Malchman v. Davis
| Decision Date | 10 May 1985 |
| Docket Number | D,576,Nos. 434,s. 434 |
| Citation | 761 F.2d 893 |
| Court | U.S. Court of Appeals — Second Circuit |
| Parties | , 1985-1 Trade Cases 66,607, 2 Fed.R.Serv.3d 696 Nathan MALCHMAN, Gerta Conway, William Deautriell and Louis Stone, Plaintiffs-Appellees, v. Leonard DAVIS, Sophie Davis, Colonial Penn Group, Inc., Colonial Penn Franklin Insurance Company, Intramerica Life Insurance Company, National Association Plans, Inc., American Association of Retired Persons, National Retired Teachers Association, Carrie B. Allen, Oranda Bangsberg, Bernard Berggren, June Biggar, Arthur Bouton, Olaf Kaasa, Clara L. Kleweno, Floyd E. Tumbleson, J. Leonard Johnson, C.E. Carmichael, American Association of Retired Persons Insurance Trust, Dorothy M. Crippen, James J. Browning, Lloyd I. Singer, Cyril F. Brickfield and John J. MacWilliams, Defendants-Appellees, Mountain Plains Congress of Senior Organizations, Mr. & Mrs. Hugh A. Groves, Francis Seely, Estelle Whittle, Henry Whittle, Mr. & Mrs. Burton W. Atkinson, Mr. & Mrs. C.E. Dietrich, Harriet Miller, and Alice Van Landingham, Objectors-Appellants. ockets 84-7589, 84-7669. |
Michael Lesch, New York City (Fran M. Jacobs, Shea & Gould, New York City, Stanley L. Kaufman, Irving Malchman, Kaufman Malchman & Kirby, New York City, of counsel), for plaintiffs-appellees.
Sidney S. Rosdeitcher, Washington, D.C. (Steve Gey, Paul, Weiss, Rifkind, Wharton & Garrison, Washington, D.C., Jeffrey C. Slade, Meister Leventhal & Slade, New York City, of counsel), for Colonial Penn Group, Inc., and related defendants-appellees.
Geoffrey M. Kalmus, New York City (Michael S. Oberman, Kramer, Levin, Nessen, Kamin & Frankel, New York City, of counsel), for the Ass'n. defendants-appellees.
Joseph A. Yablonski, Washington, D.C. (Daniel B. Edelman, Yablonski, Both & Edelman, Washington, D.C., Phillip J. Hirschkop, Hirschkop & Grad, Alexandria, Va., Robert J. Sugarman, Sugarman, Denworth & Hellegers, Philadelphia, Pa., of counsel), for objectors-appellants.
Before MANSFIELD, OAKES and NEWMAN, Circuit Judges.
This approval of an antitrust class action settlement comes before us a second time. In Malchman v. Davis, 706 F.2d 426 (2d Cir.1983), we remanded approval of the settlement for further analysis of the adequacy of class representation and the adequacy, fairness, and reasonableness of the settlement itself--the latter with particular concern for the proposed award of attorneys' fees and costs in the amount of $2.325 million. Remand was ordered with the understanding that, while we were calling for "further analysis," we were not making "any attempt to circumscribe the permissible conclusions that the District Judge may reach upon completing his further consideration of the matter." Id. at 436 (Newman, J., concurring). On such further consideration, the district judge again concluded that the representation of the plaintiff class was adequate and the settlement, including attorneys' fees, was adequate, fair, and reasonable. Malchman v. Davis, 588 F.Supp. 1047 (S.D.N.Y.1984). We affirm. Familiarity with the opinion of this court on the prior appeal and the opinion of the district court after remand will be assumed, though we will briefly restate the case to illuminate what follows.
This litigation and a companion state court action, Conway v. Davis, No. 10535/76 (N.Y.Sup.Ct. filed May 4, 1976), principally arise from the relationship between insurance companies created and controlled by Leonard Davis and two nonprofit retiree associations, the National Retired Teachers Association (NRTA) and the American Association of Retired Persons (AARP) (collectively the Associations). Some twenty years ago, Mr. Davis, an insurance broker, formed the companies that became Colonial Penn Group (CPG), an underwriter of group health insurance plans. From the 1960's until 1980, CPG became the first insurance company, and remained the only one, to underwrite health insurance policies for the members of the Associations. It also had the exclusive right to advertise in the Associations' publications, and, inter alia, maintained the membership lists of the Associations in its computers. The Associations in turn encouraged their members to purchase a variety of insurance products and services through CPG entities. Over twenty years of cooperation and mutual assistance between CPG and the Associations, together with numerous demographic factors, resulted in tremendous growth in the membership of the Associations and in CPG's profits. See 706 F.2d at 428. The arrangement had had many benefits to the parties even if it was a locked-in one.
In 1976, litigation commenced in state court in the form of a class action brought by Frieda Lederer on behalf of the class of insurance-buying members of the AARP, charging Davis, CPG, and others with fraud and breach of fiduciary duty and alleging, inter alia, that the class was overcharged for insurance policies purchased from CPG. A federal class action alleging antitrust liability was subsequently brought in October 1977, the class again consisting of the insurance-buying members of the AARP. Neither the state court nor the federal court action sought damages; rather, each sought injunctive relief to terminate the relationship between Leonard Davis and CPG, on the one hand, and the Associations, on the other. The district court's opinion on remand now informs us that discovery was begun and basically continued in the state court action--in which there was no dispute concerning the jurisdiction of the court over the fraud and breach of fiduciary duty claims--with the understanding that the state court discovery would or could be used in the federal court action. We are also advised that, in response to mutual document requests, plaintiffs produced over 4,000 pages of documents and defendants over 100,000 pages of documents, of which plaintiffs made copies of over 65,000 pages. 588 F.Supp. at 1049-50 & n. 1. Depositions were also taken by both plaintiffs and defendants from January 1979 through mid-May 1980, with some 66 days of testimony resulting in 11,850 pages of transcript and "numerous disputes during the discovery resulting in applications to the state court." Id. at 1050. Meanwhile, defendants filed a motion to dismiss the federal complaint, claiming that the action was barred by section 2(b) of the McCarran-Ferguson Act, 15 U.S.C. Sec. 1012(b) (1982) (), and that the plaintiffs lacked standing. This motion was never decided, despite the quantity of material submitted to the court, because by the spring of 1980 serious settlement negotiations were taking place, and by mid-June of 1980 the parties had requested the federal court to withhold decision. Id.
Meanwhile, in February 1979, the Associations had passed a series of resolutions--in essence, to discontinue their endorsement of certain CPG products other than group health insurance, to accept general advertising, to study other insurance programs, to negotiate with CPG relative to membership maintenance and processing, and to consider the possibility of phasing out the Associations' group health insurance program (run by CPG). On September 1, 1980, the Associations signed an agreement with CPG, the substance of which is set forth in our previous opinion, 706 F.2d at 429. The agreement essentially The appellants objecting to the settlement are the same persons who previously objected--including Harriet Miller, the former executive director of the Associations, who played an instrumental role in bringing about the disassociation of CPG and the Associations, as well as the Mountain Plains Congress of Senior Organizations. They now urge that the district court erred and violated this court's mandate by granting renewed approval to the proposed settlement without allowing discovery and without conducting an evidentiary hearing. They contend that the settlement does not fall within a range of fairness reflecting adequacy of representation and that the district court made errors of law as well as incorrect assumptions regarding matters of fact. They object to approval of the attorneys' fees and conclude generally that the proposed settlement is contrary to the interests of the class, being "all cost and no benefit."
provided for a termination of the relationship between the Associations and CPG as well as elimination of CPG's control over the Associations' membership lists and exclusive right to advertise in Association publications. The agreement also provided for payment of some $6.86 million from CPG to the Associations, and an agreement by CPG to spend an additional $4.5 million to promote membership in the Associations between January 1, 1980, and June 30, 1981. On November 6, 1980, the parties in the federal and state actions stipulated to a proposed settlement, which essentially incorporated the terms of the September 1980 voluntary agreement among the defendants. The proposed settlement did, however, add certain terms regarding (1) competitive bidding procedures for the placement of insurance by the Associations; (2) termination of the state and federal actions; (3) broadening of the plaintiff class to include all persons who were members of the Associations as of November 1, 1980, thereby increasing the class membership to over 11,000,000 persons; (4) class notification of the settlement and state court hearing through the Associations' news bulletins and magazines; (5) attorneys' fees, as will be set forth below; and (6) an escape clause for the defendants in the event that more than 10,000 class members were to opt out or if the settlement were disapproved by either the state supreme or federal district court or upon any appeal from either of such courts. See id. at 429-30. The district court now advises us, 588 F.Supp. at 1052, that 2,850 persons...
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