Opinion ID: 369045
Heading Depth: 3
Heading Rank: 2

Heading: Propriety of the Offset.

Text: 50 The MDL Court's approval of the cash and stock offset provision raised in the Plan of Allocation was a component of its duty to insure the equitable distribution of the settlement proceeds. Cf., Beecher v. Able, 575 F.2d 1010, 1016 (2d Cir. 1978). As noted above, the applicable standard of review is whether the MDL Court abused its discretion in so approving the offset provision. 51 After the defendants had made their settlement offers which counsel for the plaintiff classes had found to be acceptable, the MDL Court was initially faced with the almost impossible task of determining the distribution of the settlement fund among the myriad claimants. Such a determination would have required the court to weigh the strengths and weaknesses of the claims of each class member against each of the settling defendants taking into consideration the dates of acquisition of the securities. That already difficult job would have been rendered a practical impossibility by the fact that some of the settling defendants agreed to and did participate only in a joint settlement wherein the breakdown of the contribution from each of the individual defendants was not disclosed. That procedure was adopted by the largest group of settling defendants who, in total, contributed 65% Of the settlement proceeds. 52 The Plan of Allocation presented a compromise among the classes of claimants which resolved that initial dilemma. The Plan contained a share and share alike provision by which the claimants would participate in the settlement fund in proportion to their net adjusted loss, as defined by the Plan, regardless of the type of securities acquired and the date of acquisition. 53 However, as recognized within the Plan of Allocation and by the MDL Court, the share and share alike provision favored the debentureholder claimants whose claims against many of the major defendants were not on a parity with those of the other plaintiff classes. The largest settling group of defendants consisted primarily of four accounting firms and some of their present and former partners, employees and agents. The liability of defendants Wolfson, Weiner & Co. and Wolfson, Weiner, Ratoff & Lapin (co-partnerships collectively referred to herein as Wolfson) to the debentureholders was not restricted by the MDL Court although the maximum primary insurance available to Wolfson would not have exceeded $10,000,000. Conversely, the liability of defendant Seidman & Seidman to the debentureholders had previously been held by the court to be limited by the fact that it had no connection with EFCA until it merged with the Wolfson firms in or about February 1972, a date after which the EFCA debentures had already been offered to the public. (See footnote 8, Supra ). Likewise, the MDL Court considered the liability of defendant Haskins & Sells to be apparently problematic, the latter having been involved primarily only with a subsidiary of EFCA, the Equity Funding Life Insurance Company (EFLIC). Further, for various reasons delineated in In re Equity Funding Corp. of Amer. Sec. Litigation, 416 F.Supp. 161, 191-93 and 199-201 (C.D.Cal.1976), the MDL Court had previously curtailed the liabilities of defendants Joseph Froggatt & Co. and Pennsylvania Life Company. In the instance of Joseph Froggatt & Co., which had contributed $3,000,000 to the settlement fund, only claims of securities purchases made after September 11, 1972 were permitted to be maintained in the securities litigation. Moreover, the liability of Joseph Froggatt & Co. arose from its audits of the Banker's National Life Insurance Co. which were not related to the EFCA debentures, but which did affect the 1972 secondary offering of EFCA securities. Similarly, as to Pennsylvania Life Company, which contributed $5,000,000 to the fund, the MDL Court had only permitted claims based on purchases made after December 30, 1971, to continue in the suit. 54 Thus, the MDL Court had found that the claims of the debentureholders were disputable as to 47 of the nearly 60 million dollar settlement fund (78%). 13 The adoption of the share and share alike provision, which was mandated by the administrative aspects of the situation, would have resulted in the equal participation by the debentureholders in the settlement fund which, in light of the above findings, would have been unfair to the other claimant classes. In order to remedy that inequity, the MDL Court further adopted the offset provision of the Plan of Allocation, including the offset of the Orion stock, with the awareness that the offset would decrease the debentureholders' recovery in the settlement fund more adversely than the other classes. As the MDL Court stated in its Findings of Fact, paragraph 7: 55 . . . The share-and-share-alike provisions, considered in conjunction with this Court's determination herein that the net adjusted loss of each claimant as calculated under the Plan of Allocation shall be reduced by the amount of cash and the value of Orion common stock received by such claimant in the Chapter X proceedings pursuant to the Amended Plan or pursuant to any agreement or compromise with the Trustee of EFCA and that the value of such Orion common stock is and shall be deemed to be $8.00 per share for such purposes, resolve fairly and equitably complex problems relating to the allocation of proceeds of settlement. 56 Appellants in their briefs and oral argument before this court have not specifically attacked the pertinent and specific Findings of Fact upon which the MDL Court justified its approval of the offset provision, choosing instead to argue that the offset was not permitted by the bankruptcy and/or federal securities laws. We have rejected the latter arguments, Supra, and our review of the record generally confirms the MDL Court's Findings of Fact which are relevant to this appeal. 14 After such review and consideration, we find that the MDL Court did not abuse its discretion in approving the Plan of Allocation and adopting the Plan's offset provision as to both the cash and Orion stock received by the class claimants in the earlier reorganization proceedings. 15