Opinion ID: 577164
Heading Depth: 4
Heading Rank: 2

Heading: Fairness, Adequacy, and Reasonableness of the Consolidated Settlement

Text: 132 Characterizing the State's contribution of $10 million as being of only nuisance value, the Hoffer Group maintains that the district court made a number of fundamental errors in reaching the conclusion that the State's contribution was fair, adequate, and reasonable. 133 We have set forth previously the standards for approval of a class action settlement. The initial decision to approve or reject the settlement under Fed.R.Civ.P. 23(e) is committed to the sound discretion of the trial judge. Officers for Justice, 688 F.2d at 625. The district court must determine whether the proposed settlement, taken as a whole, is fair, adequate, and reasonable. In re Cement and Concrete Antitrust Litig., 817 F.2d 1435, 1438 (9th Cir.1987); Officers for Justice, 688 F.2d at 625. The court need not reach any ultimate conclusions on the contested issues of fact and law which underlie the merits of the dispute, for it is the very uncertainty of outcome in litigation and avoidance of wasteful and expensive litigation that induce consensual settlements. Officers for Justice, 688 F.2d at 625. The district court's ultimate determination will involve a balancing of several factors. These factors, set forth by this court previously in Officers for Justice, may include: 134 the strength of plaintiffs' case; the risk, expense, complexity, and likely duration of further litigation; the risk of maintaining class action status throughout the trial; the amount offered in settlement; the extent of discovery completed, and the stage of the proceedings; the experience and views of counsel; the presence of a governmental participant; and the reaction of the class members to the proposed settlement. 135 Id. The relative importance to be attached to any particular factor will depend upon the nature of the claims, the types of relief sought, and the unique facts and circumstances presented by the individual case. Id. 136 Great weight is accorded to the district judge's views because he is exposed to the litigants, and their strategies, positions and proofs. He is aware of the expense and possible legal bars to success. Simply stated, he is on the firing line and can evaluate the action accordingly. Ace Heating & Plumbing Co. v. Crane Co., 453 F.2d 30, 34 (3d Cir.1971). Our task on appeal therefore is a very limited one. We are not to substitute our notions of fairness for those of the district judge and the parties to the agreement.... [W]e will reverse only upon a strong showing that the district court's decision was a clear abuse of discretion. Officers for Justice, 688 F.2d at 626 (citations omitted). 137 The district court, upon applying the factors set forth in Officers for Justice, concluded that the State's contribution to the Consolidated Settlement was fair, adequate, and reasonable. The district court reasoned that the claims asserted against the State in Hoffer rely on a number of tenuous and untried hypotheses that would require, among other things, survival of uncertain claims and favorable legal decisions throughout. In re Washington Public Power, 720 F.Supp. at 1416. For example, the district court noted that the Hoffer Group's allegations of misrepresentation made against the State faced many legal obstacles similar to those faced by the MDL 551 Class Members, such as proof of scienter. The Hoffer Group's claim under § 21.20.430 of the Washington State Securities Act also would be at risk because of developments in the law during the period of this litigation that threatened to restrict the Act's applicability and necessitate proof of scienter. Id. at 1388. The district court next observed that the Hoffer Group's claims against the State had only survived a motion for dismissal under Washington Rule CR 12(b)(6), and that the merits of the claims had not been subjected to motions for summary judgment or to trial. Id. at 1416. Extensive discovery had not been conducted. In addition, the district court found that the risks, expenses, and difficulties associated with further litigation of Hoffer would be enormous. At the very minimum, it was reasonable to assume that it would be a number of years before any judgment or separate settlement would be reached. The district court noted any total damage award for the torts alleged in Hoffer would be subject to reduction for damages found to have been caused by the MDL 551 Defendants. Id. In rejecting the Hoffer Group's argument that the State's $10 million contribution was a mere nuisance payment, the court concluded that [o]n the facts and information before it, the amount appears to be fully adequate, and the Court finds the terms of the Consolidated Settlement Agreement that apply to the State to be fair and reasonable to Class Plaintiffs in accordance with the mandate of Fed.R.Civ.P. 23. Id. at 1417. 138 We believe it is appropriate to note that the complexity, duration, and sheer enormity of MDL 551 weighs heavily against a conclusion that the district court abused its discretion in approving the Consolidated Settlement. See Officers for Justice, 688 F.2d at 626 (making similar finding). The case had been aggressively litigated before Judge Browning for more than three years. Multiple motions to dismiss or for summary judgment had been argued and considered. Discovery was comprehensive. The Consolidated Settlement that is before us was not hastily arrived at; trial in MDL 551 had already begun and had proceeded for nearly three months. Notice of the Consolidated Settlement was provided to all known Projects 4/5 Bondholders through an extensive mail and publication program, and the MDL 551 Class Members were informed of their rights to object to the proposed settlement at the Fairness Hearings. Each objection raised was considered and responded to by the district court. In light of these factors, as was the case in Officers for Justice, we would be hard pressed to find an abuse of discretion. Id. at 627. 139
140 The Hoffer Group argues that the district court erred by not evaluating the State's contribution to the Consolidated Settlement on its own merits. It asserts the district court instead improperly evaluated the Consolidated Settlement as a whole and determined comprehensively whether it was fair, adequate, and reasonable, when under the terms of Consolidated Settlement, the State's contribution was severable on its face. 141 Our review of the district court's order and judgment convinces us that the court separately considered the fairness, adequacy, and reasonableness of the State's contribution. See In re Washington Public Power, 720 F.Supp. at 1417 ([T]he Court finds the terms of the Consolidated Settlement Agreement that apply to the State to be fair and reasonable to Class Plaintiffs in accordance with the mandate of Fed.R.Civ.P. 23. (emphasis added). 15 It therefore is immaterial whether the district court assumed that the State's contribution was not severable from the body of the Consolidated Settlement; because the district court separately evaluated the State's contribution, its conclusion that the State's contribution was fair, adequate, and reasonable was not dependent on this allegedly mistaken assumption. 142
143 The Hoffer Group also contends the district court erred by determining that the Notice of Settlement provided the MDL 551 Class Members with a clear and adequate disclosure of the proposed release of the claims asserted against the State in Hoffer. We disagree. As the district court stated, the Notice contained a description of the Hoffer action and an explanation that approval of the proposed settlement would mean that 'all Class Members shall be deemed to have released the State and its elected and appointed officials [ ] from any and all liability arising out of occurrences which are the subject of MDL 551 or Related Actions ... including Hoffer et al. v. State of Washington.'  In re Washington Public Power, 720 F.Supp. at 1412-13 (quoting Class Notice). In addition, the Notice specifically advised the MDL 551 Class Members that counsel for the Hoffer plaintiffs had taken the position that MDL 551 counsel were not entitled to settle with the State, and that the State's $10 million contribution to the Consolidated Settlement was inadequate. We thus find no error in the district court's determination that the Notice of Settlement was a clear and adequate disclosure of the nature of the Consolidated Settlement, including the Class' release of the claims asserted against the State in Hoffer in return for the $10 million contribution. 144
145 The Hoffer Group next challenges the district court's consideration of the claimed contribution justification--the possibility that the State would bring claims for contribution against the settling MDL 551 Defendants if Hoffer were allowed to continue--to support its conclusion that the State's contribution to the Consolidated Settlement was fair, adequate, and reasonable. 16 The Hoffer Group contends that under applicable Washington law, the State would be precluded from recovery of contribution. 146 We agree with the Hoffer Group that under applicable law, it would be unlikely that the State of Washington could recover contribution from the settling MDL 551 Defendants. The relevant statute, section 4.22.060(2) of the Washington Revised Code, states in pertinent part: A release, covenant not to sue, covenant not to enforce judgment, or similar agreement entered into by a claimant and a person liable discharges that person from all liability for contribution. ... Wash.Rev.Code Ann. § 4.22.060 (1988); see also Zamora v. Mobil Oil Co., 104 Wash.2d 211, 218, 704 P.2d 591, 596 (1985) (holding that in the absence of contractual arrangement between the defendants to the contrary, contribution and indemnity rights do not survive a settlement under section 4.22.060(2)). Nonetheless, we find no error in the district court's observation that there is more value to Class Members in resolving the Hoffer claims than might appear viewing the settlement amount in isolation. In re Washington Public Power, 720 F.Supp. at 1416. The district court's primary concern if the State brought contribution claims against the settling MDL 551 Defendants was that the MDL 551 Class Members might be required to use monies from the Settlement Fund to make indemnification payments for amounts that could be assessed against those defendants. See 720 F.Supp. at 1416 (Plaintiffs would essentially be required to fund themselves with settlement money.). This concern is largely identical to the district court's [m]ore significant[ ] finding that any total damage award for the torts alleged in Hoffer would be subject to reduction for damages found to be caused by the MDL 551 Defendants. Id. See Wash.Rev.Code Ann. § 4.22.060(2) (1988) (the claim of the releasing person against other persons is reduced by the amount paid pursuant to the agreement unless the amount paid was unreasonable.... (emphasis added)). In the district court's words, any aggregate recovery that might be attained for Plaintiffs' damages would be offset by the amount of the MDL settlement payments. 720 F.Supp. at 1416. Thus, although it is possible that the aggregate recovery attained by the Hoffer Group would be reduced more substantially through claims for contribution against the settling MDL 551 Defendants, under either theory, the aggregate recovery in Hoffer could be reduced at a minimum by the amount of the MDL 551 settlements. Because we find these concerns to be largely identical, we reject the Hoffer Group's contention that the consideration of the claimed contribution justification warrants reversal of the district court's approval of the Consolidated Settlement. 147
148 Perhaps most significantly, the Hoffer Group attacks the district court's finding that the claims asserted against the State in Hoffer rely on untried hypotheses that would require the survival of uncertain claims and favorable legal decisions throughout. The Hoffer Group contends the district court ignored the scope and magnitude of the Washington Supreme Court's dual decision in Hoffer, in which the Court reinstated eight of nine alleged causes of action that had been dismissed by the Superior Court for failure to state a claim. See Hoffer v. State, 110 Wash.2d at 423-35, 755 P.2d at 786-92. The Hoffer Group asserts that in so ruling, the Washington Supreme Court validated its most far-reaching theories of liability against the State, thereby removing the principal legal obstacles which its members faced in the prosecution of Hoffer. The Hoffer Group thus disputes the district court's contrary conclusion that its claims against the State remained uncertain and hypothetical in nature. 149 Although the Washington Supreme Court reinstated eight of the Hoffer Group's nine alleged causes, it did so only in the context of a motion to dismiss for failure to state a claim. 17 The merits of the Hoffer Group's claims had not been subjected to motions for summary judgment, and extensive discovery had not been conducted. We therefore have no reason to question the district court's finding that the Hoffer Group's case against the State relies on a number of uncertain claims and faces many legal obstacles. In order to be successful on some or all of its claims against the State, the Hoffer Group would have to demonstrate at trial, among other things, that a letter from the Washington State Auditor which appeared in the annual reports submitted by WPPSS between 1976 and 1980 contained implicit assurances that the Auditor was familiar with WPPSS's finances and that he had uncovered no weaknesses in the investment; that the State Auditor intended for the letter to reach current and future bondholders, or at least knew that it was being so used; that the State Auditor knew that the letter contained fraudulent misrepresentations; that the bondholders relied on these alleged implicit and fraudulent misrepresentations; that the State Auditor acted as a seller under Wash.Rev.Code Ann. § 21.20.430(1) (1988); and that the State of Washington intentionally interfered with their contract with WPPSS by playing a role in WPPSS's decision to terminate Projects 4/5. In the absence of extensive discovery, it is by no means certain that the Hoffer Group would be able to make these necessary factual showings. Moreover, several legal obstacles, such as Washington's public duty doctrine, 18 stand in the way of the Hoffer Group's claims if certain of these necessary factual showings are not made. We find no error in the district court's consideration of the uncertainty of the Hoffer Group's claims as a factor in support of its conclusion that the State's contribution to the Consolidated Settlement was fair, adequate, and reasonable. 150
151 Finally, the Hoffer Group contends that the district court erred in approving the amount of the State's contribution because the State was the only remaining party that had the ability and capacity to satisfy a judgment that would make the class whole. 19 Noting that many of the settling MDL 551 Defendants either would not be able to withstand larger settlement or judgments or had threatened to declare bankruptcy if they were forced to do so, the Hoffer Group argues that the State is the only remaining defendant who has an unlimited ability to satisfy a judgment to the full extent of the class' damages while at the same time not being able to avail itself of the protection of the United States bankruptcy laws. In light of its claim that the recoverable rescissory damages in Hoffer could amount to $2.6 billion, the Hoffer Group asserts that the district court's determination that the State's unlimited ability to pay is persuasive of nothing constitutes plain error. In addition, the Hoffer Group contends that there is great leverage on the State to settle Hoffer for a far greater amount than its $10 million contribution, as is evidenced by the State's jumping at the first chance to settle the case. 152 Although the Hoffer Group is correct in its assertion that a settling defendant's ability to pay may be a proper factor to be considered in evaluating a proposed class action settlement, see Officers for Justice, 688 F.2d at 625, we reject the Hoffer Group's contention that the district court failed to consider this factor in separately evaluating the State's contribution to the Consolidated Settlement. The district court specifically noted that a defendant's ability to pay has some bearing on the State's settlement contribution. In re Washington Public Power, 720 F.Supp. at 1416, a statement that is consistent with Officers for Justice's requirement that the evaluation of a class action settlement involve a balancing of several factors. See 688 F.2d at 625. We read the district court's statement that the Hoffer Group's contention is persuasive of nothing, in context, as meaning only to rebut the Hoffer Group's implicit argument that because the State has an unlimited ability to pay, the State's contribution of $10 million a fortiori should be rejected. We thus have no quarrel with this statement. If the Hoffer Group's argument were to be accepted, the evaluation of any proposed settlement that involves a defendant with the capacity to make a class whole would be based primarily, if not exclusively, on this factor alone, an analysis which finds no support in the law and is inconsistent with tenets of Officers for Justice. 153 The State's decision to contribute to the Consolidated Settlement in no way validates the Hoffer Group's assertion that the State had every incentive to settle for a much greater amount. The district court specifically found that [t]here is no reason to assume that the State would not aggressively attack, and plausibly defeat, efforts to maintain [Hoffer ]. 720 F.Supp. at 1416, a finding that is not disputed by the Hoffer Group. The district court noted that the State's decision to contribute to the Consolidated Settlement may well have been based on its desire for increased bond ratings, and its estimate that it might expend an equivalent amount defending Hoffer. We find no error in this determination. Accordingly, we conclude that the Hoffer Group has failed to demonstrate that the district court abused its discretion in determining that the State's contribution to the Consolidated Settlement was fair, adequate, and reasonable.