failed to vanish as illustrated who does not elect the ADR Process and submit a claim form waives any claim arising out of this injury. Weiss Aff., App. A [hereinafter "Settlement Agreement"] at 65, 66, 68_69 (Part XIII.A.1.D_E, A.II.A.1_2.d,A.II.E).

Relief for class members whose premiums have not yet failed to vanish is an enormously significant component of the proposed settlement. Allegations relating to John Hancock's misconduct in selling and administering policies illustrated as having vanishing premiums are central to Plaintiffs' complaint. See Amended Class Action Compl.  6_8, 52_65. Many thousands of class members may be eligible for such relief, and strong presumptions operate in their favor in the ADR Process. See ADR Scoring Manual at 11_22 (Part II.B_F).
Unfortunately, class members do not have adequate notice of this feature of the proposed settlement. The only provision in the pre- and post-settlement notice packages that specifically addresses this issue is the following sentence from the pre-settlement notice: "Please be advised that, if you purchased a policy based on the vanish concept from 1988 through 1994, your out- of-pocket premium obligations will not be offset as originally illustrated if dividends remain at the current scale." Pre-Settlement Class Notice at 4 (Part 4). This one sentence, buried in dozens of pages of material, does not clearly inform a class member whose premiums have not yet failed to vanish that he has a present injury, that this injury can be remedied only through the ADR Process if he does not opt out of the class, and that he waives any claim arising out of the injury if he fails to elect the ADR Process. While a class member might in theory deduce these consequences from a close reading of the pre-settlement notice package, that is far too much to expect of a typical class member.
The notice packages should be expanded to fully apprise class members whose premiums have not yet failed to vanish of the circumstances under which they may be entitled to relief. The notice should clearly state in one place that (1) the out-of-pocket premiums for policies purchasedfrom 1988 through 1994 will not vanish as originally illustrated if dividends remain on current scale; (2) the settlement agreement deems any class member who purchased such a policy to already have sustained injury, even though his premiums have not yet failed to vanish as illustrated; (3) a policyholder can obtain a remedy for this injury only through the ADR Process if he does not opt out of the class; and (4) a class member waives any claim arising out of this injury if he fails timely to elect the ADR Process and submit a claim form. The notice should also state that a similarly-situated policyholder who bought his policy in 1995 or 1996 is entitled to rescind his policy if he establishes in the ADR Process that it was misrepresented that his out-of-pocket premiums would vanish after one or more payments. See ADR Scoring Manual at 22_23 (Part II.G.2(a)_(b)). Ideally, the pre-settlement notice should be remailed to include this information. At the least, this information should be added to the post-settlement notice. If necessary, the relevant deadlines should be extended to accommodate these important changes.

II. The notice packages do not adequately inform class members of the nature, value, and significance of Special Circumstances ADR Relief.

{C}

Our concerns about inadequate notice apply with equal force to the settlement provisions relating to the special circumstances relief. The settlement agreement provides that class members who submit a claim in the ADR Process may be eligible for Special Circumstances ADR ("SCADR") Relief. Weiss Aff., App. A [hereinafter "Settlement Agreement"]{C}

{C}

, at 31 (Part V). These provisions hold out the promise of significant relief to injured policyholders: Qualifying ADR claimants are entitled to automatic 100 percent compensatory relief and, in most cases, a 25 percent extra-compensatory award without proving their claim through the normal ADR scoring process. Unfortunately, the pre- and post-settlement notice packages do not adequately informclass members of the nature, value, and significance of this valuable relief. As a result, whether a class member receives SCADR Relief is likely to depend not on his eligibility, but on whether he has adequately understood the notice packages.{C}

{C}

To obtain SCADR Relief, a class member must elect to participate in the ADR Process. A claimant may be granted SCADR relief in eight circumstances (the "Special Circumstances"), i.e., where "Evidence"See footnote 1 establishes that the claimant purchased:
1. A universal life insurance policy on a "single premium" or "single pay" basis from any one of five agencies during specified periods,

2. A life insurance policy described as a "Simplified Insurance Pension Plan" or "SIPP" from the South Florida General Agency,

3. A life insurance policy from the Mohn General Agency in Detroit from 1992 to 1995 based on representations of a sales system known as LEAP,

4. A registered life insurance policy described as a "College Savings Plus" plan from a producer not registered with National Association of Securities Dealers ("NASD"),

5. A life insurance policy after receiving an illustration generated by computer software not approved by John Hancock's Home Office which described the policy as either (i) a "Mortgage Accelerator" or (ii) "Mortgage Protection Plan Plus a Profit,"

6. A life insurance policy after receiving an illustration generated by computer software not approved by the John Hancock's Home Office which was described as a "Private Pension Plan" and which failed to identify that life insurance was the product being offered, or

7. A registered life insurance policy described as a "Private Pension Plan" when the class member received a sales brochure prior to the purchase which contained three identified misrepresentations.

Once such evidence is adduced, then the claimant is entitled the relief described for a score of "3" for a "Retirement Claim," plus a 25 percent Compensatory Award Enhancement. ADR Scoring Manual at 50_52 (Part X.A.1_7).See footnote 2 Claimants in one of these seven Special Circumstances are therefore conclusively presumed to be eligible for SCADR Relief. Furthermore, where evidence establishes that the address for premium notices for a policy was changed to a post office box under the control of a producer or to an agency office address, then the claimant is entitled to the relief described for a score of "3" for a "Replacement Claim," unless John Hancock is able to demonstrate that the address was changed at the request or with the express consent of the policyowner. ADR Scoring Manual at 52 (Part X.A.8).
These are highly important components of the relief afforded by the settlement. But the pre- and post-settlement notice packages do not adequately inform class members of the nature, value, and significance of this relief. SCADR Relief is not mentioned in the cover letter to the pre- fairness hearing class notice, in the accompanying "Question and Answer Brochure," or even in the main text of the class notice itself, see Pre-Settlement Class Notice at 1_9. Instead, the description of SCADR Relief is tucked away on page fifteen of the Class Notice, in Appendix B, and even that short description is incomplete. It omits any mention of the fourth Special Circumstance, which involves the "College Savings Plus" plan, or the eighth Special Circumstance, which involves the unauthorized change of address for premium notices. Id. at 15. Thus, a class member has no way at all of learning from the notice whether these two Special Circumstances apply to him. Furthermore, the language describing the availability of SCADRRelief does not convey its full import: A class member learns only that "[c]ertain" class members in the Special Circumstances that happen to be identified "may" be entitled to ADR relief if they submit a claim to the ADR process. Id. The personalized Statement of Eligibility in the pre- settlement notice package also does not tell a class member whether he may be entitled to SCADR Relief; rather, it states only that he is eligible either for the forms of GP Relief that correspond to his policy or the "ADR Process." Weiss Aff., App. A, Ex. F, Tab 4.See footnote 3
 Instead of curing these deficiencies, the proposed post-settlement notice largely repeats them. No mention is made of SCADR Relief in the cover letter to the post-settlement notice, in the accompanying question-and-answer brochure, or even in the text of the post-settlement notice itself. See Weiss Aff., App. A, Ex. H, Tab 1, Tab 2 at 1_6, Tab 3. Not until page twelve of the post-settlement notice, in the appendix describing the ADR Process in detail, is SCADR Relief described. That description is also insufficient. It is couched in such qualified and contingent language that class members are unlikely to understand the nature, value, and significance of SCADR Relief:
{C}

Under certain circumstances, some Class Members who submit a claim to the ADR Process may be entitled to receive the highest score of "3" and in most cases an enhanced award. They include:

{C}Class Members who purchased "Single Premium Insured Deposits" (or "SPIDs") and "Simplified Individual Pension Plans" ("SIPPs") and

{C}Certain Class Members who purchased life insurance policies pursuant to one or more of the following sales concepts: "LEAP,""Mortgage Protection Plus," "Mortgage Acceleration Plan," and "Private Pension Plan."

Id. Tab 2 at 12 (emphasis added). As with the pre-settlement notice package, the Special Circumstances involving the "College Savings Plus" plan and the unauthorized change of address for premium notices are not mentioned. Finally, while the post-settlement notice states that a class member who "believe[s]" that he might be an SCADR Relief class member "may" call a toll-free number for more information, id. Tab 2 at 13, the notice packages do not convey sufficient and clear information for many class members to form such a belief.
These minimal descriptions of SCADR Relief fall well short of enabling class members to make an informed decision in choosing between the ADR Process and GP Relief, or even between remaining a member of the class and opting out. The danger of such inadequate notice is that whether a class member receives SCADR Relief will often depend not on his eligibility, but on whether he has fully understood the notice package. To provide fair notice of the nature, value, and significance of this relief, the post-settlement notice package should completely describe the eight Special Circumstances in which a class member is entitled to SCADR Relief. The notice should also state plainly that it need only be established that a class member purchased a policy in one of the situations described by these Special Circumstances to automatically qualify in the ADR Process for 100 percent compensatory relief and, in most cases, the 25 percent extra- compensatory award. Finally, the notice should clearly state that a class member must elect the ADR Process and file a claim form to receive SCADR Relief. This could be accomplished, for example, by adding the following (or a similar) sentence to the description of SCADR Relief in the post-settlement notice: If you purchased a policy that qualifies for Special CircumstancesADR Relief, you are automatically entitled to significant compensation. Therefore, if you are in one of these categories and you want to receive 100% compensation and, where applicable, a 25% extra award, then you must elect the ADR Process and submit a claim form.
It is important to emphasize that this objection does not question the substantive fairness of the package of benefits that the class will receive under the proposed settlement. This objection does not second-guess the tradeoffs that Plaintiffs' counsel made in negotiating the settlement, i.e., whether the class could have received a better deal. Nor is it similar to standard objections to settlements with an ADR component, such as that it is unfair to require a claimant to show that he has been injured. Rather, the objection is premised on the settlement's presumption_which in all but the eighth Special Circumstance is conclusive_that class members in one of the Special Circumstances have been injured. This SCADR Relief presumption is part of the deal that was negotiated for class members in the settlement, and they should be clearly apprised of that deal, lest a large number of class members not obtain what is rightfully theirs.
In sum, to be fair and adequate, the class notice must clearly inform class members of the nature, value, and significance of SCADR Relief. Whether a class member receives such relief should not depend on whether he solves the riddle of the incomplete SCADR Relief provisions as currently written.
III. Before the actual value of the settlement is known, the Court should not award Plaintiffs' counsel's request for $39 million in attorneys' fees.

Plaintiffs' counsel have requested an award of $39 million in attorneys' fees.See footnote 4 JohnHancock will not oppose this request, and Hancock is to pay the fee award in one lump sum within ten days after the entry of the final order and judgment. Settlement Agreement at 69 (Part XIV.1).
Counsel justifies their fee request on the grounds that the fee is reasonable under both the percentage-of-recovery and lodestar methods of awarding attorneys' fees in common-fund class actions undertaken on a contingent-fee basis. Counsel support their request at a high level of generality rather than in the context of this case. Although it may turn out that counsel should receive the $39 million they request, the best way to justify the fee ultimately awarded is to link it to the benefits actually realized by the class as a result of the settlement.
 A. Fee Methodology
 Plaintiffs' counsel assert that they prosecuted this class action on a "wholly contingent basis." Joint Petition of Plaintiffs' Counsel for an Award of Attorneys' Fees and Reimbursement of Expenses and Plaintiffs' Memorandum of Law in Support of the Joint Petition [hereinafter "Attorneys' Fees Petition"] at 1. But counsel do not justify their fee request because they have misidentified the contingencies on which their fee depends. Counsel suggest that the contingency is success at trial. Id. at 33 ("Plaintiffs' counsel faced serious difficulties in proving, to the satisfaction of a jury, both the liability of defendants and the amount of damages suffered by the Class.") At the outset of this case, however, Plaintiffs' counsel faced essentially three contingencies: the risk that Plaintiffs would lose at trial (or before), the risk that no settlement would be obtained, and, once the settlement was reached, the risk that it would not be approved by the Court. Determining the risk of nonrecovery for a particular type of case requires identifying the distribution of likely outcomes for that kind of case. This case is a class action against aninsurance company for misleading sales and administrative practices. If, for example, three out of four such cases end in court-approved pre-trial settlements, then the risk of nonrecovery to the class (and its counsel) is substantially lower than if only one in four cases results in settlement. The flaw in counsel's contingency argument is that, while lead counsel has successfully negotiated court-approved settlements of several similar class actions against the insurance industry,See footnote 5 counsel do not apply the outcomes of such similar cases, or even of class actions in general, to determine the risk of nonrecovery in this case.
 This flaw pervades counsel's justification of their fee request under the percentage-of- recovery and lodestar methods. Plaintiffs' counsel cite to non-class action fee awards with a 30 to 40 percent range of contingent-fee recoveries and to class action fee awards cases, usually with common funds, with a 25 to 30 percent range of recovery. See Attorneys' Fees Petition at 27_28 (citing cases). Counsel then trumpet their requested fee of between 9.3 and 8.2 percent of the projected value of the proposed settlement as "well below the low end of fees typically awarded in common fund cases" and a "relatively small percentage." Id. at 29.
 Absent from counsel's discussion, however, is any explanation of why the cited cases are relevant to this case. That the percentage of recovery counsel seek is well below the percentages recovered in these other cases_cases whose only shared features with this case are that they are contingency, class action, and/or common-fund percentage-of-recovery cases_is, apparently,enough. Furthermore, class counsel ignore the fact that this case involves a large fund, the creation of which took advantage of huge economies of scale. In such a case, the law demands percentage recoveries that are much lower than normal to prevent excessive fees. As was explained by another court:
{C}

[W]hen the fund is extraordinarily large, the application of a normal range of fee awards may result in a fee that is unreasonably large for the benefits conferred. Thus, based on empirical research covering settlements as late as 1991, [the late Herbert] Newberg notes that percentage awards tend to decline as the size of the recovery increases. Herbert P. Newberg, Attorney Fee Awards  2.09 (1986). Where fund recoveries range from $51_$75 million, fee awards usually fall in the 13_20% range. In megafund cases where extraordinarily large class recoveries of $75_$200 million and more are recovered, courts most stringently weigh the economies of scale inherent in class actions in fixing an appropriate per cent recovery for reasonable fees. Id. Accordingly, fees in the range of 6_10% and even lower are common in this large scale context.

In re Domestic Air Transp. Antitrust Litig., 148 F.R.D. 297, 350_51 (N.D. Ga. 1993) (citing cases in footnotes and awarding 5.25% of fund, or 4.71% for fees, plus litigation expenses) (footnotes omitted). Given that the parties' experts estimate that the settlement could confer more than $800 million in value to the class, see Attorneys' Fees Petition at 2_3, it is hard to accept counsel's claim that their fee request is at the low end of fees awarded in common fund cases.
 To buttress their requested percentage of recovery, counsel invoke their lodestar multiplier of 2.6, a multiplier they claim "is well within the range of multipliers typically awarded in class actions." Id. at 37. This multiplier is based on a lodestar of almost $15 million as of August 31, 1997. Id. at 30. Even taking the lodestar at face value (and detailed billing sheets were not submitted with the fees petition), a multiplier of 2.6 has not been justified. The primary rationale for enhancing the lodestar is the risk of nonrecovery. A multiplier of 2.6 implies that the plaintiffs in this type of case recover only about 40 percent of the time. Nothing in the recordsupports the accuracy of this figure, and the success of Plaintiffs' counsel in similar cases against insurance companies points in the opposite direction. Again, in the absence of a concrete discussion of the true contingencies involved in this case, it is difficult to determine whether counsel's lodestar multiplier confirms the reasonableness of their requested percentage of recovery.
 BValuation of the Future Fund
 Exacerbating these problems in evaluating counsel's fee request, whether as a percentage of recovery or as a lodestar with multiplier, is the fact that no one knows beforehand, or can say with any reliable degree of probability, what the value of the proposed settlement to the class will be. The parties project that the settlement's value could range from $475 million to at least $826 million. See Attorneys' Fees Petition at 2_3.See footnote 6 The record, however, does not support these valuations, for two reasons. First, the valuation experts do not clearly state or justify their assumptions for key variables, such as projected utilization rates of the various components of the settlement. Second, the experts appear to ignore the data most relevant to valuation: actual utilization and remediation rates from similar settlements of similar class action lawsuits against the insurance industry. Moreover, even if the experts had incorporated this data into their projections, structural problems inherent in estimating beforehand the value of such a proposed settlement would remain. The straightforward solution to this dilemma is to link the fee award to the benefits actually realized by the class by making part of Plaintiffs' counsel's recoverycontingent on the results of the ADR Process and the class's utilization of GP Relief.
 Plaintiffs' counsel retained Robert Hoyer of Arthur Andersen to render an opinion as to the value of the relief to be provided through the ADR Process. In Hoyer's "professional opinion," the likely aggregate value of ADR relief is $368,584,000. Hoyer Aff.  9. In reaching this figure, Hoyer used actuarial models that contained three "significant variables," i.e., assumptions:

1 claim utilization, or the extent to which class members will receive remedies;
2 remedy distribution, or the type of remedy received; and
3score distribution, or the score assigned to the claim (e.g., a "3")

Id. 8. Hoyer's report does not openly state the values he assigned to these assumptions. They can be determined, however, by extrapolating from tables in his report. For example, he estimates that 3.34 percent of class members will both file a claim in the ADR Process and receive a score greater than "0." See id. Ex. B1 at 2, Ex. B.5. Hoyer also projects that 32.5 percent of the policies he estimates will be remediated will receive a score of "3" in the ADR Process. See id. Ex. B.5.See footnote 7
These projections may be unduly modest, or they may be wildly optimistic. Nowhere, however, does Hoyer attempt to justify his assumed remediation rates and score distribution, even though he explicitly acknowledges that these are "significant" variables in estimating the aggregate value of ADR relief. Id. 8. We are told only that his firm "relied upon information,data, and representations provided to us by involved and knowledgeable parties to these proceedings" and "conducted tests and comparisons deemed necessary to determine the general reasonableness of said information." Id. Ex. B1, at 1. We are not told whether the data and information provided and the tests and comparisons conducted had anything to do with remediation rates and score distribution.
An even more glaring shortcoming in Hoyer's analysis is that, even though he asserts that he "applied the knowledge gained from comparable insurance marketing settlements," id. 6, his report does not refer to the actual utilization rates, remediation rates, and score distributions experienced in those comparable settlements. Yet these are the data most relevant to a reliable projection of the results of the ADR Process.
The valuation of the GP Relief component submitted by John Hancock's expert, the actuarial firm of Milliman & Robertson, likewise contains unsupported assumptions. For example, Milliman & Robertson estimates that 26 percent of eligible class members, weighted by premium, will take out an Optional Premium Loan in the first year and that the weighted average utilization rate by eligible class members with in-force policies of the Enhanced Value Policy option will be 23.2 percent. Perrott Aff., Ex. A, at 25, 29. These estimates apparently are an application of the economic analysis of Professor David Babbel regarding consumer responses to changes in the price of loans, insurance, annuities, and mutual funds. See Babbel Supp. Decl. 2. Neither the Milliman & Robertson report nor the Babbel analysis, however, takes into account the many factors that distinguish consumer responses to such a general policy relief component of a proposed settlement from consumer responses to prices in the insurance market in the non- settlement context. These distinguishing factors include the need for the class member to read themore than sixty pages of material in the two class notices; the need to return an election form affirmatively choosing GP Relief; and the possible desire of some class members to avoid future dealings with the company, based on either a negative prior relationship with John Hancock or a perception that John Hancock has engaged in misconduct and thus is untrustworthy.
Compounding these analytical shortcomings is the absence of any reference to the actual results of relief programs similar to GP Relief in other settlements of class action lawsuits against the insurance industry. Milliman & Robertson does not even list the actual results of similar settlement programs as one of the "principal materials relied upon" in reaching its estimates of the likely value of GP Relief. Perrott Aff., Ex. A, at 4_5. News reports suggest that actual utilization rates are quite low. For example, it has been reported that only 4,000 people of the three million eligible class members, or 0.13 percent, opted to purchase a discounted annuity or life insurance policy pursuant to the general policy relief provisions of the New York Life settlement. Reed Abelson, For Plaintiffs, More of Same in Insurance Accords, N.Y. Times, Aug. 28, 1997, at A1, D4. This figure is in stark contrast to Milliman & Robertson's prediction that a minimum of 28 percent of the New York Life class would elect some form of class relief. New York Life, No. 94/127804, 1995 N.Y. Misc. LEXIS 652, 69.b at *74. Similarly, only 500,000 of the nearly 9 million class members in the Prudential settlement, or about 5.6 percent, reportedly even expressed an interest (i.e., returned an election form choosing general policy relief) in the products offered through Basic Claim Relief, the analog to GP Relief in that case, see Abelson at D4, supra, far lower than the settling parties' experts had predicted. Furthermore, if Plaintiffs' counsel or the experts know that the figures reported in The New York Times article are wrong, should they not base their projections on the figures they know to be correctRather than takingthe actual utilization rates in prior settlements into account in estimating utilization rates for the various components of GP Relief, the expert reports and analysis at times read more like briefs in favor of the proposed settlement than dispassionate estimates of its likely value. See, e.g., Perrott Aff., Ex. A, at 32_34 (listing only reasons that the Enhanced Value Annuity option will be "attractive" to class members); id. Ex. B, at 1_3 (giving only reasons class members might opt for an Optional Premium Loan).
The absence of any meaningful reference to the actual value of comparable settlements is particularly troubling because Plaintiffs' counsel, Hoyer, Milliman & Robertson, and Babbel are well-positioned to find and use this information. The firm of Milberg Weiss Bershad Hynes & Lerach, the class's lead counsel, has negotiated numerous similar class action settlements with insurance companies. See note 5, supra. Milliman & Robertson estimated the value of components of the settlements in Prudential, Transamerica, and New York Life. See Prudential II, 962 F. Supp. at 582 n.25; Transamerica, No. 694829, 91.b at 55; New York Life, No. 94/127804, 1995 N.Y. Misc. LEXIS 652, 69.a at *74. Professor Babbel was retained as a valuation expert in New York Life. See New York Life, No. 94/127804, 1995 N.Y. Misc. LEXIS 652, 18 at *15. Hoyer estimated the value of a similar settlement of a similar class action against the Prudential Insurance Company of America. See Prudential II, 962 F. Supp. at 575, 582. Indeed, in that case, he expressly acknowledged what he here leaves unstated: that "his valuations are based on a remediation rate that is, at most, a best-guess estimate." Id. at 583 (characterizing paragraphs thirteen and eighteen of Hoyer's affidavit). Relying on the results actually experienced in those cases_data which Plaintiffs' counsel should have or should have access to_surely is preferable to simply assuming, for example, that the remediation rate for ADR claims submittedon in-force variable life insurance policies will be 4.3 percent, see Hoyer Aff., Ex. B1 at 2, Ex. B5.
In short, expert valuations of the proposed settlement are sheer guesswork dressed up in a coat and tie, particularly where they do not incorporate the actual results of comparable settlements. Other than the value of Monthly Deduction Relief and the guaranteed cash contribution components of GP Relief, neither the parties nor anyone else has any idea how much the proposed settlement is worth. As we now explain, the solution to this dilemma is to partially link the fee award to the actual results of the ADR Process and the actual rate at which class members use the various components of GP Relief.
C Suggested Solution: Staged Awarding of Fees
 We suggest that the Court award fees in two or more stages. The initial amount should be awarded on approval of the settlement. This figure could be Plaintiffs' counsel's claimed lodestar, with appropriate reductions, of approximately $15 million.See footnote 8 Alternatively, it could be 9 to 10 percent of a common fund of $125 million, an amount likely to be recovered by the class under the worst-case scenario. This approach would compensate counsel for their substantial achievement in procuring a settlement that holds out the promise of significant relief for the class. At subsequent intervals of six months to one year after final approval, the Court would award, upon submission of documentation by the parties, an appropriate percentage of the value actually realized by the class in the ADR Process and through GP Relief. Pursuant to the settlementagreement, counsel's award would be capped at $39 million. We do not anticipate any significant delay in ascertaining the actual value of the settlement.
his staged approach to awarding fees minimizes the problems associated with awarding fees based the size of a future fund before its value is known. By giving counsel a sizeable initial payment, it rewards them for the services they have rendered to date and the skill and expertise they have brought to bear on this complex case. By conditioning subsequent fee awards on the value actually realized by the class, this approach both ensures that the fee is reasonable and aligns counsel's interest with that of the class. The staged approach is also supported by precedent: The Court in In re Prudential adopted a similar bifurcated system for awarding fees to address precisely the concerns we raise. Prudential II, 962 F. Supp. at 581_84, 587_593.See footnote 9 In short, under a staged approach to awarding fees, rather than resenting an award of $39 million in attorneys' fees, class members will understand that the fee has been earned because it directly reflects the benefits they have actually obtained.
 

IV. Conclusion
 For the foregoing reasons, the proposed settlement should be modified in accordance with these objections.
Respectfully submitted,

____________________________
Douglas L. Stevick
(Texas Bar No. 00797498)
Brian Wolfman
(D.C. Bar No. 427491)
David C. Vladeck
(D.C. Bar No. 945063)
PUBLIC CITIZEN LITIGATION GROUP
1600 20th Street, N.W.
Washington, DC 20009_1001
telephone: (202) 588_1000
fax: (202) 588_7795

Attorneys for Objector
Howard M. Metzenbaum

Dated: October 2, 1997


Footnote: 1{C}

{C}

"Evidence" basically consists of (i) all information concerning the claimant or his claim in the files of John Hancock, the agency, or the producer; (ii) any materials related to the claimant, including the claim form, its attachments, and affidavits; (iii) the producer statement; and (iv) either, where relevant, (a) any handwritten or printed material, video recording, or audio recording created by the claimant (if created on or before 45 days after the date on which the policy was delivered), John Hancock, a John Hancock official, or the producer, or (b) an affidavit other than an affidavit by the claimant and his spouse, children, or parents if they resided with the claimant on the date on which the policy was delivered. See ADR Scoring Manual at 6 (Part I.B.9_10).{C}

{C}


Footnote: 2{C}

{C}

A claimant in the situation described by the first Special Circumstance described in the text is eligible for a 25 percent extra-compensatory award only if he purchased the policy from the Fitchburg, Massachusetts agency in the years 1988 to 1994 or the St. Petersburg, Florida agency during 1993 or 1994. ADR Scoring Manual at 51 (Part X.A.1).


Footnote: 3{C}

{C}

The Settlement Agreement does not require that the pre-settlement notice and accompanying materials inform class members individually that they may be entitled to SCADR Relief. Instead, it requires only that the notice "identify any Class Member groups eligible for Special Circumstances ADR Relief." Settlement Agreement at 51_52 (Part X.A.1) (emphasis added).


Footnote: 4{C}

{C}

Senator Metzenbaum does not object to the request for $750,000 in expenses.


Footnote: 5{C}

{C}

See Natal v. Transamerica Occidental Life Ins. Co., No. 694829 (Cal. Sup. Ct. July 28, 1997);{C}

{C}

In re Prudential Ins. Co. of Am. Sales Practices Litig., 962 F. Supp. 450 (D.N.J. 1997) (fairness opinion), appeal filed; In re Prudential Ins. Co. of Am. Sales Practices Litig., 962 F. Supp. 572 (D.N.J. 1997) (attorneys' fees opinion) [hereinafter Prudential II], appeal filed; Michels v. Phoenix Home Life Mut. Ins. Co., No. 5318-95, 1997 N.Y. Misc. LEXIS 171 (N.Y. Sup. Ct. Jan. 3, 1997); Willson v. New York Life Ins. Co., No. 94/127804, 1995 N.Y. Misc. LEXIS 652 (N.Y. Sup. Ct. Nov. 8, 1995), aff'd, 644 N.Y.S. 2d 617 (N.Y. App. Div. 1996), appeal denied, 677 N.E. 2d 289 (N.Y. 1997), cert. dismissed, 117 S. Ct. 2500 (1997).


Footnote: 6{C}

{C}

The low figure of $475 million includes the $48 million guaranteed to be paid out in GP Relief, $60 million in the costs of administering the settlement and attorneys' fees and expenses, and $368 million in ADR Process relief. The $826 million includes the projection for GP Relief of $398 million, $368 million in ADR Process Relief, and the $60 million in administrative costs and attorneys' fees and expenses.


Footnote: 7{C}

{C}

From the data in the report, only the percentage of policies remedied through the ADR Process can be determined. Hoyer does not reveal the percentage of class members he projects will file a claim in the ADR Process, a figure that would include claimants who receive a score of 0 and thus no relief, not even GP Relief. This missing figure is significant, because the higher the number of class members who receive a score of 0 in the ADR Process, as opposed to electing GP Relief, the lower the value of GP Relief. Hoyer also does not estimate the percentage of class members who will elect the ADR Process but not file a claim form, a number which could be significant, in light of the large difference in transactional costs to class members between simply electing the ADR Process and filing a claim form.


Footnote: 8{C}

{C}

We do not necessarily accept counsel's claim regarding the lodestar amount thus far incurred in this case. Without moredetailed information regarding the hours reasonably devoted to this litigation and a justified statement regarding the hourly rates sought by each of Plaintiffs' counsel, we are in no position to assess the reasonableness of the claimed $14,926,047 lodestar, as of August 31 of this year. We reserve our right to make further and more specific objections to the fee request, once this information is furnished to the Court.


Footnote: 9

The Prudential court conditioned the second part of the fee award on the number of forms electing the ADR Process that would actually be filed. Prudential II, 962 F. Supp. at 588_89. We respectfully submit that the court erred in using this statistic as a benchmark. The relevant data in determining the value realized by the class under the settlement is not the number of election forms filed, but the amount of relief actually received by class members who file claim forms in the ADR Process and who take advantage of the various GP Relief options.