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Dugan v. Towers, Perrin, Forster & Crosby, Inc.

United States District Court, Third Circuit

September 24, 2013

ALAN H. DUGAN, et al., Plaintiffs,
TOWERS, PERRIN, FORSTER & CROSBY, INC., et al., Defendants.




The parties in this consolidated action return to this Court on limited remand from the United States Court of Appeals for the Third Circuit seeking preliminary approval of their proposed settlement, along with a schedule to notify class members and eventually procure final approval of the settlement after an appropriate hearing. Along with approval of the settlement, they also seek preliminary certification of their proposed settlement class. For the following reasons, the motion will be granted.

Factual Background and Procedural History

The facts surrounding this matter are set forth in the Court’s Memorandum Opinion granting summary judgment to Defendants (Doc. No. 203), and will not be repeated here. Briefly, this case concerns three complaints filed against Towers, Perrin, Forster & Crosby, Inc. (“Towers Perrin”) by former employee-shareholders who sold their Towers Perrin shares back to the company after 1971, but before the firm merged with Watson Wyatt to form Towers Watson & Co., a publicly traded company. (Mem. Op. 2, 8-9.) For much of its history, Towers Perrin was privately owned by its employees, who, upon promotion to “Principals, ” were permitted to purchase stock from the company at a greatly-reduced book value, as long as they agreed to resell the shares to the firm at book value upon retirement. (Mem. Op. 2-3.) Because the book value was much lower than the price the shares would have brought on the open market, the firm was able to sell shares to the new Principals at affordable rates, and also ensure that it would always have enough funds to repurchase the shares when the Principal’s employment came to an end. (Mem. Op. 2-3 & n.3.) Former Principals who had already resold their shares lost out, however, once the shares became publicly traded, and their value skyrocketed.

These cases all alleged that implicit in the sale-and-buyback arrangement was an additional promise: that Towers Perrin would remain employee-owned. (Mem. Op. 9.) Plaintiffs contended that in conducting what was essentially a public sale of the company, the current Principals breached that agreement. (Mem. Op. 9.) This Court concluded that there was no such promise, and granted summary judgment to Defendants. On appeal, and after consultation with the Third Circuit’s Chief Mediator, the parties reached a settlement agreement. The agreement provides for a gross settlement fund of $10 million plus interest, to be split among the proposed class members according to the employee’s tenure and the number of shares he or she held at the time of separation from the firm.


The Court must address both the preliminary certification of the proposed settlement class and the preliminary approval of the proposed settlement. Because it makes little sense to assess the reasonableness of the settlement without reference to a defined class, the former will be discussed first.

A. Preliminary Certification of the Settlement Class

Plaintiffs seek only the certification of a settlement class, not a litigation class, but that does not relieve the Court of the responsibility to ensure that the proposed class satisfies the Federal Rules of Civil Procedure. As a general matter, “[s]ettlement classes must satisfy the Rule 23(a) requirements of numerosity, commonality, typicality, and adequacy of representation.” In re Gen. Motors Corp. Pick-Up Truck Fuel Tank Products Liability Litig., 55 F.3d 768, 778 (3d Cir. 1995). In addition, the class must satisfy the relevant requirements of F.R.C.P. 23(b), though obviously the court “need not inquire whether the case, if tried, would present intractable management problems.” Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 620 (1997).

Plaintiffs seek to certify a class consisting of “all former Towers Perrin Principals . . . who retired or otherwise terminated their service with Towers Perrin and ceased to be Principals on or after January 1, 1971 and on or prior to June 1, 2005, ” with several exceptions. (Br. in Support of Mot. 4.) The proposed class excludes any Principals who: (1) received or will receive any consideration arising from the merger with Watson Wyatt, (2) participated in the Voluntary Separation Program, [1] (3) signed a release of claims in favor of Towers Perrin in connection with the sale of stock back to the firm, (4) were employees of Towers Perrin or Watson Wyatt at the time of the merger, or (5) are current employees of Towers Watson. (Br. in Support of Mot. 4-5.)

As defined, preliminary certification of the class is appropriate. Plaintiffs estimate that the proposed settlement class includes 1, 050 individuals, a number that satisfies the requirement that the class be “so numerous that joinder of all members is impracticable.” F.R.C.P. 23(a)(1); see also Stewart v. Abraham, 275 F.3d 220, 226-27 (3d Cir. 2001) (“[G]enerally if the named plaintiff demonstrates that the potential number of plaintiffs exceeds 40, the first prong of Rule 23(a) has been met.”); Mehling v. N.Y. Life Ins. Co., 246 F.R.D. 467, 474 (E.D. Pa. 2007) (citing cases).

Furthermore, common questions of law and fact exist between the individual class members. F.R.C.P. 23(a)(2). The primary issue in this litigation is whether, in selling and repurchasing the stock from class members, Towers Perrin made an enforceable promise to keep the firm employee-owned. And as our earlier opinion indicated, each class member received a similar “Stock Offer Letter” upon being promoted to a Principal, which set forth the “terms on which Towers Perrin offered to sell stock to Principals.” (Mem. Op. 4.) Thus, this litigation includes common legal questions, the answers to which require reference to an essentially common set of facts. This provides the “necessary glue among class members to make adjudicating the case as a class worthwhile.” Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d 154, 182 (3d Cir. 2001).

“The concepts of commonality and typicality are broadly defined and tend to merge.” Barnes v. Am. Tobacco Co., 161 F.3d 127, 141 (3d Cir. 1998) (quoting Baby Neal v. Casey, 43 F.3d 48, 56 (3d Cir. 1994)) (internal quotation marks omitted). The named plaintiffs’ claims are typical if they “arise[] from the same event or practice or course of conduct that gives rise to the claims of the class members, ” and are based on the same legal theory. Id. Here, the named Plaintiffs’ claims satisfy the typicality requirement for essentially the same reason that they satisfy the commonality requirement. Each named Plaintiff asserts claims based on an alleged promise made by Towers Perrin in the conduct of its stock sale-and-buyback program. The class members’ claims arise from the same course of conduct. Thus, F.R.C.P. 23(a)(3) is satisfied.

Finally, F.R.C.P. 23(a)(4) requires that the “representative parties will fairly and adequately protect the interests of the class.” This requirement seeks to ferret out “conflicts of interest between named parties and the class they seek to represent, ” and is satisfied if the representative “possess[es] the same interest[s] and suffer[s] the same injur[ies] as the class members.” Amchem, 521 U.S. at 625-26 (quoting East Texas Motor Freight Sys., Inc. v. Rodriguez, 431 U.S. 395, 403 (1977)) (internal quotation marks omitted). The named Plaintiffs in this case plainly satisfy this requirement, in that their claims are typical of the absent class members’ claims, and there are no apparent conflicts of interest. See Mehling, 246 F.R.D. at 475. Further, the attorneys for the class have proven themselves equal to the task, vigorously litigating this case from start to finish. In other words, they “clearly possess the expertise to litigate this matter effectively, as evidenced by the quality, timeliness and professional nature of their work before this court.” In re Ikon Office Solutions, Inc., 209 F.R.D. 94, 103 (E.D. Pa. 2002).

In addition to meeting the Rule 23(a) requirements, the proposed class can be properly certified under Rule 23(b)(3). Our earlier opinion sets out the controlling nature of the common questions of law and fact in this litigation: the claims of all class members rise or fall together. This is more than enough to satisfy the predominance inquiry, which merely tests whether a class action “would achieve economies of time, effort, and expense, and promote uniformity of decision as to persons similarly situated.” F.R.C.P. 23(b)(3) advisory committee notes to 1966 amendment; see also Sullivan, 667 F.3d at 297. Given the common threads tying all the class members’ claims together, class adjudication is plainly superior to hundreds of individual cases challenging essentially the same conduct. This is even truer in the settlement class context, since minor differences in individual claims that might create practical problems at trial are less important when the proposal is that there be no trial. See Sullivan, 667 F.3d at 303-04. Therefore, the Court will grant Plaintiffs’ motion for preliminary certification of the settlement class.

B. Preliminary Approval of the Proposed Settlement

Under the Federal Rules of Civil Procedure, “[t]he claims, issues, or defenses of a certified class may be settled, voluntarily dismissed, or compromised only with the court’s approval.” F.R.C.P. 23(e). This requirement exists to allow the court to protect absent class members who will be bound by the settlement, but did not have an opportunity to participate in its negotiation. Rodriguez v. Nat’l City Bank, 2013 WL 4046385 at *5 (3d Cir. Aug. 12, 2013); Sullivan, 667 F.3d at 319. While the ultimate approval of a class settlement turns on whether the court finds the proposal “fair, reasonable, and adequate, ” F.R.C.P. 23(e)(2), preliminary approval may be granted as long as the proposal does not “disclose[] grounds to doubt its fairness or other obvious deficiencies such as unduly preferential treatment of class representatives or segments of the class, or excessive compensation for attorneys, and whether it appears to fall within the range of possible approval.” Mehling, 246 F.R.D. at 472 (quoting Thomas v. NCO Fin. Sys., 2002 WL 1773035 at *5 (E.D. Pa. July 31, 2002)) (internal quotation mark omitted).

The settlement in this case is fairly simple. Towers Perrin will make a single payment of $10 million into a claims fund to be administered by an outside fiduciary. Court-approved attorney’s fees, expenses, and administrative costs will be paid from this fund, leaving a net amount for class members of approximately $6 million. Class members will be given notice of the settlement and the opportunity to submit a proof of claim. The proceeds from the fund will then be split among the class members who submitted valid claims according to a formula that accounts for the number of shares the class member sold back to the firm at the time of his or her separation, as well as the member’s tenure.[2]

At this stage, the settlement appears within the bounds of reasonableness warranting preliminary approval. While the $10 million recovery reflects but a fraction of the increased value from the public sale, Plaintiffs were fighting an uphill battle by the time the settlement was reached. This Court had granted summary judgment as to all claims against all Defendants, leaving Plaintiffs with a substantial chance of receiving no recovery at all. Plaintiffs faced an uncertain outcome in the Third Circuit, followed by more litigation in this Court, if they hoped to obtain a favorable judgment. This lengthy process would have resulted in significant cost and delay. When compared to the relatively immediate and certain recovery promised by the settlement, there is good reason to think that the recovery is fair. In addition, the participation of the Third Circuit’s mediator suggests an arms-length negotiation, rather than collusion for the benefit of attorneys or named plaintiffs. See Mehling, 246 F.R.D. at 473 (granting preliminary approval to class settlement that was “the result of a hard-fought and lengthy negotiation process overseen by [a] Magistrate Judge”). Class counsel’s requested compensation, which ...

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