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FISHER BROS. v. PHELPS DODGE INDUS.

July 26, 1985

FISHER BROTHERS, GOLDBERG PLUMBING SUPPLY COMPANY, INC., STANDARD PLUMBING SUPPLY CO., INC., BIG D BUILDING SUPPLY COMPANY, ELBO INDUSTRIAL SUPPLY CO., AMITY PLUMBING & HEATING SUPPLY CORP., PIPELINE SUPPLY, INC., SHERBY AND SHERBY, INC. t/a Cobbs Supply Co., J. HELLER & SONS, INC., GUNHILL PLUMBING SUPPLY, INC., and KAMEN SUPPLY CO., INC., Plaintiffs
v.
PHELPS DODGE INDUSTRIES, INC., Defendant



The opinion of the court was delivered by: SHAPIRO

 NORMA L. SHAPIRO, J.

 INTRODUCTION

 Before the court is the motion of defendant Phelps Dodge Industries, Inc. ("Phelps Dodge") to enforce its settlement agreement with plaintiff class. Phelps Dodge contends that plaintiff class violated the most favored nations clause of this settlement agreement by settling with similarly situated defendant Cerro Copper Products, Inc. ("Cerro") on more favorable terms than plaintiff class had settled with Phelps Dodge. Phelps Dodge seeks as relief a partial refund with accumulated interest of the amount it has paid in settlement. *fn1" Plaintiff class concedes that Cerro obtained more favorable settlement terms but argues that Phelps Dodge's most favored nations clause was rendered inoperative by a material change in circumstances surrounding this antitrust litigation between Phelps Dodge's August 23, 1983 settlement and Cerro's February 7, 1985 settlement. This court held an evidentiary hearing on May 24 and May 28, 1985, and now denies Phelps Dodge's motion to enforce the most favored nations clause of its settlement agreement.

 PROCEDURAL HISTORY

 A federal grand jury in the Eastern District of Pennsylvania began investigating alleged price-fixing in the copper water tubing industry in the summer of 1981. While this investigation was proceeding, Fisher Brothers filed against four copper water tubing manufacturers and wholesalers, including Cerro, and certain individual defendants, *fn2" a civil complaint alleging that these defendants and their as yet unnamed co-conspirators had engaged in a nationwide conspiracy to fix, raise, maintain or stabilize the price of copper water tubing in violation of Section I of the Sherman Act, 15 U.S.C. § 1 (Civil Action No. 82-4921). Phelps Dodge was not named as a defendant.

 On March 18, 1983, the grand jury returned an indictment against six corporate defendants, including both Cerro and Phelps Dodge, and six present or former employees of some of these companies. *fn3" The indictment alleged that the corporate and individual defendants had engaged in an unlawful conspiracy to fix the prices of copper water tubing from at least 1975 until June, 1981. After the indictment but prior to the criminal trial, Fisher Brothers and a number of other plaintiffs filed a joint complaint (Civil Action No. 83-2457) against Phelps Dodge *fn4" on May 23, 1983, and moved for class certification in this action on June 20, 1983. Before this motion was ripe for decision, Phelps Dodge reached a settlement with plaintiffs; the Agreement of Settlement was executed on August 23, 1983.

 This Agreement provided that Phelps Dodge would place $2.5 million in escrow for the benefit of a settlement class designated as:

 
All individuals, proprietorships, partnerships, corporations and other business entities in the United States (excluding defendants, their parents, subsidiaries and affiliates, and their alleged co-conspirators) who have, during the time period 1975 through November, 1982 (the 'covered period'), purchased copper water tubing directly from one or more of the defendants (including defendants' subsidiaries and affiliates) or their alleged co-conspirators.

 The $2.5 million settlement fund represented approximately 2.4% of Phelps Dodge's $102.7 million in copper water tubing sales during 1979-1982. This agreement also contained a most favored nations clause giving Phelps Dodge the right to terminate the settlement or seek a partial refund of its settlement fund if plaintiffs subsequently settled with a "similarly situated" defendant on more favorable terms unless circumstances materially changed so that plaintiffs reasonably concluded that the prospect or amount of ultimate recovery from an otherwise similarly situated defendant had been substantially reduced. *fn5" Favorability of settlement terms would be determined by calculating for each settling defendant the amount of settlement as a percentage of that defendant's dollar sales of copper water tubing during 1979-82 inclusive and comparing this figure to Phelps Dodge's 2.4% settlement ratio.

 Consideration of preliminary approval of this settlement was delayed pending termination of the criminal trial of United States v. Cambridge-Lee Industries, Inc., et al.6 After a nine-week trial, all remaining defendants were acquitted on December 22, 1983.

 A hearing on whether to grant preliminary approval of the Phelps Dodge settlement and notify the settlement class was held on January 25, 1984. See Memorandum and Order dated January 18, 1984 (finding it appropriate to hold a hearing on preliminary approval at that time). At this hearing there was extensive discussion of the meaning of the most favored nations clause. This court preliminarily approved the Phelps Dodge settlement on October 31, 1984 and approved it as fair, reasonable and adequate on February 20, 1985. See Fisher Brothers, et al. v. Phelps Dodge Industries, Inc., 604 F. Supp. 446 (E.D.Pa. 1985). With regard to the most favored nations clause, the court there noted that:

 
. . . the subsequent acquittals of Cambridge-Lee and Cerro might have had an 'obvious, significant, and substantial impact on the progress of the settlements in the civil class action,' In re Corrugated Container Antitrust Litigation, 1983-1Trade Reg.Rep. (CCH) P 65,451 (S.D.Tex. February 2, 1983). Whether or not these subsequent acquittals in the criminal trial constituted a material change in circumstances that would render the most favored nations clause inoperative may be determined by the court if the remaining defendants settle on terms to which Phelps Dodge objects. While the most favored nations clause is frequently considered undesirable, see Manual for Complex Litigation, § 1.46 (5th ed. 1981), in these circumstances, the presence of a most favored nations clause does not suggest disapproval of this settlement agreement.

 Id. at 452.

 Following prolonged negotiations, plaintiffs entered into a settlement with defendant Cerro on February 7, 1985 for the sum of $3,285,000. The court preliminarily approved the proposed Cerro settlement at a hearing held on March 29, 1985. (3/29/85 Tr. p. 15). At this hearing, and also by letter dated April 5, 1985, Phelps Dodge notified the court and plaintiffs of its contention that the Cerro settlement violated Phelps Dodge's most favored nations clause. On April 29, 1985, Phelps Dodge filed a motion to enforce the most favored nations clause of its settlement agreement.

 This court scheduled an evidentiary hearing on Phelps Dodge's motion for May 24, 1985. *fn7" See In re Corrugated Container Antitrust Litigation, 752 F.2d 137 (5th Cir.), cert. denied, 473 U.S. 911, 105 S. Ct. 3536, 87 L. Ed. 2d 660, 53 U.S.L.W. 3904 (1985) (reversing the district court for not conducting an evidentiary hearing where there existed factual disputes concerning the applicability of a most favored nations clause, but not criticizing the district court's ruling that acquittals in a criminal antitrust trial were a material change in circumstances influencing the prospect and amount of settlement in the related civil litigation.)

 Prior to the hearing, this court allowed some discovery; one of plaintiff's co-lead counsel responded in expedited fashion to three of four contention interrogatories filed by Phelps Dodge. Phelps Dodge also requested leave to depose plaintiffs' co-lead counsel, other counsel for plaintiff class, and at least one named plaintiff. The court denied these depositions on the ground that, if the court were to determine that Phelps Dodge had the right to terminate its settlement and the case against Phelps Dodge then went to trial, plaintiffs would be unduly prejudiced if Phelps Dodge had compelled testimony under oath concerning plaintiffs' litigation strategy, estimated potential recovery, and so on. On May 21, 1985, Phelps Dodge formally abandoned its option to seek termination and thereafter contended only that it was entitled to partial refund of the $2.5 million paid in settlement plus accrued interest; it renewed its request to take depositions of plaintiffs' counsel and compel plaintiffs to respond fully to the unanswered contention interrogatory. But this court did not permit additional discovery because plaintiffs might still proceed to trial against those defendants whose settlements have not been finally approved. Additionally, because Phelps Dodge had an ample opportunity to decide to seek a partial refund rather than terminate its settlement agreement, this court viewed Phelps Dodge's untimely renewal of its discovery requests as a delaying tactic designed to undermine the court's decision not to postpone the evidentiary hearing. *fn8" The court remains of the view that determination of the Phelps Dodge status prior to the final hearing on approval of settlement and attorneys' fees is in the interest of the members of the class.

 The evidentiary hearing was held on May 24 and May 28, 1985. At this hearing the court took judicial notice of proceedings in the related criminal trial and of ...


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