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Date: 02-04-2003

Case Style: James R. Millsap, et al. v. McDonnell Douglas Corporation

Case Number: 94-C-633-H

Judge: Sven E. Holmes

Court: United States District Court for the Northern District of Oklahoma

Plaintiff's Attorney:

Joseph R. Farris and

Paula J. Quillin of Feldman, Franden, Woodard, Farris & Boudreaux, Tulsa, Oklahoma

Defendant's Attorney: Thomas R. Meites, Michael M. Mulder and Josie Raimond of Meites, Mulder, Burger & Mollica, Chicago, Illinois

Description:

PLAINTIFFS' MEMORANDUM IN SUPPORT OF PRELIMINARY APPROVAL OF CLASS SETTLEMENT

Class counsel submit this memorandum in support of the parties' joint motion for an order preliminarily approving the Stipulation of Settlement ("Settlement"). Class counsel also seek approval of the proposed notices of settlement to the Class and request the Court schedule a date for a fairness hearing. For the reasons set forth below, Class counsel submit that the Settlement is fair, reasonable, and adequate and this Court should preliminarily approve the Settlement in all respects.

CASE HISTORY

Defendant McDonnell Douglas is a corporation which, at all relevant times, was headquartered in St. Louis, Missouri, and which manufactured and assembled military and commercial aircraft, missile systems, electronics and related products at facilities throughout the United States and in foreign countries. McDonnell Douglas had a Tulsa, Oklahoma facility ("the Tulsa facility") which was part of McDonnell-Douglas Aerospace - East ("MDA-East"), an unincorporated operating division managed out of St. Louis headquarters. In 1997, defendant McDonnell Douglas was acquired by and became a subsidiary of The Boeing Company.

Class Members are former employees of McDonnell Douglas at the Tulsa Facility. They were employed by McDonnell Douglas as of December 3, 1993, when it was announced that the Tulsa Facility would be closed. While employed at McDonnell Douglas, Class Members were vested in one of defendant's two Employee Retirement Income Security Act (ERISA) qualified retirement plans and participated in one of McDonnell Douglas' health care plans. The class alleges that McDonnell Douglas closed the Tulsa Facility to deprive them of benefits covered by ERISA. On June 21, 1994, a class action lawsuit entitled James R. Millsap v. McDonnell Douglas Corporation" ("the Litigation") now pending in the United States District Court for the Northern District of Oklahoma ("District Court"), Case No. 94-CV-633 was filed by James R. Millsap, alleging violations by McDonnell Douglas of Section 510 ("§510") of the Employment Retirement Income Security Act ("ERISA"), 29 U.S.C. §1001-1461 of the United States Code. On April 29, 1996, the District Court certified a class of all employees of McDonnell Douglas' Tulsa Facility as of December 3, 1993 who were vested in one of McDonnell Douglas' qualified retirement plans.

The parties have undertaken substantial and extensive document discovery and motion practice in this Litigation. Class counsel conducted depositions of key corporate executives and benefits administration personnel, and consulted with numerous experts in the fields of accounting, statistics, economics, and employee benefits, who have prepared reports of their opinions and conclusions. The parties also conducted extensive research regarding the factual and legal issues raised by the allegations in this Litigation, potential defenses, possible damages, and related discovery. This included a massive effort to obtain questionnaire answers from all class members.

A trial on liability was held to the District Court from April 19, 1999 to April 29, 1999. On September 5, 2001, the District Court found in favor of the Class Members and against McDonnell Douglas on liability. On June 17, 2002, McDonnell Douglas filed a motion for summary judgment on the issue of the availability of back pay as a remedy to the Class Members in this ERISA §510 case. On September 25, 2002, the District Court denied McDonnell Douglas' Motion for Summary Judgment on the issue of back pay. McDonnell Douglas's motion to certify an appeal was denied.

SETTLEMENT HISTORY
On behalf of the Class, Class Counsel and counsel for McDonnell Douglas engaged in intensive settlement discussions, including participation in mediation held in San Francisco, California under the direction of David A. Rotman, an experienced mediator in the field of labor and employment law. Following these efforts, the Class Members and McDonnell Douglas ("the Parties") arrived at a Joint Stipulation of Settlement. The parties mutually desire to resolve the allegations and claims asserted by the Class Members in the Litigation, except as to the Backpay Claim, as defined herein, in accordance with the terms and conditions of the Stipulation, as set forth below.

The formative element of this partial settlement was defendant's express avowal that it would not settle the back pay claims because, in its view, such a remedy was foreclosed by Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002), which ruled upon the ‘appropriate equitable relief' allowed plaintiffs pursuant to ERISA § 502(a)(3). Recognizing that settlement of this facet of plaintiffs' losses before appeals of this issue were unlikely, the parties opted - in the interest of expediting matters - to negotiate and resolve all non-back pay issues. McDonnell Douglas has agreed to the proposed Settlement without admitting liability or wrongdoing of any kind, and solely for the purpose of avoiding further costs, management distraction, and the risks and hazards of further litigation, while preserving certain appeal rights. The stipulation terms are set forth below.

SUMMARY OF TERMS OF SETTLEMENT
A. Certification Order

This Settlement is expressly contingent on (a) the District Court issuing an order certifying the Backpay Claim for immediate appeal pursuant to 28 U.S.C. § 1292(b); and (b) the U.S. Court of Appeals for the Tenth Circuit accepting jurisdiction of the Order certifying the Backpay Claim for appeal. If either of these conditions fail, the Settlement is ended and the case proceeds to trial.

The parties agree to seek certification of the following issue: "Whether, in this ERISA § 510 case and as a result of Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002), backpay (and, as a result, any other damages based upon backpay) are available as ‘appropriate equitable relief' to the class members pursuant to ERISA § 502(a)(3)." The parties have also agreed on a statement of facts that are relevant to the appeal, set forth in the Stipulation, and procedures for expediting the appeal. If, at the completion of all appeals on the Backpay Claim, it is determined that backpay is not available to Class Members, the Class will consent to an Order and Judgment dismissing the Backpay Claim with prejudice. But if it is determined that backpay is available to the Class Members, the matter shall be returned to the District Court for a trial on the amount of the Backpay Claim (and all included issues). In any subsequent appeals, McDonnell Douglas may appeal from the District Court's Orders of September 5, 2001 (liability) and September 25, 2002 (backpay), and may challenge either the fact of Backpay Claim damages and/or the amount of the Backpay Claim, and all included issues. The Class in turn may make any arguments in opposition to McDonnell Douglas's appeal including, but not limited to, the law of the case.

B. Settlement Fund

With respect to the release and pension and benefit claims MDC will pay the class and class counsel $36 million, less any applicable taxes. From the $36 million the Settlement allocates $1 million to Class Counsel for reimbursement of the actual costs of litigation over the past nine years. Class counsel will file a common fund application requesting the Court to award 25% of the remainder of the fund, that is $8.75 million ($35 million x 25% = $8.75million) in attorneys fees. Under the proposed allocation in the Stipulation of Settlement McDonnell Douglas pays $3.5 million in attorneys fees to Class Counsel from the $36 million fund. If the Court approves Class Counsel's common fund application, the $3.5 million for attorney's fees to be paid by McDonnell Douglas shall be credited so that in no event will the Class Members bear more than $5.25 million of the total fee award out of the $31.5 million balance in the Settlement Fund. The remainder of the fund, or at least $26.25 million before taxes and administrative expenses, will be distributed to the class members.

C. Allocation Plan to the Class

Class counsel, in conjunction with the class experts, Dr. Robert Hall, an economist from Stanford University, and Dr. David Feinstein, an actuary who consults on pension plans, are developing a Plan of Distribution which, subject to Court approval, will establish each class member's share of the Settlement Fund. The class experts have been integrally involved in calculating the loss to the entire class in preparation of the trial that was previously set for March 24, 2003.

McDonnell Douglas will take no position on the proposed Plan of Allocation as to any class member's share. In estimating the lost pension and benefits to the class members, the class experts rely on information gathered from the class members' questionnaire responses. In addition, in determining the loss class members suffered, the class experts have access to information gathered from the company in preparation for trial.

1. Failure to Provide a Verified Questionnaire

Most class members have completed questionnaires. The Notice will state that the share of any class member, or his or her estate, that does not provide class counsel with a verified questionnaire, whether they have been located or not, before the March 24, 2003 final fairness hearing shall revert to the reserve, at which time such class member, or his or her estate, shall have no further rights to an award under this Settlement.

2. The Basic Award

The Plan of Allocation gives a central role to the Basic Award. The harm from the Tulsa plant closing differed from person to person. No class member who provides a verified questionnaire will be paid less than $5,000 - the Basic Award - which recognizes that every class member suffered some harm, no matter what his or her later employment experience was.

3. The Benefit and Pension Award

Class members will receive a Benefit and Pension award, rather than the Basic Award, if their pension and benefit losses as estimated by the class experts are greater than $5,000. The Benefit and Pension awards will all be greater than $5,000. Under the Distribution Plan, whether a class member receives a Benefit and Pension award depends on the amount of estimated benefits and pension he or she lost. The experts are estimating losses for the following benefits: a) pension; b) health insurance coverage; c) dental insurance; d) life insurance; and e) retiree medical coverage. The Benefit and Pension awards will be individually calculated, because some class members had greater benefit losses, while others, for example, continued to work for MDC or other Boeing subsidiaries and had lesser losses.

4. Supplemental Notice of the Basic Award and Estimated Benefit Award

At least three weeks prior to the cutoff for objections to the Settlement each class member will receive a Supplemental Notice in a form to be approved by the Court. The Supplemental Notice will (1) provide details about the Plan of Distribution; (2) state whether the class member qualifies for more than the Basic Award of $5,000; (3) state what the class member's proportional share will be; and (4) estimate the amount of the class member's award, taking into account possible reductions for expenses of the litigation and a court award of attorneys' fees.

5. Opportunity For Reconsideration

Any class member who desires to have the amount of his or her share of the award reconsidered may apply for reconsideration of the proposed award. A reserve will be established from the Settlement Fund to cover any requests made by class members for reconsideration of their proposed award. Requests for reconsideration must be based on the class member's good faith belief that a mistake was made in the expert's estimate. In requesting reconsideration, the class member may not offer new information but is limited to the information provided in his or her questionnaire response. Examples of possible reasons for reconsideration will be provided in the Supplemental Notice. Requests for reconsideration for a greater share of the fund unsupported by substantial reasons will be denied.

On behalf of the class, class counsel, in conjunction with the class' experts (Dr. Hall and Dr. Feinstein) will provide a recommendation on each request to the Magistrate Judge assigned to the case. Each class member seeking reconsideration will be provided with notice of Class Counsel's recommendation to the Magistrate Judge and given an opportunity, if desired, for a hearing on the matter before the Magistrate Judge. In addition, Class Counsel will provide the Court with any materials supporting the request from the class member. The Magistrate Judge will hold a hearing(s) on all such applications and rule on the matter. The Magistrate Judge's ruling will be the final ruling on such applications and will not be appealable.

In no event shall the amount of adjustments granted by the Court exceed the total amount of the reserve established for requests for reconsideration of awards and other matters. The Court will not rule on the matter of adjustments until after final approval of the Settlement and then only after it has considered all the applications for reconsideration as a consolidated proceeding in order to make sure that the total adjustments granted do not exceed the total funds in the reserve. No distribution of any Settlement funds will be made to any class member who seeks to have his or her award reconsidered until the Court has resolved all the applications for reconsideration pending before it. Distribution to the class members who do not request reconsideration may be made prior to the Court's resolution of requests for reconsideration.

After the Court rules, if there are funds remaining in the reserve they shall be distributed first, to any costs of administration of the Settlement that exceed the $1 million in costs paid by defendant and, second, if any funds remain, as directed by the Court.

D. Liabilities of the Settlement Fund

1. Attorneys' Fees and Costs

The costs and fees for nearly nine years of work on this complex case are substantial. Class counsel will file an application for attorney's fees and costs on or before March 1, 2003. The application will show: 1) that a common fund method of compensating class counsel, through a percentage of the class recovery is the preferred method used to compensate class counsel in ERISA actions; see e.g. Florin v. Nationsbank of Georgia, 34 F.3d 560, 563-564 (7th Cir. 1994); Montgomery v. Aetna Plywood, Inc. , 234 F. 3d 399, 408 (7th Cir. 2000); 2) that an application for 25% of the fund is well within the range of reasonableness accepted by the 10th Circuit when evaluated against the factors articulated in Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir. 1974); see Brown v. Phillips Petroleum Co., 838 F. 2d 451, 455 n.2 (10th Cir. 1988); Gottlieb v. Barry, 43 F. 3d 474, 487-488 (10th Cir. 1994); and 3) that a common fund percentage of 25% is also reasonable because it is at the low end of the contingency agreements negotiated with over 100 of the plaintiffs in this matter; see In Re Synthroid Marketing Litigation, 264 F. 3d 712 (7th Cir. 2001) (court should "estimate the terms of the contract the private plaintiffs would have negotiated with lawyers had bargaining occurred at the outset of the case (that is when the risk still existed."). The proposed form of Notice informs the class members of the fee that will be sought by class counsel and is therefore appropriate to be sent following preliminary approval of the Settlement.

2. Reimbursement of Costs to Named Plaintiffs

A number of representative plaintiffs contributed up to $500 each towards the costs of the litigation. Class counsel will seek Court approval to refund these amounts to the individual plaintiffs from the $1 million in litigation costs to be paid by McDonnell Douglas.

3. Incentive Payments Class counsel intends to seek Court approval for incentive payments of an additional $7,500 each to no more than 5 representative plaintiffs and class members who made significant contributions in assisting class counsel over the years in putting the plaintiffs' case together. Among other things, these individuals collected documents, identified witnesses, provided input on the various pleadings, served as day to day contacts on the case and gave freely of their time and effort to benefit the entire class. Their special contributions deserve to be recognized with an additional incentive award. Upon court approval, such incentive payments will be made to James R. Millsap, Fred Davis and Vera Lehman.

E. Notice to the Class Between preliminary and final approval of the agreement, the settlement provides for a notice and objections period, as follows: (a) notice by first-class mail to those Class Members who can be identified through reasonable effort on or before the date specified in the Notice Order; (b) Summary Notice to be published two times on successive Sundays in the Tulsa World; (c) a supplemental notice mailed to class members providing them details of the allocation plan; (d) a hearing or hearings ("Settlement Hearing") to be held by the Court to determine if the proposed Settlement of the Litigation as contained in the Stipulation should be approved as fair, reasonable and adequate and whether the Order and Judgment approving the Settlement should be entered; (e) a procedure for receiving and responding to objections by absent class members; and (f) a final approval hearing.

PROCEDURE FOR PRELIMINARY APPROVAL OF SETTLEMENT

Plaintiffs seek this Court's preliminary approval of the proposed partial settlement. Preliminary approval will allow class counsel to send notice to the class and to schedule a fairness hearing at which class members may be heard. A proposal for settlement that, when viewed as a whole, falls within the range of what is fair, reasonable, and adequate should be properly remitted to the class for consideration. Preliminary approval makes this threshold determination.

According to the Manual for Complex Litigation, preliminary approval should be granted:

] the preliminary evaluation of the proposed settlement does not disclose grounds to doubt its fairness or other obvious deficiencies, such as unduly preferential treatment of class representatives or of segments of the class, or excessive compensation for attorneys, and appears to fall within the range of possible approval. . . .

MANUAL FOR COMPLEX LITIGATION THIRD, §30.41 (1995); In re Prudential Sec. Incorp. Ltd. Partnerships Litig,. 163 F.D.R. 200, 209 (S.D.N.Y.) (quoting Manual for Complex Litig., §30.41).

Thereafter, the second step is a final approval hearing at which time the Court hears arguments and considers evidence in order to determine whether the proposed settlement is fundamentally "fair, adequate and reasonable." EEOC v. Hiram Walker & Sons, Inc., 768 F.2d 884, 889 (7th Cir. 1985).

THE PROPOSED SETTLEMENT IS FAIR, REASONABLE AND ADEQUATE

The Tenth Circuit has held that a proposed settlement must be "fair, reasonable and adequate." Jones v. Nuclear Pharmacy, 741 F.2d 322, 324 (10th Cir.1984). Our circuit considers the following four factors in assessing whether a proposed settlement is fair, reasonable and adequate:

(1) whether the proposed settlement was fairly and honestly negotiated;

(2) whether serious questions of law and fact exist, placing the ultimate outcome of the litigation in doubt;

(3) whether the value of an immediate recovery outweighs the mere possibility of future relief after protracted and expensive litigation; and

(4) the judgment of the parties that the settlement is fair and reasonable. Rutter & Wilbanks Corp. v. Shell Oil Co. , Nos. 02?1220, 02?1221, 2002 WL 31868186 (10th Cir. Dec. 24, 2002) (quoting Gottlieb v. Wiles, 11 F.3d 1004, 1014 (10th Cir.1993), overruled in part on other grounds, Devlin v. Scardelletti, 536 U.S. 1 (2002)). Each of these conditions is met here.

A. The Settlement Was Fairly and Honestly Negotiated

The proposed partial Settlement was the result of substantial, arms-length negotiations between the parties which took place after this Court directed the parties to hold settlement discussions in comments made at the September 12, 2002 hearing and in the Scheduling Order which followed.(September 12, 2002, Tr. 50-51)

The court mentioned the idea that some issues might be resolved while others might be appealed. "There are several ways to deal with this approach. But I anticipate, therefore, putting it down. . . incorporating into our orders here a settlement directive, which I will do." Id.

Counsel for plaintiffs and defendant are experienced ERISA and class action attorneys. As mentioned above, extensive informal and formal discovery was exchanged. This information along with the prior opinions issued by this Court on liability and remedies was carefully assessed by Class counsel. Mediation through David Rotman, a neutral experienced mediator, was conducted in San Francisco. In sum, the Settlement was negotiated by experienced counsel for the class and reflects that the interests of the class were given consideration and protection during the settlement phase.

Especially valuable to the class is the reservation of the back pay claims for further consideration. As the Court knows, the availability of back pay as a remedy for claimants under ERISA § 510 is vigorously contested between the parties. The parties, unable to compromise on back pay, consented to reserve this threshold question for ultimate appellate disposition by the Tenth Circuit. Instead, the class will obtain a benefits-related recovery without delay, with the prospect of back pay recovery in the future depending on the Tenth Circuit's decision on the back pay issue. Partial settlements, dismissing some claims or parties, are perfectly legitimate. In re Integra Realty Res., Inc., 262 F.3d 1089, 1102 (10th Cir.2001) (partial settlement with some defendants); Ramah Navajo Chapter v. Babbitt, 50 F. Supp. 2d 1091, 1094 (D.N.M.1999) (partial settlement approved).

B. Serious Questions of Law and Fact Exist

The district court's "role at this stage of the proceeding is not to evaluate the merits of the litigation," but to ascertain the existence of disputed issues of law or fact that might have affected the outcome. Wilkerson v. Martin Marietta Corp., 171 F.R.D. 273, 285 (D. Colo. 1997). These issues, in the second phase of this litigation, would include, inter alia, (1) how long the plant would have remained open; (2) the number of class members that would have enjoyed continued employment; (3) the method of calculating the value of various benefits (including the use of aggregate versus individual calculations); and (4) the degree of set-off or mitigation by class members. Both sides retained qualified experts who arrived at damage calculations under a variety of assumptions, and naturally arrived at divergent results. Id. at 286 ("[I]t is clear that a fact finder, when confronted with diverging opinions from experts of this caliber, could adopt the approaches used by one expert, or the other; could reject both; or could arrive at a middle ground between the two, accepting portions of the expert opinions but coming to an independent conclusion").

Outcome: Settlement approved.

Plaintiff's Experts: Unknown

Defendant's Experts: Unknown

Comments: Reported by Fountainheads



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