In re the Prudential Ins. Co. of America

Decision Date17 March 1997
Docket NumberCivil Action No. 95-4704.,No. MDL 1061.,MDL 1061.
Citation962 F.Supp. 450
PartiesIn re: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA SALES PRACTICES LITIGATION.
CourtU.S. District Court — District of New Jersey
OPINION
                TABLE OF CONTENTS
                                                VOLUME 1
                                                                                                  Page
                INTRODUCTION ..................................................................... 467
                FINDINGS OF FACT ................................................................. 468
                I. The Plaintiffs, the Defendants, the Objectors, and Various State Insurance
                   Representatives Participated in These Proceedings ............................. 468
                   A. The Class Includes All Persons or Entities Who Owned Certain Life
                      Insurance Products During the Class Period ................................. 468
                   B. The Plaintiff Representatives Are Typical Victims of Prudential's Deceptive
                      Sales Practices During the Class Period .................................... 469
                       1. Carol Nicholson Was Victimized by Churning, Vanishing Premium
                          Tactics, and Investment Plan Tactics ................................... 469
                       2. Martin Dorfner Was Victimized by Churning and Vanishing
                          Premium Tactics ........................................................ 470
                       3. Vincent and Elizabeth Kuchas Were Victimized by Churning and
                          Investment Plan Tactics ................................................ 471
                       4. Norman Gassman Was Victimized by Vanishing Premium and
                          Investment Plan Tactics ................................................ 472
                   C. The Court Has Granted the Requests of Several Class Members to
                      Intervene .................................................................. 472
                
                    D. Plaintiffs Sued Prudential, a Mutual Life Insurance Company and One of
                       the Largest Life Insurance Companies in the Country .................... 472
                    E. Plaintiffs Have Also Sued Several Individual Defendants Who Were
                       Upper Echelon Prudential Managers ...................................... 473
                    F. Several State Government Representatives Have Contributed to These
                       Proceedings ............................................................ 473
                 II. Plaintiffs Allege that Prudential Conducted a Scheme to Deceive
                     Policyholders into Buying Prudential Life Insurance Products ............. 473
                   A. Prudential Used a Deceptive Sales Practice Called "Churning" to Sell
                      Policyholders Replacement Policies ...................................... 474
                   B. Prudential Misstated that the Premiums on Its Life Insurance Products
                      Including Abbreviated Payment Plan Policies, Would Vanish ............... 476
                   C. Prudential Fraudulently Marketed Its Insurance Policies as Investment
                      Vehicles ................................................................ 476
                   D. Prudential and the Individual Defendants Knew About the Fraudulent
                      Marketing Scheme ........................................................ 477
                   E. Plaintiffs Allege Federal and State Causes of Action to Challenge
                      Prudential's Deceptive Sales Practices .................................. 478
                III. Background ............................................................... 478
                   A. Plaintiffs Sued Prudential Throughout the Country Concerning Prudential's
                      Deceptive Sales Practice and the Judicial Panel on Multi-District
                      Litigation Consolidated the Actions and Transferred them to this Court .. 478
                   B. The New Jersey Insurance Commissioner Led Insurance Regulators
                      Throughout the Country to Form a Task Force ............................. 480
                   C. Connecticut Conducted its Own Investigation and Produced an
                      Independent Report ...................................................... 480
                   D. Plaintiffs Organized and the Court Approved a Consolidated Team to
                      Prosecute the Prudential Fraudulent Sales Practices Actions ............. 481
                   E. Plaintiffs Conducted Both Formal and Informal Discovery to Obtain
                      Information Relating to Prudential's Alleged Fraudulent Sales Practices.. 481
                   F. Plaintiffs Rebuffed Prudential's Early Settlement Overtures While
                      Discovery and Motion Practice Continued ................................. 482
                   G. Motion Practice Continued and Plaintiffs Pursued Informal Discovery...... 483
                   H. The Court Dismissed Many of the Claims in Plaintiffs' First Amended
                      Complaint ............................................................... 483
                   I. The Task Force Found that Prudential Had Committed Widespread
                      Sales Practice Abuse, Fined Prudential $35 Million, and Released the
                      Task Force Plan ......................................................... 484
                   J. The MDL Panel Continued to Transfer Actions to this Court and Some
                      Individual Plaintiffs Filed a Consolidated Motion to Remand ............. 485
                   K. While Class Counsel Continued to Pursue Discovery and to Amend the
                      Complaint, Prudential Counsel and Class Counsel Resumed Settlement
                      Negotiations, Which Resulted in the Settlement Agreement and Later in
                      the Stipulation of Settlement ........................................... 485
                   L. The Court Ordered Conditional Certification of the Class and that the
                      Parties Mail Class Members Notice of the Proposed Settlement ............ 487
                 IV. Stipulation of Settlement Terms .......................................... 488
                   A. The Proposed Settlement Provides an Alternative Dispute Resolution
                      Process Through Which Policyholders May Obtain Full Remediation ......... 488
                      1. The ADR Procedures Cast a Wide Net to Gather Evidence
                         Relevant to Class Members' Claims .................................... 488
                      2. The ADR Process Contains Specific Claim Evaluation Procedures
                         to Ensure that All Relevant Evidence Is Considered ................... 488
                      3. The ADR Process Provides that Claims Are Scored Generously
                         According to the Class Members' Claim and the Available Evidence ..... 489
                   B. Policyholders Who Do Not Desire to Participate in the ADR Process
                      Receive Real and Valuable Benefits Through Basic Claim Relief ........... 490
                
                        C. Financial Commitments Guarantee that Class Members Will Receive
                           Substantial Relief Under Any Turn of Events .............................. 491
                        D. The Unprecedented Outreach Program Will Ensure that All Class
                           Members Are Aware of Their Rights and Will Encourage Injured Class
                           Members to Participate in the Proposed Settlement Relief ................. 492
                        E. The Proposed Settlement Substantially Improves the Task Force Plan ....... 492
                            1. The Proposed Settlement Provides Significant Enhancements to the
                               Task Force Plan ...................................................... 492
                               a. The Proposed Settlement Provides Valuable Financial
                                  Commitments ....................................................... 492
                               b. The Proposed Settlement Improves Claim Scoring and
                                  Evaluation Criteria for the Benefit of Claimants .................. 492
                               c. The Proposed Settlement Includes Four Valuable ADR
                                  Remedies Not Included in the Task Force ADR Plan .................. 493
                            2. The Proposed Settlement Provides Significant Enhancements to
                               Each Form of Basic Claim Relief and Creates a New Form of Basic
                               Relief ............................................................... 494
                            3. The Proposed Settlement Provides an Elaborate Program to
                               Inform Class Members of the Relief Available to Them ................. 494
                        F. The Proposed Settlement Offers Significant Value to the Class ............ 494
                    V. Class Counsel and Prudential Have Provided Class Members With
                       Extremely Effective Individual and Published Notice of the Proposed
                       Class and Proposed Settlement ................................................ 495
                   VI. The Proposed Settlement Has Been Enhanced Since the Execution of the
                       Stipulation of Settlement .................................................... 496
                        A. The Court Ordered Additional Remediation to Class Members in
                           Response to Reported Document Destruction Incidents ...................... 496
                        B. Through Negotiations with State Regulators Prudential Has Agreed to
                           Several "Final Enhancements" to the Proposed Settlement .................. 498
                 VII. Class Response to the Proposed Class Certification and the Proposed
                      Settlement Has Been Favorable ................................................. 499
                VIII. The Fairness Hearing Provided the Parties, Objectors Appearing Through
                      Counsel, State Regulators, and All Individual Objectors an Opportunity to
                      Express Their Positions to the Court .......................................... 499
                                                      VOLUME 2
                CONCLUSIONS OF LAW ................................................................... 500
                  I. This Court Has Subject Matter Jurisdiction Over Plaintiffs' Claims Against
                     Prudential ...................................................................... 500
                     A. This Court Unquestionably Has Federal Question Jurisdiction Over this
                        Action ....................................................................... 500
                     B. The Court Also Has Diversity Jurisdiction Over this Action ................... 502
                 II. The Court's Jurisdiction over Plaintiffs' Claims Does Not
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