September 24, 1970
The Philadelphia Housing Authority, et al.,
American Radiator & Standard Sanitary Corp., et al.; Nalco Plumbing & Heating Co., et al. v. American Radiator & Standard Sanitary Corp., et al.; Michael Harmonay Corp. v. American Standard, Inc., et al.; Lloyd E. Mitchell, Inc., et al. v. American Standard, Inc., et al.; Milton L. Bryan, et al. v. American Standard, Inc., et al.; Bucci Plumbing and Heating Co. v. American Standard Corp., et al.; Leon D. Dematteis & Sons, Inc., et al. v. American Radiator & Standard Sanitary Corp., et al.; Pacific States Plumbing & Htg., Inc., et al. v. American Radiator & Standard Sanitary Corp., et al.; H.P. Held & Sons, Inc. v. American Radiator & Standard Sanitary Corp., et al.; Island Park Plumbing & Heating Corp. v. American Radiator & Standard Sanitary Corp., et al.; The Beldevair Co., et al. v. American Standard, Inc., et al.; Far Plumbing Co. v. American Standard, Inc., et al.; Althoff's Inc. v. American Standard, Inc., et al.; Craig Phelps, assignee for the benefit of creditors of Jacob G. Weber Co., assignor v. American Standard, Inc., et al.; Harry Adelman, successor trustee in bankruptcy for Sumner Sollett Co., bankrupt v. American Radiator & Standard Sanitary Corp., et al.; Argo Plumbing & Heating Co., Inc. v. American Standard, Inc., et al.; South Riviera Corp., et al. v. American Standard, Inc., et al.; Gene Plumbing Corp. v. American Standard, Inc., et al.; Sarbo Inc. v. American Standard, Inc., et al.; Alfred Laufer, Inc. v. American Standard, Inc., et al.; Winton Construction Corp. v. American Standard, Inc., et al.; Francis Lewis Homes, Inc., et al. v. American Standard, Inc., et al.; Abode Realty Corp., et al. v. American Standard, Inc., et al.; Whitehall Plaza, Inc., et al. v. American Standard, Inc., et al.; Herman Glickman and Lawrence I. Glickman, et al. v. American Standard, Inc., et al.; Hellman Construction Co. v. American Standard, Inc., et al.; Morris Handler Co., Inc. v. American Standard, Inc., et al.; Northwestern Construction Co., et al. v. American Standard, Inc., et al.; Aberdeen Plumbing and Heating Co., Inc. v. American Standard, Inc., et al.; HMH Construction Co., Inc. v. American Standard, Inc., et al.; Leonard M. Spira, assignee for the benefit of creditors of H.S. Kaiser Co. v. American Standard, Inc., et al.; Home Construction Co. of Mobile, Inc. v. American Standard, Inc., et al.; Lakeville Plumbing Co., Inc. v. American Radiator and Standard Sanitary Corp., et al.; Horowitz Bros., Inc. and Clark Supply Corp. v. American Radiator & Standard Sanitary Corp., et al.; Mechanical Contractors Assn. of Central Ohio, et al. v. American Standard, Inc., et al.; Ankeny-Des Moines Plumbing, Inc., et al. v. American Radiator & Standard Sanitary Corp., et al.; Thomas D. Alfano, et al. v. American Radiator & Standard Sanitary Corp., et al.; Fontana Enterprises, et al. v. American Radiator & Standard Sanitary Corp., et al.; Ace Heating and Plumbing Co., Inc., et al. v. Crane Co., et al.; Clifton Building Corp., et al. v. Crane Co., et al.; Shannon Plumbing Co., Inc. and Norman Plumbing Co., Inc. v. American Radiator & Standard Sanitary Corp., et al.
Harvey, D. J.
The opinion of the court was delivered by: HARVEY
Presently before the Court in this multidistrict litigation is a motion filed by certain plaintiffs seeking to set aside an interlocutory order recently entered herein relating to a proposed settlement of certain claims. All of these civil actions seek the recovery of treble damages from various defendants for alleged anti-trust violations in the manufacture and sale of certain plumbing fixtures.
There are at the present time over 300 of these actions pending before this Court, either commenced in this District or transferred here by the Judicial Panel on Multidistrict Litigation for coordinated or consolidated pre-trial proceedings under 28 U.S.C. § 1407. Substantially all of these cases have been transferred here by the Panel from other Districts throughout the United States.
No extended discussion of the general background of this litigation is required for the purposes of the present matter. Reference is made to the opinions cited in footnotes 1 and 2 for general information concerning the history of the litigation to date. These cases were originally assigned to Chief Judge John W. Lord, Jr., who has heretofore been conducting pre-trial proceedings in these cases including the adoption of a comprehensive discovery schedule. The undersigned judge of the District of Maryland was designated and assigned for service in the Eastern District of Pennsylvania commencing June 22, 1970, and by Order of the Panel dated June 26, 1970, these cases were reassigned to the undersigned judge for further proceedings under 28 U.S.C. § 1407.
On April 10, 1970, a settlement agreement was reached between counsel for various wholesaler plaintiffs and counsel for seven of the eight major manufacturers and the trade association, such agreement being subject to various conditions including submission to and approval by this Court. Under such agreement, these defendants undertook to contribute to a settlement fund of one million dollars to be distributed to claimants within a proposed national class of wholesalers in accordance with procedures prescribed in the agreement. Thereafter, a proposed Settlement Order No. 1 was submitted to Chief Judge Lord together with an affidavit dated June 11, 1970, of Edward Brodsky, Esq., of the firm of Goldstein, Gurfein, Shames and Hyde, who represented certain wholesaler plaintiffs. Judge Lord signed Settlement Order No. 1 on June 15, 1970, without a hearing. Such Order provided for the establishment of a temporary national class of wholesalers having claims against the settling defendants. Provision was made for the publication and sending of notices to prospective members of the temporary settlement class who were given the right to either accept the proposed settlement or to exclude themselves therefrom and proceed with the prosecution of any claims they might have against the defendant manufacturers. The Order scheduled a hearing for December 22, 1970, to determine, inter alia, whether the temporary settlement class should be determined and ordered to be a final and permanent class under Rule 23, F.R. Civ. P., and whether final judgment should be entered against those plaintiffs who had not excluded themselves as permitted in the proposed settlement agreement.
On June 11, 1970, a similar settlement agreement was reached between counsel for certain plumbing and general contractors and counsel for the same defendants who had entered into the wholesalers' settlement. The fund to be paid by the settling defendants in this instance was $2,000,000, and the proposed settlement was subject to similar conditions as provided in the wholesalers' agreement.
The defendants and the settling plaintiffs were given the right under certain conditions and after considering requested exclusions by prospective class members to withdraw from the settlement program. The same procedure for securing court approval of this conditional settlement was then followed by the interested parties. An affidavit of James O. Sullivan, Esq., of the firm of Sullivan, Marinos, Augustine and Delafield, San Diego, Cal., dated July 9, 1970 (on behalf of the settling plaintiffs), a supporting letter dated July 15, 1970, from William E. Willis, Esq. (on behalf of the defendants), and a proposed Settlement Order No. 2 were all submitted to the undersigned judge. On July 16, 1970, Settlement Order No. 2 was signed without a prior hearing having been held.
Unlike the wholesalers' proposed settlement, disapproval of the amount of the proposed contractors' settlement had been expressed by some of the parties to this litigation, in particular by several attorneys representing certain plumbing contractors. Foremost among such counsel was Morton I. Hamburg, Esq., of the firm of Moore, Berson, Hamburg & Bernstein, New York City, who represented plumbing contractors in two cases. In signing and entering Settlement Order No. 2, this Court said the following in a letter dated July 16, 1970, to Mr. Willis advising him that the Order had been signed (copies of such letter being sent to other interested counsel including Mr. Hamburg):
"I have reviewed the proposed Order and Mr. Sullivan's affidavit and after comparing same with Settlement Order No. 1, which was approved by Chief Judge Lord on June 15, 1970, I have today signed and forwarded to the Clerk for filing the Order in question. I am sending to the Clerk in Philadelphia two executed copies for filing in Nos. 41,773 and 69-1256. If it is necessary that additional copies be filed in the other contractors' cases, I would presume that your office can arrange with the Clerk to have the necessary copies filed in the other cases. I have retained one complete set of these papers for my files.
"Before signing the Order, due consideration was given by me to Mr. Hamburg's letter to you of June 25, 1970. I have concluded that no hearing is necessary for the protection of Mr. Hamburg's clients or other interested parties who do not approve of the proposed settlement, and it is for this reason that I have signed and filed the Order today. Presumably, the dates included in the Order need not now be changed, and as you have pointed out, the final hearings on both Settlement Order No. 1 and Settlement Order No. 2 are now scheduled for the same day, December 22, 1970. It is expected that the place of the hearing will be changed to Baltimore, Md., but I will take this question up at the hearing scheduled for July 30, 1970."
On July 15, 1970, Mr. Hamburg wrote a letter to the Court specifically objecting to the proposed Settlement Order No. 2 and requesting that a hearing be held before the Order was signed. This letter was not received by the Court until July 17, and on that same day the Court replied to Mr. Hamburg as follows:
"On July 16, 1970, I signed and filed Settlement Order No. 2. A copy of my letter of July 16 advising Mr. Willis and other counsel of this action was sent to you.
"At the time that I signed such Order, I did not have before me your letter of July 15, but I had considered similar arguments in opposition to the proposed settlement contained in your letter to Mr. Willis of June 25.
Thereafter, Mr. Hamburg requested a conference with the Court. A conference was held in Baltimore, Md., on the afternoon of July 21, 1970, before steps could be taken to implement the Order. In attendance were Mr. Hamburg, Mr. Sullivan, William R. Norfolk, Esq. (an associate of Mr. Willis, representing the defendants), and two other attorneys who represented plumbing contractor plaintiffs and who were dissatisfied with the proposed settlement. At such conference, Mr. Hamburg requested that Settlement Order No. 2 be either stayed or vacated and that a hearing be held in this connection. Such request was opposed by Mr. Sullivan on behalf of the settling plaintiffs and by Mr. Norfolk on behalf of the defendants. At the conclusion of the conference, this Court refused to stay or set aside the Order but advised Mr. Hamburg and the other non-settling plaintiffs' counsel present that if they wished a hearing in open court on their request to set aside the Order, they should file a formal pleading specifically attacking statements contained in the affidavit of Mr. Sullivan which had formed the basis for the entry of the Order.
On June 30, 1970, this Court had sent a Memorandum to all counsel in all the cases then pending in this litigation, scheduling a hearing for July 30, 1970. Such hearing was for the purpose of the presentation of reports by the plaintiffs' and defendants' committees concerning the current status of the proceedings, and all counsel were invited to make recommendations to the Court concerning timetables for subsequent steps to be taken in the litigation including suggestions as to the order of priority that the Court should establish in dealing with the various matters currently pending. Among the many attorneys who were heard at such hearing was Mr. Hamburg, who stated that he intended shortly thereafter to file a motion to vacate Settlement Order No. 2 and who again requested that until a hearing could be held in connection with such motion, the Order should be stayed. At the conclusion of such hearing on July 30, 1970, this Court indicated that it would give first priority in this litigation to Mr. Hamburg's proposed motion, and a briefing schedule and hearing date was set.
With reference to the request for a stay of the Order, counsel for the defendants were advised that if the motion to vacate were granted, the expense of printing and publishing notices necessary for implementation of the Order would be charged against the defendants, and defendants were asked if they would consent to a stay under such circumstances. Subject to such understanding, counsel elected to go ahead with implementation of the Order, and the Court thereupon declined to grant the requested stay.
On August 6, 1970, Mr. Hamburg filed in Civil Actions Nos. 69-2692 and 69-2694 a motion to vacate Settlement Order No. 2, or in the alternative to amend such Order.
Counsel for plaintiffs in several other plumbing contractor actions joined in such motion. The motion was opposed by Mr. Sullivan and other plaintiffs' counsel who supported the proposed settlement and also by the defendants who had entered into the settlement agreement of June 11, 1970.
"Among the potential abuses of the class action processes are the following: (1) solicitation of direct legal representation of potential and actual class members who are not formal parties to the class action; (2) solicitation of funds and agreements to pay fees and expenses from potential and actual class members who are not formal parties to the class action; (3) solicitation by formal parties of requests by class members to opt out in class actions under subparagraph (b)(3) of Rule 23; and (4) unauthorized direct or indirect communications from counsel or a party, which may misrepresent the status, purposes and effects of the action and of Court orders therein, may confuse actual and potential class members, and create impressions which may reflect adversely on the Court or the administration of justice."
To prevent such possible abuse with respect to the temporary classes established by Settlement Orders Nos. 1 and 2, this Court on August 10, 1970, entered Settlement Order No. 3, which forbids communications concerning the litigation by parties and their counsel with any potential or actual member of the temporary settlement classes established in the Orders, without prior approval by the Court. Counsel were advised on August 10, 1970, that if Settlement Order No. 2 were vacated, then Settlement Order No. 3 would likewise be set aside insofar as plumbing and general contractors' claims were concerned.
After this Court's Order of August 3, 1970, setting this matter down for hearing, but before the hearing could be held, some of the non-settling plaintiffs applied on August 16, 1970, to the United States Court of Appeals for the Third Circuit for a writ of mandamus that would order this Court to stay or vacate Settlement Order No. 2. Without requiring an answer and without a hearing, the Third Circuit Court of Appeals denied such application by Order dated September 9, 1970.
Following the filing of extensive briefs and affidavits by various interested parties, a hearing was held in open court on September 11, 1970, in connection with the non-settling plaintiffs' motion to vacate.
In support of their motion, the non-settling plaintiffs claim that Settlement Order No. 2 should be vacated for the following reasons:
1. Because without a hearing the Order establishes a national class action and national class representatives, appoints counsel and approves a settlement for plumbing and general contractors in violation of Rule 23, F.R. Civ. P.;
2. Because the legal notice to members of the class approved by the Order is misleading and incomplete;
3. Because the Order and notice are prejudicial to prospective members of the class who may not wish to accept the settlement but who may wish to continue ...
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