The opinion of the court was delivered by: SHAPIRO
Plaintiff Fisher Brothers brought this action individually and on behalf of a putative class of direct purchasers of copper water tubing against defendants Cambridge-Lee Industries, Inc. ("Cambridge-Lee"), Cerro Copper Products, Inc. ("Cerro"), Halstead Industries, Inc. ("Halstead"), and Howell Metals Company ("Howell"), for relief from defendants' alleged price-fixing in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1. Defendants Halstead and Howell settled with plaintiffs on April 23, 1984 and this court approved those settlements as fair, reasonable and adequate on February 5, 1985. Cambridge-Lee and Cerro signed settlement agreements with plaintiffs on January 10, 1985 and February 7, 1985, respectively. On September 9, 1985 a hearing was held on plaintiffs' motion to approve these settlements pursuant to Fed.R.Civ.P. 23(e) following due notice to members of the proposed settlement class. No class member objected or asked to be heard. Upon full consideration of written submissions and oral arguments in support of the settlements, the court approves these settlements as fair, reasonable and adequate.
FACTS and 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. On November 5, 1982, while the investigation was in progress, Fisher Brothers filed a civil complaint on behalf of direct purchasers of copper water tubing against Cambridge-Lee, Cerro, Halstead, and Howell
that alleged defendants and other co-conspirators had engaged in a nationwide conspiracy to fix, raise, maintain or stabilize the price of copper water tubing, in violation of Section 1 of the Sherman Act. Plaintiffs also moved to certify the action as a class action. Shortly thereafter, a number of complaints with similar allegations were filed by other copper water tubing purchasers against these defendants.
On March 18, 1983, the grand jury returned an indictment against six corporate defendants, Cambridge-Lee, Cerro, Phelps Dodge Industries, Inc. ("Phelps Dodge"), Reading Industries, Inc. ("Reading"), Revere Copper and Brass, Inc. and Revere Copper Products, Inc. (together known as the "Revere Companies") and six present or former employees of Cambridge-Lee, Cerro, and Revere. 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.
Subsequent to the indictment and prior to the criminal trial, the court in this action approved a stipulation deferring all but third-party discovery until the conclusion of the criminal trial and certifying a class defined 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, purchased copper water tubing directly from one or more of the defendants (including defendants' subsidiaries and affiliates) or their alleged co-conspirators.
A nine-week criminal trial was held before The Honorable Daniel H. Huyett, 3rd, and on December 22, 1983 the jury found all defendants who went to trial not guilty.
Following conclusion of the criminal proceedings, the parties commenced discovery in this civil litigation. Plaintiffs negotiated settlements with Halstead and Howell during the Spring of 1984. The court preliminarily approved these settlements on October 29, 1984 and directed that notice of the proposed settlements be sent to the settlement class.
Recipients of the notice were told that they would be members of the class if at any time from January 1, 1975 through November 30, 1982 they had purchased copper water tubing directly from Cambridge-Lee, Cerro, Halstead, Howell, Phelps Dodge, Reading, the Revere Companies, or Mueller, unless they chose not to be by their affirmative action. The Halstead and Howell settlements were approved by this court as fair, reasonable, and adequate on February 5, 1985.
Throughout 1984 and early 1985, plaintiffs were engaged in discovery and settlement discussions with Cambridge-Lee and Cerro. On a number of occasions this court actively intervened to assist the progress of the negotiations. On January 10, 1984, plaintiffs and Cambridge-Lee entered into a settlement agreement for $900,000, to be paid in six semi-annual installments of $150,000 with interest on the outstanding balance at the prime rate; final payment is to be made on or before July 1, 1987. The court heard argument on plaintiffs' motion for preliminary approval of this settlement on January 11, 1985 and granted preliminary approval on February 26, 1985. On February 7, 1985, plaintiffs and Cerro entered into a settlement agreement for $3,825,000. This sum was paid into an interest-bearing escrow account on February 13, 1985. Plaintiffs argued in support of preliminary approval of the settlement on March 29, 1985, and the court granted preliminary approval on May 17, 1985. Each of these settlements was on behalf of a stipulated class consisting of:
All individuals, proprietorships, partnerships, corporations and other business entities in the United States (excluding defendants, their subsidiaries and affiliates, and their alleged co-conspirators) who have, during the period January 1, 1975 through November 30, 1982 (hereafter referred to as '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.
On May 17, 1985, the court directed that notice of the proposed settlements be sent to the settlement class
and published twice in all regional editions of The Wall Street Journal. Pursuant to the court's Order, counsel for the class sent notice informing all class members that a court hearing to determine whether the proposed Cambridge-Lee and Cerro settlements were fair, reasonable, and adequate would be held on September 9, 1985.
The notice stated that any member of the class could appear and be heard at the hearing to object to the settlements. Proof of mailing and publication of the notice was filed with the court on June 26, 1985 and supplemented by a status report filed with the court on September 4, 1985. The September 9, 1985 hearing was held as scheduled.
The court, having considered the oral submissions of September 9, 1985 and the prior filings and record of this case, now determines upon an independent evaluation of the proposed Cambridge-Lee and Cerro settlements that they are fair, reasonable and adequate.
JURISDICTION TO APPROVE SETTLEMENT
At the September 9, 1985 hearing on approval of the Cambridge-Lee, Cerro and Mueller settlements the court ruled that the notice of appeal filed by Phelps Dodge on August 26, 1985 in Fisher Brothers, et al. v. Phelps Dodge, Inc. (Civil Action No. 83-2457) did not divest the court of jurisdiction to approve the Cambridge-Lee and Cerro settlements (Civil Action No. 82-4921) or the Mueller settlement (Civil Action No. 84-413). In its appeal, Phelps Dodge seeks to overturn this court's ruling of July 26, 1985 that the Cerro settlement did not violate the most favored nations clause of the Phelps Dodge settlement approved by this court on February 20, 1985. This determination was made before scheduling the September 9, 1985 hearing to determine whether the Cambridge-Lee, Cerro and Mueller settlements should be approved pursuant to Rule 23(e) of the Federal Rules of Civil Procedure. The Phelps Dodge appeal was taken after that hearing was scheduled.
As a general rule, the timely filing of a notice of appeal is an event of jurisdictional significance immediately conferring jurisdiction on a court of appeals and divesting a district court of its control over those aspects of the case involved in the appeal.
The appeal of Phelps Dodge, filed August 26, 1985 in Civil Action No. 83-2457, divested the district court of power to act further in regard to that case. It would particularly preclude an order approving distribution of the Phelps Dodge settlement fund even if distribution were not precluded by the terms of the settlement agreement itself. However, the joint class action against Phelps Dodge is separate from the class actions against Cambridge-Lee and Cerro which were consolidated in Civil Action No. 82-4921, the so-called Master File case. Like the action against Mueller, the Phelps Dodge case, while coordinated for discovery was never consolidated for trial or any other purpose. Phelps Dodge unlike the Master File claimants (but like Mueller), agreed to class certification for settlement purposes only; in other respects the Phelps Dodge action has been treated as separate and independent from the Master File cases and the Mueller case. Indeed, the very memorandum opinion from which the Phelps Dodge appeal was taken was filed in Civil Action No. 83-2457 only. Therefore, the pendency of the Phelps Dodge appeal does not divest the court of jurisdiction to approve the Cambridge-Lee, Cerro and Mueller settlements.
Rule 23(e) of the Federal Rules of Civil Procedure mandates court approval of a class action settlement:
A class action shall not be dismissed or compromised without the approval of the Court, and notice of the proposed dismissal or compromise shall be given to all members of the class . . . .
Approval of a proposed class action settlement is discretionary with the court. Girsh v. Jepson, 521 F.2d 153, 156 (3d Cir. 1975); Ace Heating & Plumbing Company v. Crane Company, 453 F.2d 30, 34 (3d Cir. 1971). Settlement is a course favored by law, Weight Watchers of Philadelphia, Inc. v. Weight Watchers International, Inc., 455 F.2d 770, 773 (2d Cir. 1972), but a settlement will be approved only if it is "fair, adequate, and reasonable" to the members of the class, Walsh v. Great Atlantic and Pacific Tea Company, Inc., 726 F.2d 956, 965 (3d Cir. 1983). The settlement must be both substantively reasonable compared to the likely rewards of litigation, Shlensky v. Dorsey, 574 F.2d 131, 147 (3d Cir. 1978), and the result of good faith, arms length negotiations, Weinberger v. Kendrick, 698 F.2d 61, 74 (2d Cir. 1982).
Various courts have attempted to specify factors to be considered prior to decision upon the fair, reasonable, and adequate nature of a proposed class action settlement. See Malchman v. Davis, 706 F.2d 426, 433-34 (2d Cir. 1983) (nine factors); Reed v. General Motors Corp., 703 F.2d 170, 172 (5th Cir. 1983) (six factors); Officers for Justice v. Civil Service Commission, 688 F.2d 615, 625 (9th Cir. 1982), cert. denied, 459 U.S. 1217, 103 S. Ct. 1219, 75 L. Ed. 2d 456 (1983) (eight factors). In Girsh v. Jepson, 521 F.2d 153 (3d Cir. 1975), the Court of Appeals for this Circuit noted the relevancy of the following nine factors in determining the fairness of a settlement:
. . . (1) the complexity, expense and likely duration of the litigation . . .; (2) the reaction of the class to the settlement . . .; (3) the stage of the proceedings and the amount of discovery completed . . .; (4) the risks of establishing liability . . .; (5) the risks of establishing damages . . .; (6) the risks of maintaining the class action through the trial . . .; (7) the ability of the defendants to withstand a greater judgment; (8) the range of reasonableness of the settlement fund in light of the best possible recovery . . .; (9) the range of reasonableness of the settlement fund to a possible recovery in light of all the attendant risks of litigation. . . .
Girsch, 561 F.2d at 157 (quoting City of Detroit v. Grinnell Corp., 495 F.2d 448, 463 (2d Cir. 1974)).
A. Uncertainties of Litigation
But settlement allowed plaintiffs to avoid the risks involved in continuing to litigate against these defendants. Cambridge-Lee, Cerro, and their indicted employees were all acquitted in the criminal trial. Some of defendants' customers at the criminal trial testified to strong competition in the copper water tubing industry during the alleged conspiratorial period. Additionally, experts at the criminal trial had testified that there was competition in the industry and that the industry as a whole was in a situation of declining profit. According to plaintiffs' co-lead counsel,
the criminal trial testimony of defendants' customers and expert witnesses gave rise to concern on the part of plaintiff's counsel that even if they could prove the existence of a conspiracy among the defendants, they might be unsuccessful in proving damages.
(Plaintiffs' Exhibit 1, 5/24/85 Hearing). Plaintiffs' evidence, while sufficient to go to a jury, depended on inference and circumstance; it did not include a strong or shocking item of evidence clearly demonstrating that the defendants had conspired to fix prices. (Plaintiffs' Exhibit 1, 5/24/85 Hearing). Many of those deposed had invoked their Fifth Amendment privilege so, for those witnesses, plaintiffs' civil testimony would be limited to reading to the jury the testimony of those witnesses at the criminal trial. The problem of presenting testimony through "dead witnesses" was particularly serious since plaintiffs' counsel believed some of the Government witnesses had not testified well and/or their credibility had been weakened at the criminal trial.
In spite of these weaknesses of plaintiffs' case, Cambridge-Lee and Cerro also had good reason to avoid the uncertainties of litigation. While the government failed to secure a criminal conviction under the "beyond a reasonable doubt" standard, plaintiffs' counsel, informed by the criminal trial, might have proved that a price-fixing conspiracy was "more probable than not." Also, if plaintiffs prevailed on the pending motion for production of grand jury transcripts of witnesses who invoked the Fifth Amendment at deposition, plaintiffs might have found the strong, explicit evidence they sought concerning price-fixing practices by defendants. Furthermore, the earlier settlements provided that such settlements would not affect any joint or several liability of any other defendant. Cambridge-Lee and Cerro, as remaining non-settling defendants, were potentially liable for all of the damages caused by reason of the alleged conspiracy. The risk of substantial treble damages is one of the risks avoided by defendants' deciding to settle.
This court was satisfied that plaintiffs had enough evidence against the remaining defendants to get to a civil jury so that defendants' offer of settlement was not simply a pay-off to "legalized blackmail." This court read a substantial portion of the transcript of the criminal trial and reviewed confidential documents filed by plaintiffs as part of their motion for class certification in Civil Action No. 84-0413. The transcripts and documents revealed allegedly conspiratorial telephone conversations regarding setting of prices, price sheets that were uncirculated (allegedly if other companies would not abide by those prices), and a price spread between the price of copper and copper water tubing that should have been but was not constant over time. This court was convinced that it was in the interest of all parties to encourage discussions of a fair and reasonable settlement with Cambridge-Lee and Cerro.
The Cambridge-Lee and Cerro settlements were not achieved for over a year after the criminal acquittals. For most of this period, class and defense counsel had a number of settlement conversations but the position of the parties remained far apart. The court participated in some of these negotiating sessions, and met with counsel and their principals. Because of this firsthand observation of the unflagging determination with which each party's attorney sought to promote the best interest of his respective client, the court has great confidence that these settlement agreements are in the best interest of the class.
When notices of this litigation and of the Halstead, Howell, Phelps Dodge and Revere settlements were mailed to 37,000 recorded addresses of members of the stipulated settlement class and twice published in The Wall Street Journal, only 46 entities, or . 13% of the class, opted to exclude themselves from the class. (A substantial portion of these addresses were duplicative, but the number of entities opting out is still exceedingly small.) A second notice informing class members of the Cambridge-Lee, Cerro and Mueller settlements was mailed to the stipulated class; at that time, members of the class could no longer exclude themselves from the class so non-exclusion cannot be used as an indicia of non-objection.
But it is extremely relevant that no member of the class has raised any objection to the proposed settlements. "This unanimous approval of the proposed settlements by the class members is entitled to nearly dispositive weight in this court's evaluation of the proposed settlements." In re Art Materials Antitrust Litigation, 100 F.R.D. 367, 382 (N.D. Ohio 1983). Additionally, approximately 1,890 class members filed claim forms. This indicates considerable satisfaction with the results of the litigation. See discussion of percentage claims filed in Zimmer Paper Products, Inc. v. Berger & Montague, P.C., 758 F.2d 86, 92-93 (3d Cir. 1985).
D. Amount of the Settlement
The court must review a settlement to determine whether it falls within a "range of reasonableness," not whether it is the most favorable possible result of litigation. See Newman v. Stein, 464 F.2d 689, 693 (2d Cir.), cert. denied sub nom., Benson v. Newman, 409 U.S. 1039, 34 L. Ed. 2d 488, 93 S. Ct. 521 (1972) ("in any case there is a range of reasonableness with respect to a settlement - a range which recognizes the uncertainties of law and fact in any particular case and the concomitant risks and costs necessarily inherent in taking any litigation to completion"). Because of the inherent risks of litigation, "the vast majority of courts which have approved settlements in [antitrust class actions] . . . have given their approval to settlements which are traditionally based on an estimate of single [rather than treble] damages," City of Detroit v. Grinnell Corp., 495 F.2d at 458.
Cerro's $3.825 million settlement represents approximately .88% of $434.3 million in sales during 1979-82, the four years prior to the filing of the complaint; (the statutory limitations period governing antitrust claims is four years). Cerro's ratio of settlement to sales is substantially less than the 2.4% settlement ratio of Phelps Dodge, a similarly situated defendant.
However, Phelps Dodge settled after its criminal indictment but before the criminal trial; Cerro settled after the criminal acquittals. A criminal conviction would have constituted prima facie evidence of liability in this civil litigation; the acquittals constituted a material change in circumstances concerning the litigation which legitimately and reasonably caused plaintiffs to revise their estimates of settlement value. (See Memorandum Opinion, July 26, 1985).
This court was privy to conversations with class counsel regarding plaintiffs' settlement negotiation guidelines and observed plaintiffs' recalculate the settlement potential with Cerro downward following the criminal trial acquittals. Plaintiffs' failure to uncover a "smoking gun" or other conclusive evidence of unlawful conspiracy during civil discovery coupled with the tough negotiating posture of Cerro's counsel made it reasonable for plaintiffs to accept the .88% settlement ratio.
Cambridge-Lee's $900,000 settlement represented approximately .3% of 1979-82 sales of $302.1 million. While this settlement, which was agreed to just one month prior to the Cerro settlement, is substantially less than Cerro's settlement, it is reasonable in light of Cambridge-Lee's special circumstances. Unlike Cerro, Cambridge-Lee is not a manufacturer but rather a "super distributor" of copper water tubing and other products. Cambridge-Lee has fewer assets and a weaker cash position than a manufacturing concern like Cerro. Additionally, the late 1984 Dun & Bradstreet reports on Cambridge-Lee and certain other documents filed by Cambridge-Lee under seal but provided to plaintiffs' co-lead counsel, convinced plaintiffs and the court that it was reasonable to accept in settlement six $150,000 payments with interest accruing at the prime rate.
Courts may consider a defendant's special financial situation as a factor in approving a settlement. Hardship on the part of a settling defendant may warrant approval of a settlement. In re South Central States Bakery Products, 88 F.R.D. 641, 643 (M.D.La. 1980) ("Courts may consider a defendant's solvency to be a factor in approving a settlement.")
For the foregoing reasons, the court finds that the Cambridge-Lee and Cerro settlements provide the class members with the guarantee of a substantial benefit which, when weighed against the costly and uncertain prospect of obtaining judgment at trial, is clearly in the interest of the class as a whole. The court approves these settlements as fair, reasonable and adequate.
FISHER BROTHERS v. CAMBRIDGE-LEE AND RELATED ACTIONS
CLASS MEMBERS WHO HAVE ELECTED TO BE EXCLUDED FROM THE CLASS
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25-11 Hunterspoint Avenue
Long Island City, New York 11101
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4. Blissfield Manufacturing Company
Blissfield, Michigan 49228
5. Brown Pipe and Supply of ...