Drexel Burnham Lambert Group, Inc., In re

Decision Date27 March 1992
Docket NumberD,Nos. 813,814 and 816,s. 813
Citation960 F.2d 285
Parties26 Collier Bankr.Cas.2d 1413, 22 Fed.R.Serv.3d 1091 In re the DREXEL BURNHAM LAMBERT GROUP, INC.; Drexel Burnham Lambert Trading Corporation; Drexel Burnham Trade Finance, Inc.; Drexel Burnham Lambert Incorporated; BRR Incorporated; Deauville United Corporation; Double Oil & Gas Incorporated; Drexel Burnham Lambert (Asia) Ltd.; Drexel Burnham Lambert C.P. Inc.; Drexel Burnham Lambert Capital Group, Inc.; Drexel Burnham Lambert Caribe International Incorporated; Drexel Burnham Lambert Commercial Paper Incorporated; Drexel Burnham Lambert International Inc.; Drexel Burnham Lambert Investors Corp.; Drexel Burnham Lambert MBI Corp.; Drexel Burnham Lambert Products Corp.; Drexel Investment Holdings Inc.; First DBL Corporation; Drexel Burnham Lambert Government Securities Inc.; Drexel Burnham Lambert Realty Corp., Debtors. SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee, v. The DREXEL BURNHAM LAMBERT GROUP, INC.; Drexel Burnham Lambert Trading Corporation; Drexel Burnham Lambert Trade Finance, Inc.; Drexel Burnham Lambert Incorporated; BRR Incorporated; Deauville United Corporation; Double Oil & Gas Incorporated; Drexel Burnham Lambert (Asia) Ltd.; Drexel Burnham Lambert C.P. Inc.; Drexel Burnham Lambert Capital Group, Inc.; Drexel Burnham Lambert Caribe International Incorporated; Drexel Burnham Lambert Commercial Paper Incorporated; Drexel Burnham Lambert International Inc.; Drexel Burnham Lambert Investors Corp.; Drexel Burnham Lambert MBI Corp.; Drexel Burnham Lambert Products Corp.; Drexel Investment Holdings Inc.; First DBL Corporation; Drexel Burnham Lambert Government Securities Inc.; Drexel Burnham Lambert Realty Corp., Defendants-Appellees, Securities Litigation Claimants; Subclass A Representatives; Subclass B Representatives; Federal Deposit Insurance Corporation; Resolution Trust Corporation; Official Creditors Committee of Drexel Burnham Lambert Group, Inc.; Official Creditors Committee of Drexel Burnham Lambert Incorporated; Official Creditors Commit
CourtU.S. Court of Appeals — Second Circuit

Dennis J. O'Brien, Pittsburgh, Pa. (Joseph M. Ramirez, Eckert Seamans Cherin & Mellott, Pittsburgh, Pa., David S. Elkind, Reboul, MacMurray, Hewitt, Maynard & Kristol, New York City, of counsel), for appellants Liggett Group Inc., and Liquid Green Trust.

David T. Eames, New York City (Bodian & Eames, New York City, of counsel), for appellants Citibank, Den Danske Bank, Lloyds Bank PLC and Canadian Imperial Bank of Commerce.

Whitton E. Norris, III, Boston, Mass. (Jerome Gotkin, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston, Mass. and Mark Parry, Moses & Singer, New York City, of counsel), for appellants Hart Holding Co., Inc., and Reeves Industries, Inc.

Peter Gruenberger, New York City (Ira M. Millstein, Weil, Gotshal & Manges, New York City, of counsel), for defendants-appellees.

Melvyn I. Weiss, New York City (Milberg Weiss Bershad Specthrie & Lerach, New York City, Thomas D. Barr, Cravath, Swaine & Moore, New York City, David Berger, Berger & Montague, Philadelphia, Pa., Stanley Nemser, Wolf Popper Ross Wolf & Jones, New York City, of counsel), for appellees.

Richard Kirby, Washington, D.C. (Bruce McNally and Judith Starr, Washington, D.C., of counsel), for plaintiff-appellee S.E.C.

Before: ALTIMARI, WALKER and McLAUGHLIN, Circuit Judges.

McLAUGHLIN, Circuit Judge:

Appellants are three members of a proposed class of plaintiffs that have asserted claims against defendants-appellees Drexel Burnham Lambert Group, Inc. and its subsidiaries (collectively "Drexel"). Appellants ask us to reverse an order entered in the United States District Court for the Southern District of New York (Milton Pollack, Senior District Judge ) certifying the proposed class and two subclasses, and approving a settlement agreement (the "Settlement Agreement") of the class' claims. We find that the district court did not err in certifying the class and subclasses and in approving the Settlement Agreement, and therefore affirm.

BACKGROUND

The events causing the demise of Drexel are well-documented, and need not be recounted here. We summarize only the facts that are necessary to understand the dispute before us.

In September 1988, the Securities and Exchange Commission ("SEC") filed a civil Drexel paid $200 million into the SEC Fund in September 1989, and agreed to pay the remaining $150 million in two installments over the next three years. However, in February 1990 (before Drexel had paid any of the remaining $150 million), Drexel filed a petition for relief under 11 U.S.C. § 1101, et seq., in the Bankruptcy Court for the Southern District of New York. The SEC immediately filed a bankruptcy claim for the remaining $150 million Drexel owed the SEC Fund. Many other potential claimants followed suit, and by November 1990, over 15,000 bankruptcy claims had been filed against Drexel. Among these claims, 850 arose out of Drexel's actions in buying, selling and underwriting securities (the "Securities Claims").

                enforcement action against Drexel and several of its top-ranking officials, alleging that Drexel had violated federal law in various securities transactions.   After intense negotiations, Drexel agreed to create a $350 million fund to be administered by the SEC (the "SEC Fund") in exchange for dismissal of the complaint.   The SEC was to distribute the Fund to the victims of Drexel's illegal transactions in "junk bonds."
                

To facilitate settlement, Judge Pollack withdrew the Securities Claims from the bankruptcy court pursuant to 28 U.S.C. § 157(d). 1 Early attempts to settle each claim individually proved fruitless. Thus, the district court ordered the establishment of the Securities Litigation Claimants Group ("SLCG"), comprising the Federal Deposit Insurance Corporation ("FDIC"), the Resolution Trust Corporation ("RTC"), and two groups of claimants in other securities-related actions against Drexel. One group consists of claimants in various derivative suits brought against Drexel (the "Derivative Plaintiffs"). The other group consists of claimants who brought actions against Drexel that were later consolidated before Judge Pollack by the Panel on Multidistrict Litigation (the "Boesky Litigation Plaintiffs"). See In re Ivan F. Boesky Securities Litigation MDL Dkt. No. 732 (MP). The SLCG's mission was to negotiate with Drexel and Drexel's non-securities claimants (the "Fixed Creditors") to settle all claims against Drexel.

The parties negotiated throughout January and February. On February 18, 1991, the SLCG advised the district court that the parties had agreed to the broad framework of a settlement. The parties then engaged in round-the-clock negotiations over the next three months to flesh out the terms of the settlement.

On May 3, 1991, the parties arrived at the Settlement Agreement at issue here, an agreement as intricate as it is lengthy. It contains thirty-three single-spaced pages painstakingly describing the settlement method. The Agreement requires the 850 securities claimants to be certified as a mandatory, non-opt-out class, which in turn is divided into two subclasses. The principal members of subclass A include several failed banks currently administered by the FDIC or the RTC, and the Derivative Plaintiffs. Subclass B consists primarily of the Boesky Litigation Plaintiffs.

Under the Settlement Agreement, Drexel must pay the $150 million balance it owes the SEC Fund. The $350 million SEC Fund will then be divided between the subclasses, with subclass A receiving seventy-five percent ($262.5 million) and subclass B twenty-five percent ($87.5 million). The entire class will also receive a share of Drexel's remaining assets (the "Class Assets"), which will be divided between the subclasses in the same 75%-25% ratio as the SEC Fund. Subclass A's total recovery from the SEC Fund and the Class Assets is estimated at $600 million, while subclass B's total recovery is estimated at $200 million. Finally, the Settlement Agreement provides for subclass A and Drexel to "pool" their recovery from lawsuits they The district court scheduled an August 9, 1991 hearing on the fairness of the Settlement Agreement. Notice of the hearing was sent to each of the securities claimants, and was published in six different newspapers throughout the United States. Only eight of the 850 proposed class members filed objections. After listening to their challenges, the district court issued an order certifying the class and approving the Settlement Agreement.

                have brought against Drexel's former directors and officers (the "Pooled Recovery"). 2  The Settlement Agreement does not contain any provision enabling subclass B to share in the Pooled Recovery, and enjoins members of subclass B from bringing any future actions against the directors and officers
                

Three of the eight objecting class members now appeal from the district court's order. Appellants first contend that the district court erred in certifying the mandatory non-opt-out class and subclasses. Second, they maintain that the district court erroneously approved the Settlement Agreement. We reject both arguments, and thus affirm the order of the district court.

DISCUSSION
I. Appealability

Drexel has moved to dismiss this appeal, claiming that the district court's order is not final. In support of its motion, Drexel points to the district...

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