The opinion of the court was delivered by: McLaughlin, J.
The plaintiffs have moved for certification of a class, final approval of a settlement, and an award of attorneys' fees, costs and incentive payments in this case involving the sale of long-term deferred annuities products. The defendants do not oppose the motion. The Court held a hearing on November 6, 2009, and now grants the plaintiffs' motion and enters final judgment and an order of dismissal.
This action is a multi-district litigation proceeding that involves six consolidated putative class action lawsuits, the oldest of which has been pending before this Court for five years.*fn1 On October 26, 2005, the Judicial Panel on Multidistrict Litigation transferred the related actions to this Court. The actions were consolidated for pretrial purposes on November 11, 2005.
The Court granted the defendants' motion to dismiss on June 2, 2006, but it allowed the plaintiffs to amend their complaint. The plaintiffs filed a consolidated amended class action complaint on August 9, 2006, naming only the AmerUs entities as defendants.*fn2 The defendants filed a new motion to dismiss.
The plaintiffs then filed a second amended consolidated class action complaint on March 1, 2007. The defendants supplemented their motion to dismiss in light of the plaintiffs' second amended complaint. On August 29, 2007, the Court granted in part and denied in part the defendants' motion to dismiss.
The parties then began their discovery, which lasted eight months. They produced over 200,000 pages of documents, including the defendants' training and sales materials used by agents who sold the annuities at issue to the plaintiffs. The plaintiffs deposed 9 of the defendants' corporate designees and employees, and the defendants deposed 12 individuals, including the named plaintiffs. The plaintiffs also exchanged expert reports of three experts. Pls.' Unopposed M. for Final Approval of Settlement, Class Certification, and Award of Attorneys' Fees and Costs and Incentive Payments ("Pls.' M.") 5-6; See Defs.' M for Summ. J. Exs. 1-89; Pls.' Opp. to Summ. J. Exs. 1-35.
In April 2008, the defendants moved for summary judgment. The plaintiffs then moved for class certification and then opposed the defendants' summary judgment motion.
On July 16, 2009, the plaintiffs filed their unopposed motion for preliminary approval of the settlement, certification of the settlement class, and order directing issuance of notice to the class. They attached to their motion a third amended consolidated class action complaint ("complaint"). They also attached the parties' stipulation of settlement ("settlement" or "settlement stipulation") and proposed form of class notice ("notice"). The Court issued an Order on July 28, 2009, preliminarily approving the settlement and the notice. ("preliminary approval order").
On October 30, 2009, the plaintiffs submitted their unopposed motion for final approval of the settlement, class certification, and award of attorneys' fees and costs and incentive payments ("motion for final approval of settlement"). They attached eleven declarations and several exhibits to their motion. The defendants submitted a declaration from Scott J. Dunn, a Business Systems Analyst from Aviva USA Corporation, attesting to the systems used to determine the composition of the class for notice dissemination. The defendants also submitted a declaration and exhibits from Jason H. Gould, counsel for the defendants. The declaration attested to the notice sent to federal and state officials regarding the settlement stipulation, pursuant to the Class Action Fairness Act, 28 U.S.C. § 1715 ("CAFA").
In their complaint, the plaintiffs claim that the defendants perpetrated a scheme to sell investments to the class through misrepresentations and omissions about the characteristics of the investments. They allege that the defendants targeted and induced the class to buy complex, long-term deferred annuities that lack liquidity. The lengthy surrender periods of the annuities prevent the class members from obtaining full access to the principal or interest earned on the annuities without incurring a significant penalty. Many of the annuities' surrender periods exceed the actuarial life expectancy of the class members themselves. Further, upon the investors death, beneficiaries suffer a loss on the lump sum transfer.
The plaintiffs allege that the defendants perpetrated their scheme with the help of independent sales agents and attorneys by: targeting senior citizens and other vulnerable purchasers, training sales group members to use deceptive practices and materials when selling the annuities, intentionally failing to train sales group members to make suitability determinations, failing to develop a process for making suitability determinations, and offering high commissions to sales group members who sold the annuities products.
In the complaint, the plaintiffs assert a violation of the Federal Racketeer Influenced and Corrupt Organizations Act ("RICO"), conspiracy to violate RICO, and several related state law claims.
B. Settlement Negotiations
After the parties conducted months of discovery, culminating in the plaintiffs' motion for class certification and the defendants' motion for summary judgment, the parties began settlement negotiations. Hr'g Tr. 13:20-23, Nov. 6, 2009.
To aid in their negotiations, the parties retained Professor Eric D. Green, a mediator for many complex, multi-party class action cases, who has authored books on dispute resolution and worked for thirty years as a professor at Boston University Law School. The mediation took almost one year and included approximately ten face-to-face meetings with Professor Green, numerous telephone calls and conference calls, and dozens of negotiating sessions in person and via teleconference. The parties also met frequently without Professor Green to move along their discussions. According to Professor Green: "The settlement discussions were protracted, highly contested, but principled, and entirely at arm's-length." The parties reserved discussions concerning an award of attorneys' fees and expenses until they agreed upon the material components of the settlement. Declaration of Professor Eric D. Green ("Green Decl."), attached to Pls.' M.
C. The Settlement Stipulation
The parties filed their settlement stipulation on July 16, 2009. The settlement stipulation defines the class as:
All persons and entities that purchased Company Annuities issued during the Class Period and all persons and entities to which an ownership interest in such Company Annuities was subsequently assigned or transferred, or that otherwise held any interest as an Owner in such Company Annuities, during the Class Period....*fn3
Settlement II.A.18. The class period is from January 1, 1998, to July 28, 2009. It includes approximately 387,000 persons and entities that purchased and/or owned approximately 474,000 of the defendants' annuities. Settlement II.A.22; Pls.' M. 5.
The parties structured two forms of relief for the class: general policy relief and claim process relief. General policy relief includes two versions: basic and enhanced. Under both basic and enhanced general policy relief, current owners of eligible annuity policies that are in deferral or in annuitization may elect to receive the entire amount of their current account value, plus a specified bonus. They will receive this payout over a period of between two and seven years, depending on the length of time they have already held the annuity. Owners of eligible policies that are categorized as fully annuitized will receive a lump sum payment. Class members who elect this relief are not subject to surrender charges. Settlement IV.
Both basic and enhanced general policy relief also include for each policy in deferral a benefit equivalent to a 50% reduction in the amount of surrender charges, if any, that would otherwise apply under the policy on a death benefit due in the event of the death of the owner or the annuitant. Settlement IV.E.
Under basic general policy relief, the bonus for each policy depends on whether the policy qualifies as a "65-and-Over Contract." A 65-and-Over Contract is a contract as to which each original owner of the contract (or if no such original owner was a natural person, the annuitant) was 65 years of age or older when the contract was issued. The bonus for a 65-and-Over Contract equals 0.40% of the policy's accumulation value, and the bonus for all other contracts equals 0.15% of the policy's accumulation value. Settlement IV.B-IV.C.
Owners of 65-and-Over Contract policies that are in deferral, in annuitization, or fully annuitized may elect enhanced general policy relief by submitting an election form. This relief allows the owner to receive a benefit ranging from 0.40% to 2.0%, depending on: (1) whether and the extent to which the original owner's remaining life expectancy exceeds the policy's surrender charge period, and (2) how large a fraction of the original owner's liquid net worth was used to purchase the policy. Settlement IV.C.
As an alternative to basic and enhanced general policy relief, owners of eligible policies may elect claim process relief and participate in a claim review process. Under this process, class members submit a claim form and proof of alleged misconduct by the defendants or salespersons involved in the sale. A claim scorer reviews the claim form and materials. The class members who elect this relief are not subject to cross-examination by the defendants. Depending on the status of the policy and the score assigned to the corresponding claim, class members receive payments based on a percentage of surrender charges, if any, previously incurred by the policy owners, and a bonus ranging from 0% to 2.25%. Settlement V.
The settlement also includes non-economic relief in the form of undertakings by the defendants related to the marketing and sale of annuities and other insurance products offered by defendants American Investors Life Insurance Company or AmerUs Life Insurance Company (now known as Aviva Life and Annuity Company). The defendants agree to disclose, when applicable, that events organized by the defendants involve sales presentations. They also agree to not misrepresent their status or the status of their agents as being investment advisors or estate planning experts. Further, the defendants will maintain guidelines and procedures for evaluating the suitability of annuities sold based upon information provided by the purchaser. They will also provide information to the purchasers regarding the characteristics of the annuities, and they will inform and direct their agents of these undertakings. Settlement III.M.
The settlement includes a release and waiver ("release") in exchange for the class members' relief. The class members release the defendants from all causes of action, claims, allegations of liability, damages, restitution, equitable, legal and administrative relief, interest, demands or rights that were or could have been asserted in this action. They also release "other defendants," defined as those persons and entities that are named as defendants in the complaints filed in the putative class actions, but that are not named as defendants in the complaint. Additionally released are the officers, directors, employees, representatives, attorneys, and agents of the defendants and other defendants. Settlement X.
The plaintiffs further agree that they will not institute, maintain, assert, join, or participate in any action or proceeding against those released that are based on or related to the facts alleged in the complaints filed in this action.
3. Attorneys' Fees and Expenses and Incentive Payments
The settlement includes an agreement that the defendants will not oppose the plaintiffs' motion for an award of $17,699,840.50 for attorneys' fees and $550,159.50 for out-of-pocket expenses, totaling an award of $18,250,000. According to the plaintiffs' expert, Dr. William Reichenstein, who holds an endowed chair in investment management at Baylor University and who has studied annuities for 20 years, the fee award amounts to approximately 3% to 9% of the settlement valuation. The plaintiffs cross-checked their award using the loadstar method and found it equates to a 2.3 multiplier of the class counsel's loadstar amount. Settlement XI.A; Pls.' M. 60-63.
The settlement also requires the defendants to pay the uncapped costs of settlement administration, estimated to be $1 million at the time of the plaintiffs' motion for final approval of settlement.*fn4 Settlement XI.C; Pls.' M. 60.
Lastly, the settlement includes an incentive award to the named plaintiffs in the aggregate amount of $115,000. The individual awards to the named plaintiffs range from $5000 to $10,500 each. Settlement XI.D.; Pls.' M. 74-75.
Counsel retained Rust Consulting, Inc., a settlement administrator that specializes in class action notification and settlement administration ("settlement administrator"), to facilitate notice of the settlement. Pls.' M. 11 and Declaration of Amy L. Lake Regarding Proof of Mailing Notice to Settlement Class, Establishing a Toll-Free Information Center, and Establishing a Website ¶¶ 2-3 ("Lake Decl.") attached to Pls.' M.
On August 28, 2009, the settlement administrator disseminated 387,263 copies of the Court-approved class notice package to the last known addresses of the class members via first class, postage pre-paid mail. The class notice described the action, the applicable terms, and the class's claims. It discussed the class members' right to be heard at the fairness hearing, their right to exclude themselves from or object to the settlement, and the procedure to effectuate an exclusion or objection. It also discussed the binding effect of the settlement for those who chose not to opt out. The class notice package included appendices that defined key terms, listed the policies covered by the settlement, demonstrated the bonus percentage for enhanced general policy relief, explained the scoring guidelines for claim process relief, and provided the various election forms necessary to effectuate specific forms of relief. Lake Decl. ¶¶ 6-9 and Ex. B.
The settlement administrator used an address verification service to research all mailed class packages that were returned with no forwarding address. Over 11,000 out of 19,800 class notice packages that were returned as undeliverable with no forwarding address were successfully remailed. Lake Decl. ¶¶ 7-12.
The settlement administrator also established a toll-free call center staffed with 50 customer service representatives who were trained by the parties and the settlement administrator to answer class members' questions. The class notice included the call center's phone number. The center answered over 41,400 calls from 23,175 class-member callers. Lake Decl. ¶¶ 16-17.
When customer service representatives were unable to answer class members' questions, they referred the class members to class counsel. Class counsel answered hundreds of class members' questions. Counsel also helped class members choose a form of relief, provided the class members' circumstances, and helped class members complete any applicable paperwork. Class counsel told class members to call any time in the future for advice about the settlement, and class counsel anticipates receiving such calls in the subsequent months. Declaration of J. Martin Futrell, Esq. ¶¶ 2-7, attached to Pls.' M.; Declaration of Cristina M. Pierson, Esq. ¶¶ 3-9, attached to Pls.' M.
The settlement administrator also established and maintained an internet website containing class notice information. The site was made available to the public on August 28, 2009, and it contained copies of the settlement, the Court's preliminary approval order, the form of escrow agreement, the class notice and the election and claim forms. The website also included the settlement administrator's phone number and answers to frequently asked questions. As of October 28, 2009, there had been 13,936 visits to the website. Lake Decl. ¶¶ 13-14.
E. Response to the Settlement
Eight hundred seventy-four class members requested exclusion from the settlement. Eight hundred thirty-nine sent their requests by the opt-out deadline. One class member filed a motion for exclusion after the deadline passed, which the Court granted. The exclusion rate amounts to 0.2% of the settlement class.*fn5 Lake Decl. Exs. F, G.
Twelve class members object to the settlement and ten objection documents were filed. These numbers include three objectors who filed their objections past the objection deadline.*fn6 The twelve objectors amount to 0.003% of the settlement class. All but three objectors are pro se. Lake Decl. Ex. E; Letter from James D. Bowman, Class Member, to the Court (Oct. 29, 2009).
The substance of the objections involve an array of complaints. Some objectors request relief specific to their circumstances or state that the settlement is unfair to the defendants. Others object to the attorneys' fee request, and one objects to the named plaintiffs' incentive award. Some objections state that the settlement and notice are overly complex. One objector protests his inability to both object to and seek exclusion from the settlement. Several objectors take issue with specific terms of the settlement stipulation, including the release of the defendants' agents, the mechanics of the claim review process, the size of the benefits, and the sufficiency of the non-economic relief. Lake Decl. Ex. E.
Having received notice of the settlement stipulation, pursuant to CAFA, the Attorney General of Pennsylvania and the Attorney General of Texas on behalf of the Texas Department of Insurance filed amicus briefs in opposition to the settlement. Both attorneys general argue, first, that the release improperly prohibits, or at least chills, class members from participating, as witnesses or otherwise, in regulatory actions brought by the attorneys general. They argue that this limit on participation handicaps the states' abilities to enforce their laws. They argue, second, that the release improperly attempts to limit the claims and relief of pending or future regulatory actions brought by the attorneys general against the releasees. The Texas Attorney General additionally argues that the claim review process provides inadequate relief.
The Court held a fairness hearing on November 6, 2009.
Counsel for both the plaintiffs and the defendants appeared at the fairness hearing and spoke on behalf of their clients. No attorneys ...