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

Heading: Challenges of the Hoffer Group

Text: 105 The Hoffer Group is the certified class representative in a pending Washington state court certified class action. That class action, Hoffer v. State, Civ. No. 84-2-16459-0 (Sup.Ct. King Co., Wash.) (Hoffer ), alleges numerous claims against the State of Washington and certain officials and instrumentalities thereof in connection with the WPPSS Projects 4/5 bond default. The class in Hoffer is identical to the MDL 551 Class. 106 The Hoffer Group appeals from the order and judgment approving the settlement agreements. Specifically, the Hoffer Group challenges a consolidated settlement agreement (Consolidated Settlement) reached between the MDL 551 plaintiffs and the Washington Public Utilities Group; Public Utility District No. 1 of Klickitat County; Public Utility District No. 1 of Franklin County; the Snohomish Public Utility District; the United States of America on behalf of itself and its agency, BPA; and the State of Washington (collectively the WPUG Defendants). The Consolidated Settlement releases the State of Washington from the claims asserted against it in Hoffer. The Hoffer Group contends the district court lacked jurisdiction and authority to approve the Consolidated Settlement. They also contend that the Settlement should be rejected because it is unfair, unjust, and inadequate. 107 This appeal presents fundamental questions of first impression involving the extent to which a plaintiff class in a federal action can settle claims that have not been alleged in the complaint and that are pending in a state court as part of a certified state class action. No reported case has decided this precise issue. 108
109 The Hoffer litigation was commenced in the Superior Court of the State of Washington. The Hoffer plaintiffs originally alleged twelve causes of action against the State and certain officials and instrumentalities thereof, including common law fraud, violations of the Washington State Securities Act, negligent misrepresentation, tortious interference with a business expectancy, and others. Hoffer was certified as a class action with respect to the claims against the State. The Superior Court dismissed all claims against the State for failure to state a cause of action upon which relief could be granted. The Washington Supreme Court reversed, holding that the complaint was sufficient to state eight causes of action upon which relief could be granted. Hoffer v. State, 110 Wash.2d 415, 755 P.2d 781 (1988), aff'd on reh'g, 113 Wash.2d 148, 776 P.2d 963 (1989). The case was remanded to the State Superior Court. 110 While Hoffer was pending, the MDL 551 plaintiffs and WPUG Defendants reached preliminary agreements concerning a possible settlement. The preliminary agreements purported to release the State of Washington from the claims asserted against it in Hoffer notwithstanding the fact that the State was not a party to MDL 551. A memorandum of understanding was filed with the district court on November 1, 1988, and the final Consolidated Settlement was filed with the district court on April 6, 1989. 111 The Consolidated Settlement called for payments by the WPUG Defendants of roughly $275 million into the Settlement Fund. Included in the payment was a $10 million contribution from the State in exchange for release of the MDL 551 plaintiffs' claims in Hoffer.
112
113 The Hoffer Group contends the district court lacked subject matter jurisdiction to approve the Consolidated Settlement. Noting that only state law claims for money damages have been asserted against the State in Hoffer, the Hoffer Group argues that the district court had no independent basis for exercising jurisdiction over those claims, nor was it empowered to exercise pendent party jurisdiction. See Finley v. United States, 490 U.S. 545, 109 S.Ct. 2003, 104 L.Ed.2d 593 (1989). We review de novo the district court's determination that it had jurisdiction to approve the Consolidated Settlement. Persons, 925 F.2d at 294. 114 We disagree. It is elementary that the validity of an order of a federal court depends upon that court's having jurisdiction over the subject matter of the action and the parties. Insurance Corp. of Ireland, 456 U.S. at 701, 102 S.Ct. at 2103; Stoll v. Gottlieb, 305 U.S. 165, 171-72, 59 S.Ct. 134, 137, 83 L.Ed. 104 (1938). The plaintiff Class in MDL 551, which is identical to the class in Hoffer, simply sought the district court's approval of a settlement that released the State from the claims asserted in Hoffer. The weight of authority holds that a federal court may release not only those claims alleged in the complaint, but also a claim based on the identical factual predicate as that underlying the claims in the settled class action even though the claim was not presented and might not have been presentable in the class action. TBK Partners, Ltd. v. Western Union Corp., 675 F.2d 456, 460 (2d Cir.1982) (emphasis added). See also In re Corrugated Container Antitrust Litig., 643 F.2d at 221 ([E]ven when the court does not have power to adjudicate a claim, it may still 'approve release of that claim as a condition of settlement of [an] action [before it.]'  (citation omitted)). Thus, in Officers for Justice, we noted that where a particular type of relief potentially available to the class members is compromised in the settlement process, it is mainly irrelevant whether or not that relief was specifically requested in the complaint. The breadth of negotiations is not necessarily strictly confined by the pleadings. 688 F.2d at 632 n. 18 (emphasis added). Similarly, other circuits have held that a state court was within its power to approve the release of a federal claim, which could not have been brought in the state court. Nottingham Partners v. Trans-Lux Corp., 925 F.2d 29, 33-34 (1st Cir.1991); Abramson v. Pennwood Inv. Corp., 392 F.2d 759, 762 (2d Cir.1968). Here, the claims asserted against the State in Hoffer arise from the same common nucleus of operative fact as those set forth in MDL 551. Accordingly, we conclude that it was not necessary for the district court to actually exercise subject matter jurisdiction over the claims to approve their release. 115 The Hoffer Group's objection to this analysis is threefold. The Hoffer Group first insists that the cases which allow a federal court to release claims not before it are limited to situations in which a defendant was released from claims not alleged in the complaint but which arose from the same facts as those set forth in the complaint. Here, because the State was not a party to MDL 551, the Hoffer Group maintains that the MDL 551 Class Plaintiffs had no authority to enter into, and the district court had no jurisdiction to approve, a settlement agreement which purports to release the claims asserted against the State. Next, the Hoffer Group claims that the State could not have been a defendant in MDL 551 due to the bar of the Eleventh Amendment. 14 The Hoffer Group contends that the district court's approval of the Consolidated Settlement is flawed for the additional reason that the court had no power to release claims against a party over which it had no jurisdiction. Finally, the Hoffer Group challenges the district court's finding that the State of Washington made a limited waiver of its Eleventh Amendment immunity in the context of the settlement proceedings. The Hoffer Group contends that once the State interposed its Eleventh Amendment immunity as it has done in MDL 551, it could not then selectively waive immunity for the limited purpose of extinguishing the state law claims. 116 The district court rejected these contentions based on its conclusion that the State had made a limited waiver of immunity for the purpose of the settlement proceedings. In pertinent part, the district court held that: 117 Counsel for the State of Washington ... have taken part in settlement negotiations, entered into the Consolidated Settlement agreement, prepared and submitted to this Court memoranda in support of its participation in this Consolidated Settlement, and appeared before this Court to urge and defend the Court's approval of the settlement.... These actions unequivocally indicate the State's consent to this federal court's jurisdiction over this aspect of its litigation. Thus, insofar as the Court's approval of the settlement agreement between the Class Plaintiffs and the State of Washington is concerned, and despite the Court's lack of power otherwise to adjudicate these claims, a limited waiver of the State's Eleventh Amendment immunity is deemed to have occurred in the context of this litigation. 118 In re Washington Public Power, 720 F.Supp. at 1413-14. 119 We agree with the district court. The Eleventh Amendment's bar to actions against states by its own citizens in federal court is not absolute; a state may waive its immunity and consent to suit in federal court by giving an unequivocal indication that it consents to suit in federal court. Atascadero State Hosp. v. Scanlon, 473 U.S. 234, 238 and n. 1, 105 S.Ct. 3142, 3145 and n. 1, 87 L.Ed.2d 171 (1985); Edelman v. Jordan, 415 U.S. 651, 673, 94 S.Ct. 1347, 1360-61, 39 L.Ed.2d 662 (1974). 120 The United States District Court for the District of Kansas has expressly followed the district court's lead and held that states may make limited waivers of their Eleventh Amendment immunity in the context of settlement proceedings. See In re the Department of Energy Stripper Well Exemption Litig., 763 F.Supp. 498, 504 (D.Kan.1991) (State of New Mexico had waived its Eleventh Amendment immunity only with respect to the settlement aspect of the litigation). With these principles in mind, we find no legal impediment to a state's waiver of its Eleventh Amendment immunity for the limited purpose of taking part in the settlement proceedings despite otherwise interposing immunity. If we were to adopt a contrary conclusion, states could effectively be forced to refrain from participating in settlement negotiations for fear that they may thereby be waiving their Eleventh Amendment immunity, a result that is inconsistent with the strong judicial policy in favor of settlements. See, e.g., Officers for Justice, 688 F.2d at 625; In re Corrugated Container Antitrust Litig., 643 F.2d at 207. Accordingly, we reject the Hoffer Group's contentions that the district court should not have approved the Consolidated Settlement because the State was not and could not have been a party to this action. 121 We also reject the Hoffer Group's contention that the district court's approval of the release of the claims asserted against the State violates the Anti-Injunction Act, 28 U.S.C. § 2283. As we have noted above with respect to the appeals of the Heerey Group, the relitigation exception to the Anti-Injunction Act allows a federal court to enjoin a state court proceeding to protect or effectuate its judgment. 122 Nor is the district court's approval of the Consolidated Settlement flawed because it did not require that members of the class be afforded an opportunity to opt out of the resulting settlement. Fed.R.Civ.P. 23 does not require that class members be given an opportunity to opt out of a proposed settlement when the settlement includes claims not originally set forth in the class complaint. Rule 23(c)(2) requires that class members be given notice of and opportunity to opt out of a class action maintained under Rule 23(b)(3). Rule 23(e) states that [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 in such manner as the court directs. Fed.R.Civ.P. 23(e) (emphasis added). Finally, Rule 23(d)(2), which sets forth guidelines for the protection of the members of the class or otherwise for the fair conduct of the action, does not require that class members be afforded the opportunity to opt out of a settlement that includes claims that were not alleged in the complaint. Fed.R.Civ.P. 23(d)(2). 123 Here, the MDL 551 Class Members were given notice of the action and afforded an opportunity to opt out. The MDL 551 Class Members also were given notice of the proposed settlement and afforded the opportunity to object. This is all that Rule 23 requires. The Second Circuit's decision in Weinberger v. Kendrick, 698 F.2d 61 (2nd Cir.1982), cert. denied, 464 U.S. 818, 104 S.Ct. 77, 78 L.Ed.2d 89 (1983), and the Fifth Circuit's decision in In re Corrugated Container Antitrust Litig. are not to the contrary. The courts in those cases simply held that because the classes there were given notice of the addition of claims not alleged in the class complaint before they had to decide whether to opt out of the class, a federal court was within its power to release these claims not before it as a condition of settlement. See Weinberger, 698 F.2d at 77; In re Corrugated Container Antitrust Litig., 643 F.2d at 221. Neither court required that members be afforded an additional opportunity to opt out of a proposed settlement when that settlement includes a claim that was not set forth in the complaint. 124 Additionally, we hold that the district court's approval of the Consolidated Settlement did not violate basic principles of comity. The district court's approval of the Consolidated Settlement in no way interfered with or intruded into the authority of the Washington state courts. The district court did not adjudicate the claims on the merits. Rather, the district court was presented with a settlement agreement that, through counsel properly before the court, proposed resolution of claims of persons that also were properly before the court. 125 Finally, the Hoffer Group contends that the settlement was not the product of arm's length negotiations because the MDL 551 class did not negotiate directly with the State. In addition, the Hoffer Group maintains that the complete exclusion of the Hoffer Class Counsel from the settlement process also calls for rejection of the settlement. 126 Before approving a class action settlement, the district court must reach a reasoned judgment that the proposed agreement is not the product of fraud or overreaching by, or collusion among, the negotiating parties.... Ficalora v. Lockheed Cal. Co., 751 F.2d 995, 997 (9th Cir.1985) (citing Officers for Justice, 688 F.2d at 625). Here, the district court found no suggestion of collusion between Class Plaintiffs and any of [the] settling parties.... In re Washington Public Power, 720 F.Supp. at 1415. Although noting that the negotiation process that led up to the State's participation in the Consolidated Settlement was unusual, the district court determined that [b]ased upon all information available, including depositions of the three primary negotiating parties, this Court is convinced that the discussion process that resulted in the Consolidated Settlement Agreement was not unlawfully tainted. Id. We review the district court's conclusion that the settlement process was not fatally flawed for an abuse of discretion. Officers for Justice, 688 F.2d at 626. 127 At the time MDL 551 came to trial in September 1988, MDL 551 Class Counsel was involved in settlement negotiations with the lead counsel for the WPUG Defendants. After an initial figure of $300 million had been proposed by MDL 551 Class Counsel, the parties arrived at a settlement figure of $275 million. The WPUG Defendants were not able to meet the figure. The WPUG Defendants, however, had had previous discussions with the State of Washington and BPA concerning contributions from these entities in return for a release of the claims against them. The WPUG Defendants inquired of MDL 551 Class Counsel whether they would release the MDL 551 Class's claims against the State and BPA if these entities would contribute to a settlement that would meet the $275 million target. MDL 551 Class Counsel agreed to this approach. After discussion with the State and BPA, the WPUG Defendants then returned with a settlement offer of $275 million that included contributions of $35 million from BPA and $10 million from the State in return for the Class's release of their claims against these entities. The MDL 551 Class Counsel accepted. 128 MDL 551 Class Counsel negotiated vigorously with the WPUG Defendants. In so doing, MDL 551 Class Counsel made the calculated decision to allow the WPUG Defendants to approach the State of Washington and BPA concerning possible contributions to the settlement in return for releases from the Class of their claims against these entities. It is thus immaterial whether MDL 551 Class Counsel negotiated directly with the State; MDL 551 Class Counsel had agreed in its negotiations with the WPUG Defendants to allow this group's counsel to negotiate with the State and BPA for contributions to the potential settlement so long as a final settlement figure of $275 million was reached. There is no suggestion, as the district court noted, that this decision on the part of MDL 551 Class Counsel was made as a result of collusion with any of the settling parties. We therefore reject the Hoffer Group's contention that the Consolidated Settlement was fatally flawed by the lack of negotiations between the MDL 551 Class Counsel and the State. 129 Nor do we find that the Consolidated Settlement was fatally flawed by the exclusion of Hoffer Class Counsel from the settlement process. The Seventh Circuit's decision in In re General Motors Corp. Engine Interchange Litig., 594 F.2d 1106 (7th Cir.), cert. denied, 444 U.S. 870, 100 S.Ct. 146, 62 L.Ed.2d 95 (1979), does not alter this conclusion. In In re General Motors Corp., the Seventh Circuit considered a case in which a settlement had been negotiated by the Assistant Attorney General of Illinois, only one member of a six member class counsel executive committee. The Seventh Circuit found that this undertaking either violated a prior pretrial order in the case that required consent by all class counsel before settlement negotiations could be initiated, or indicated that the negotiations undertaken by the Attorney General's office was done in a capacity other than as class counsel in the action in question. Id. at 1126. In either circumstance, the Seventh Circuit found that the exclusion of the remaining class counsel indicated that only some of the plaintiff class had been represented in the negotiations, raising the possibility that the interests of some members of the class had been sacrificed for the benefit of other members. Id. at 1126-29. 130 Here, in contrast, MDL 551 Class Counsel who negotiated the Consolidated Settlement represented the exact same group of individuals who make up the Hoffer class. MDL 551 Class Counsel was intimately familiar with the facts and law surrounding the Projects 4/5 bond default. Thus, there can be no suggestion that MDL 551 Class Counsel sacrificed the interests of some members of the class in favor of others. The district court did not abuse its discretion in rejecting this contention. 131
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.