Opinion ID: 796443
Heading Depth: 2
Heading Rank: 1

Heading: Litigation and Settlement

Text: 3 In 2001 plaintiffs' counsel 1 began to investigate various business practices in the modeling agency industry. Through this investigation, plaintiffs' counsel purportedly developed evidence that the leading New York modeling agencies, acting in concert since the mid-1970s, (1) falsely claimed exemption from the 10% commission rate cap imposed on employment agencies under Article 11 of the New York General Business Law by asserting that they were managers and only incidentally involved in procuring employment for their models, and (2) raised the standard rate of model commissions from 10% to 20%, where it has stayed since the late 1980s. No government agency participated in the investigation or the ensuing litigation. 4 The plaintiffs filed their first complaint alleging violation of Section 1 of the Sherman Act, New York General Business Law Article 11, and New York common law on June 25, 2002. The plaintiffs alleged that the defendants conspired to uniformly charge models a commission of 20% — exceeding the 10% maximum allowed by New York law for employment agencies — and that the defendants used their trade association, Model Management Corporation (f/k/a International Model Managers Association), to advance their collusive scheme. This action eventually was consolidated with four similar actions. On September 24, 2002, the plaintiffs filed their First Consolidated Amended Complaint. On November 15, 2002, the District Court determined that it would address class certification before permitting discovery on the merits. The District Court referred discovery matters relating to class certification to Magistrate Judge Henry B. Pitman. 5 Responding to various motions to dismiss the complaint, the District Court, by opinion and order dated January 16, 2003, declined to exercise jurisdiction over the state law claims, denied the motion to dismiss as to the claims of price-fixing under the Sherman Act within the period allowed by the four-year statute of limitation, and gave leave to re-plead the tolling of claims arising prior to June 25, 1998. Masters v. Wilhelmina Model Agency, Inc., No. 02 Civ. 4911, 2003 WL 145556 (S.D.N.Y. Jan. 17, 2003). In a later order, the District Court dismissed claims accruing prior to June 25, 1998 as barred by the statute of limitations. Masters v. Wilhelmina Model Agency, Inc., No. 02 Civ. 4911, 2003 WL 1990262 (S.D.N.Y. Apr. 29, 2003). 6 A Second Consolidated Amended Complaint was filed on February 5, 2003 and a third on April 30, 2003. The District Court granted the motion for class certification on July 15, 2003, certifying a plaintiff class consisting of current and former models who had oral or written contracts with any of the defendants from June 1998 onward. Fears v. Wilhelmina Model Agency, Inc., No. 02 Civ. 4911, 2003 WL 21659373 (S.D.N.Y. July 15, 2003). Appellant, Boies, Schiller & Flexner LLP (Appellant or Boies Schiller), was approved as lead class counsel. Id. at . Thereafter, defendant-appellee Next petitioned this Court for interlocutory review of the District Court's July 15 Class Certification Order. The petition was denied on December 31, 2003. 7 The District Court then permitted discovery on the merits to proceed, again with Magistrate Judge Pitman supervising the process. The discovery process was a long and difficult one, marked by delay and resistance. During the process, Magistrate Judge Pitman admonished both sides and twice sanctioned plaintiffs' attorneys for their discovery practices. In the course of discovery, the plaintiffs identified, obtained, inspected and analyzed more than 32,000 pages of documents produced by the defendants and nonparties. There were 25 formal conferences, as well as several informal conferences, before Magistrate Judge Pitman during merits discovery. These conferences were required in order to resolve disputes relating to interrogatories, document production, and depositions. Toward the end of the discovery process, Magistrate Judge Pitman imposed a $25,000 sanction against plaintiffs' attorneys and ordered them to exclude certain of their time from their fee petition as a further sanction. 8 At the conclusion of merits discovery, motions by defendants for summary judgment were filed and the submissions were voluminous. On March 22, 2004, the District Court denied summary judgment as to all but defendant Q Model Management on plaintiffs' price-fixing claims. Fears v. Wilhelmina Model Agency, Inc., No. 02 Civ. 4911, 2004 WL 594396 (S.D.N.Y. Mar. 23, 2004). The Court determined that Q Model Management was founded long after the formation of the alleged conspiracy and never held membership in the trade association. With regard to the other defendants, the District Court determined that plaintiffs' evidence would support a jury finding that the modeling agency business was an industry inundated with collusion. Id. at  13. 9 Settlement negotiations began with certain defendants only after the court denied defendants' motions for summary judgment and were heavily influenced by the real prospect of the defendants' bankruptcy. From late March 2004 until the scheduled trial date of June 1, 2004, the plaintiffs reached preliminary settlements with all defendants except for Click. These preliminary settlements took the form of letter agreements (the Letter Agreements) signed in or about May of 2004 by the attorneys for each of the settling defendants and the class attorneys. The Letter Agreements outlined the settlement terms, including the amount of each defendant's contribution and the manner of payment. Each of these agreements included the following provision: 10 11. This is a binding agreement. Any future disagreement(s) as to the form or content of the formal settlement agreement and final judgment, and/or any other ancillary papers, will be resolved by the Honorable Harold Baer, Jr., without right of appeal. 11 Jury selection for the trial against Click commenced on June 1, 2004, and opening statements were delivered on June 3, 2004. The plaintiffs presented lay witnesses during the first day of trial, including two of the class representatives, Carolyn Fears and Tiffany Connor. On June 3, 2004, the plaintiffs reached a settlement with Click, and the jury was dismissed. The parties thereafter proceeded to negotiate a formal Settlement Agreement to be presented to the District Court for approval. A sticking point in the negotiations was the disposition of unclaimed or unpaid funds (the Excess Funds) that might remain after payment to the class members of their actual losses. Appellants accused defendant Next of a last-minute repudiation of the settlement for failure to provide for the reversion of Excess Funds. Next denies that its repudiation was last minute, contending that its counsel had notified all other counsel in the case three months before the Settlement Agreement was signed that his client was not on board with regard to the proposed disposition of Excess Funds. 12 In any event, the Final Settlement Agreement (the Agreement) was signed on October 12, 2004 with (i) Boss Models, Inc.; (ii) Click Model Management, Inc.; (iii) DNA Model Management, LLC; (iv) Ford Models, Inc.; (v) Gerard W. Ford; (vi) Images Management; (vii) IMG Models, Inc.; (viii) IMG Worldwide, Inc.; (ix) Next Management Co.; and (x) Wilhelmina International, Ltd.; and (xi) Zoli Management, Inc. The Agreement created a settlement fund in excess of $21,855,000, which was to be distributed pro rata to class members based on the amount of commissions paid by each member in excess of 10%, plus interest. 13 As to distribution of the settlement fund, paragraph D.2 of the Agreement specifically provided: 14 (b) Every Authorized Claimant shall be paid from the Net Settlement Fund a portion of his or her Total Recognized Loss, which shall be calculated as follows: 15 (1) An Authorized Claimant's Recognized Loss for any transaction on which he or she paid a commission to a defendant during the Relevant Period shall be the difference, if any, between (A) the commission that the Authorized Claimant paid to the defendant and (B) ten percent of the amount of the transaction. There shall be no Recognized Loss for any transaction on which the Authorized Claimant paid no commission, or for any transaction on which the Authorized Claimant paid a commission of ten percent or less. 16 (2) An Authorized Claimant's Total Recognized Loss shall be the sum of all of his or her Recognized Losses. 17 (3) If the sum of the Total Recognized Losses of all Authorized Claimants who submit valid and timely proof of claim forms is equal to or greater than the amount of the Net Settlement Fund, then the net settlement fund shall be distributed to all authorized claimants on a pro rata basis.... 18 (4) If the sum of the Total Recognized Losses of all Authorized Claimants who submit valid and timely proof of claim forms is less than the amount of the Net Settlement Fund, then the Court shall, in its discretion, determine the disposition of the amount representing the difference between the two figures, after hearing the views of the parties hereto as to such disposition. 19 As to awards to counsel and certain representative plaintiffs, the agreement provided: 20 E.1 Plaintiffs' Settlement Counsel may submit an application or applications (the Fee and Expense Application) for distributions from the Settlement Fund for: (a) an award of attorneys' fees; plus (b) reimbursement of expenses incurred in connection with prosecuting the Action; (c) plus any interest on such attorneys' fees and expenses at the same rate and for the same periods as earned by the Settlement Fund (until paid) as may be awarded by the Court; and (d) for incentive awards and reimbursement of expenses to certain Representative Plaintiffs in prosecuting the Action. Plaintiffs' Settlement Counsel reserve the right to make additional applications for fees and expenses incurred. However, fees or expenses of Plaintiffs' Counsel may be paid from the Settlement Fund only after the Final Settlement Date occurs for a Settling Defendant from whose settlement payments such fees or expenses will be paid. 21 E.2 The portion of the Fee and Expense Award attributable to any Settling Defendant shall be paid to Plaintiffs' Settlement Counsel from the Settlement Fund, as ordered, after the Final Settlement Date for such Settling Defendant, and after the Court executes a written order awarding such fees and expenses, notwithstanding the existence of any timely filed objections thereto, or potential appeal therefrom, subject to the joint and several obligation of Plaintiffs' Settlement Counsel to make appropriate refund repayments to the Settlement Fund as more particularly set forth below in [paragraph] E.3. Plaintiffs' Settlement Counsel shall thereafter allocate the attorneys' fees amongst Plaintiffs' Counsel in a manner in which Plaintiffs' Settlement Counsel in good faith believe reflects the contributions of such counsel to the prosecution and settlement of the Action. 22 The Agreement also provided for a number of injunctive provisions that were designed to address and end certain practices which disadvantaged models prior to the commencement of the litigation. Such provisions included disclosure by Settling Defendants of all bookings and compensation received for each model, utilization of contracts with models specifying relevant compensation terms and practices and management services, and a prohibition against joining any model agencies' or managers' trade associations in the United States.