Opinion
MDL DOCKET NO. 1426
September 5, 2003
MEMORANDUM
Plaintiffs filed a Consolidated and Amended Class Action Complaint (the "Amended Complaint," Dkt. No. 13) on behalf of all individuals and entities who purchased automotive refinishing paint in the United States directly from Defendants, their predecessors or their controlled subsidiaries from at least as early as January 1, 1993 to at least December 31, 2000 (the "Class Period"). The Amended Complaint alleges that during that period, Defendants conspired to fix, raise, maintain or stabilize prices for automotive refinishing paint sold in the United States, thereby artificially inflating prices for automotive refinishing paint in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1. Plaintiffs seek damages and injunctive relief pursuant to Sections 4 and 16 of the Clayton Act, 15 U.S.C. § 15, 26. The Court certified a Class in this action on October 9, 2002.
On February 26, 2003, Plaintiffs submitted a Motion for Preliminary Approval of Proposed Settlement with Akzo Nobel Car Refinishes B.V. and Akzo Nobel Coatings Inc. and for Authorization to Disseminate Notice (Dkt. No. 81). On March 17, 2003, we granted preliminary approval and directed that notice of the proposed settlement and formal fairness hearing be disseminated to the Class. Since there was no objection at the fairness hearing on September 3, 2003 to this substantial partial settlement, and the Plaintiffs' provided sufficient justification why the settlement is fair, reasonable, and adequate, the Court now grants final approval of this partial settlement with the Akzo defendants (collectively, "Akzo").
I. LEGAL STANDARD
"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). Ultimate approval of a class action settlement requires a determination by the court that it is "fair, adequate, and reasonable." Eichenholtz v. Brennan, 52 F.3d 478, 482 (3d Cir. 1995). The court makes this determination after holding a formal fairness hearing "at which arguments and evidence may be presented in support of and in opposition to the settlement." Federal Judicial Ctr., Manual for Complex Litigation § 30.41, at 237 (3d ed. 1995). The proponents of the proposed settlement bear the burden of establishing that it is fair, adequate, and reasonable. In re General Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 785 (3d Cir. 1995).
The Third Circuit has developed a nine-factor test which provides the analytic framework for making this determination. The so-calledGirsh factors are:
(1) the complexity, expense and likely duration of the litigation;
(2) the reaction of the class to the settlement;
(3) the stage of the proceedings and the amount of discovery completed;
(4) the risks of establishing liability;
(5) the risks of establishing damages;
(6) the risks of maintaining the class action through the trial;
(7) the ability of the defendants to withstand a greater judgment;
(8) the range of reasonableness of the settlement fund in light of the best possible recovery; and
(9) the range of reasonableness of the settlement fund in light of all the attendant risks of litigation.In re Cendant Corp. Litig., 264 F.3d 201, 232 (3d Cir. 2001) (citing Girsh v. Jepson, 521 F.2d 153, 157 (3d Cir. 1975)).
Though the ultimate determination of the fairness of a partial settlement is left to the court, it is appropriate to give substantial weight to the recommendations of experienced attorneys, who have engaged in arms-length settlement negotiations, in making this determination. See, e.g. Petruzzi's, Inc. v. Darling-Delaware Co., Inc., 880 F. Supp. 292, 301 (M.D. Pa. 1995) ("The opinions and recommendation of such experienced counsel are indeed entitled to considerable weight.");Lake v. First Nationwide Bank, 156 F.R.D. 615, 628 (E.D. Pa. 1994) (giving "due regard to the recommendations of the experienced counsel in this case, who have negotiated this settlement at arms-length and in good faith" in assessing whether a settlement was fair, adequate, and reasonable); Alba Conte and Herbert B. Newberg, 4 Newberg on Class Actions § 11:47. Also, in fulfilling its role as a fiduciary to the class when evaluating a partial settlement in a class action, the court should ensure that the proposed settlement is not the product of collusion or fraud. See, e.g., Neuberger v. Shapiro, 110 F. Supp.2d 373, 380 (E.D. Pa. 2000) (noting that no suggestion of collusion between the settling defendant and plaintiff's counsel existed in approving a partial class action settlement).
Where a proposed settlement affects the rights of third parties, "it is not enough to evaluate the fairness of the settlement to the settling parties; the interests of such third parties must be considered."Eichenholtz, 52 F.3d at 482. Thus, even non-settling defendants have standing to object "where they can demonstrate that they will suffer some formal legal prejudice as a result of the partial settlement." Id. And these objections will be given weight when conducting the fairness analysis.
II. DISCUSSION
A. The Girsh Fairness Factors 1. The complexity, expense and likely duration of the litigation.
This factor, which "captures `the probable costs, in both time and money, of continued litigation,'" In re Cendant Corp. Litig., 264 F.3d at 233 (quoting In re General Motors Corp., 55 F.3d at 812), weighs in favor of approval of the proposed settlement. In the instant case, there is little question that-absent settlement by all parties-the litigation will be complex, expensive, and of long duration.
With regard to complexity and duration, the Court makes a number of observations. The case involves numerous defendants who "have an aggregate share of over 90% of the United States market for automotive refinishing paint." (Am. Compl. ¶ 39.) Therefore even under the best possible circumstances, the discovery process has the potential to be lengthy and expensive. Moreover, to date, there have already been discovery disputes between the parties. Under the settlement, Akzo has agreed to provide discovery that should reduce the costs for the remaining parties to the litigation. (Settlement Agreement ¶ 16, 17.) Additionally, logic dictates that a partial settlement should potentially reduce the length of the trial as well as the pre-trial process. With regard to expense, by settling their claim against Akzo both parties save significant resources that would have otherwise been spent in this dispute. The substantial settlement along with the other factors previously discussed suggests that this factor supports approval.
2. The reaction of the class to the settlement.
This factor which "attempts to gauge whether members of the class support the settlement," In re Prudential Ins. Co. of Am. Sales Practices Litig., 148 F.3d 283, 318 (3d Cir. 1998), weighs strongly in favor of approval of the partial settlement, since there were no objectors. Although the lack of objections to a proposed settlement is not dispositive of its fairness, we believe it to be indicative in light of the significant dissemination of notice to the Class regarding the proposed settlement. See In re Cendant Corp. Litig., 264 F.3d at 235 ("The vast disparity between the number of potential class members who received notice of the Settlement and the number of objectors creates a strong presumption that this factor weighs in favor of the Settlement.").
Although Class Member Lopack Auto Body Service, Inc. initially filed objections to the proposed settlement between Plaintiffs and Akzo (Dkt. No. 99, filed July 10, 2003), these objections were subsequently withdrawn on August 18, 2003 (Dkt. No. 105).
Pursuant to the March 17, 2003 Order of this Court, class notice was mailed to all 52,005 direct purchasers identified by the Defendants in this Class Action. In addition, a summary notice regarding the proposed settlement was published in the national edition of The Wall StreetJournal on May 5, 2003 and in the May 2003 edition of the automotive refinishing trade publication Hammer Dolly. Any member of the Class had until July 5, 2003 to postmark any objections to the terms of the proposed settlement-this deadline gave prospective objectors at least approximately two months after notice was disseminated to file any objections. No members of the class objected and only 27 members of the class requested exclusion from the class. Though the absence of objection by class members to a partial settlement must not be dispositive, the fact that no such objection was made is persuasive in this instance.
3. The stage of the proceedings and the amount of discovery completed.
This third factor "`captures the degree of case development that class counsel have accomplished prior to settlement. Through this lens, courts can determine whether counsel had an adequate appreciation of the merits of the case before negotiating.'" In re Cendant Corp. Litig., 264 F.3d at 235 (quoting In re General Motors Corp., 55 F.3d at 813). Generally, post discovery settlements are viewed as more likely to reflect the true value of a claim as discovery allows both sides to gain appreciation for the likelihood of success and any potential liability. See Bell Atlantic Corp. v. Bolger, 2 F.3d 1304, 1314 (3dCir. 1993).
Although it is true that the proceedings in the instant case are in the relatively early stages with discovery ongoing, we find that this factor weighs in favor of approval of the settlement. Plaintiffs to date have been provided with the hundreds of thousands of documents produced in conjunction with the Department of Justice investigation. While an appreciable amount of discovery may still exist, this initial discovery has provided the parties with sufficient information to make an informed judgment on the partial settlement. See In re Cendant Corp. Litig., 264 F.3d at 236 (upholding approval partially based on this factor though settlement was reached early in the discovery process). Furthermore, due to the possibility of joint and several liability for the Defendants in the present antitrust conspiracy claim, Plaintiffs' settlement with Akzo will not have a negative impact on their ability to recover damages should the nonsettling Defendants be found liable.See In re Linerboard Antitrust Litig., 203 F.R.D. 197, 208 (E.D. Pa. 2001). When one defendant offers to settle with the class,
the plaintiffs may retain the right to seek recovery against nonsettling defendants for all their claims, including claims raised against the settling defendant. The nonsettling defendants in these circumstances are entitled to credit any aggregate judgment against them with the value of the settlement proceeds paid by the settling defendant to the class.
Alba Conte and Herbert B. Newberg, 4 Newberg on Class Actions § 12:18 (updated Jan. 2003); see also 6Newberg on Class Actions § 18:57 (noting that nonsettling defendants remain liable for the entire amount of damage, "unless the settling defendants have arranged to have their sales removed from litigation as part of the settlement"). Despite the fact that the case has not proceeded past the discovery phase, for the reasons stated above this factor also mitigates in favor of approval of the partial settlement.
4. The risks of establishing liability and damages.
These two factors, discussed together, both "attempt to measure the expected value of litigating the action rather than settling it at the current time." In re Cendant Corp. Litig., 264 F.3d at 238, (quoting In re General Motors Corp., 55 F.3d at 816). These factors both weigh in favor of approval of the partial settlement. At the outset, we observe that since the lawsuit will continue against the remaining defendants, and (as discussed above) since the remaining defendants are jointly and severally liable for the damages, the partial settlement with one defendant will not negatively impact the class' prospects of further recovery at trial from the nonsettling Defendants.
Though the partial settlement will not affect the ability to achieve monetary damages from the nonsettling parties, the court still must ensure that the settlement will not hamper remaining proceedings. The Manual for Complex Litigation warns that courts "should be reluctant to approve partial settlements containing provisions that might interfere with further proceedings, such as those attempting to limit further discovery." Manual for Complex Litigation § 30.46. Provisions seeking to limit discovery "may be problematic if other parties need discovery from a settling party, particularly in light of the limits on nonparty discovery." Manual for Complex Litigation § 23.22. Therefore, such provisions should take into consideration the continuing need for discovery. Id. Because discovery limitations can impact the remainder of litigation, the court in its role as fiduciary to the plaintiff class should ensure that such limitations will not create problems in further proceedings. See In re Cendant Corp. Litig., 264 F.3d 286, 296 (3d Cir. 2001) (noting that "[t]he court must be assured that the settlement secures an adequate advantage for the class in return for the surrender of litigation rights against the defendants"). Here we observe that the discovery provisions in the proposed settlement require Akzo to retain documents pursuant to court order and agreement between counsel, and to cooperate in the discovery proceedings. Akzo has agreed to produce transaction data as required pursuant to the parties' September 9, 2002 stipulation. (Settlement Agreement ¶ 16, 17.) Although they do limit Akzo's obligations, the discovery-related terms of the proposed settlement appear to be designed to promote the cooperation of Akzo with regard to future discovery requests.
5. The risks of maintaining the class action through the trial.
The court in Prudential Ins. Co., 148 F.3d at 321, found the examination of this factor to be perfunctory "[b]ecause the district court always possesses the authority to decertify or modify a class that proves unmanageable, . . ., [t]here will always be a `risk' or possibility of decertification, and consequently the court can always claim this factor weighs in favor of settlement." Though the Class in the instant case seems unified and without dissent — judging from the lack of objections to the partial settlement — the inherent difficulties in bringing a class action to trial justify the use of this factor as further support for the partial settlement. 6. The ability of the defendants to withstand a greater judgment.
This factor "is concerned with whether the defendants could withstand a judgment for an amount significantly greater than the Settlement."In re Cendant Corp. Litig., 264 F.3d at 240. Thus, the Court considers whether Akzo could withstand a judgment for an amount significantly greater than $18,750,000, the amount of the proposed settlement. See id In the present case, the Court must make this decision with little financial information. The information the Court presently has is limited to these facts: Akzo's market share in the market for automotive re finishing is approximately six percent (6%), Defendants have an aggregate share of over 90% of the same market, and the sale of automotive re finishing paint in the United States exceeded $2 billion in 2000. (Am. Comp. ¶ 39.) Thus, it would appear that in 2000, Akzo's sales were approximately $120 million. However, this estimated sales figure has minimal value in determining whether Akzo could withstand a significantly greater judgment without further information. Notwithstanding the lack of information, we observe that a settlement of $18,750,000 must be seriously considered under any circumstances.
7. The reasonableness of the settlement in light of the best possible recovery and in light of all of the attendant risks of litigation.
The final two factors are combined because they together ask the court to analyze how the settlement looks compared to the best and worst case scenarios, or as another court put it, "[t]his inquiry measures the value of the settlement itself to determine whether the decision to settle represents a good value for a relatively weak case or a sell-out of an otherwise strong case." In re Chambers Dev. Sec. Litig., 912 F. Supp. 822, 839 (W.D. Pa. 1995). As in the above discussion, this Court is hampered in its analysis by a lack of financial information as well as the indeterminable amount of risk associated with the procedural status of this case at the present time. What is known, is that the proposed partial settlement is in the amount $18,750,000. Akzo's market share in the subject market is approximately six percent (6%). Plaintiffs' Amended Complaint alleges that Defendants have an aggregate share of over 90% of the United States market for automotive refmishing paint, and that sales of automotive refmishing paint in the United States exceeded $2 billion in 2000. Again, this means that the Akzo's sales in 2000 exceeded $120 million.
Defendants BASF Aktiengesellschaft ("BASF AG") and BASF Aktiengesellschaft Coatings ("BASF Coatings") have challenged this Court's jurisdiction to adjudicate claims against them. Issues related to the challenge are currently pending before the Third Circuit.
This settlement compares favorably to other settlements in antitrust price-fixing class actions approved within this Circuit, in that it provides for a cash payment equal to 4.2% of Akzo's sales of automotive refmishing paint for the four years during the Class Period in which it had its highest sales totals. See In re Plastic Tableware Antitrust Litig., 1995 WL 723175 at *1 (E.D. Pa. Dec. 4, 1995) (settlement equal to 3.5% of sales); Axelrod v. Saks Co., 1981 WL 2031 at *1 (E.D. Pa. Feb. 23, 1981) (settlement equal to 3.7% of sales). Moreover, as Plaintiffs point out, the nonsettling Defendants face joint and several liability for Plaintiffs' antitrust conspiracy claim, and it appears that the remaining Defendants are financially stable. See, e.g.,In re Linerboard Antitrust Litig., 203 F.R.D. at 208 (acknowledging the joint and several liability of antitrust co-conspirators). Though the above analysis does not conclusively justify whether the settlement is reasonable in relation to the best or worst case scenario, the Court can say without hesitation that it is fair when compared to similar actions. Without further information, that fact is enough to ensure that this factor should not persuade the Court to reject the terms of the partial settlement.
B. Other Considerations
We also observe that this partial settlement is the product of negotiations between experienced attorneys, and is therefore entitled to deference. There is no evidence that the proposed settlement is the product of collusion or fraud. Finally, we note that none of the non-settling defendants have asserted any objections on the grounds that they will suffer some formal legal prejudice as a result of the settlement with Akzo.
IV. CONCLUSION
For the foregoing reasons, we will grant final approval of the partial settlement between the Plaintiff Class and Akzo. As we noted in our March 17, 2003 Memorandum and Order, the use of the settlement fund to cover any attorneys fees and other litigation costs must be approved by the Court after notice to the Class and after hearing. An appropriate Order will be entered.