Fund, the balance was to be returned to defendants.
On July 3, 1985, the court directed that notice of the proposed settlement be sent to the class and published twice, in two successive weeks, in The Wall Street Journal. The court also ordered that all brokers or nominees holding shares of C.I. Realty Investors of record for members of the class who had not previously supplied counsel for the class with the names and addresses of such class members forward the notice to the beneficial owners of those shares or supply counsel for the class with a list of the names and addresses of such beneficial holders.
In accordance with the court's Order, counsel for the class sent notice to all class members that a hearing to determine whether the proposed settlement was fair, reasonable and adequate would be held on September 20, 1985. The notice stated that any member of the class could appear and be heard at the hearing to object to the settlement. The notice was also published in The Wall Street Journal. Proof of mailing and publication of the notice was filed with this court on August 9, 1985 and supplemented by a status report filed with the court on November 8, 1985.
The scheduled hearing was held before The Honorable Thomas N. O'Neill, Jr. on September 20, 1985. No objections were filed; no one appeared to testify. On November 8, 1985, counsel for the class filed a supplemental affidavit concerning class administration: were the court to approve the settlement agreement, the funds distributed to the class would have been no more than $ 10,192.50; claims representing in excess of 250,000 shares would have been rejected because they were not sold at an actual loss.
On December 4, 1984, upon review of the supplemental affidavit concerning claims' administration, the court ordered counsel for the class to submit to the court representative market prices of the shares of stock from April, 1972 through April, 1978. Upon examination of the fluctuation of the stock, the court ascertained that the reason for the nominal recovery of the class was that virtually no shares purchased between May, 1974 and November, 1977 were sold at a loss during the class period so that the actual loss requirement precluded a significant portion of the class from participating in the settlement fund. Consequently, the court concluded that it would not approve the settlement agreement and so informed the parties on January 29, 1986.
On April 4, 1986, the parties entered into a revised settlement agreement. Under the revised settlement agreement, defendants agreed to pay all shareholders who sold their shares during the class period in an amount equal to $ .50 per share, regardless of whether the sale price was above or below the purchase price. In addition, counsel for the class agreed to reduce their requested attorneys' fees from $ 200,000 to $ 135,000. In all other respects, the settlement agreement remained the same.
On April 8, 1986, a hearing was held on the revised proposed settlement agreement. Because the revised agreement removed the actual loss limitation on recovery and enabled all members of the class to participate in the settlement fund, the court gave its preliminary approval to the revised settlement agreement (the "Settlement Agreement").
On April 10, 1986, the court directed that notice of the proposed settlement be sent to the class and published in the national edition of The Wall Street Journal. Accordingly, on April 16, 1986, all class members were mailed notice of a hearing on May 19, 1986 to determine whether the proposed settlement was fair, reasonable and adequate. The notice stated that any member of the class could appear then and be heard to object to the settlement. Notice was published in The Wall Street Journal on April 23, 1986.
The court also ordered that all brokers or nominees holding shares of C.I. Realty Investors of record for members of the class who had not previously supplied counsel for the class with the names and addresses of such class members forward the notice to the beneficial owners of those shares or supply counsel for the class with a list of names and addresses of such beneficial holders.
Class members who previously filed proofs of claim and had their claims rejected on the basis that they had no provable losses were advised that they were eligible to participate in the settlement fund and that it was not necessary for them to refile proofs of claim. Proof of mailing and publication of the notice was submitted to the court on May 19, 1986 (filed of record on June 4, 1986) and supplemented by a status report filed with this court on June 2, 1986. Under the revised settlement agreement, claims approved for distribution to the class total $ 143,543.
II. Approval of Settlement
Rule 23(e) of the Federal Rules of Civil Procedure requires 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).
The appellate courts have specified 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, 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. . . .