The opinion of the court was delivered by: JOHN M. CANNELLA
The proposed settlement is approved. Fed. R. Civ. P. 23(e). The joint application by plaintiffs' counsel for an award of attorney's fees is held in abeyance pending counsels' submission of (i) contemporaneous time records and expense reports, and (ii) affidavits concerning counsels' perceived risk of loss as of the commencement of the respective consolidated actions, and at each six-month anniversary from the commencement date of litigation, so as to assist the Court in computing a fair and equitable fee award.
This consolidated multidistrict action consists of the following three actions: (1) a class action entitled Carpi v. McDonnell Douglas Capital Income Fund-I, 90 Civ. 3448 (JMC) (the "Carpi action"); (2) a class action entitled Edelman v. Troy Lease Income Fund, 90 Civ. 6968 (JMC) (the "Edelman action"); and (3) a purported class action entitled Waldman v. Troy Capital Services, Inc. No. 90-72905-DT (the "Waldman action"). Each of these actions arose out of the initial public offerings and sales of units of limited partnership interests in two related equipment leasing limited partnerships--the McDonnell Douglas Capital Income Fund ("MDCIF-I") and the Troy Lease Income Fund ("TLIF")--which together sold a total of approximately $ 85 million worth of units to investors. The plaintiffs allege that the prospectuses and offering materials disseminated in connection with the public offerings of units in these limited partnerships portrayed these investments as being conservative, and further indicated that investors would likely receive specified monthly distributions, and the return of their capital at the end of the stated seven-year investment period. Plaintiffs also allege that, notwithstanding such statements within the offering materials, within the first two years of the limited partnerships' operations, the partnerships announced that investors would not be receiving any return on their investment, that investors were unlikely to recover their capital investments therein, and that substantial writedowns of assets would be made in the books and records of the defendant partnerships. Plaintiffs further allege that the high-risk nature of these investments was known to the defendants, and that the limited partnerships, contrary to the representations contained in the offering materials, acquired obsolete and outdated computer and computer-related equipment for leasing at prices far above market value.
The actions were brought on behalf of unitholders in the limited partnerships under the federal securities laws and the common law alleging that the offering materials contained certain misrepresentations and omissions. Plaintiffs allege violations of Sections 11, 12(2) and 15 of the Securities Act of 1933, Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, and the common law. (The Waldman action also asserts a violation of the federal racketeering statute.)
The Carpi action was the first of the instant consolidated actions to be filed. The Carpi action, which was filed as a class action in the Court in May 1990, asserts claims under the federal securities laws and the common law arising out of the offering and sale, in late February 1988, of $ 50,000,000 in units of limited partnership interests in the five equipment leasing partnerships sponsored by McDonnell Douglas Capital Corporation ("MDCC") that comprise McDonnell Douglas Capital Income Fund-I ("MDCIF-I"). The five limited partnerships are McDonnell Douglas Capital Income IA, L.P. ("MDC-1A"), McDonnell Douglas Capital Income IB, L.P. ("MDC-1B"), McDonnell Douglas Capital Income IC, L.P. ("MDC-1C"), McDonnell Douglas Capital Income ID, L.P. ("MDC-1D"), and McDonnell Douglas Capital Income IE, L.P. ("MDC-1E") (referred to collectively as the "MDCI Partnerships"). The defendants in the Carpi action, as denominated through their relationship to MDCIF-I, are: (A) MDCIF-I; (B) each of the MDCI Partnerships, (C) McDonnell Douglas Capital Services, Inc. (n/k/a Troy Capital Services, Inc. ("TCS")--the "general partner" in each of the five MDCIF-I limited partnerships, (D) the parent and affiliates of the general partner which include MDCC, McDonnell Douglas Finance Corporation ("MDFC"), McDonnell Douglas Capital Leasing Corporation ("MDCLC") and McDonnell Douglas Corporation ("MDC"); (E) the various present or former officers of the general partner and its parent and affiliates, including John R. Chasteen, James T. McMillan, Thomas J. Lawlor, Jr., George M. Rosen, Donald V. Black, Daniel O. Anderson, Alan M. Forrester, and Thomas F. Husband; and (F) Gruntal & Co., Inc. ("Gruntal"), the managing underwriter and dealer-manager for the initial public offering of units in MDCIF-I. Plaintiff alleges that each of the individual defendants, other than Forrester, Chasteen and Husband, have been associated with MDFC. Plaintiff further alleges that Forrester, Chasteen and Husband were officers and directors of MDCC throughout the period relevant to the merits of the Carpi action.
The Edelman action, which was filed as a class action in the Court in October 1990, asserts claims under the federal securities laws and the common law arising out of the offering and sale, in October 1988, of $ 35,000,000 in units of limited partnership interests in a similar equipment leasing partnership sponsored by MDCC known as Troy Lease Income Fund ("TLIF").
The Waldman action asserts claims which are similar to the claims in the Edelman action. The Waldman action was originally filed as a class action in the United States District Court for the Eastern District of Michigan in October 1990, and was subsequently transferred to the Court by the Judicial Panel on Multidistrict Litigation for coordinated or consolidated pretrial proceedings. The Waldman action asserts claims under the federal securities laws and the common law, as well as the federal racketeering statute, arising out of the offering and sale of units of limited partnership interest in TLIF.
THE PROPOSED SETTLEMENT AND NOTICE TO CLASS MEMBERS
The proposed settlement of the instant actions has two components: (1) the creation of a $ 14,750,000 settlement fund; and (2) the liquidation of the defendant limited partnerships. The $ 14,750,000 settlement fund is comprised of (a) a payment of $ 13,375,000 by or on behalf of all defendants other than Gruntal (the "McDonnell Douglas defendants") to settle the claims in all of the consolidated actions, and (b) a payment of $ 1,375,000 by Gruntal to settle the claims in the Carpi action alone.
The $ 13,375,000 payment by or on behalf of the McDonnell Douglas defendants is to be allocated among all the partnerships in accordance with a formula designed to equalize the overall recoveries (other than the Gruntal recovery) to investors who purchased their interests in the initial offerings of units and who held their units through the time of the liquidating distribution to each partnership. The $ 1,375,000 to be paid by Gruntal will be allocated pro rata solely among each of the MDCI Partnerships based on the number of units sold by the MDCI Partnerships.
The second component of the proposed settlement is the liquidation of the limited partnerships. This component involves a series of integrated transactions, which through subsequent adjustments, could return additional benefits to the class members. Stated in greater detail, the liquidation of the limited partnerships is to be accomplished by: (a) the proposed sale of each partnership's equipment, subject to any related leases and any related indebtedness, to MDCC or its designee or designees; (b) the waiver of the terms of the Amended and Restated Agreement of Limited Partnership of each partnership to the extent necessary to permit the sale; and (c) the dissolution and liquidation of the limited partnerships following the aforementioned sale, including the distribution to the limited partners of the proceeds of the sale of the partnerships' equipment portfolios and all cash and cash equivalents of the partnerships. As a condition of the settlement, this integrated proposal had to be approved by a majority of the limited partners of each of the partnerships pursuant to the partnerships' respective partnership agreements. Accordingly, the general partner solicited the consents of the limited partners to the proposal, and provided a 149-page information statement to each limited partner in connection therewith. The proposal was ultimately approved by a majority of the limited partners of each of the defendant partnerships.
The liquidation of the partnerships may result in the return of additional benefits to the plaintiffs beyond those benefits payable from the $ 14,750,000 settlement fund. Pursuant to the proposed settlement, MDCC (or its designee or designees) will purchase the equipment portfolio of each partnership at a price (the "purchase price") equal to 110% of the aggregate net book value of such partnership's equipment portfolio (as such book value appears in the financial statements of such partnership at the time of the sale, but without reflecting any write downs of equipment values after August 31, 1992) (the "portfolio value"), subject to increase or decrease based upon the proceeds received by MDCC (or its designee or designees) from rentals (but not in excess of depreciation expense), from equipment sales and from the resale of such equipment portfolio to a third party (collectively, the "MDCC proceeds"). On the date of the sale of a partnership's equipment portfolio to MDCC, MDCC or its designee or designees will pay the purchase price for such equipment portfolio, less an amount (the "holdback") equal to 10% of the purchase price (i.e., 11% of the portfolio value) and such partnership will distribute all of its cash and cash equivalents on hand (including the purchase price, less the holdback) to its limited partners. When such equipment portfolio is resold by MDCC or its designee or designees, the purchase price will be adjusted as follows:
Amount of MDCC Proceeds Adjustment of Purchase Price
99% or less of Protfolio Value. MDCC retains Holdback;
Purchase Price is adjusted to
Greater than 99%, but not more Excess over 99% of Portfolio
than 110% of Portfolio Value. Value is payable to
Partnership from Holdback;
MDCC retains balance of
Holdback; Purchase Price is
adjusted to reflect retention.
Greater than 110%, but not Holdback plus 60% of excess
more than 120% of Portfolio over 110% of Portfolio Value